Wednesday, November 23, 2005

Excessive Spending - Outsourcing Doesn't Hurt (?!) - 3rd Chapter

I recommend you go to Cafe Hayek to see some interesting commentary on this subject.

Obviously, there is a significant difference in PERCEPTION about how not only OUTSOURCING OF JOBS, but the whole PROCESS OF TRADE has been affecting our nation.

I'm certain that many of those who disagree with me see me as a trade obstructionist... a protectionist, if you will... that wants to ruin the trade built up with other countries in order to protect inefficient and mismanaged domestic industries.

Not so. I'm merely pointing out certain of my PERCEPTIONS that are not necessarily shared by some others, to wit:

  • certain countries are now or have provided their own industries significant "insulation" from foreign competitors enabling those industries to grow and strenthen... and then reduce their cost of production by expanding unit volume to capacity and selling the excess at cost in the U.S. to 1) gain a foothold in the U.S. market and 2) competitively undermine domestic manufacturers
  • certain countries have used currency manipulation to ensure that their industries have a competitive edge in the U.S.
  • certain countries do not come close to the U.S. standards protecting workers and the environment, thereby avoiding those direct costs for their industries which must be borne by U.S. manufacturers
Perhaps the strangest response to my position was by "Micha" who stated:
I have a bit of an ethical and moral problem with arguing that two wrongs make a right. The correct response to foreign countries that put up trade barriers reduce our trade barriers as much as possible and continue to trade with them. It is sheer insanity to shoot ourselves in the foot merely to "get back" at the other guy for making their own country poorer through trade barriers.
1) These countries are not "making their own country poorer" through their actions... they are systematically undermining U.S. industrial capabilities

2) Trade barriers take many forms from inspection of individual vehicles verses certification of an entire model (a practice used by Japan to make importation of U.S. vehicles virtually impossible), to tariffs, to currency manipulation, to worker and environmental abuse. If such practices so hurt China, how is it that they have been so successful at creating wealth?

Other responses have been that we can replace our manufacturing with an intellectual industry. That's highly suspect, in my opinion. There is a symbiotic relationship between academia and industry... whether or not certain "intellectuals" wish to admit it or not. Without a domestic automobile industry, for example, thousands of engineers and physicists would be competing for hundreds of jobs. Without those jobs, universities would find much less demand for their "services". Oh, "something else will take their place". Why? If we are willing to let our manufacturing fall prey to predatory practices by other countries, what is to say that our universities will compete much better in the future when foreign universities can partner with their industries for new research and development... sharing both the costs and benefits.

It is my PERCEPTION that the so-called "free traders" have not thoroughly thought through the consequences of their positions. Cheap imports will be paid, ultimately, by a sharply stratified U.S. society of fewer "haves" and more "have nots".

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)