We can look at a timeline of the account history for paulsb.
Last comment on the account: 2012
Last post on the account: 2013
7 years of inactivity
This post
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If it were them coming back to their old account, given how regularly paulsb commented while still active, you would think there'd be at least a few recent comments showing some kind of ramp up in re-usage of the site.
I understand that this is a complete digression from the main topic but I would love to know more about whatever you may know about accounts being bought/sold, or be pointed to a link with more.
I'm familiar with it for, say, ebay, and at least indirectly familiar with it over reddit, but hn is a new one to me.
Postscript: the abandonment of manufacturing, among other things, has really impacted race relations and class relations and pushed the US into a pre-revolutionary condition, which outside actors can use to further damage what's left of US manufacturing.
I think the US Dollar is going to crash.
You can't say this in polite society, or silicon valley, but you can say to invest in Bitcoin because it's a superior ponzi scheme to all the rest.
China may devalue their currency in order to achieve inflation (their CPI is falling). Doing so would strengthen the dollar. I'm honestly not sure about about the dollar bull/bear case, situation is not very clear to me.
The more the Fed has bonds in their balance sheet, the more fragile they are in an inflationary crisis. If inflation goes up and interest rates go up, the fed's bonds go down in value. If the fed balance sheet becomes too much in the red, they need to print to make up the difference, which means more inflation.
This has more or less happened already. The Fed is by far the largest buyer of treasuries right now.
Total treasury supply has nearly doubled this year, and yet foreign owned treasuries is only up 2% - meaning The Fed has bought close to 98% of it [1].
There is no treasury market. There is only The Fed. Considering that this market is about 30% of the size of the entire US economy, this should probably concern people. That's a large part of the US economy to be price fixed. Especially when you consider this essentially fixes prices for the housing market.
Lyn Alden has become my favorite macroeconomist through the Covid crisis. I bought a bunch of puts in February 2020, they went way up in March till the Fed stepped in and then went down. I went looking for answers on how to understand macroeconomics and Alden has had a lot of interesting takes on it.
If you find that interesting, I highly recommend the Grant Williams podcast. Particularly the episode with Lacy Hunt. But the entire Endgame series is really, really good.
If so, assets such as global equities, quality residential real estate, precious metals, industrial commodities, and alternatives such as Bitcoin, are likely to do well.
I don't like Bitcoin and I disagree with Alden on that in investment. I am also not a fan of precious metals.
I currently have the majority of my portfolio in stocks in Australia, Sweden, Japan, Switzerland; in residential real estate, and in puts on overvalued tech stocks and TLT.
Yeah, that position was the mistake I mentioned in my first post. The bias ask spread is so large that it it painful to exit it though. And the Fed may be forced to back off if inflation kicks up further, we will see.
If legislation came against it, it would have it's value damaged. No one seems to use it for actual transactions. It uses enormous amounts of electricity.
And a vast majority of BTC is owned by the Bitfinex criminals who created Tether. You can't win against the bank and in this case the bank is the Ponzi schemers themselves.
Consider that the "proof of work" of fiat currencies is taxation + inflation (which wipes 1/2 of all your productivity), and you'll quickly realize that Bitcoin's PoW is considerably more efficient.
Also, Gold, Silver and other precious metals are more expensive to mine than Bitcoin, when measured on a store of value basis.
> More troublesome, the inherent flaw of having the global reserve currency, in a theme that goes back to economist Robert Triffin from over half a century ago, is that in order to maintain the global reserve currency, the country must supply the world with its currency via structural deficits in one form or another.
That "structural deficit" means allowing manufacturing to move overseas.
The trade war is a distraction. Trade imbalances with the rest of the world could be solved very quickly by making it clear the the dollar is going down in flames and that policies will be put in place to make that happen:
1. massive federal budget deficit spending
2. purchase of all the debt by the Federal Reserve (yield curve control)
Holders of bonds would be absolutely wrecked. That's a lot of institutions and wealthy individuals.
The only question is whether the political will to do this can be mustered. So far it hasn't.
I’ve seen fretting for years about the collapse of the dollar as the global reserve. Lately I have started wondering if this might not be good in the long run, and if maintaining the dollar as a global reserve is actually a very costly and economically distorting thing.
I think the only reason that a global reserve currency hasnt changed yet is that there are no sound currencies to use. USD was selected as the global reserve because it was backed by gold. We went and fucked that up. Now there are no currencies left backed by anything but promises. If there was a large enough country with gold backed money the reserve currency would have switched decades ago.
I have not read one single serious justification (as in, empirical) for using gold as the backing of a currency. There are many indications that, historically, the boom and bust cycles that exist naturally are exacerbated when tying the value of currency to (often easily manipulated to be artificially) scarce things like gold.
The world has moved beyond tying the value of our currencies to material goods. Digital "coins" aren't any better, and the same group of fringe types who push the gold standard have taken that over as well.
It doesnt have to be gold. But sound money is a necessity for a thriving economy. Gold standard prevented bad monetary policy that leads to runnaway inflation. Its not a perfect system but it stops power and greed from destroying the economy.
Addition: Every historical case of a government switching to fiat currency has resulted in runnaway inflation. The reason that gold and silver are the only constitutional money is it forces the government to do the right thing. No gold standard permits those in power to manipulate the currency for whatever reason they wish. The rules should force the wrong people to do the right thing. Relying on people in power to do the "right" thing will always fail.
Inflation inflation inflation, gold proponents always want to talk about inflation, never about the steering wheel that fiat currencies provide: Steering that allows us to right the course of our economic ships. When you link to gold, you go where the wind blows you. No control. No steering.
Moreover your historical argument is weak. By analogy, we should also not have government, because every society that has formed a government has failed to keep it: Every government falls, eventually, be it Rome or the Aztecs.
That steering wheel is driving us off a cliff. If the result of having a steering wheel is a loss of trust in the currency and ultimately the collapse of that currency I would rather be blown by the wind.
But it hasn't happened to our currency. The only thing that's happening to our currency right now is our political instability, which frankly is a little unsettling at the moment with all the talk of secession martial law, suspension of the Constitution, and religious fervor for Trump that we are seeing on the far right at this moment in time.
1970 $1 is equal in purchasing power to $6.71 today. There is no indication from the Fed that this is going to turn around. With the rate the Fed is pumping out dollars, runnaway inflation is a near certainty.
This argument fails. Dollars are to be used, not hoarded. Modest inflation encourages use of the currency. This is good.
As far as an argument from authority, I'll take the Fed than random HN commenter. In any case, inflation is well controlled, perhaps over controlled, except for certain products with very real limits to production and supply (i.e. housing).
In any other field we see the same thing happen exactly the same way 20 time we assume it to be a hard rule until proven otherwise. For some reason with economics every government comes along and thinks they can guide the beast when no one has ever done so in history. I refuse to believe that a currency having 1/6 the buying power over 50 years is a good thing. Yet, under 150 years of gold standard the dollar maintained the same purchasing power.
Inflation does encourage spending. But, it also discourages saving. Everybody wants to get rid of their paper before it becomes worth less. Saving is a healthy part of an economy.
All I hear with your argument is "its different this time" and "we know better than everybody before". Anyway, I have been divesting my savings from USD to prepare for the coming dollar collapse.
> Holders of bonds would be absolutely wrecked. That's a lot of institutions and wealthy individuals.
Not only institutions, but those who are in power (government) who have risk-tolerant positions in the market with nothing to gain but their own discomfort and retirement.
Default is another option. Inflation hurts everybody. Cutting spending is the only way to start repairing the economy for the long term. Government consumes 31% of the fruit of our labor. Money that could be left in the hands of people to drive the economy.
The beauty of inflation is that it hurts you in direct proportion to how well off you are, and it can't be dodged (i.e. it's like a wealth tax, only actually achievable). We could drive inflation while also ameliorating a lot of the pain it would cause by implementing UBI (in fact, I'm pretty sure big deficit spending is the only way UBI will ever happen).
Defaulting would screw a lot of institutional pension investors, while a lot of the super-wealthy could just dodge into less vulnerable assets, potentially worsening wealth inequality.
The effects of inflation are neither instantaneous nor uniformly distributed. Those who obtain the new money first are able to spend it before prices have had time to adjust. As that new money propagates, the prices of the relevant goods and services are bid up.
As such, inflation gives an economic advantage to those who receive the new money sooner, and the consequent higher prices harm those further down the flow.
In short, and contrary to the implication of the above comment, inflation benefits banks and corporations (and by extension, the wealthy and powerful), and harms workers and those on fixed incomes.
The rich (particularly banks) are always going to game any system, so saying anything is unworkable because the rich can partially game it is defeatism. If we use UBI to inflate the currency, everyone gets the same chance to use uninflated funds, which ends up benefitting those with less.
If we inflate via UBI, those on fixed incomes wouldn't be hurt unless it was a fat fixed income, in which case it's disingenuous to refer to them that way since they're basically just independently wealthy, and most people think of fixed income means pension/disability.
> so saying anything is unworkable because the rich can partially game it is defeatism
Thankfully I wasn't saying that. I was disagreeing with your claim that "[inflation] hurts you in direct proportion to how well off you are", arguing instead that:
1. inflation benefits those earlier in the flow of new money, and
2. at present, that new money enters the economy via banks, etc.
> If we use UBI to inflate the currency...
Indeed, this depends on #1 above: change how new money enters and propagates through the economy and you change the wealth transfer effects.
I propose a very new unconventional type of asset. It is effectively equivalent to a UBI but since it is also an asset the central bank can easily control it.
The central bank does an IPO and sells UBI tokens at a fixed price. Say $100. If you own at least one token then you will gain a dividend of 1 UBI token per month. To prevent abuse there is a government run exchange where this token can be bought on that verifies your identity. This means you are heavily incentivized to sell your tokens to other people for less than $100 yourself. It's basically an "anti" asset. It's relative utility shrinks the more you own. The central bank then can buy tokens back at any price it desires. The beauty of this system is that the wealthy are a minority so any money that the central bank distributes by buying UBI tokens will primarily go the less wealthy because they are the majority. Since you get one token per month and the central bank can set the minimum value of the token it is effectively a UBI. If consumer inflation heats up the central bank can always stop buying tokens because it isn't a true UBI that people depend on.
>In short, and contrary to the implication of the above comment, inflation benefits banks and corporations (and by extension, the wealthy and powerful), and harms workers and those on fixed incomes.
Yes but going by central bank policy that money isn't supposed to end up in their hands first. The goal of the central bank is to increase consumer inflation. Of course the actions of the central bank don't match their stated goals but this is primarily a policy failure. The rest of the government is supposed to use the cheap money to increase demand for labor through public spending. It's completely failing to do so.
> The beauty of inflation is that it hurts you in direct proportion to how well off you are
This seems opposite of reality. During inflation, prices of assets rise, as the currency with which to procure them becomes devalued; those who possess assets are in a much safer position than those who exchange their labor for currency, since inflation will happen far more rapidly to the necessities of life (food, shelter, etc.) than to wages.
Cf. the price of houses, cars, etc., in the U.S. and worldwide vs. the corresponding increases in wages.
Rent and wages are both negotiated prices, there's no reason one should rise faster than the other besides workers not asking for what they're worth, assuming there isn't a shortage of housing and a glut of workers.
Stocks will rise in response to inflation, but that will result in additional taxation since the initial investment is uninflated.
Inflation can easily be dodged by those with foreknowledge (hold your wealth in assets whose value will inflate). Borrow lots of money at a low fixed rate to buy property and you might even make a profit.
Unexpected inflation is a wealth tax on people who loan out their wealth at fixed rates or store most of it in cash, and an sales tax on people and organisations unable to renegotiate salary or contracts. Exactly who is negatively (and positively) affected is complicated, but it certainly isn't directly proportional to how well off people are.
It depends on where the money arrives first. Right now all of it goes straight to assets while completely skipping over workers. Whatever asset inflation happens, consumer inflation will always be behind.
If the money arrives on the consumer side first then asset inflation will follow but only after consumer inflation has caught up. All the asset inflation that happens will be caused by productive growth. Encouraging the wealthy to get rich off the backs of rich workers is exactly the situation that we want to achieve. Right now they have no need for domestic workers because the central bank tap is wide open and workers in China manufacture all the widgets (such as iPhones) they need.
"The beauty of inflation is that it hurts you in direct proportion to how well off you are, and it can't be dodged (i.e. it's like a wealth tax, only actually achievable). We could drive inflation while also ameliorating a lot of the pain it would cause by implementing UBI (in fact, I'm pretty sure big deficit spending is the only way UBI will ever happen)."
I think you misunderstand ...
Generally speaking inflation can be managed and avoided by asset holders and business owners. They can adjust their rents and prices to match the inflation in a way that wage earners and renters cannot.
Generally speaking it is deflation that hurts asset holders and business owners. We have made desperate attempts since the financial crisis to stave off deflation and even then we're barely treading water. Financial assets and real property (and also silly things like paintings) have benefited but look at the price of oil ... look at the price of other basic commodities and services like shipping.
Our 21st century landscape is deflationary and elites are frantically doing everything possible to avoid it.
>Generally speaking inflation can be managed and avoided by asset holders and business owners. They can adjust their rents and prices to match the inflation in a way that wage earners and renters cannot.
If there is consumer inflation you can't manage inflation in a way that doesn't productively employ workers. If there is asset inflation you can have an unproductive business and still grow without doing anything of value. The latter is what many people object to. The former would benefit workers far more than it would benefit the rich. If your wages increase by 10% but Bill Gates' net worth merely catches up with inflation who gives a damn? If you can somehow double the income of the poorest members of society then you effectively cut the relative wealth of Bill Gates' in half. He has more to lose from expensive workers that demand reasonable salaries than he can gain from catching up with consumer inflation.
>Generally speaking it is deflation that hurts asset holders and business owners. We have made desperate attempts since the financial crisis to stave off deflation and even then we're barely treading water. Financial assets and real property (and also silly things like paintings) have benefited but look at the price of oil ... look at the price of other basic commodities and services like shipping.
That would be true if there was no central bank intervention. But the central bank is intervening in a way that gives the rich what they want without giving anything to the poor. Deflation on the asset side basically doesn't exist.
Actually, all you have to do to dodge inflation is dump your idle currency into literally anything else. Rich people hang in the circles where these plans are made so you'll never take them by surprise. (It'd be interesting to look at Cyprus' banking records and see who would have been impacted had the haircut happened suddenly, two months earlier.)
So inflation is irrelevant for the little guy, and easily dodged by the rich, leaving the middle-class to get shafted.
No argument against the rich having the most time to prep for inflationary policy, but the middle class has their wealth mostly tied up in mortgages, so in no way would they get shafted. Pensions and social security would be garbage, but they're garbage now for most people anyhow.
>Actually, all you have to do to dodge inflation is dump your idle currency into literally anything else.
It doesn't work that way. If you want to protect yourself from inflation you have to deploy that capital productively or alternatively be close to the source of the inflation (the central bank). If you are actually doing productive work then workers will see their incomes grow and if workers are underpaid relative to assets then wage growth will continue until both assets and incomes are roughly on par. After that assets will keep up with inflation. The benefits to workers massively outweigh the benefits to asset holders.
When you consider that the central bank is just blindly handing out money to public companies it's basically the opposite. It's actually perverting and distorting the economy because the money isn't going where it is truly needed. If you are rich this is what you want. You want to have lots of money and a workforce that works for peanuts to make your relative wealth even bigger.
It sounds like you're saying that to avoid drowning you merely need to swim upstream carrying all your workers. Anyways, by rich I mean the 3%, not the 0.001%. Those who are very comfortable, but who aren't captains of industry. Professionals vs business people.
Can't they (and this is an honest question) do well by locking their income into things that will get more expensive, when measured in currency? Sure their purchasing power will fall, $ for $ with everyone else's, but by selling that real property when needed they'll have more of those $s than people who rode the currency into the ground. Right?
>The beauty of inflation is that it hurts you in direct proportion to how well off you are,
This is the opposite of true. In practice, inflation is wealth transfer to the upper class. Inflation benefits debt holders, the people who are most levereged (with debt) into inflation proof assets are those who are rich.
>This is the opposite of true. In practice, inflation is wealth transfer to the upper class. Inflation benefits debt holders, the people who are most levereged (with debt) into inflation proof assets are those who are rich.
It may be counter intuitive (it actually isn't, it's perfectly logical) but inflation is merely what happens when demand exceeds supply. This means if you constantly increase demand for labor you will get to see consumer inflation. Since there is barely any consumer inflation there is very little demand for labor. This isn't surprising because a lot of the jobs are now abroad and domestic training opportunities are poor (companies don't provide them) or inaccessible (college is expensive and time consuming). If you could somehow make every American highly educated so that they can work in the highly profitable sectors of the economy that remained (there is no shortage of those) you would still get to see decent economic growth (2% YOY) in developed countries. The reality is that not everyone can get such a job and some need a secondary career after they lost their first. Since there are not many low skilled jobs that can't be done abroad there is little demand for these workers. If you can increase consumer inflation you will directly increase the wages of those unneeded workers because the consumer inflation is excess demand for (low skilled) jobs.
> the people who are most levereged (with debt) into inflation proof assets are those who are rich.
Yeah but here comes the trick. If there is consumer inflation the only way you can make your assets inflation proof is by productively employing workers. If you are owning real estate then the value of your assets will grow but only insofar that workers can afford to pay rent.
The rich won't make money off of sitting on assets, they will make money off of using those assets productively by renting them out. In our current twisted reality you can often make more money off of just letting the property sit empty so that you can have a quick sale 5 years down the line. The idea of unused real estate growing in value is insane but it only happens because there is asset inflation and mismanagement by the central bank.
That's a lot of institutions and wealthy individuals.
That's also a lot of people with 401k's, college savings for their kids, pension funds, and non-profit endowments.
I have a feeling that most wealthy individuals and institutions will be just fine, it's the little guy and middle class families that will feel the pain, as usual.
Yeah, it's people in the US who would be wrecked. Sure, people outside, too, but the point of the idea was to help the American workers. If you help them, but destroy their pensions and their 401ks and their IRAs... are they actually better off?
(And the answer is, some are and some aren't, but it's not a clearly good idea.)
Which country would benefit from a weaker dollar? Germany wants to sell their cars. China their phones. If Americans can't afford them any more, then a big market would disappear.
The US would benefit from a weaker dollar as it would protect what remains of our manufacturing base and also act as an export subsidy. Currency valuation, and in particular currency manipulation, is equivalent to a tariff or an export subsidy depending on which side of it you are on. Yes people like to pretend that if something goes up in cost 20 percent because of currency change that is somehow normal but slap a 10 percent tariff on something and that is completely different.
> The US would benefit from a weaker dollar as it would protect what remains of our manufacturing base
At equilibrium, a weaker or stronger dollar doesn't affect exports, it's just an exchange rate. What can affect exports is a weakening dollar.
In an inflationary disequilibrium, exports increase only insofar as foreign consumers are able to purchase domestic goods before those goods' prices have adjusted to inflation. In other words, exporters are unwittingly selling their goods for a lower price.
Absent inflation, exporters could have chosen to increase exports by intentionally lowering their prices. That they didn't suggests something about their marginal costs.
With inflation, the exporter has a similar benefit over its suppliers as the foreign consumer has over the exporter, namely buying goods with new money before prices have adjusted. As such, the exporter's suppliers are also unwittingly selling their goods for a lower price.
Whether this is beneficial depends on where one is positioned as new money propagates through the economy. Banks get it first, then to their borrowers, other financial institutions, and so on. The losers are those at the tail-end, who face higher costs but have not yet had their own prices bid up with new money: wage workers, those on a fixed income, etc.
The net effect of all this price manipulation is a wealth transfer from those who receive the new money later to those who receive it earlier.
> currency manipulation, is equivalent to a tariff or an export subsidy
While an export subsidy can also increase the quantity of exports, the larger economic impact of intentionally weakening the currency through inflation is very different.
US manufacturers and service providers would benefit from a weaker USD. It would mean our exports are, relatively speaking, cheaper for others to buy with USD. US consumers would be hurt as it would mean imports are more expensive for US consumers.
If we have a weaker USD, doesn't that make US manufacturers' costs increase (measured in USD), and their finished goods prices increase (measured in USD), resulting in global prices staying about the same (measured in whatever foreign currency).
I mean, labor prices won't move quickly, and existing capital equipment was purchased with stronger dollars, but eventually new equipment will be needed at higher cost, and people will demand higher wages to meet their previous spending power, and anyway, american manufacturing tries to reduce labor as far as possible.
None of them. It's a constant battle. I always hear the trope that we "owe" China money because they buy bonds but the entire reason they're buying bonds is to keep the Renminbi weaker than the USD.
Germany is a weird corner case where the entire reason for the Euro is to allow them to keep their currency artificially weak by using the rest of Europe's economy as a place to dilute their export power. The DM was getting relentlessly stronger against the USD and Sterling and when the conversion to Euros happened, major holders of DMs got absolutely hosed.
China is no longer a net buyer of Treasuries. They have begun to sell off their position over the last 5 years. And the renminbi is actually quite strong lately, the Chinese government is maintaining positive interest rates and allowing corporate defaults instead of money-printing.
China has sold off a net of 40 billion worth of treasuries in the past year. Less than a percent. "Sell off" is putting it exceptionally strongly. The Yuan is still in a very managed float position. It doesn't swing by more than a percent or two over a long horizon.
China buy bonds because they have a lot dollars and they have a lot of dollars because the trade deficit. What would you do with that money, buy a bond with interest or keep the cash under the mattress?
You can spend them, I suppose. The article mention they doing it now with the Belt and Road program.
You are right about the Euro. It's not the reason of the existence but it's the result.
China could spend them, yes. Or they could float the currency and allow places to purchase goods in their currency. Or they could allow people in the mainland to hold their own reserves of dollars and not set a fixed dollar buyback peg. The trade deficit between private corporations between the US and China doesn't need to have any bearing on the Party's dollar holdings. Saudi Arabia doesn't hold many treasuries and they receive a whole lot of dollars.
US self sufficient manufacturers who don't rely on commodities would benefit with a weaker dollar.
US consumers will get fucked with a weaker dollar. Imagine having to pay $7 a gallon for oil instead of $3.
There is another consequence. A lot of other countries will become "rich" all of a sudden. Which means they won't use US dollar as a medium of exchange and America would have to "earn" by exporting. Which means people will have to work a lot more to produce more for exports without consuming ourselves.
Point taken but the oil example isn't the best example on imports as we have since about 2010 really dropped imports with Obama's "All of the above" energy strategy which included opening the Arctic to drilling twice. Here is an example article on the subject: ...U.S. Exports More Petroleum Than It Imports In September and October
https://www.forbes.com/sites/arielcohen/2019/11/26/making-hi...
Oil is a great example because oil is truly a global commodity. The demand for oil exists from all 196 countries of the world.
If USD devalues too much (but is still reserve currency), other countries will become richer aka, they can buy more dollars for fewer of their own fiats. Which means they can import more oil by converting more and more of their fiat to dollars. Which means demand for oil internationally will go up while supply remains about the same, causing price of oil to go up, regardless of where it is produced.
If USD devalues and other countries decide to abandon the dollar for trade in favor of say Oil-coin, US will lose access to international oil until it "earns" oil-coin somehow. How does America earn oil-coin? By exporting something. Since America can produce so much oil, the producers will try to export oil for oil-coin. Which means increased global demand and thus rising prices again.
US could shut down all exports of oil and only use it domestically and shun oil-coin entirely. But this means that
a. US can't import other things because of lack of oil-coin. So we will suddenly have severe shortages. Oh a bad disease in one year caused all potatoes in America to die? Tough luck sustaining all the food processing and chips companies. They can't do a stop gap import potatoes since we don't have any oil-coin. You can expand this experiment to all kinds of things such as stent-valves, rubber for tires, coffee. Our rich lives are truly there because other countries are working for it.
b. US energy supplies will be limited by domestic production and domestic supply and demand characteristics. Oh, we have such a great economic boom that increased oil demand but a few oil wells are down for repairs a few quarters? Boom, spike in oil prices again despite being self-sufficient. Another recession beckons since industries can't function with such high oil prices.
This globalization thing is not very simple. It may have caused a lot of grief, but it's also a very good distributed system that's preventing us from going back to shortages like medieval times. We're not dying just because there's a 2-3 year span of famine any longer because there's always somewhere else to get it from.
A 10% drop in currency would in your example, assuming no cost of shipping oil, US would go from 3.00 to 3.30 at 20% drop would mean 3.60 and even a US currency drop of 40% only gets you to $4.20. The data on trade indicates that countries that cheat on trade have epic growth rates and countries that do the "free trade" have close to zero growth or even declines. The data indicates local manufacturing has synergistic effects that massively outweigh the additional costs to consumers. See economist Ha-Joon Chang.
I wish prices were directly proportional to value of currency. But it isn't.
In the oil price example, drop in value of USD could cause prices of oil to increase (by how much? We don't know. There are entire commodities industries who hire quants to figure this out every day).
Assuming price of oil increases by 10%, price of chicken feed would increase by a%, causing an increase in price of chicken by b%, causing an increase in price of shipping chicken from farm to factory by 10%+a%+b%, the factory whose workers need higher wages now (by a total of c%) because of higher cost of living, factory will now have to sell their chicken for 10%+a%+b%+c% to a shipper who will need to pay another 10% who will pass this cost on to McDonalds who will have to pay 10+a+b+c+10 to get a chicken patty.
The dollar menu suddenly become a $5 menu.
As contrived as this example may sound, this is the reality in many "emerging" markets and smaller developed markets. We are so oblivious to real inflation and price fluctuations simply because we are used to getting stuff for cheap from whereever it is available because we can import any time. No shortages for any industry or any consumers here.
While I agree that having healthy domestic manufacturing is good, we need to be careful what we wish for because losing the reserve currency status is the last option of them all. It's truly devastating and you only need ask United Kingdom and how they lived for decades with rationing in order to pay debts and earn foreign reserves.
The link below is on historical gas prices. Also include a link on US dollar to Euro. Depending on the state we are currently at about 2.50 and have been over 3.50. The dollar menu going to 5 because of a 10% or 20% drop in currency doesn't seem likely. We, and also other countries, can have fairly big currency changes without much internal inflation or deflation(can depend on country size). A number of countries have actually deliberately devalued their currency in order to encourage growth. The question that is more interesting is can we lose high productively jobs(manufacturing...) and still keep high standards of living. The data indicates we cannot.
Those links don't even go to the dates of US defaults in 70s and 30s.
> We, and also other countries, can have fairly big currency changes without much internal inflation or deflation(can depend on country size). A number of countries have actually deliberately devalued their currency in order to encourage growth.
This is all applicable to the reserve currency or massively exporting countries. Not to importing countries, which the US is. The US cannot stop importing without causing massing inflation at the retail counter. No more $10 t-shirts and $100 sport shoes if they are made here.
I would recommend reading the article to truly understand how subsidized our lifestyle is.
"Instead of drawing down our gold reserves, however, we gradually draw down our domestic manufacturing base and it gets replaced piece-by-piece in foreign countries."
To me, this is the money shot. I hadn't seen this expressed before and it makes perfect sense. I'm baffled that we (the US) caused this to happen to the US. I'm (unhappily) registered Republican but I argued vociferously to a Dem friend in 2000 that our inability to manufacture critical components was going to kill us. Kind of literally: AFAIK, the last LCD panel manufacturer in the US closed around then and we could no longer manufacture LCD for our military vehicles... (Even if this anecdote is untrue, the point remains valid...) I argued that, even in the presence of free trade, a country should have the ability to tariff imports to the extent that that country could maintain a 25% (or something) domestic market share.
I think people are starting to realise that globalisation needs to be balanced with other kinds of security especially around tech, hence TSMC being given a stack of cash to build a fab in the US.
I wouldn’t say globalisation is dead more that it’s going to be more balanced going forward with local concerns.
So much of globalization up through the 2000s was exploitation of emerging markets for cheap labor and lax environmental and safety standards. This was not wholly without benefit to the people in these countries though: it has dragged a lot of the third world out of abject poverty despite some of the dystopian aspects. Hopefully the next three decades will be better on a number of fronts.
This happened in part thanks to bain capital, those following the same business model of theivery, and the deregulation in the 80's. https://en.wikipedia.org/wiki/Bain_Capital Republican lawmakers and party members have been destroying America for generations. Goes back even further to 1971 when Nixon opened talks with the CCCP and then went there in 1972 cutting the ground out from beneath American workers. And now if we even wanted to rebuild our manufacturing base, we have to deal with the same problems the few remaining factories do, finding people not on some kind of illegal substance that can work. The bodies are there, but they aren't in any shape to bring back what we had.
Trump was the first president in my lifetime to even admit gutting our manufacturing base is a problem. Neither Democrats nor establishment Republicans did anything but line up for their shockingly paltry share of the loot while mouthing platitudes about efficiency.
The argument against his covid response was in not using more aggressive lockdowns. Which is the thing that increases unemployment. You seem to be arguing that more lockdowns, which increase unemployment in the short term, would have reduced unemployment in the short term (i.e. the period measured in that data).
If you have a more aggressive lockdown, you can control the disease instead of letting it rage unabated for months. Trump’s covid response has been an unmitigated disaster for businesses.
uniform lockdowns that were widely enforced for 2 weeks and then followed by masks, social distancing, and hand washing would have been more effective, and harmed the economy less.
More aggressive lockdowns initially could have limited the initial spread, and from there reasonable precautions could have been effective. Disparaging mask use is also generally considered to be harmful.
Cutting funding to certain CDC programs may also have been detrimental.
> More aggressive lockdowns initially could have limited the initial spread, and from there reasonable precautions could have been effective.
This is what Australia did. Except that some of the measures they used may have been unconstitutional in the US, and Australia is an island. The US has 4500 miles of porous borders with other countries.
And covid spreads asymptomatically, so the only way to get to where Australia is now is to get the number of cases down to basically zero. Which you can't do if you get 40 more from Mexico every week.
Notice that Australia is basically the only country that has managed to succeed with this; western Europe is doing little better than the US.
> Cutting funding to certain CDC programs may also have been detrimental.
This is fake news. The budget cuts were proposed (as a starting point for budget negotiations with Congress) but never actually enacted:
> Disparaging mask use is also generally considered to be harmful.
For that you can thank CNN. They were writing a national story every time Trump would appear on camera without a mask, even if he was giving a speech to a camera with no audience or was in a room with entirely people being covid tested every day. This predictably led to Trump supporters defending him and it becoming a partisan issue.
It also didn't help that the CDC was disparaging mask use early on, ostensibly in order to preserve PPE for medical professionals, which gave everybody plenty of ammunition to fight about it once CNN had made it partisan for no good reason.
40 people coming from Mexico is highly unlikely to lead to 230,000 US cases/day.
It may be inaccurate news, but calling it fake is needlessly hyperbolic. The contention isn't that overall funding was cut, it's that certain groups within the CDC saw significant cuts, and those cuts reduced readiness.
Regardless of whether Trump's missteps were politicized, they were still missteps. Doubling down on something after someone calls you out doesn't make them responsible for your actions.
> 40 people coming from Mexico is highly unlikely to lead to 230,000 US cases/day.
Contagions have exponential growth. 40 people coming from Mexico after you've lifted the lockdowns means you need to continue them to keep the 40 from turning into a thousand and then hundreds of thousands. Which means lockdowns of the severity Australia used are useless here because you can never get below the floor necessary to lift them again.
> The contention isn't that overall funding was cut, it's that certain groups within the CDC saw significant cuts, and those cuts reduced readiness.
The problem with this kind of claim is that it's always the case. Priorities shift, staff gets reassigned etc. Which means that of the 1000 different units, 700 of which grew and 300 of which shrank, you'll be able to find in the list that shrank something that sounds like it might have helped against a given problem. It's just cherry picking.
> Regardless of whether Trump's missteps were politicized, they were still missteps. Doubling down on something after someone calls you out doesn't make them responsible for your actions.
The point is that they weren't missteps. Calling out someone for not actually doing something wrong in order to stir up controversy and ratings and politicize a public health issue is contemptible. Defending yourself against a baseless personal attack is not.
The problem, which CNN should have been able to predict, is that if you politicize an issue, people take sides, even if there was never any reasoned disagreement to be had. But maybe they did predict it and did it anyway, so that when less savvy political opponents predictably started making less supportable claims, it would give the instigators something to shoot down and mount on their wall. Even if people died.
> The point is that they weren't missteps. Calling out someone for not actually doing something wrong in order to stir up controversy and ratings and politicize a public health issue is contemptible. Defending yourself against a baseless personal attack is not.
What a straw man. You realize there were photos of daily meetings with large groups, bill signings, news reports on how masks were barely worn in the white house. Yes he didn't wear masks as press conferences because they entire administration was lax about mask usage. And then for you to argue and only mention the press conferences is extremely disingenuous.
And that's separate from the Mexico argument. To me, it's incredible how little responsibility certain groups of people take for their own actions. A political party that has continuously downplayed the cheapest, low effort, low cost method of stopping the virus, instead again tries to blame Mexico instead of taking responsibility for their own actions.
> Yes he didn't wear masks as press conferences because they entire administration was lax about mask usage. And then for you to argue and only mention the press conferences is extremely disingenuous.
You're missing my point. They would follow him around with a camera and any time they could show him without a mask there would be another story, regardless of the facts or the context. They would write the same story whether or not he was doing anything wrong in that instance.
That's a recipe for creating partisan conflict. They write the story when he's not doing anything wrong and then people correctly defend him. The existence of true instances are not a defense to reporting false ones. Because this is basic psychology; once people start defending something they keep doing it. So they created a large population of people willing to defend not wearing a mask. It was totally irresponsible.
It's the old saw about how the best way to discredit an idea is to defend it loudly with transparently erroneous arguments. That's what CNN were doing throughout.
> And that's separate from the Mexico argument. To me, it's incredible how little responsibility certain groups of people take for their own actions.
Please pay attention to context.
The argument I'm making is that the severe lockdowns as used in Australia could not have been as effective here because they only work if you can close your borders in practice, which Australia can do and the US can't. We're not even talking about "low effort, low cost" methods -- the argument is that higher cost efforts, of the sort that could actually get the number of cases to zero, couldn't have worked here. Even if the US put everyone in solitary confinement for a month, attempting to reopen the day after that would have still seen dozens of new cases.
That is a different argument to the one that more severe extended lockdowns would have saved lives. Which might very well be true (though against some grisly trade offs), but it's no support for claiming that it would have been better for US manufacturing in 2020, which is ridiculous.
Australia being an island has little bearing on this. It's not like the Covid situation in the USA is because of infected people crossing the border illegally: it happened because of legal travel.
Trump's so-called China ban was a farce. It didn't stop USA residents from flying into the USA, it didn't even stop the immediate family of residents from flying to the USA.
Australia closed all travel from China initially and later from everywhere else in the world. There's plenty of room for criticism as they also stopped Australians from returning home, but the results are tough to argue with.
I keep saying this about the silly island argument. It's not like the virus is coming into the US via Mexico and Canada. And domestic travel was halted with state border closures. The key is slowing movement. It's been perplexing watching Americans proudly travel and holiday, even internationally, during all this.
His followers hang on his every word. If he had simply said "yes masks are a good thing" 90% of his followers would have preached it from the mountaintops and things could have been much better. Instead we have almost 300K people dead and a lot of those are deceased as a result of his policies.
> If he had simply said "yes masks are a good thing" 90% of his followers would have preached it from the mountaintops and things could have been much better.
> True, but he said he said that simply because Bernie did, and it played well against Hillary in the primaries.
To be fair, Trump has been saying that since the 80s... Of course that didn't stop him from manufacturing in china himself. The guy talks the talk but rarely walks the walk.
> He didn’t do anything that actually slowed the loss of our manufacturing base while president.
And that's why he lost. But boy did he make israel safe. How many arab states did he force into recognizing israel? 4 or 5?
Trump's achievements were making israel great again and forcing mexico to extend intellectual property rights by a few years so that he can selling his "Trump" name in mexico for a few more years? Not that things are going to get any better with biden.
But then again, it's naive to think the president hold any true power. The power are held by those behind the scenes. Politicians nowadays are entertainers to keep the populace distracted. Presidents come and go, but the powerful remain.
> He didn’t do anything that actually slowed the loss of our manufacturing base while president.
Come on now. Say what you will about the effect of the tax changes on inequality, they're clearly designed to make it more attractive to do business in the US, e.g. lower corporate rates and allowing capital expenditures to be deducted immediately rather than amortized over a period of years. It's hard to argue that tariffs on goods from China don't make it less attractive to buy goods from China.
> It's hard to argue that tariffs on goods from China don't make it less attractive to buy goods from China.
It's true that tariffs will make buying goods from China less appealing, but if you look at the outcome, it's not really a win. Consumers are paying more for the same goods, companies are scrambling to move their production to India and Malaysia, and there's not a significant increase in US manufacturing.
A properly executed initiative to increase US-based manufacturing would address all of the factors necessary to restart manufacturing:
- Not only tax cuts, but subsidies and investment aimed at increasing manufacturing in specific industries
- A concerted program to identify labor and skills shortages, and address them
- A program to identify the missing parts of manufacturing ecosystems and address them. One reason why electronics are made in China is not only cheap labor, but access to a whole ecosystem of suppliers and other manufacturers. Need one million PCBs assembled, plastic casings made, half a million cardboard boxes printed, instruction manuals printed and bound, well, there's a whole ecosystem of partners ready to get all of these things done with the capacity to have a relatively short turnaround time.
- A clear bipartisan commitment that this is something that won't get deprioritized or axed one or two administrations later, but something that is of national interest and that both parties agree to push forward
- A national focus on a key differentiator from other countries' manufacturing. China has cheap, Japan, Switzerland, and Germany have good, the US has big and sturdy maybe?
- Tariffs to protect newly formed manufacturing businesses, but only in conjunction with all of the above
This is what a solid plan for restarting US manufacturing would look like.
> It's true that tariffs will make buying goods from China less appealing, but if you look at the outcome, it's not really a win. Consumers are paying more for the same goods, companies are scrambling to move their production to India and Malaysia, and there's not a significant increase in US manufacturing.
If you look at the actual outcome, it was that China devalued their currency or otherwise lowered prices to eat the tariffs, because their nightmare is manufacturing getting a foothold anywhere else, whether it's India or the US. Which is a win for the US because we have China paying us billions of dollars in tariffs without paying significantly higher prices for goods.
That doesn't help US manufacturing directly, but it gives the US a lot of leverage in trade negotiations because now China wants that situation to stop happening. And in the meantime the money can be used for tax cuts or subsidies to US businesses.
We could also just raise the tariffs more, for as long as China decides they want to keep paying them instead of letting them push manufacturing out of China.
> Not only tax cuts, but subsidies and investment aimed at increasing manufacturing in specific industries
Tax cuts and subsidies are equivalent. And it's not clear why targeting specific industries is useful rather than giving the same incentives across all industries.
> A concerted program to identify labor and skills shortages, and address them
Address them how? With more subsidies, which is really just equivalent to tax cuts again? This is the sort of thing markets are better at than governments.
> A program to identify the missing parts of manufacturing ecosystems and address them. One reason why electronics are made in China is not only cheap labor, but access to a whole ecosystem of suppliers and other manufacturers. Need one million PCBs assembled, plastic casings made, half a million cardboard boxes printed, instruction manuals printed and bound, well, there's a whole ecosystem of partners ready to get all of these things done with the capacity to have a relatively short turnaround time.
This is certainly a problem, but it seems to imply the opposite of your other proposed solutions. You would then not want to target specific segments but rather have broad incentives to engage in all different kinds of business activity, i.e. general tax cuts.
> A clear bipartisan commitment that this is something that won't get deprioritized or axed one or two administrations later, but something that is of national interest and that both parties agree to push forward
This seems like something you need Democrats to do rather than something you need Trump to do.
> A national focus on a key differentiator from other countries' manufacturing. China has cheap, Japan, Switzerland, and Germany have good, the US has big and sturdy maybe?
What does this even mean? Countries don't need to differentiate like this. How is it even differentiation when three of the four countries you listed are using the same one?
They're not. One can't cut taxes below zero, for starters. Some industries need more than just having negligible taxes to get started, especially in capital intensive businesses.
Furthermore, the idea that the only lever that the government has to induce people to do things is lowering taxes is completely absurd. Tax cuts didn't build the Hoover dam, the interstate highway system, nor send a man to the Moon.
The government can use targeted investments, messaging, procurement, tax cuts, and so on in order to move people towards certain outcomes.
The day that the US government announces that they'll buy 100 million masks a month for a strategic reserve or replace all of the mobile devices for all federal employees, as long as they're at at most a 50% premium over the cheapest option and are fully traceable from raw materials to finished product as being fully built in the US and allied countries, is the day that people will start investigating if it's possible to do so, and start trying to do so if it's possible.
> This seems like something you need Democrats to do rather than something you need Trump to do.
It takes two to tango. Many other countries are able to pass laws and make progress, even in complex multiparty negotiations during minority governments.
> They're not. One can't cut taxes below zero, for starters.
You might want to check with the IRS, since that's exactly what the EITC does. It's also the de facto result when a company takes a tax loss (e.g. from deducting more expenses than it had in revenue, common for startups) and can then sell the tax loss to another company to offset its tax burden.
> Tax cuts didn't build the Hoover dam, the interstate highway system, nor send a man to the Moon.
As opposed to Tesla's plant at Niagara Falls, or the various privately-owned rail networks in the world, or SpaceX?
> The day that the US government announces that they'll buy 100 million masks a month for a strategic reserve or replace all of the mobile devices for all federal employees, as long as they're at at most a 50% premium over the cheapest option and are fully traceable from raw materials to finished product as being fully built in the US and allied countries, is the day that people will start investigating if it's possible to do so, and start trying to do so if it's possible.
But that's actually more expensive, and less productive, than just making it more cost effective to manufacture things domestically than somewhere else, because domestic production has low taxes and efficient regulations and production in countries that engage in currency manipulation or have inadequate environmental protections are subject to tariffs.
> It takes two to tango.
That's the problem. It doesn't matter how willing one side is to negotiate if Democrats are too busy fabricating lies about Russia collusion to come to the table. Compromise requires both sides to be reasonable.
The EITC is for individuals that have low incomes, AFAIK. Can you elaborate on how the EITC would increase the amount of US manufacturing?
> It's also the de facto result when a company takes a tax loss (e.g. from deducting more expenses than it had in revenue, common for startups) and can then sell the tax loss to another company to offset its tax burden.
Can the tax loss be sold separate from the legal entity itself?
> As opposed to Tesla's plant at Niagara Falls, or the various privately-owned rail networks in the world, or SpaceX?
Are you saying that without the TCJA, none of these would have been built?
> But that's actually more expensive, and less productive, than just making it more cost effective to manufacture things domestically than somewhere else
Making it "more cost effective" through tax cuts helps existing businesses, not starting new ones.
If a business needs $10 million in capital to buy the machinery necessary to make widget X, and has to compete with an existing factory that produces equivalent widgets and has paid off their existing machinery, how can they compete? The existing business already has relationships with suppliers, customers, and distributors, and if the new entrant looks like it will be trouble, they can just cut their profit margin such that the new entrant will be struggling to cover the extra expenses associated with building all of those relationships while paying off the loans to acquire the machinery.
Heck, both of those businesses could reduce their profit margins to zero, with both having an effective tax rate of zero, and only the established one would be able to effectively compete due to lower costs.
> That's the problem. It doesn't matter how willing one side is to negotiate if Democrats are too busy fabricating lies about Russia collusion to come to the table.
Or one could say that the Republicans are unwilling to play ball as well (eg. over COVID-19 related stimulus). The fact is, whether one party is at fault over the other, Americans and US businesses are paying the cost of the lack of bipartisan initiatives to improve the state of US manufacturing.
> The EITC is for individuals that have low incomes, AFAIK. Can you elaborate on how the EITC would increase the amount of US manufacturing?
The EITC is an example of a "tax cut" that allows for negative tax rates.
> Can the tax loss be sold separate from the legal entity itself?
Actually selling the tax loss is generally only done for defunct companies, since a company expecting a future profit would just keep it in their pocket to use themselves later. Although you could probably still do it if you wanted to by splitting the company in two and then selling the one that "owns" the tax loss or something similar.
> Are you saying that without the TCJA, none of these would have been built?
I'm saying that private entities can build things like that.
> If a business needs $10 million in capital to buy the machinery necessary to make widget X, and has to compete with an existing factory that produces equivalent widgets and has paid off their existing machinery, how can they compete?
The real issue is that if you add a factory, you could be in a situation of overcapacity, and then you're locked in price competition and selling at thin margins, which nobody likes.
The secret is this. Factories have a finite lifetime, e.g. 30 years. So you have an incumbent that has paid off their factory. It's 28 years old. You pay $10M to build a new factory, today. They're going to drive prices below your cost for two years, but then they're going to have to build a new factory themselves... and bow out, because the alternative would mean being locked in unprofitable price competition with you for another 28 years. So you win the market and can go back to charging profitable margins. You just have to time your entry right, i.e. finish your construction just before they start on theirs.
Assuming you're even two different companies. Otherwise you just build your company's new factory in the new place whenever the old one in the old place is ready to be mothballed.
> The existing business already has relationships with suppliers, customers, and distributors, and if the new entrant looks like it will be trouble, they can just cut their profit margin such that the new entrant will be struggling to cover the extra expenses associated with building all of those relationships while paying off the loans to acquire the machinery.
To some extent this is also just a war of attrition. If a new entrant causes oversupply for any reason then it persists until somebody goes out of business. This has more to do with who has more money they're willing to set fire to in order to capture a given amount of market share than who was in the market first.
One way to help your people win is to ensure cheap access to capital (i.e. low interest rates), but that's already there in the US.
> Or one could say that the Republicans are unwilling to play ball as well (eg. over COVID-19 related stimulus).
It was your impression that the Republicans were the ones holding this up? They had every political incentive to accept any reasonable bill before the election, and even now to do it before the inauguration in order to take credit for it.
> The fact is, whether one party is at fault over the other, Americans and US businesses are paying the cost of the lack of bipartisan initiatives to improve the state of US manufacturing.
Tariffs don’t really seem to help anyone. Appliances are much more expensive than the last time I bought them in 2015. If we continue to raise tariffs, China will just stop buying corn, soybeans, and pork, and suddenly all of the revenue raised from tariffs are going to bail out farmers in Iowa.
> If you look at the actual outcome, it was that China devalued their currency or otherwise lowered prices to eat the tariffs, because their nightmare is manufacturing getting a foothold anywhere else, whether it's India or the US. Which is a win for the US because we have China paying us billions of dollars in tariffs without paying significantly higher prices for goods.
Can you tell my suppliers this so they stop passing on 50% of the cost of the tariffs onto me please? They don’t seem to have gotten your memo that the Chinese are paying the tariffs instead of the consumers.
I literally have “import tariffs” as a line item on all my invoices that relate to goods manufactured in China. Every single supplier appears to be colluding to increase their profits, if what you’re saying is true.
The alternative is that tariffs are actually driving up costs unnecessarily.
The environment/macro has already changed, and the tariffs are here to stay, even Biden and post-Biden. If you haven't yet adjusted to this, your business is in big trouble as your competitors already have moved from China to other SE countries, and you will most likely fail soon.
As an aside. Most US based businesses have already moved on. It seems that alot of European-run businesses are laggards
> It's hard to argue that tariffs on goods from China don't make it less attractive to buy goods from China.
Disagree. I think this is small minded. So you add a tariff on chinese goods. If they are not the cheapest, then you buy from elsewhere... which still isn't the USA.
And then China does the same thing: retaliating with tariffs, and then buying goods from elsewhere, which isn't the USA either.
So in this game, tariffs probably hurt businesses in both countries.
And, anecdotally: I still buy products from china. More today than 4 years ago. The products for sale on Amazon are often just chinese imports that have been marked up or re-branded. I think it's the exception, rather than the rule, that tariffs did anything positive for someone.
> So you add a tariff on chinese goods. If they are not the cheapest, then you buy from elsewhere... which still isn't the USA.
But that's still good. It provides for supply chain diversity even if it isn't in the US. Now you can buy from China and Mexico instead of only China.
Then you get a functional supply chain operating in Mexico, which has geographical proximity to the US and has greater overlap in language and culture, and you're one step closer to manufacturing in Arizona and Texas.
> And then China does the same thing: retaliating with tariffs, and then buying goods from elsewhere, which isn't the USA either.
But the US has a 3:1 trade imbalance with China, so we can use a third of the money to cancel out their tariffs on our stuff. Or threaten to raise ours 33% if they don't stop.
The US has leverage here, but only if they use it.
> And, anecdotally: I still buy products from china.
Manufacturing left the US over the course of 50 years. It isn't going to all come back in less than 5 years. We're talking about long-term here.
Oh really? I'm sure it's just a coincidence that after getting repeatedly browbeat Apple dramatically ramped up iPhone production in India and Brazil? That's just one example.
I guess we will know for sure - if they slow or reverse (especially in India) under Beijing Biden that will be confirmation Trump was successful at least at moving manufacturing away from China. It was a start. I don't expect it to continue with the establishment Democrats and Republicans back in charge. Yippie.
I agree and that was one of the few things I liked about him, but you know it's all BS when he doesn't support unions. Plus everything else about him is just heinous and basically a ruse to just get people to like him and stroke his ego.
The consequences of that slave labor are far more on Chinese society than just the manufacturing dominance. There are a lot of things that are negative such as hatred of the CCP, that these policies are creating in China. The facade may look good, but there are cracks in China's foundation because of these decisions.
It's not about slave labor, it's about manufacturing equipment. I suspect it was turned down, because helping the northeast survive a pandemic was not perceived as worth any political risk/capital.
Wait. According to that article, the last major mask manufacturer in US offered to increase production and was turned down by government.
> "In the end, the government did not take Bowen up on his offer. Even today[May 9, 2020], production lines that could be making more than 7 million masks a month sit dormant."
That article was published in May 9. Even on May 9, the production lines were dormant. How could this happen? It is unfathomable. The country probably had masks shortage since March. It is so hard to believe some of the things that happened this year.
Average salary in Shenzhen (2019) was 127K yuan, or about $18K usd. Average salary (manufacturing) in the US is about $30K usd.
I'm sure that after you adjust for cost of living, the numbers more or less look equal. However, keep in mind that manufacturing is leaving Shenzhen because of rising wages.
This is somewhere near the very bottom of a ranked list of US problems in this pandemic. Manufacturing takes time to significantly ramp up regardless of where it is, it’s not clear there would have been a major difference between what we did in waiting until we could buy more masks overseas vs waiting for US production to ramp up. And we had supposedly already alleviated this problem anyway with national stockpiles, except that those had not been maintained. Fixing that mistake is much easier and probably even more effective than undoing the globalization of the past few decades.
And honestly, by about April this year when China started having the virus under control and reopened their manufacturing sector at full capacity, it’s a good thing they were equipped to manufacture so many essential items. The US started running into capacity problems with some of the industries we do have like meat processing plants, if we relied more heavily on domestic manufacturing we actually would have been worse off over that period.
Have as your "goal" less the desire to "win" the global competition for corporate profits & corporate headquartering of multinationals in your nation simply on grounds of labor/profit competitiveness, and take a more nationalist view of, where necessary, having state run enterprises or "free market" competition within your borders but not complete free trade in a global sense.
In other words, do no necessarily pursue as your goal to structure economy either to have most profitable companies that reduce costs by moving labor around the world to find cheapest workers, or those which try to export the most. Have as your goal at least to produce domestically as much as possible to satisfy domestic consumption demands, as well as having some minimal threshold of employed domestic workers.
As it stands, US has a massive trade deficit, and a decades long decline in working age male population, especially in "flyover" US regions where manufacturing has declined the most while not being replaced by equivalent jobs. These regions also have declining population, rising suicide & opiate death rates, declining family formation / birthrates.
The "telos" of our society should not put as its "end" an economy, especially one which pursues profit above all.
The economy should be a tool in service to outcomes we actually desire.
Like software built to do a job, not simply designed for the production of specific features.
This is where global financial capitalism (as the US has a giant capital surplus which balances its trade deficit) needs to be called into question.
Internal free markets is one thing. But not having a national industrial policy which prioritizes the well being of domestic workers and their families over well being of multinational corporations and banks makes our system quite degenerate over time.
People should really take a few minutes and watch these 2 videos explaining the current account[0] and capital account[1] relationship, and understand that how we operate now is a political choice, which has massive consequences on who benefits of this system accrue to, and who pays the costs of this system.
This system is maintained by having the reserve currency and the state using strong efforts over many years to not only maintain this GRC but strengthen it, not allowing the natural devaluation of the $ that would close these 2 imbalances and more closely balance capital and labor.
Also, it is not a requirement to have a well developed economy and run massive trade deficits or not have a thriving industrial sector. Germany and Japan are 2 examples that do not run giant trade deficits like the US [3]
This is an insightful comment that clarifies and distills some of my own thinking on the subject.
The blind pursuit of efficiency optimizes for the macro numbers at the expense of gutting the structure of the labor market and lived experience of people.
It’s far better to have a lower per capita GDP with a more equitable distribution of resources (such as a higher household income across quantiles)
It seems clear that some level of tariffs, caps on FDI, etc are “good inefficiencies” if done correctly.
In efficient, highly optimized economies such as the United States and most of the European Union, the border guards' job is to prevent people from entering and participating in those economies illegally.
In the countries with low GDPs and highly equitable distribution of resources -- North Korea, East Germany, Cuba, the Soviet Union, for example -- the border guards' job is to prevent people from escaping.
Depends on the face mask you're talking about here. A friend of my brother works for a company that makes unrelated clothing, furniture, and other comfort type items. They make all of their products here in the USA. They started up mask production in march. They're high quality washable cloth masks. I bought a few and have been using them when I need to go out. They're about twice the price of similar ones on amazon but much higher quality.
As for mass produced surgical masks? Yeah we don't have the manufacturing base for that sort of thing anymore unfortunately.
It’s fair to eye roll at ineffective agreements that don’t pan out. Racing to the bottom with tax incentives is not the only way to bring back manufacturing and hasn’t seemed to work when it’s tried.
I don’t mind eye rolling at corporate handouts and deals that are mirages. But the parent comment only seems to be mocking the idea of bringing manufacturing back and saying how dumb Republicans are for wanting to do it.
> mocking the idea of bringing manufacturing back and saying how dumb Republicans are for wanting to do it.
At what point did I ever say Republicans were dumb for wanting it? I'm mocking the idea that Republicans actively denounced corporate welfare (saying it's a Democratic thing), yet just do it themselves (and then fail at actually make the change for that matter).
The parent comment mentioned he is a registered republican, so its relevant. I was merely making a joke about that since they referenced that in their comment. They also mentioned:
> the last LCD panel manufacturer in the US closed around then and we could no longer manufacture LCD for our military vehicles
Where did they say it was a good idea or a bad idea? Where did I say it was a bad idea? My reply was commenting specifically on the fact that the party he supports literally tried to manufacture the one item he was referring to and failed at it.
Maybe YOU'RE the one with little value added to this discussion other than getting triggered.
EDIT: Just to clarify - you seem to be only focusing on one part of my comment an interpreting exactly what you want to hear. Maybe take a step back and realize what's important to you.
> Where did they say it was a good idea or a bad idea?
The entire comment made the case. But if you want specifics, how about the sentences immediately prior to the one you pulled out of context: “I argued vociferously to a Dem friend in 2000 that our inability to manufacture critical components was going to kill us. Kind of literally:”
But yeah, I’m sure the problem here is that I’m “triggered.”
There's a difference between saying corporate welfare is a bad idea and saying manufacturing in the US is a bad idea. I said the former and you inferred the latter. I criticized the implementation of an idea and you focused on the idea. It's amazing how predictable you lot are.
For the record - manufacturing output in the US is trending upward[0] (sans recession). Manufacturing employment is down, not because it's outsourced to China, but because its being automated.
Basically amounted to corporate handouts, with the way the money was mispent. I don't think the issue is that the labor class is getting too big a share, cases like this should make it clear that inequality that's at the root of these problems
My father was one of the last tool makers in the US working for Molex. They spent years teaching the Chinese, the Chinese would disassemble all molds sent over to China and often break them, so my fathers team would have to fix / rebuild them.
They spent years training the Chinese side-by-side in the US.
In the end they still haven’t exactly caught up to the quality we had in the US. However, they now have 5x the tool & die makers in China.
To compete, you really do have to cut minimum wage. You have to loosen regulations, and importantly, you have to do massive tariffs / sanctions on China for the next decade.
There are enough people still here to teach and expand the Industry. However, if you don’t start now. Like today. We won’t ever recover. Once enough manufacturing is gone, it’ll be impossible to come back - we are almost there.
You are competing against a foreign power who uses slaves. You either let free people work for what ever wage they can achieve or we risk becoming slaves ourselves.
Competing in a race to the bottom ought to beg the question about what alternatives and options are. Focusing on efficiency and quality are two examples that would probably be a better long-term bet, with fewer negative secondary effects.
I don't know why more people aren't saying this. Is it really a majority opinion on this site that a race to the bottom is a good, or even tenable idea?
> To compete, you really do have to cut minimum wage. You have to loosen regulations, and importantly, you have to do massive tariffs / sanctions on China for the next decade.
No, you just have to do what China (as well as countries like Germany and Japan) do and have the government subsidize preservation of the industrial base. Screwing over workers gets you nowhere but further populous unrest and social decay.
Without a very strong (and therefore expensive) social security net, “Letting people work for whatever wage they can achieve” is slavery. See 19th century Britain
Germany still has a strong industrial base, without a race to the bottom and with strong unions. So it is possible :)
Do you think the 19th century is a good anecdote for what would happen nowadays? Setting minimum wage seems to create this standard that may do more harm than good. Increasing the 'standard' harms the 'middle-class' and this 'standard' may set the wages lower than entitled per job.
I never said that or really proposed a solution, simply stated a problem as i saw it - Which makes sense why i got downvoted. I don't really know the answer with minimum wage but i tend to lean more 'darwinistic' in my philisophies. I wish there was more inherent economic incentive, where everyones salary was more closely tied to their contribution and efforts but I guess thats too much to ask for in this world where non performers and non-productive members of society are given this 'unalienable right' to live off the products of society just for being human.
>I wish there was more inherent economic incentive, where everyones salary was more closely tied to their contribution and efforts but I guess thats too much to ask for in this world where non performers and non-productive members of society are given this 'unalienable right' to live off the products of society just for being human.
It's hard to parse what you are asking for - what more economic incentive would you imagine there to be; I think the problem with this line of thinking is that you are taking a far too simplistic model of the world where our problems are caused by people being "lazy". I think the world you are wishing for existed - it's probably the hunter/gatherer model; any more sophisticated organization of civilization requires some level of socialization. I think your "darwinistic" approach is a flawed philosophy upon which it build a nation or a global superpower.
It's interesting because the article posits, and makes a very good case for, systemic issues that has caused the erosion of manufacturing base - however politically we are unable to move beyond simply understood talking points such as "minimum wage".
Which is exactly the problem: wealth inequality can't be solved by fixing wages.
Asian or "factory" countries (not necessarily from Asia but for illustration) have an "artificially" held minimum wage, which indirectly subsidizes the US minimum wage. This is happening to all wages not just minimum wages mind you, so the market needs rebalancing. Wages need rebalancing, taxes need rebalancing, but most wages, including the minimum wage need to come down (in real terms not necessarily in fiat terms).
As a general rule, yes, i think all things being equal, history tends to repeat itself.
Of course, all things aren't always equal, but if you're going to argue its going to be different this time around, i think there is some onus to argue why the present would be different from the past.
Wages in the US are artificially high because of the dollar's position, but the US needs to either a) match the wages of the countries producing similar stuff or b) increase productivity and value to the levels of countries like Germany.
Since b) requires decades in factories, supply chains, trade agreements and most importantly training in actually producing things which means science and engineering, exactly the occupations an increasingly large portion of the US population has been taught to abhor, it is very unlikely to happen. The US has spent the last decades destroying all those things, so the only real option is to sadly let wages fall to levels markets are willing to pay for. It will bring a lot of suffering but is the consequence of decades of mismanagement and complacency, and it is unavoidable so it will either happen by will or by force. And we know it won't happen by will.
Of course there is always c) keep forcing the rest of the world to pay for the US standard of living while they themselves live beneath their means, but that is the actual problem now so how much longer can it last?
>keep forcing the rest of the world to pay for the US standard of living while they themselves live beneath their means, but that is the actual problem now so how much longer can it last
Our entire society is built on this, though. Silicon Valley wouldn't exist if electronics couldn't be produced for comparatively cheaper overseas. You bring up an interesting moral point, but if you're serious about that there's a lot of reckoning society will have to deal with. It's not just going to affect minimum wage lol. It'll affect wages across the board. You're really talking about totally reforming the economy
I know these discussions always end up in worker vs owner debates, but what I'm talking here is about the nation.
Factories will need to adjust their prices, now you take that as you will, and if one is naive one can think it means executives will take a pay cut while workers do not, but in the end it mean less wealth for everyone, less money for taxes, less money for shareholders, less money for executives, and of course less money for workers. That is less wealth for the nation.
So yes, owners will take smaller profits, along with everyone else.
The average operating margin for the S&P 500 is 10.53% (although that may have been 2018). And economists are worried that even that is high - traditional manufacturers like Ford typically manage operating margins of ~5%. Workers are already getting 95%. And then everything after that like R&D, marketing, and capital amortization has to come out of that 5%. And then finally a bit is left over for earnings for the owners. You’re mistaking wealth for income. Surely the workers could use more wealth, but what we’re discussing is the price of goods and this is operating revenue and income. And workers already get the lions share of this.
If you’re going to make US manufactured goods cost competitive with foreign goods, much of it has to come out of that 95% operating revenue that is operating expenses, most of which will be employee wages. There’s no way around this.
workers are not getting 95%. Corporate profit and revenue is at an all time high, but wages are down since the 1980s. All that corporate growth goes into price fixing schemes and mergers to establish monopoly, and "consulting fees" to suspiciously named LLCs in the Caymans.
Read some 10-Qs for some big companies sometime. You might be surprised. Like I said - S&P 500 average operating margin was 10.53% a couple of years ago. And that’s crazy high - probably because of pharma stocks and the US’ dysfunctional generic drug regulation.
This isn't a correct way of looking at it. You're assuming that the sum total of profit generated is in that one manufacturer. It isn't the case. You have subcontractors that also make an additional ten percent, then materials coming from a supplier that takes another ten percent, which comes from raw material suppliers that make yet another 10%, and then you're going to have consultants in R&D and marketing that might make even more than 10%, and so on. So it really can end up quite a bit higher than that.
Possibly - although if your suppliers have operating margins that are as wide as yours, or wider, it might actually make sense to just buy them and take those earnings for yourself. I wonder how many of Ford's suppliers have an operating margin as wide as Ford's 5%?
It's because they build the machines to build the product the Chinese manufacture. The Germans have forced themselves to be at the top of the Manufacturing Food Chain (engineering, etc) while letting the Chinese/Rest of the world build the crap we buy.
I don't think we could get there manufacturing the "Trinkets" the Chinese mostly manufacture, that is a a race to the bottom where either automation or cheap labor win.
Tesla is trying to do exactly what you describe. Build "the machine that builds the machine", as Elon Musk would say.
I agree with you that trying to compete on low-cost, low-margin is a race to the bottom. We could conceivably bring manufacturing of iPhones back to America. I would also imagine that manufacturing of silicon is largely automated, so the US could try to build the best fabs.
Tesla has done some reverse Chinese equity investment swap thing and is now at least somewhat a Chinese company building manufacturing capacity and innovation in EVs. Musk is a lot of things, and one thing is clear: he’s an opportunist more than a US economic nationalist. He will not be the saviour of American industry.
The number of powerful economic nationalists in US history can be counted - if the US is lucky - on one hand.
Assuming that the goal is saving the American industry (whatever that means) - if the plan is 'good people will save it' then failure is already baked in. That plan never works. The plan should be 'whoever saves it will become fabulously and disgustingly wealthy' - then greedy opportunists will save it for you and people can go protest about how greedy they are.
Relying on good people to act is dicey. Relying on greedy people to act is a safe path.
What I always wondered: are German products that much better, or is it a meme?
The thought that comes to mind is when American railways tried to import German locomotives in the 1960s. They were appealing because they offered higher horsepower ratings than anything domestic, but they required too much babying and maintenance to keep healthy and were quickly scrapped. I hear strikingly similar things from people buying German cars today-- everything tends to be expensive to keep running after the warranty expires.
I wonder if American manufacturing needs to develop its own meme. I'd suggest the old line about GM products-- they'll run poorly for a lot longer competing products run at all. That could be a compelling argument when you're selling to a manufacturing sector that's rolling out in low-development countries with unstable infrastructure, poor environmental conditions, and low-training staff.
That gives us a niche we can target and use as a base to re-bootstrap ourselves into competitiveness. We need to be decidedly better than bottom-bit Chinese (etc.) tooling, which is probably still within our abilities, and if we overdeliver there, we can begin to position American-made as a premium choice.
A large part of the expense on the cars is import tariffs and shipping/freight expense. Upkeep on a German car in Germany is substantially less expensive.
All I know is I've been in an Audi and the center console had so much unnecessary stuff going on. It's a stereotype for a reason German stuff is performant and precise but over engineered
Your impression of China manufacturing "mostly Trinkets" is decades out of date.
Chinese manufacturing is now at a very high level, to the point where many western brands have effectively become "fabless", leveraging the fact that Chinese brands still struggle with poor reputation even domestically. In this symbiotic relationship, the fact that Germany is literally "the land of virtue" in Chinese might play a role.
Chinese labor has now too become relatively expensive, its economy is moving to become a service economy, and manufacturing gets outsourced from China to even cheaper countries.
In the traditional sense, it is not the same as slavery, not by a long shot. I do agree with unions becoming prominent again. Not everything has to be a bargain basement priced items. I personally try to hit something in the middle, and often look for an American made version (or European) it can be extremely hard though, and impossible for 99% of electronics.
When someone is beating you, the least you can do is copy them. We could start by copying German worker councils (unions) - but no one in management or labour here wants that. Labour hates company unions and still dreams of building labour monopolies like they had in the 60’s and that’s exactly what worker councils were designed to prevent. And managers want to be able to bust unions which isn’t legally allowed with worker councils.
"Germany still has a strong industrial base, without a race to the bottom and with strong unions. So it is possible :)"
A lot, and I mean a LOT, of German industrial base is now located abroad, in Poland, Czechia, Slovakia, Hungary, Romania. These countries are rather close, but because they belonged to the Soviet Bloc, their economic development was retarded so much that local wages are 20-30 % of wages in Bavaria, but the workforce is qualified and the infrastructure adequate. This is a historic anomaly you do not have in the U.S.
Come here (I am in Czechia) and look around, the countryside around cities is absolutely dotted with German-owned factories that mostly produce parts. Those parts are then moved by trucks to Germany where the final product is assembled - and so the miracle of higher "work productivity" in BRD is created. Of course you have nominally higher productivity if you finalize products.
This is, by the way, how Viktor Orbán gets his political way. Hungary is absolutely vital part of German industrial base and German industry gets premium conditions on the ground. So for all the shouting about values and rule of law, German CDU/CSU and Orbán always find a way to coexist.
And as for race to the bottom, look to former East Germany. There, people want German wages from German bosses. They do not get them, most of the industry moved abroad where cheaper workforce is. Former GDR is an economic periphery where anti-system parties command majority of the vote.
> To compete, you really do have to cut minimum wage. You have to loosen regulations, and importantly, you have to do massive tariffs / sanctions on China for the next decade.
Part of the problem here is that the existence of some kind of universal "more regulations / less regulations" slider is an illusion. It allows the problem to be cast in partisan terms when that isn't the problem at all, because the problem isn't more or less lines of regulatory code but rather higher or lower regulatory efficiency.
Some regulations save a thousand lives at a 0.02% increase in costs. Repealing those is bad. Enacting them is good. Some regulations save two lives at a 5000% increase in cost, which could equally be saved by some less expensive regulation. Enacting those is bad. Repealing them is good.
The real problem is that politicians lack the qualifications and incentives to do this well. If good rules don't exist, then someone gets hurt and there is a call for "more rules" rather than "better rules". Politicians who don't know what they're doing pass bad rules. The bad rules cause costs to exceed what they are in China, so manufacturing moves to China. Then the local lobby for improving the rules evaporates because there are no longer local manufacturers to propose or lobby for more efficient rules, and the continued existence of those rules on the books causes no more to form.
We clearly need to throw away the existing rules -- they're not working -- the question is, how do we actually get better ones?
I agree with your view wrt to regulations, but doesn't the article paint a different story? I'm wondering if I understood the article wrong -
As I understand it, the US status as a global reserve currency requires us to maintain a perpetual trade deficit - other countries need dollars and we must give it to them. This is done by buying goods from overseas which has eroded our manufacturing base, as the foreign demand for the dollar is greater than the local demand (which means there is a cheaper manufacturing market).
I'm not sure what regulation you could enact here that wouldn't severely depresses other sectors as they exist today.
The status as a reserve currency requires dollars to flow into other countries, but that doesn't mean it has to be in exchange for manufactured goods. Example: US individuals or businesses buy real estate or stakes in local businesses in foreign countries with US dollars, causing US dollars to flow into those countries. Rents collected from the properties or businesses are used to buy more properties or businesses rather than being extracted from the country.
Labor is likely the most plentiful asset any developing country has as well as it's a system that doesn't require much legal overhead. Manufacturing goods would be the easiest asset any country could produce - trying to own an asset in a foreign nation is an expensive endeavor that requires military might (the middle east probably being the most pertinent example). Trying to collect rents requires the maintenance of an international legal system that will rule fairly. I'm not saying it's impossible, but that manufacturing requires way less overhead to maintain.
The flip side of a current account deficit is a capital account surplus. To the extent that the informal notion of a "global reserve currency" means anything economically, that's perhaps the best description of it. Such an investment surplus would tend to improve the country's economic base over time, far more than implied by any direct effect of the trade deficit.
The problem here -- and perhaps the main problem in all our politics -- is that large swaths of the electorate do not understand the concept of second order effects. Regulations are always good because they consider only the first order effect. That is, the goal of the regulation is usually a laudable one that everyone would support. But you have to look at the costs and unintended consequences of the regulation to really know whether it's a good idea.
This is something that eludes most people, especially among progressives.
The long term studies say our political leadership largely ignores the desires of the electorate. This make the problem more likely that our political leadership likely understands the second order effects, but ignores the long term effects chasing short term gain.
I think many more people understand second-order effects than you imply, but I think they understand that those second-order effects hurt certain groups of Americans more than others.
I wonder if import taxation that reflects externalities (pollution) and costs that we carry to reduce suffering (child labor, minimum wage) would make a difference.
> Some regulations save a thousand lives at a 0.02% increase in costs. Repealing those is bad. Enacting them is good. Some regulations save two lives at a 5000% increase in cost, which could equally be saved by some less expensive regulation. Enacting those is bad. Repealing them is good.
Not to get political but this reminded me of covid-19. Masks and social distancing are an obvious 0.02% increase in costs that save a thousand lives. Lockdowns and extended stay-at-home orders and shutting down businesses so that we start needing to send out trillions upon trillions of stimulus cash to keep companies and people afloat start to cross into "save 2 lives at a 5000% increase in cost" territory
I totally agree that lockdowns are super expensive, and should only be used as a last resort, but I think you're missing the purpose of lockdowns. The purpose is not to save the lives of <however many people are dying right now>. The purpose is to bring the R number <https://www.bbc.com/news/health-52473523> below one, so that the number of sick people doesn't increase to the point where the health care system is overwhelmed (which would lead to a substantially increased death rate).
Taiwan is an example of a country that managed to eliminate covid-19 without lockdowns, so it is possible, but part of their success is likely due to the fact that the authorities acted very early to impose strict quarantine rules and contact tracing (when there were fewer than 10 new cases per day!) AFAIK every other country that has managed to eliminate community transmission has done so via lockdowns.
The purpose of lockdowns and other methods to fight with covid-19 was to keep old people alive for few more months.
'The observed temporary excess mortality likely arises because people in vulnerable groups die weeks or months earlier than they would otherwise, due to the timing and severity of the unusual external event.'
https://www.medrxiv.org/content/10.1101/2020.11.11.20229708v...
That is not the point and never was ! When your hospital is saturated by people that ultimately will survive but need 3 to 4 weeks to recover, you're going to die from anything but covid.
You're in a car crash? To bad hospital is saturated.
You got 4th degree burn in a burning building? To bad hospital is saturated.
Sweden did not need lockdown because, like Asia, people there were more disciplined. Numbers show road traffic dropped significantly during the first semester : people stayed home without being ordered to. Some culture will never do that by themselves.
Youngers are less affected but some absolutely do need hospitalization. Reality is not as black or white as you're making it.
The situation is like that in Poland ... and the solution is geronticide ?
I agree with you, but one point is (and clearly these are not accurate numbers you posted) these 0.02% cost increases add up. One regulation may only increase the cost 0.02%, but 1000 at the same industry increases it 20%. And all of them increase the cost of entry. If you increase the cost of entry, then you’ll get less competition as smaller business that could turn into flourishing enterprises simply never take off or even get started because someone in their garage can’t find a profitable path. Or afford a lawyer to explain the legal hoops you have to jump through. Recently I was quoted $10k to have a lawyer explain to me 2 points about importing liquor. The result, I didn’t start the business. This is more of a problem IMO
Rules on paper aren’t rules in reality. Enforcement of law, and the way it’s experienced (or not) is far more important than what’s written in the law books, and the enforcement part is much less transparent, and impossible to know at the time the rule is passed.
How will cutting the minimum wage help in the long run? People earning the current minimum wage already struggle to afford rent and food. Can you really expect to get quality work from someone who has to work 4 jobs to be able to pay rent and is sleeping 4 hours a night?
You're not going to defeat China by cutting wages unless you address the societal issues that cause US wages to be high. We already haven't raised the federal minimum wage in decades.
>> To compete, you really do have to cut minimum wage. You have to loosen regulations
That’s not what Germany has done but there’s little doubt that Germany’s manufacturing ability is held in a higher regard globally.
So i challenge the “have to”. It’s the unproven talk of a particular tribe but i stress unproven since economics is a social science. That means there’s lots of science but is fundamentally stories we tell each other and not akin to, for example, the unassailable truth of gravitational pull.
In all fairness, the same is happening to China as well. Manufacturing as a percentage of GDP has been declining every year since 2010, and iirc manufacturing in total value has stagnated entirely in many provinces over the last couple of years.
Manufacturing is still moving to SE Asian countries (Viet Nam in particular), but even there producers are increasingly moving production in India and East Africa because of rising costs (e.g., wages).
I am surprised that no one has mentioned punitive taxation of companies that engage in offshoring/higher taxes on foreign direct investment as an alternative to tariffs.
> To compete, you really do have to cut minimum wage
The article points out other ways to reduce the cost of domestic labor: namely, shifting away from high payroll taxes and severing the link between health insurance and employment.
>You either let free people work for what ever wage they can achieve or we risk becoming slaves ourselves.
Minimum wage already isn't really a living wage in much of the country. Rolling back regulations is jumping headfirst into slavery, whereas.. I'm very critical of China but don't see the connection between their expanding industry and slavery. Businesses are diversifying their supply chain in the face of this pandemic.
Banning or taxing out of existence foreign investment on real estate and pegging the fed rate to zero will accomplish the same thing without needing to care about minimum wage. Shenzhen minimum wage currently provides workers in China with a higher standard of living than US minimum wage does in the US.
Only difference is that the wealthy in the US will carry more of the burden instead of the working class.
And that’s why we don’t have many advocates for it even though it will solve the manufacturing problem almost overnight
The reason foreign real estate investment is so high is because the dollar is the reserve currency of the world, and since those countries produce so much they have a huge excess of dollars but the US produces so little they have nothing to buy with those dollars. The only thing the US can realistically offer is land, if you ban it it will only accelerate the collapse.
Banning foreign investment in real estate forces foreign investors into more productive investments while simultaneously lowering the cost of living for workers and cost of business for companies.
Moving inflation to 6% will create millions of working class jobs in the US due to both a weaker dollar and cheaper money supply for value creation.
The losers in all of this are wealthy Americans. They will see their assets depreciate and buying power diminish. And that’s why we don’t do it.
Banning foreign investment will force them to dump dollars and treasury bonds and will accelerate the development of an alternative to it for international trade.
But I guess since what you want is inflation that is one way to get it, tho it will not be 6% but closer to 30%.
Yield curve control has not worked for anyone, it is a death spiral that results in zombie economies, at best.
> Banning foreign investment will force them to dump dollars and treasury bonds and will accelerate the development of an alternative to it for international trade.
How does this harm a working class American that derives all of their income from working wages as opposed to assets?
> it will not be 6% but closer to 30
Cite and example where a country did not default/print money for their debt payments and inflation went to 30%
> Yield curve control has not worked for anyone, it is a death spiral that results in zombie economies, at best.
How does this harm a working class American that derives all of their income from working wages as opposed to assets?
Lastly, address how any of the above prevents an increase in manufacturing jobs, which was the intent of the measures originally listed.
> How does this harm a working class American that derives all of their income from working wages as opposed to assets?
Their wage-dollars will now buy less stuff.
> Cite and example where a country did not default/print money for their debt payments and inflation went to 30%
The US has the world reserve fiat currency, so there are no examples because a fiat reserve currency has never existed before, but we know hyperinflation is a likely outcome. Now, from the experience we do have, ~30% inflation like in the 70s is the best we can hope for. A zombie economy like japan's would frankly be fantastic given the conditions.
>How does this harm a working class American that derives all of their income from working wages as opposed to assets?
Their wage-dollars will now buy less stuff.
> Lastly, address how any of the above prevents an increase in manufacturing jobs, which was the intent of the measures originally listed.
Don't worry, americans will have plenty of $1/hour manufacturing jobs like asians do now (or the nominal equivalente to $1 in a hyper-inflationary world). The US doesn't have the technical capacity or workforce to compete in high paying manufacturing any more and will take decades of pain to build.
Well, you don't seem to understand the fundamental problem. Whatever labor force exists in America should see rapidly growing wages because the unemployment rate is relatively low. The reality is that not only do we not see inflation the fed has set the interest rates to almost zero and injected an insane amount of money into the stock market with no change in sight. There is slack in the system, a lot of slack. This causes wage growth to stagnate while rich people in the USA still make loads money off Chinese labor. They don't have to care about Americans because there are work forces abroad waiting for them.
>The US has the world reserve fiat currency, so there are no examples because a fiat reserve currency has never existed before, but we know
This is completely irrelevant. The primary benefit of a world reserve fiat currency is running a trade surplus without financing but if you don't produce anything, not even housing that advantage is meaningless.
>hyperinflation is a likely outcome.
Banning investments into real estate might not be optimal but hyperinflation is not going to happen because the economy isn't even close to it's production capacity.
>Now, from the experience we do have, ~30% inflation like in the 70s is the best we can hope for.
There is a response to your commend that disputes that we even had this "experience".
>A zombie economy like japan's would frankly be fantastic given the conditions.
The USA is already partially a zombie. You have public companies with record stock growth despite no changes in fundamentals. It's easier to make money off the stock market because that's where the rich are using the watering can of the fed even though there are lots of withering plants surrounding the almond farm. The stock market looks significantly brighter than it should.
>Banning foreign investment will force them to dump dollars and treasury bonds and will accelerate the development of an alternative to it for international trade.
Only if they don't find a better alternative than real estate.
Moving inflation to 6% will almost certainly not impact any wealthy American with most of their net worth in equity. It will impact working class Americans who have their savings, however little, in bank accounts.
It would be more sensible to just build more housing. That way Chinese dollars will end up employing Americans instead of just changing the title on a home. It's quite funny how backwards America is in this regard. They are unwilling to produce more of their primary "export" even though there is no way for production of it to be moved to any other country. Instead every property owner wants a larger slice at the expense of everyone else.
>To compete, you really do have to cut minimum wage. You have to loosen regulations, and importantly, you have to do massive tariffs / sanctions on China for the next decade.
Not so, import taxes and one avenue that should be explored is true carbon costs/impact factored in. Why should something made locally be more expensive than something made the other side of the World and shipped all that distance. Clearly some impact costs not being factored and the whole carbon aspect should be utilised for many benefits - balancing out imports for one.
> "You either let free people work for what ever wage they can achieve or we risk becoming slaves ourselves."
We should work for slave-like wages voluntarily or have it forced upon us?
This is a poorly thought out argument. Cost of living, housing, etc. is obviously different in US, you might end up with less income than is necessary for survival. What makes you think you will be able to find any workers at all, let alone those trained to the necessary standard and skill?
It should be obvious that appropriate responce to a crime (slave labour) being committed is not to commit the same crime yourself.
Any products with stolen materials, stolen labour, or stolen taxes should not be allowed on the market at all.
They aren’t slaves, they’re just people extremely happy to get a wage of $10k per year, which would be unobtainable for most of them any other way. The fact that this means they under cut US manufacturing wages by more than half isn’t really their fault.
As for bringing back manufacturing home, you need to find two things to make that work. First massive subsidies and tariffs to drive up the cost of foreign imports, imposing huge costs on tax payers and consumers; and tens of millions of people willing to work in factories. The US long term unemployment rate in 2019 was about a third of a percent. Where are you going to find the money, and where are you going to find the people?
He's not referring to all Chinese laborers, but Uyghurs who were first sent to re-edcation camps and then sent off to factories all against their will.
A reprehensible and horrific crime for sure, which I don’t want to trivialise, but not an economically consequential one in the grand scheme of things.
I say taxes aren't necessary. Just hold companies accountable for every step in their manufacturing chain. They need to audit and ensure factories address meeting or standards for the workers.
I don't mean wages, I mean safety, overtime, etc. Labor needs to be valued at home and abroad.
I'm all for holding companies accountable for their supply chain management, but within reason. I can't see the US government accepting EU employment contract, health, safety and business practices imposed on the US arbitrarily. There has to be some flexibility. Let's be clear, the west has reaped _staggering_ economic benefits from opening up China. Of course there have been costs too, some of them painful, but that's always the way with economic change.
It's not the other country accepting, it's ensuring the company adheres to certain standards in it's supply chain. Any penalties would be assessed against the US based company.
I am not so sure about the loosen regulations thing. The US had periods of time with virtually no regulations. Rivers caught on fire, people were maimed and died of industrial accidents at much higher rates, water was unsafe to drink, ect. The countries now without much regulation are usually poor, dirty and dangerous. I want to live in a safe, clean, healthy environment.
I agree with you on the tariffs. China should not be able to outcompete us because they pollute and use slave labor. Force them to compete on fair terms.
I've got to add my two cents to this discussion...
You discuss tool and die makers, a very highly skilled profession; one that I would argue takes many years of training and labor to master. I would further argue that in the manufacturing world, when it comes to hands on work, tool and die guys are near the very top.
Yet at the same time, you talk about cutting the minimum wage. Tool and die makers (of any sort) aren't going to be working for minimum wage.
While I don't disagree with the importance of American manufacturing, I think your prescription is wrong. We don't need lower wages, we need better education, more apprenticeships, more buy in from industry to spend money on training their employees. Because sooner than people think, China will have labor cost parity with the US, and we'll find that labor cost isn't solely the reason they are a manufacturing power house.
This is missing the point of the article. The main reason for the current state of affairs is the petro-dollar system and the need for US to run deficits. Changing regulations for domestic manufacturing has very little to do with it.
There are quite a few European countries with very robust manufacturing bases who are far more regulated (both from a labor and capital perspective). So, minimum wages, labor unions etc have little to do with the US' manufacturing base. In fact, one could argue that weaker unions, if anything, have contributed to the decimation of the manufacturing base.
I'm not disagreeing on the spirit of your statement but I wonder if labour costs are really the prime driver of profitability with high tech manufacturing. It may be, but I'd love to see some of the figures, there could be other factors at play such as environment protection for example.
Consider Elon's move from California to Texas. His energy costs are vastly reduced, expenses generally are reduced, and he can continue to hire directly in the US and draw directly on US machine shop production capacity.
There should be more machining and making in the US; everyone would like to have solid US-made hardware, but success in small-business machining and manufacturing, and scaling to large scale without off-shoring, requires a discipline and commitment to self-improvement that is difficult to cultivate.
There was a recent youtube of a Chinese professor discussing how china has gotten along so well with the US while the great migration of manufacturing occurred. It boiled down to wall street being fine with moving manufacturing abroad, as they don't identify with, and in fact despise, the American working class.
"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." - Napolean Bonaparte
"I sincerely believe with you, that banking establishments are more dangerous than standing armies; & that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale" - Thomas Jefferson
"I have two great enemies, the southern army in front of me and the financial institutions in the rear. Of the two, the one in the rear is the greatest enemy" - Abraham Lincoln
If they despised the working class they would've pushed for removal of the useless rules the West has - health and safety, generous pensions for hard jobs(like miners), minimum wage, etc.
> Even if this anecdote is untrue, the point remains valid...
I mean, I guess the point remains valid in that everyone can see that a lot of manufacturing has left the US in the past, I dunno, fifty years. But if you don't even know whether the anecdote you mention is true, why bring it up? Why comment at all?
Correct me if I'm wrong, but it seems like the US does not need any factories, as it can print any amount of money and buy whatever it wants from any country has factories. Money talks. Or not?
It has enough military for safely making this again and again for tens of years at least.
What happens when the other country isn't willing to sell? Consider a war or other disaster e.g. in the months before the pandemic, China stopped the export of face masks and other PPE, resulting in shortages in hospitals around the world.
If not - the politics is involved in selling decision making - then the US starts a sanctions war, as China example shows. It sells in the end, but after being economically punished.
Countries are virtually never 'unwilling to sell', and there are quite a few different countries out there.
PPE shortages in hospitals were because of unprecedented demand levels, not because China didn't continue to export it. A country is actually a lot more likely to have problems handling that kind of short term demand shock if it relies entirely on domestic manufacturing
There at other manufacturing centers than China. I don't know why people keep it repeating this line. Where do you think China gets their things made? It SE Asian countries. And they're making in roads to Africa. That's what we should be doing. We have a president talking about shhole countries-- destroying international relations is gonna do a lot more damage in a war. We should be building diverse business relationships with competing economies.
Had you shorted the US stock market in 2000 on that prediction/hunch, you would be down a lot. The economy has moved beyond manufacturing. Data, payment, and information processing and intellectual ropery have taken over manufacturing in importance.
There is national security interest in being able to manufacture our own weapons, computers, and infrastructure components. Otherwise if a war happens we may be in trouble.
I wouldn't have shorted the market based on that but I've not been sanguine about the US economy since then. Financial engineering, not productivity[1], has really been the driver of our economy...
I agree, but this seems to me to be something which unfortunately requires a generational strategy to repair, and I don't see how any government that's possible in this country could achieve it. The time horizons aren't long enough and the incentives aren't aligned enough to permit even a credible start.
This monetary policy, and the consequent industrial policy ("free trade"), is, more than any other factor, the cause of the so-called "Great Stagnation." Its persistence is why the Great Stagnation is not over, despite some recent noises to the contrary. US growth will not resume until energy production does. With shale seemingly spent, nuclear too scary for most, and fusion perpetually 10 years off, growth is unlikely. The US will continue to "print" oil by printing dollars (h/t to Luke Gromen), care of Saudi Arabia, until it can't. The US will do anything and everything to ensure this continues, history is proof of that. When the US finally fails there will be a war. Not like Vietnam or Iraq or Afghanistan. A very, very bad war. And the winner will determine monetary policy for the next century or so.
It was done for 2 reasons and planned out by Paul Volcker, and there is a speech to go with it if someone can find it.
1) USD reserves allow us to import more value than we export so it offers a better standard of life for the consumer than otherwise.
2) It allows us to have a bigger consumer market than we would otherwise have and incentive for countries to partner with us to sell their stuff to. If you've lived outside the US you know every business wants to sell their stuff here either as #1 or just after their home market.
Under those purposes it seems to have worked very well. Of course theres the risks of crashes along with it too.
Tariffs just cause US buyers to pay more without much help. Tariffs have no way to make a US manufacturer competitive globally. US made goods would just be that 25% more expensive. At its best its a regressive subsidy from one set of Americans to another.
Why not just a direct subsidy to US manufacturing under the usual tax code?
This was actually one of the good things that I thought -might- happen with the Trump regime despite all the other negatives. Guess what, nothing happened :( . We're still losing the ability to make stuff which is very scary in a world that is becoming China vs. The USA . There is price that isn't easy to express in $ that goes with the national security lost through losing a manufacturing base.
The uncompetitiveness in manufacturing is due to two factors:
1. Regulations. Both the OSHA and EPA had a measurable negative impact on manufacturing productivity growth. [1] I suspect the most harmful regulations are those that constrain contract freedom by requiring employers to give unions a negotiating monopoly, aka collective bargaining, over any work unit where they emerge. This would devastate any of the bright spots in American industry today, whether it's Tesla, or Amazon, or Google. The threat of unionization also discourages these firms from expanding into areas that require employing high concentrations of less-skilled workers in immobile capital intensive projects, as these are the most susceptible to unionization.
2. The massive rise in social welfare spending [2], diverting capital from productive uses to unproductive ones.
I agree with some part of what you are saying, but tariffs are a miserably blunt instrument.
Think of the supply chain of something immensely complex like the Boeing 787, which has, quite literally, millions of parts (including LCD screens). Many if not most of those parts are imported. If there are tariffs on imports, either:
1. Boeing will pay tariffs, increasing the cost of each plane. Great for Airbus, bad for Boeing.
2. The parts are sourced locally instead. These parts will invariably be more expensive, as if there were cheaper local options, they would have been sourced locally before. Again, Boeing planes get more expensive, great for airbus, bad for Boeing.
3. Boeing, to avoid raising prices and giving market share to airbus, decides to move manufacturing outside the US.
What applies here for Boeing, is also going to apply to Tesla, Caterpillar, and hundreds of other companies. Tariffs create incentives to source locally, but they simultaneously create incentives to manufacture abroad. It is a very thin tightrope to walk and I haven't seen any evidence that Washington can.
On the topic of national security: “When goods don’t cross borders, soldiers will.”
I'm far less concerned about a war breaking out between two countries with healthy trade relations and cultural exchange. Do we want China to be our enemy? Why?
It's a bi-partisan issue. Hell, I would agree it's not even a exclusively US issue but is pretty much generalized throughout the west.
Shifting manufacturing to China makes absolute sense when you look and care about the the quarterly/yearly performance. And if you decide not to do it well tough luck because your competitor is and will have better results than you.
If you look at it with a 20/30 years perspective then it becomes obvious that outsourcing is completely the wrong move. You basically get rid of your local expertise, train your replacements, slim down your middle class (the folks buying the products!). Then your manufacturing partner starts vertically integrating and designing it's own competing products and you are pretty much left out of the equation. It's almost as if, thanks to support from the party, Chinese businesses can plan for 20 years ahead but western companies can't because they HAVE to maximize the quarterly results!
> I argued that, even in the presence of free trade, a country should have the ability to tariff imports to the extent that that country could maintain a 25% (or something) domestic market share.
Tariffs and trade wars seem completely useless to me when done between G7 countries because we're all in the same situation regarding China. To achieve any sort of paradigm shift we'd need to stop each having a 1:1 relationship with China and start negotiating as a block.
The article is wrong about that but not about other things. Overall is an interesting reading.
It's also interesting to see how step by step some myths are disappearing. For instance, the article recognize the importance of taxes as a main drive of giving value to a fiat currency.
David Graebers book “Debt” also argues, successfully in my opinion, that credit predates coinage. The first written documents from Sumeria support this view.
By the way, though I agree with your sentiment re history of money, his allusion to the progression of economies from barter to coinage to credit was really just an aside and not relevant to any other part of the article.
I did read the rest of the piece and found it very informative and enlightening, I highly recommend reading it, especially if you are interested in the nature of money.
Economists writing about the end of the dollar as a reserve currency is not a new thing. With the Fed printing money tho at record rates this would be the time for a shift to happen.
The problem is there is no alternative. The Euro has it's own structural issues and as we saw in March when folks got scared they sold alternatives like Bitcoin down hard. In short, there is no alternative without international cooperation to make a change which doesn't appear likely any time soonish.
There are two concepts here: medium of exchange and store of value. Currently the US dollar (and Treasury bonds) do both. It's unlikely that the US dollar disappears as a medium of exchange, though there are steps being taken here, such as China + Russia pricing their oil trade in yuan rather than dollars. Yet with M2 money supply increasing 25% in the last year and the DXY crashing by 10%, the US dollar is no longer a reliable store of value.
The larger shift is out of Treasury bonds into different reserve assets, such as commodities (oil, gold, alternative currencies). That one is very real.
Gold is not priced as a commodity and if everybody is starting to buy oil to store their value, it will stop being a commodity, too. The oil price would go up for a short moment, investments into renewable energies would increase and oil would actually drop in value after it had sucked up the value to be stored.
Can't the increased M2 money supply be interpreted as a move to stabilize the value of the dollar? Maybe the crisis made that increase necessary to maintain the value?
It was certainly a move to stabilize the stock market and Treasury market. However, having a reserve asset that steadily, stably climbs lower is not a store of value by any definition.
Lynn addresses your point directly if you read the article. She provides 2 options a slow and fast option. She notes, it is already happening, slowly. But it can also happen very quickly:
> On the other hand, a structural change could happen with a shock and stepwise change, like the end of the Bretton Woods system. This can happen in a few ways, but becomes more probable if the United States decides to actively promote a change rather than defend the status quo.
Energy will become much cheaper in the future. Every time a new solar cell improvement happens, your money would be worth less. Having those disruptions baked into your currency would make it almost useless.
(2) actually remains constant. If you use energy to pay for energy, then one unit always costs one unit.
But if the world energy production doubles, do you think that scarce resources cost the same? Prices of e.g. concert tickets or art pieces will adjust.
Some of scarce will become not so scarce as their availability limited by energy. Other will increase in price as they're limited by other factors. Same way as with inflation.
If you do not like it you're always free to by gold or whatever resource does not depreciate long term.
>Some of scarce will become not so scarce as their availability limited by energy.
Then those resources will cost the same in units of energy
>Other will increase in price as they're limited by other factors.
So why use energy to store value and not those resources? Of course I am free to choose gold on a personal level, but shouldn't it be the default strategy of every investor to not store value in energy?
Going back to your first comment:
>Everything we produce can be measured in / has energy cost. So maybe some kind of energy units should be the universal currency.
I can imagine that energy can be used as the unit for value transactions. For value storage however, it's the other way round: I think value has to be stored in assets that don't depend on energy.
Rats leaving the sinking ship that is the US dollar and all fiat currency seems to be happening very quickly. I hear almost everyone talking about it now, it isn't the loonies anymore. Money that isn't tied to whatever stupid policies your government has implemented will always be attractive. No one asked me if I wanted to prop up the stock market by printing ~25% of all US dollars that have ever been printed, in 2020.
I really don’t understand why a hacker community would consistently downvote crypto currency related comments. Can anyone explain it to me? Like, folks can build their own cpu so not to be controlled by big companies, but they all like using money controlled by some big banks?
People who appreciated the technology initially but changed their minds seeing it being driven by what people often consider a toxic community who hides behind the pretense of technology to make money.
People who think Bitcoin itself, despite the technology, is no good for it's stated initial purpose of being a peer to peer electronic cash system. Whether that's true even with additional layers like lightning remains to be seen perhaps.
People who either missed out on the rise, sold early or lost money trading it in the past. Frustrated or bitter perhaps, wanting to be right about Bitcoin so much that they've shut out any possibility that it will succeed.
And I guess people who don't quite understand the technology, purpose or possibilities Bitcoin and other cryptocurrencies bring to the table.
And obviously all the "tether scam" people.
There is positive and negative to cryptocurrencies, same as there is with the internet itself. Do we wish for the internet to fail (if somehow that were even possible) because it enabled mass manipulation of people through social media? Well maybe some people do but I think the vast majority take the good with the bad and some are working to try and solve these problems.
Will Bitcoin fail? I don't think it can at this point to be honest. Genie is out of the bottle, interest is there and it's getting more legitimized every day, whether it's through the direct actions taken by individuals, companies or institutions to further the entire space or through the inaction of governments who don't want to stifle innovation or possibly don't see it as the threat to the monetary system it could (potentially)_be.
Don't forget another type (of which I count myself among): those who think "proof of work" cryptocurrencies are an environmental disaster. Recent estimates place the energy used to mine Bitcoins at around the same as the entire energy use of Switzerland[1] and as each new generation of miner is created the previous generations become mountains of e-waste.
I've been surprised by this as well. I've always chalked it up to the fact that the average Hacker News commenter is likely a very rich Silicon Valley dev type that has a lot of USD stacked now and doesn't like to hear uncomfortable truths about money alternatives (no matter how cool and techy and decentralized and open source crypto is), now that they have a lot of it.
There is no correlation between FOMC and fiscal policy and the dollar. The dollar has strengthened since 2008 despite all this QE, stimulus, and other stuff that has gone on. I think the dollar is more like a proxy for US dominance in the world. If the US assumes a smaller role, likely the dollar will fall.
I personally dream that Ethereum 2.0 will be used as the basis for an alternative which is built on and readily exchanged with all the new major sovereign digital currencies. Or maybe somehow it will be based on carbon or energy although that is a long-shot.
This is perhaps the best written article on the current state and future of US dollar (and thus, America). As an avid follower of geopolitics and with exposure to both east and west, I've often had to work out where the future lies and the thoughts of this article appear to mirror mine.
Especially since Trump's election, I have always wondered about the future of America, not just socially but also economically. Trump's excessive use of sanctions and bullying comes at a major loss for future generations. And this line from the article elucidates it:
"However, when major powers like China, Russia, and India begin pricing things outside of the dollar-based system and using their currencies for trade, including for energy in some cases, the US can’t realistically intervene militarily, and instead can only intervene with sanctions or trade disputes and other forms of geopolitical pressure."
and
"Chinese officials have said on numerous occasions that their reliance on the dollar system is a security risk for them. Having surpassed the United States as the world’s largest trading partner and world’s biggest importer of commodities, China increasingly has an interest in being able to acquire commodities and perform global trade without dollars, which as we see with trading partners like Russia, or with China’s yuan-based oil futures contract, they’re increasingly able to do with small steps at a time."
The bullying is the last straw. A lot of countries are very independent and are only trading in dollars because of oil. Take that away with sanctions and the demand for dollars drops rapidly. Thus, US dollar doesn't need to be a major reserve currency, holding US dollars might even be a risk.
Had bitcoin not been deflationary, bitcoin could have filled this gap. More likely though is that the declining faith in American politics will force other countries to go back to a multicurrency system and thus, US will no longer remain the top dog.
I used to think losing US reserve currency was a bad thing, but now I see it as our responsibility to hand the world back their sovereignty. This could heal the planet more.
Yep. It's a trap that has allowed us to live an unusually high standard of living.
By letting go of reserve status, we don't need to go to wars, we'll get some manufacturing back domestically and less shipping from across the world.
Sure, we'll have to reduce our quality of life with smaller houses, smaller cars, denser towns and lesser "stuff" in general but that's not a bad thing necessarily.
So what if gas costs $7/gallon, we just need to reduce our consumption.
>This article places an emphasis on where the bottlenecks and problems have been forming in the system, explains why a continued weak dollar over a 3-5 year period remains my base case, and shows why some of these growing pains seem to be leading to a new re-ordering of the global monetary system over this decade.
3-5 years isn't really saying much especially given that the US dollar does not have much movement, and that this is effectively the same as being bullish on the Euro and Pound and Yen, which are the biggest competing currencies. I do not see any reason why those currencies will see a sudden inflow. That last time that happened was in 2002-2008, but that was when there are much more interest in foreign assets , whereas today foreign assets are shunned in favor of domestic assets and tech. Pensions, hedge funds seek safe US assets such as investment-grade corporates bonds and treasury bonds, not riskier foreign assets.
I do not expect any sort of fraying of the US dollar as the global reserve currency system though.
Some of the conclusions the author draws are wrong or dubious, such as the purported inverse relationship between the US dollar and corporates profits. The dollar surged in 2014 but corporates profits did not fall.
that probably suggests that the trend will likely reverse, not continue. I would be bullish on the dollar now. The dollar always has a tendency of snapping back violently when few expect, like in 2014 or 2017.
The collapse of the dollars strength and rise of crypto being thought of as 'a store of wealth' may lead to the next financial revolution.
Imagine a world where etheruem has enough market cap where it's volatility decreases, smart contracts for services are wide spread, everyone works free-lance giving the economy a inherent conflict of interest problem that rockets innovation forward while at the same time of having the effect of directly capturing some of the wealth you create by charging on a 'free-lance' model.
No need for the dollar, but it does change the inventives built into the system and will have radical effects on globalism.
I like the open, competitive, low-middle-man economic vision.
I'm not sure whether the volatility of ETH price matters much when stablecoins are readily available.
Generally: I'll switch to ethereum for daily spending when I can spend through a proxy that allows revert an erroneous transaction (e.g. a overcharge or wrong recipient), perhaps necessarily arbitrated by a 3rd party. It's just a little too stressful sending >$100-500 frequently w/ ethereum right now.
This week, I bought a little airbnb pre-ipo, then sold post-ipo through Ethereum->FTX exchange.
Also bought some 24 hr traded synthetic tesla stock on eth.mirror.finance. (completely anonymously)
Wild times. Hard to go back once you have a taste of financial freedom.
I don't think crypto will ever be used on daily spending, but could be better for 'contractual spending'. It won't ever be used for buying a coke, or anything like that (not saying it won't, just not it's actual purpose'. Things like employment, insurance, reccuring subscriptions, etc. It can A.) sometimes insure anonymity when wanted, complete visibility of reccuring spend and contract in place but employment is going to be the big transition is causes. Imagine upwork, but decentralized and written in airtight contracts to ensure performance.
But tbh your whole second blurb goes over my head.
>I don't think crypto will ever be used on daily spending
I agree, it's great of contractual/conditional speding.
But I think it'll be used for daily spending in the next 5 yrs.
My business receives payments via stripe where they take 2.7% fee. then i have to wait 2-3 business days to receive it in my account. I hate this & already offer a 2% discount when buyers pay my business in crypto. And a surprising # of my employees (~35%) would prefer to get paid in crypto.
My company just went through the exercise of deciding to be paid in crypto or not. Asked my accountant and they said it makes no difference tax wise.
In fact, if anything, it complicates taxes because it is just one more thing to track. I opted not to do this, despite being heavily pro-crypto. In fact, my company is in the crypto space.
I'm curious what your employee reasons are. Maybe if you aren't in the US, it could make more sense, but I'm not seeing it. Insight welcome.
“ What the next system will look like is an open question. I’ve seen multiple proposals. Whatever form it takes, it’ll be decentralized in the sense that it won’t be completely tied to any one country’s currency, since no country is big enough for that anymore. It’ll be based around neutral reserve assets, and/or a more regional-reserve model based on a handful of key country currencies, with an expanded variety of payment channels.”
No wonder Facebook continues to fight hard for their Libra / Diem project
> At this stage, instead of just blue-collar labor in America being hurt by the system, the geopolitical ambitions of United States hegemony are also subverted. As far as Americans were concerned, for 40+ years the petrodollar system used to work for the top half of the income spectrum but not really the bottom half, and now it neither particularly works for the top half nor the bottom half. It’s now a system without a purpose.
This is the article’s key insight. Dollar hegemony no longer works for anyone.
The Fed needs to support international payments in multiple currencies
and build its non-dollar reserves. Congress should prioritise domestic manufacturing and wage growth.
I'm here to tell you that Democrat controlled Congress will NEVER support the regulatory reforms necessary for domestic manufacturing to flourish in the US. At best, they will enact protectionist legislation that will result in a modest increase in US MFG, but nothing on the order necessary to make the US a major player in the global supply chain.
This doesnt gel with the (widely shared) idea that we're supposed to lead the world in terms of innovation and environmental protection. Why is it so hard to explain to people that if you lead the world by continuing to discount the value of having a livable environment, that where it gets you negates any benefits reaped from getting there?
And I here to tell you that regulatory reforms won't bring back manufacturing jobs because they aren't what's stopping them. The reason items aren't manufactured in the US is due to the dollar being so strong. That's what makes American products so expensive.
No regulation changes bring manufacturing back with this strong of a dollar.
I'm sure there's some good macroeconomists that get paid bags of money to be on the right side of the fence. They would not be dispensing their predictions for free.
Before spending the rest of the day reading articles on this site, I have to say this is a comprehensive and easily understood history for how the U.S. got to this point financially.
Being a cynic, I've studied many aspects of this system for some time. I have to say I'm shocked how obvious the PR has been for some of this stuff.
A favorite example is the Iraq war. Clearly a mafioso protection racket type of move. Nice country you got here, quit using Dollars and see what happens...
The 1970s in can be almost explained in the sense of a 1930s style run on the bank, except this time it's allies and foreign countries after their gold.
The Saudi benefit from attacking Iraq probably even mirrored what France thought it was getting in "French Indonesia and French Vietnam". You can almost imagine a scene playing out between French and U.S. diplomats where the French ask for their gold and the U.S. goes, "well... here's the thing about your gold, tell you what let us call it even and we will spend a decade or more at war for you? Deal?"
The entire thing is absolutely crazy and the way it is taught to average people is complete bullshit.
Luckily none of this has any military implications.
All the people who have dollars or bonds will be happy to see their money evaporate. And no one will be concerned if the US defaults, because they have nothing of value anyway worth liquidating or foreclosing.
And we could never have another global war. We are completely passed that now of course. All of the recent wars have been totally isolated incidents, mainly caused by evil dictators.
This was a fascinating look at the history of a subject i must admit i know very little about.
However the author lost me a bit when he started talking about bitcoin. I get why bitcoin might be appealing to a country like Iran with cheap energy and sanctions preventing them from participating in the world economy. I also get why it would be appealing to individuals in developing countries with unstable local currencies, and perhaps limited access to harder assets. I don't get what the benefit would be to national reserve banks and finance between countries in the general case, where special circumstances (like Iran) don't apply.
I'm just a simple bear, so I don't understand any of this stuff. (I comfort myself knowing I'm in good company.)
Skim reading this, I provisionally label Lyn Adlen as an advocate of monetary policy.
As every one knows, abandoning the gold standard, adopting fiscal policy, makes monitarians anxious.
Over time, I'm leaning towards a refreshed Keynesian view: empire means huge military means deficits. Both trade and federal.
I'm not a classical Liberal or a Neo-Liberal. I'm just saying Keynesian and MMT notions seems like useful metaphors for understanding the current world.
--
Lyn Adlen does mention petrodollars. But doesn't provide a clue to what comes next.
Rare earth dollars? Gigawatt hours dollars? Some kind of PoW (and therefore measure of energy) crypto coin?
Does it even matter? Are petrodollars just a shibboleth for monetarians that can't accept there's "no there there" when money became fiat?
366 comments
[ 1.8 ms ] story [ 278 ms ] threadWelcome back!
Can you provide any context regarding why this article made the cut, when nothing did for 7 years?
Sorry if it's a bit off topic; it's just an interesting circumstance, and I'm curious.
I know we aren't supposed to talk about this per HN guidelines, but this is just too blatant. And yes, I've already emailed hn@ycombinator.com.
Last comment on the account: 2012
Last post on the account: 2013
7 years of inactivity
This post
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If it were them coming back to their old account, given how regularly paulsb commented while still active, you would think there'd be at least a few recent comments showing some kind of ramp up in re-usage of the site.
I'm familiar with it for, say, ebay, and at least indirectly familiar with it over reddit, but hn is a new one to me.
I think the US Dollar is going to crash.
You can't say this in polite society, or silicon valley, but you can say to invest in Bitcoin because it's a superior ponzi scheme to all the rest.
"As of this year, the US Federal Reserve (blue line) now owns more Treasuries than all foreign central banks combined [..]"
So, if your debt is to the Federal Reserve, how much debt can you accumulate before it's too much? Does the question even makes sense?
Total treasury supply has nearly doubled this year, and yet foreign owned treasuries is only up 2% - meaning The Fed has bought close to 98% of it [1].
There is no treasury market. There is only The Fed. Considering that this market is about 30% of the size of the entire US economy, this should probably concern people. That's a large part of the US economy to be price fixed. Especially when you consider this essentially fixes prices for the housing market.
[1] https://seekingalpha.com/article/4379154-fed-is-almost-out-o...
Do you plan on shifting your investment strategy?
I currently have the majority of my portfolio in stocks in Australia, Sweden, Japan, Switzerland; in residential real estate, and in puts on overvalued tech stocks and TLT.
Consider that the "proof of work" of fiat currencies is taxation + inflation (which wipes 1/2 of all your productivity), and you'll quickly realize that Bitcoin's PoW is considerably more efficient.
Also, Gold, Silver and other precious metals are more expensive to mine than Bitcoin, when measured on a store of value basis.
That "structural deficit" means allowing manufacturing to move overseas.
The trade war is a distraction. Trade imbalances with the rest of the world could be solved very quickly by making it clear the the dollar is going down in flames and that policies will be put in place to make that happen:
1. massive federal budget deficit spending
2. purchase of all the debt by the Federal Reserve (yield curve control)
Holders of bonds would be absolutely wrecked. That's a lot of institutions and wealthy individuals.
The only question is whether the political will to do this can be mustered. So far it hasn't.
The world has moved beyond tying the value of our currencies to material goods. Digital "coins" aren't any better, and the same group of fringe types who push the gold standard have taken that over as well.
Addition: Every historical case of a government switching to fiat currency has resulted in runnaway inflation. The reason that gold and silver are the only constitutional money is it forces the government to do the right thing. No gold standard permits those in power to manipulate the currency for whatever reason they wish. The rules should force the wrong people to do the right thing. Relying on people in power to do the "right" thing will always fail.
Moreover your historical argument is weak. By analogy, we should also not have government, because every society that has formed a government has failed to keep it: Every government falls, eventually, be it Rome or the Aztecs.
1970 $1 is equal in purchasing power to $6.71 today. There is no indication from the Fed that this is going to turn around. With the rate the Fed is pumping out dollars, runnaway inflation is a near certainty.
Inflation does encourage spending. But, it also discourages saving. Everybody wants to get rid of their paper before it becomes worth less. Saving is a healthy part of an economy.
If you want a long term store of value, choose a commodity, or gold I guess.
Not only institutions, but those who are in power (government) who have risk-tolerant positions in the market with nothing to gain but their own discomfort and retirement.
If you have a non-austerity solution that doesn't assume infinite exponential economic expansion I'm all ears.
Defaulting would screw a lot of institutional pension investors, while a lot of the super-wealthy could just dodge into less vulnerable assets, potentially worsening wealth inequality.
As such, inflation gives an economic advantage to those who receive the new money sooner, and the consequent higher prices harm those further down the flow.
In short, and contrary to the implication of the above comment, inflation benefits banks and corporations (and by extension, the wealthy and powerful), and harms workers and those on fixed incomes.
If we inflate via UBI, those on fixed incomes wouldn't be hurt unless it was a fat fixed income, in which case it's disingenuous to refer to them that way since they're basically just independently wealthy, and most people think of fixed income means pension/disability.
Thankfully I wasn't saying that. I was disagreeing with your claim that "[inflation] hurts you in direct proportion to how well off you are", arguing instead that:
1. inflation benefits those earlier in the flow of new money, and
2. at present, that new money enters the economy via banks, etc.
> If we use UBI to inflate the currency...
Indeed, this depends on #1 above: change how new money enters and propagates through the economy and you change the wealth transfer effects.
The central bank does an IPO and sells UBI tokens at a fixed price. Say $100. If you own at least one token then you will gain a dividend of 1 UBI token per month. To prevent abuse there is a government run exchange where this token can be bought on that verifies your identity. This means you are heavily incentivized to sell your tokens to other people for less than $100 yourself. It's basically an "anti" asset. It's relative utility shrinks the more you own. The central bank then can buy tokens back at any price it desires. The beauty of this system is that the wealthy are a minority so any money that the central bank distributes by buying UBI tokens will primarily go the less wealthy because they are the majority. Since you get one token per month and the central bank can set the minimum value of the token it is effectively a UBI. If consumer inflation heats up the central bank can always stop buying tokens because it isn't a true UBI that people depend on.
Yes but going by central bank policy that money isn't supposed to end up in their hands first. The goal of the central bank is to increase consumer inflation. Of course the actions of the central bank don't match their stated goals but this is primarily a policy failure. The rest of the government is supposed to use the cheap money to increase demand for labor through public spending. It's completely failing to do so.
This seems opposite of reality. During inflation, prices of assets rise, as the currency with which to procure them becomes devalued; those who possess assets are in a much safer position than those who exchange their labor for currency, since inflation will happen far more rapidly to the necessities of life (food, shelter, etc.) than to wages.
Cf. the price of houses, cars, etc., in the U.S. and worldwide vs. the corresponding increases in wages.
Stocks will rise in response to inflation, but that will result in additional taxation since the initial investment is uninflated.
If the money arrives on the consumer side first then asset inflation will follow but only after consumer inflation has caught up. All the asset inflation that happens will be caused by productive growth. Encouraging the wealthy to get rich off the backs of rich workers is exactly the situation that we want to achieve. Right now they have no need for domestic workers because the central bank tap is wide open and workers in China manufacture all the widgets (such as iPhones) they need.
I think you misunderstand ...
Generally speaking inflation can be managed and avoided by asset holders and business owners. They can adjust their rents and prices to match the inflation in a way that wage earners and renters cannot.
Generally speaking it is deflation that hurts asset holders and business owners. We have made desperate attempts since the financial crisis to stave off deflation and even then we're barely treading water. Financial assets and real property (and also silly things like paintings) have benefited but look at the price of oil ... look at the price of other basic commodities and services like shipping.
Our 21st century landscape is deflationary and elites are frantically doing everything possible to avoid it.
If there is consumer inflation you can't manage inflation in a way that doesn't productively employ workers. If there is asset inflation you can have an unproductive business and still grow without doing anything of value. The latter is what many people object to. The former would benefit workers far more than it would benefit the rich. If your wages increase by 10% but Bill Gates' net worth merely catches up with inflation who gives a damn? If you can somehow double the income of the poorest members of society then you effectively cut the relative wealth of Bill Gates' in half. He has more to lose from expensive workers that demand reasonable salaries than he can gain from catching up with consumer inflation.
>Generally speaking it is deflation that hurts asset holders and business owners. We have made desperate attempts since the financial crisis to stave off deflation and even then we're barely treading water. Financial assets and real property (and also silly things like paintings) have benefited but look at the price of oil ... look at the price of other basic commodities and services like shipping.
That would be true if there was no central bank intervention. But the central bank is intervening in a way that gives the rich what they want without giving anything to the poor. Deflation on the asset side basically doesn't exist.
So inflation is irrelevant for the little guy, and easily dodged by the rich, leaving the middle-class to get shafted.
It doesn't work that way. If you want to protect yourself from inflation you have to deploy that capital productively or alternatively be close to the source of the inflation (the central bank). If you are actually doing productive work then workers will see their incomes grow and if workers are underpaid relative to assets then wage growth will continue until both assets and incomes are roughly on par. After that assets will keep up with inflation. The benefits to workers massively outweigh the benefits to asset holders.
When you consider that the central bank is just blindly handing out money to public companies it's basically the opposite. It's actually perverting and distorting the economy because the money isn't going where it is truly needed. If you are rich this is what you want. You want to have lots of money and a workforce that works for peanuts to make your relative wealth even bigger.
Can't they (and this is an honest question) do well by locking their income into things that will get more expensive, when measured in currency? Sure their purchasing power will fall, $ for $ with everyone else's, but by selling that real property when needed they'll have more of those $s than people who rode the currency into the ground. Right?
This is the opposite of true. In practice, inflation is wealth transfer to the upper class. Inflation benefits debt holders, the people who are most levereged (with debt) into inflation proof assets are those who are rich.
It may be counter intuitive (it actually isn't, it's perfectly logical) but inflation is merely what happens when demand exceeds supply. This means if you constantly increase demand for labor you will get to see consumer inflation. Since there is barely any consumer inflation there is very little demand for labor. This isn't surprising because a lot of the jobs are now abroad and domestic training opportunities are poor (companies don't provide them) or inaccessible (college is expensive and time consuming). If you could somehow make every American highly educated so that they can work in the highly profitable sectors of the economy that remained (there is no shortage of those) you would still get to see decent economic growth (2% YOY) in developed countries. The reality is that not everyone can get such a job and some need a secondary career after they lost their first. Since there are not many low skilled jobs that can't be done abroad there is little demand for these workers. If you can increase consumer inflation you will directly increase the wages of those unneeded workers because the consumer inflation is excess demand for (low skilled) jobs.
> the people who are most levereged (with debt) into inflation proof assets are those who are rich.
Yeah but here comes the trick. If there is consumer inflation the only way you can make your assets inflation proof is by productively employing workers. If you are owning real estate then the value of your assets will grow but only insofar that workers can afford to pay rent.
The rich won't make money off of sitting on assets, they will make money off of using those assets productively by renting them out. In our current twisted reality you can often make more money off of just letting the property sit empty so that you can have a quick sale 5 years down the line. The idea of unused real estate growing in value is insane but it only happens because there is asset inflation and mismanagement by the central bank.
Inflation can be managed.
That's a lot of institutions and wealthy individuals. That's also a lot of people with 401k's, college savings for their kids, pension funds, and non-profit endowments.
I have a feeling that most wealthy individuals and institutions will be just fine, it's the little guy and middle class families that will feel the pain, as usual.
(And the answer is, some are and some aren't, but it's not a clearly good idea.)
At equilibrium, a weaker or stronger dollar doesn't affect exports, it's just an exchange rate. What can affect exports is a weakening dollar.
In an inflationary disequilibrium, exports increase only insofar as foreign consumers are able to purchase domestic goods before those goods' prices have adjusted to inflation. In other words, exporters are unwittingly selling their goods for a lower price.
Absent inflation, exporters could have chosen to increase exports by intentionally lowering their prices. That they didn't suggests something about their marginal costs.
With inflation, the exporter has a similar benefit over its suppliers as the foreign consumer has over the exporter, namely buying goods with new money before prices have adjusted. As such, the exporter's suppliers are also unwittingly selling their goods for a lower price.
Whether this is beneficial depends on where one is positioned as new money propagates through the economy. Banks get it first, then to their borrowers, other financial institutions, and so on. The losers are those at the tail-end, who face higher costs but have not yet had their own prices bid up with new money: wage workers, those on a fixed income, etc.
The net effect of all this price manipulation is a wealth transfer from those who receive the new money later to those who receive it earlier.
> currency manipulation, is equivalent to a tariff or an export subsidy
While an export subsidy can also increase the quantity of exports, the larger economic impact of intentionally weakening the currency through inflation is very different.
I mean, labor prices won't move quickly, and existing capital equipment was purchased with stronger dollars, but eventually new equipment will be needed at higher cost, and people will demand higher wages to meet their previous spending power, and anyway, american manufacturing tries to reduce labor as far as possible.
Germany is a weird corner case where the entire reason for the Euro is to allow them to keep their currency artificially weak by using the rest of Europe's economy as a place to dilute their export power. The DM was getting relentlessly stronger against the USD and Sterling and when the conversion to Euros happened, major holders of DMs got absolutely hosed.
You can spend them, I suppose. The article mention they doing it now with the Belt and Road program.
You are right about the Euro. It's not the reason of the existence but it's the result.
US consumers will get fucked with a weaker dollar. Imagine having to pay $7 a gallon for oil instead of $3.
There is another consequence. A lot of other countries will become "rich" all of a sudden. Which means they won't use US dollar as a medium of exchange and America would have to "earn" by exporting. Which means people will have to work a lot more to produce more for exports without consuming ourselves.
If USD devalues too much (but is still reserve currency), other countries will become richer aka, they can buy more dollars for fewer of their own fiats. Which means they can import more oil by converting more and more of their fiat to dollars. Which means demand for oil internationally will go up while supply remains about the same, causing price of oil to go up, regardless of where it is produced.
If USD devalues and other countries decide to abandon the dollar for trade in favor of say Oil-coin, US will lose access to international oil until it "earns" oil-coin somehow. How does America earn oil-coin? By exporting something. Since America can produce so much oil, the producers will try to export oil for oil-coin. Which means increased global demand and thus rising prices again.
US could shut down all exports of oil and only use it domestically and shun oil-coin entirely. But this means that
a. US can't import other things because of lack of oil-coin. So we will suddenly have severe shortages. Oh a bad disease in one year caused all potatoes in America to die? Tough luck sustaining all the food processing and chips companies. They can't do a stop gap import potatoes since we don't have any oil-coin. You can expand this experiment to all kinds of things such as stent-valves, rubber for tires, coffee. Our rich lives are truly there because other countries are working for it.
b. US energy supplies will be limited by domestic production and domestic supply and demand characteristics. Oh, we have such a great economic boom that increased oil demand but a few oil wells are down for repairs a few quarters? Boom, spike in oil prices again despite being self-sufficient. Another recession beckons since industries can't function with such high oil prices.
This globalization thing is not very simple. It may have caused a lot of grief, but it's also a very good distributed system that's preventing us from going back to shortages like medieval times. We're not dying just because there's a 2-3 year span of famine any longer because there's always somewhere else to get it from.
In the oil price example, drop in value of USD could cause prices of oil to increase (by how much? We don't know. There are entire commodities industries who hire quants to figure this out every day).
Assuming price of oil increases by 10%, price of chicken feed would increase by a%, causing an increase in price of chicken by b%, causing an increase in price of shipping chicken from farm to factory by 10%+a%+b%, the factory whose workers need higher wages now (by a total of c%) because of higher cost of living, factory will now have to sell their chicken for 10%+a%+b%+c% to a shipper who will need to pay another 10% who will pass this cost on to McDonalds who will have to pay 10+a+b+c+10 to get a chicken patty.
The dollar menu suddenly become a $5 menu.
As contrived as this example may sound, this is the reality in many "emerging" markets and smaller developed markets. We are so oblivious to real inflation and price fluctuations simply because we are used to getting stuff for cheap from whereever it is available because we can import any time. No shortages for any industry or any consumers here.
While I agree that having healthy domestic manufacturing is good, we need to be careful what we wish for because losing the reserve currency status is the last option of them all. It's truly devastating and you only need ask United Kingdom and how they lived for decades with rationing in order to pay debts and earn foreign reserves.
https://www.statista.com/statistics/204740/retail-price-of-g...
https://www.macrotrends.net/2548/euro-dollar-exchange-rate-h...
> We, and also other countries, can have fairly big currency changes without much internal inflation or deflation(can depend on country size). A number of countries have actually deliberately devalued their currency in order to encourage growth.
This is all applicable to the reserve currency or massively exporting countries. Not to importing countries, which the US is. The US cannot stop importing without causing massing inflation at the retail counter. No more $10 t-shirts and $100 sport shoes if they are made here.
I would recommend reading the article to truly understand how subsidized our lifestyle is.
To me, this is the money shot. I hadn't seen this expressed before and it makes perfect sense. I'm baffled that we (the US) caused this to happen to the US. I'm (unhappily) registered Republican but I argued vociferously to a Dem friend in 2000 that our inability to manufacture critical components was going to kill us. Kind of literally: AFAIK, the last LCD panel manufacturer in the US closed around then and we could no longer manufacture LCD for our military vehicles... (Even if this anecdote is untrue, the point remains valid...) I argued that, even in the presence of free trade, a country should have the ability to tariff imports to the extent that that country could maintain a 25% (or something) domestic market share.
I wouldn’t say globalisation is dead more that it’s going to be more balanced going forward with local concerns.
He didn’t do anything that actually slowed the loss of our manufacturing base while president.
https://data.bls.gov/timeseries/CES3000000001
Cutting funding to certain CDC programs may also have been detrimental.
https://fortune.com/2020/02/26/coronavirus-covid-19-cdc-budg...
This is what Australia did. Except that some of the measures they used may have been unconstitutional in the US, and Australia is an island. The US has 4500 miles of porous borders with other countries.
And covid spreads asymptomatically, so the only way to get to where Australia is now is to get the number of cases down to basically zero. Which you can't do if you get 40 more from Mexico every week.
Notice that Australia is basically the only country that has managed to succeed with this; western Europe is doing little better than the US.
> Cutting funding to certain CDC programs may also have been detrimental.
This is fake news. The budget cuts were proposed (as a starting point for budget negotiations with Congress) but never actually enacted:
https://www.factcheck.org/2020/03/democrats-misleading-coron...
> Disparaging mask use is also generally considered to be harmful.
For that you can thank CNN. They were writing a national story every time Trump would appear on camera without a mask, even if he was giving a speech to a camera with no audience or was in a room with entirely people being covid tested every day. This predictably led to Trump supporters defending him and it becoming a partisan issue.
It also didn't help that the CDC was disparaging mask use early on, ostensibly in order to preserve PPE for medical professionals, which gave everybody plenty of ammunition to fight about it once CNN had made it partisan for no good reason.
It may be inaccurate news, but calling it fake is needlessly hyperbolic. The contention isn't that overall funding was cut, it's that certain groups within the CDC saw significant cuts, and those cuts reduced readiness.
https://mobile.reuters.com/article/amp/idUSKBN21C3N5
Regardless of whether Trump's missteps were politicized, they were still missteps. Doubling down on something after someone calls you out doesn't make them responsible for your actions.
Contagions have exponential growth. 40 people coming from Mexico after you've lifted the lockdowns means you need to continue them to keep the 40 from turning into a thousand and then hundreds of thousands. Which means lockdowns of the severity Australia used are useless here because you can never get below the floor necessary to lift them again.
> The contention isn't that overall funding was cut, it's that certain groups within the CDC saw significant cuts, and those cuts reduced readiness.
The problem with this kind of claim is that it's always the case. Priorities shift, staff gets reassigned etc. Which means that of the 1000 different units, 700 of which grew and 300 of which shrank, you'll be able to find in the list that shrank something that sounds like it might have helped against a given problem. It's just cherry picking.
> Regardless of whether Trump's missteps were politicized, they were still missteps. Doubling down on something after someone calls you out doesn't make them responsible for your actions.
The point is that they weren't missteps. Calling out someone for not actually doing something wrong in order to stir up controversy and ratings and politicize a public health issue is contemptible. Defending yourself against a baseless personal attack is not.
The problem, which CNN should have been able to predict, is that if you politicize an issue, people take sides, even if there was never any reasoned disagreement to be had. But maybe they did predict it and did it anyway, so that when less savvy political opponents predictably started making less supportable claims, it would give the instigators something to shoot down and mount on their wall. Even if people died.
What a straw man. You realize there were photos of daily meetings with large groups, bill signings, news reports on how masks were barely worn in the white house. Yes he didn't wear masks as press conferences because they entire administration was lax about mask usage. And then for you to argue and only mention the press conferences is extremely disingenuous.
And that's separate from the Mexico argument. To me, it's incredible how little responsibility certain groups of people take for their own actions. A political party that has continuously downplayed the cheapest, low effort, low cost method of stopping the virus, instead again tries to blame Mexico instead of taking responsibility for their own actions.
You're missing my point. They would follow him around with a camera and any time they could show him without a mask there would be another story, regardless of the facts or the context. They would write the same story whether or not he was doing anything wrong in that instance.
That's a recipe for creating partisan conflict. They write the story when he's not doing anything wrong and then people correctly defend him. The existence of true instances are not a defense to reporting false ones. Because this is basic psychology; once people start defending something they keep doing it. So they created a large population of people willing to defend not wearing a mask. It was totally irresponsible.
It's the old saw about how the best way to discredit an idea is to defend it loudly with transparently erroneous arguments. That's what CNN were doing throughout.
> And that's separate from the Mexico argument. To me, it's incredible how little responsibility certain groups of people take for their own actions.
Please pay attention to context.
The argument I'm making is that the severe lockdowns as used in Australia could not have been as effective here because they only work if you can close your borders in practice, which Australia can do and the US can't. We're not even talking about "low effort, low cost" methods -- the argument is that higher cost efforts, of the sort that could actually get the number of cases to zero, couldn't have worked here. Even if the US put everyone in solitary confinement for a month, attempting to reopen the day after that would have still seen dozens of new cases.
That is a different argument to the one that more severe extended lockdowns would have saved lives. Which might very well be true (though against some grisly trade offs), but it's no support for claiming that it would have been better for US manufacturing in 2020, which is ridiculous.
Trump's so-called China ban was a farce. It didn't stop USA residents from flying into the USA, it didn't even stop the immediate family of residents from flying to the USA.
Australia closed all travel from China initially and later from everywhere else in the world. There's plenty of room for criticism as they also stopped Australians from returning home, but the results are tough to argue with.
https://www.youtube.com/watch?v=hdgkdLSwh88
To be fair, Trump has been saying that since the 80s... Of course that didn't stop him from manufacturing in china himself. The guy talks the talk but rarely walks the walk.
> He didn’t do anything that actually slowed the loss of our manufacturing base while president.
And that's why he lost. But boy did he make israel safe. How many arab states did he force into recognizing israel? 4 or 5?
Trump's achievements were making israel great again and forcing mexico to extend intellectual property rights by a few years so that he can selling his "Trump" name in mexico for a few more years? Not that things are going to get any better with biden.
But then again, it's naive to think the president hold any true power. The power are held by those behind the scenes. Politicians nowadays are entertainers to keep the populace distracted. Presidents come and go, but the powerful remain.
Come on now. Say what you will about the effect of the tax changes on inequality, they're clearly designed to make it more attractive to do business in the US, e.g. lower corporate rates and allowing capital expenditures to be deducted immediately rather than amortized over a period of years. It's hard to argue that tariffs on goods from China don't make it less attractive to buy goods from China.
It's true that tariffs will make buying goods from China less appealing, but if you look at the outcome, it's not really a win. Consumers are paying more for the same goods, companies are scrambling to move their production to India and Malaysia, and there's not a significant increase in US manufacturing.
A properly executed initiative to increase US-based manufacturing would address all of the factors necessary to restart manufacturing:
- Not only tax cuts, but subsidies and investment aimed at increasing manufacturing in specific industries
- A concerted program to identify labor and skills shortages, and address them
- A program to identify the missing parts of manufacturing ecosystems and address them. One reason why electronics are made in China is not only cheap labor, but access to a whole ecosystem of suppliers and other manufacturers. Need one million PCBs assembled, plastic casings made, half a million cardboard boxes printed, instruction manuals printed and bound, well, there's a whole ecosystem of partners ready to get all of these things done with the capacity to have a relatively short turnaround time.
- A clear bipartisan commitment that this is something that won't get deprioritized or axed one or two administrations later, but something that is of national interest and that both parties agree to push forward
- A national focus on a key differentiator from other countries' manufacturing. China has cheap, Japan, Switzerland, and Germany have good, the US has big and sturdy maybe?
- Tariffs to protect newly formed manufacturing businesses, but only in conjunction with all of the above
This is what a solid plan for restarting US manufacturing would look like.
If you look at the actual outcome, it was that China devalued their currency or otherwise lowered prices to eat the tariffs, because their nightmare is manufacturing getting a foothold anywhere else, whether it's India or the US. Which is a win for the US because we have China paying us billions of dollars in tariffs without paying significantly higher prices for goods.
That doesn't help US manufacturing directly, but it gives the US a lot of leverage in trade negotiations because now China wants that situation to stop happening. And in the meantime the money can be used for tax cuts or subsidies to US businesses.
We could also just raise the tariffs more, for as long as China decides they want to keep paying them instead of letting them push manufacturing out of China.
> Not only tax cuts, but subsidies and investment aimed at increasing manufacturing in specific industries
Tax cuts and subsidies are equivalent. And it's not clear why targeting specific industries is useful rather than giving the same incentives across all industries.
> A concerted program to identify labor and skills shortages, and address them
Address them how? With more subsidies, which is really just equivalent to tax cuts again? This is the sort of thing markets are better at than governments.
> A program to identify the missing parts of manufacturing ecosystems and address them. One reason why electronics are made in China is not only cheap labor, but access to a whole ecosystem of suppliers and other manufacturers. Need one million PCBs assembled, plastic casings made, half a million cardboard boxes printed, instruction manuals printed and bound, well, there's a whole ecosystem of partners ready to get all of these things done with the capacity to have a relatively short turnaround time.
This is certainly a problem, but it seems to imply the opposite of your other proposed solutions. You would then not want to target specific segments but rather have broad incentives to engage in all different kinds of business activity, i.e. general tax cuts.
> A clear bipartisan commitment that this is something that won't get deprioritized or axed one or two administrations later, but something that is of national interest and that both parties agree to push forward
This seems like something you need Democrats to do rather than something you need Trump to do.
> A national focus on a key differentiator from other countries' manufacturing. China has cheap, Japan, Switzerland, and Germany have good, the US has big and sturdy maybe?
What does this even mean? Countries don't need to differentiate like this. How is it even differentiation when three of the four countries you listed are using the same one?
They're not. One can't cut taxes below zero, for starters. Some industries need more than just having negligible taxes to get started, especially in capital intensive businesses.
Furthermore, the idea that the only lever that the government has to induce people to do things is lowering taxes is completely absurd. Tax cuts didn't build the Hoover dam, the interstate highway system, nor send a man to the Moon.
The government can use targeted investments, messaging, procurement, tax cuts, and so on in order to move people towards certain outcomes.
The day that the US government announces that they'll buy 100 million masks a month for a strategic reserve or replace all of the mobile devices for all federal employees, as long as they're at at most a 50% premium over the cheapest option and are fully traceable from raw materials to finished product as being fully built in the US and allied countries, is the day that people will start investigating if it's possible to do so, and start trying to do so if it's possible.
> This seems like something you need Democrats to do rather than something you need Trump to do.
It takes two to tango. Many other countries are able to pass laws and make progress, even in complex multiparty negotiations during minority governments.
You might want to check with the IRS, since that's exactly what the EITC does. It's also the de facto result when a company takes a tax loss (e.g. from deducting more expenses than it had in revenue, common for startups) and can then sell the tax loss to another company to offset its tax burden.
> Tax cuts didn't build the Hoover dam, the interstate highway system, nor send a man to the Moon.
As opposed to Tesla's plant at Niagara Falls, or the various privately-owned rail networks in the world, or SpaceX?
> The day that the US government announces that they'll buy 100 million masks a month for a strategic reserve or replace all of the mobile devices for all federal employees, as long as they're at at most a 50% premium over the cheapest option and are fully traceable from raw materials to finished product as being fully built in the US and allied countries, is the day that people will start investigating if it's possible to do so, and start trying to do so if it's possible.
But that's actually more expensive, and less productive, than just making it more cost effective to manufacture things domestically than somewhere else, because domestic production has low taxes and efficient regulations and production in countries that engage in currency manipulation or have inadequate environmental protections are subject to tariffs.
> It takes two to tango.
That's the problem. It doesn't matter how willing one side is to negotiate if Democrats are too busy fabricating lies about Russia collusion to come to the table. Compromise requires both sides to be reasonable.
The EITC is for individuals that have low incomes, AFAIK. Can you elaborate on how the EITC would increase the amount of US manufacturing?
> It's also the de facto result when a company takes a tax loss (e.g. from deducting more expenses than it had in revenue, common for startups) and can then sell the tax loss to another company to offset its tax burden.
Can the tax loss be sold separate from the legal entity itself?
> As opposed to Tesla's plant at Niagara Falls, or the various privately-owned rail networks in the world, or SpaceX?
Are you saying that without the TCJA, none of these would have been built?
> But that's actually more expensive, and less productive, than just making it more cost effective to manufacture things domestically than somewhere else
Making it "more cost effective" through tax cuts helps existing businesses, not starting new ones.
If a business needs $10 million in capital to buy the machinery necessary to make widget X, and has to compete with an existing factory that produces equivalent widgets and has paid off their existing machinery, how can they compete? The existing business already has relationships with suppliers, customers, and distributors, and if the new entrant looks like it will be trouble, they can just cut their profit margin such that the new entrant will be struggling to cover the extra expenses associated with building all of those relationships while paying off the loans to acquire the machinery.
Heck, both of those businesses could reduce their profit margins to zero, with both having an effective tax rate of zero, and only the established one would be able to effectively compete due to lower costs.
> That's the problem. It doesn't matter how willing one side is to negotiate if Democrats are too busy fabricating lies about Russia collusion to come to the table.
Or one could say that the Republicans are unwilling to play ball as well (eg. over COVID-19 related stimulus). The fact is, whether one party is at fault over the other, Americans and US businesses are paying the cost of the lack of bipartisan initiatives to improve the state of US manufacturing.
The EITC is an example of a "tax cut" that allows for negative tax rates.
> Can the tax loss be sold separate from the legal entity itself?
Actually selling the tax loss is generally only done for defunct companies, since a company expecting a future profit would just keep it in their pocket to use themselves later. Although you could probably still do it if you wanted to by splitting the company in two and then selling the one that "owns" the tax loss or something similar.
> Are you saying that without the TCJA, none of these would have been built?
I'm saying that private entities can build things like that.
> If a business needs $10 million in capital to buy the machinery necessary to make widget X, and has to compete with an existing factory that produces equivalent widgets and has paid off their existing machinery, how can they compete?
The real issue is that if you add a factory, you could be in a situation of overcapacity, and then you're locked in price competition and selling at thin margins, which nobody likes.
The secret is this. Factories have a finite lifetime, e.g. 30 years. So you have an incumbent that has paid off their factory. It's 28 years old. You pay $10M to build a new factory, today. They're going to drive prices below your cost for two years, but then they're going to have to build a new factory themselves... and bow out, because the alternative would mean being locked in unprofitable price competition with you for another 28 years. So you win the market and can go back to charging profitable margins. You just have to time your entry right, i.e. finish your construction just before they start on theirs.
Assuming you're even two different companies. Otherwise you just build your company's new factory in the new place whenever the old one in the old place is ready to be mothballed.
> The existing business already has relationships with suppliers, customers, and distributors, and if the new entrant looks like it will be trouble, they can just cut their profit margin such that the new entrant will be struggling to cover the extra expenses associated with building all of those relationships while paying off the loans to acquire the machinery.
To some extent this is also just a war of attrition. If a new entrant causes oversupply for any reason then it persists until somebody goes out of business. This has more to do with who has more money they're willing to set fire to in order to capture a given amount of market share than who was in the market first.
One way to help your people win is to ensure cheap access to capital (i.e. low interest rates), but that's already there in the US.
> Or one could say that the Republicans are unwilling to play ball as well (eg. over COVID-19 related stimulus).
It was your impression that the Republicans were the ones holding this up? They had every political incentive to accept any reasonable bill before the election, and even now to do it before the inauguration in order to take credit for it.
> The fact is, whether one party is at fault over the other, Americans and US businesses are paying the cost of the lack of bipartisan initiatives to improve the state of US manufacturing.
On this we agree.
This already exists, it's called a refundable tax credit.
Can you tell my suppliers this so they stop passing on 50% of the cost of the tariffs onto me please? They don’t seem to have gotten your memo that the Chinese are paying the tariffs instead of the consumers.
I literally have “import tariffs” as a line item on all my invoices that relate to goods manufactured in China. Every single supplier appears to be colluding to increase their profits, if what you’re saying is true.
The alternative is that tariffs are actually driving up costs unnecessarily.
As an aside. Most US based businesses have already moved on. It seems that alot of European-run businesses are laggards
Disagree. I think this is small minded. So you add a tariff on chinese goods. If they are not the cheapest, then you buy from elsewhere... which still isn't the USA.
And then China does the same thing: retaliating with tariffs, and then buying goods from elsewhere, which isn't the USA either.
So in this game, tariffs probably hurt businesses in both countries.
And, anecdotally: I still buy products from china. More today than 4 years ago. The products for sale on Amazon are often just chinese imports that have been marked up or re-branded. I think it's the exception, rather than the rule, that tariffs did anything positive for someone.
But that's still good. It provides for supply chain diversity even if it isn't in the US. Now you can buy from China and Mexico instead of only China.
Then you get a functional supply chain operating in Mexico, which has geographical proximity to the US and has greater overlap in language and culture, and you're one step closer to manufacturing in Arizona and Texas.
> And then China does the same thing: retaliating with tariffs, and then buying goods from elsewhere, which isn't the USA either.
But the US has a 3:1 trade imbalance with China, so we can use a third of the money to cancel out their tariffs on our stuff. Or threaten to raise ours 33% if they don't stop.
The US has leverage here, but only if they use it.
> And, anecdotally: I still buy products from china.
Manufacturing left the US over the course of 50 years. It isn't going to all come back in less than 5 years. We're talking about long-term here.
I guess we will know for sure - if they slow or reverse (especially in India) under Beijing Biden that will be confirmation Trump was successful at least at moving manufacturing away from China. It was a start. I don't expect it to continue with the establishment Democrats and Republicans back in charge. Yippie.
Increased production in India and Brazil don't do anything for the loss of U.S. manufacturing.
On the other end, how do you compete with slave labor in the Chinese factories?
Trading blocs that ensure minimum working conditions. Companies which pay the worker a decent wage should get favorable tax treatment and procurement.
[1] https://en.wikipedia.org/wiki/996_working_hour_system
So China will just ship the goods to another country and change the Made in label. Some middle man will make money and nothing will change.
There are plenty of countries with worse working conditions yet but people seem to stick with china.
https://www.washingtonpost.com/investigations/in-the-early-d...
> "In the end, the government did not take Bowen up on his offer. Even today[May 9, 2020], production lines that could be making more than 7 million masks a month sit dormant."
That article was published in May 9. Even on May 9, the production lines were dormant. How could this happen? It is unfathomable. The country probably had masks shortage since March. It is so hard to believe some of the things that happened this year.
Paying peanuts in taxes
How Apple avoided paying $40 billion in taxes
https://fortune.com/2018/01/18/apple-bonuses-money-us-350-bi...
Maybe the State could tax products manufactured abroad at 50% no matter where they keep the money.
Using the simple formula: units sold * profit margin per unit * 50%
I'm sure that after you adjust for cost of living, the numbers more or less look equal. However, keep in mind that manufacturing is leaving Shenzhen because of rising wages.
Sources:
Shenzhen Annual Salaries: http://www.sz.gov.cn/en_szgov/news/latest/content/post_78894...
US Annual Salaries: https://www.bls.gov/oes/current/oes519199.htm
Shenzhen Manufacturing (it's a news story, but you can find a ton of them with the same theme): https://www.scmp.com/economy/china-economy/article/3108207/c...
And honestly, by about April this year when China started having the virus under control and reopened their manufacturing sector at full capacity, it’s a good thing they were equipped to manufacture so many essential items. The US started running into capacity problems with some of the industries we do have like meat processing plants, if we relied more heavily on domestic manufacturing we actually would have been worse off over that period.
Have as your "goal" less the desire to "win" the global competition for corporate profits & corporate headquartering of multinationals in your nation simply on grounds of labor/profit competitiveness, and take a more nationalist view of, where necessary, having state run enterprises or "free market" competition within your borders but not complete free trade in a global sense.
In other words, do no necessarily pursue as your goal to structure economy either to have most profitable companies that reduce costs by moving labor around the world to find cheapest workers, or those which try to export the most. Have as your goal at least to produce domestically as much as possible to satisfy domestic consumption demands, as well as having some minimal threshold of employed domestic workers.
As it stands, US has a massive trade deficit, and a decades long decline in working age male population, especially in "flyover" US regions where manufacturing has declined the most while not being replaced by equivalent jobs. These regions also have declining population, rising suicide & opiate death rates, declining family formation / birthrates.
The "telos" of our society should not put as its "end" an economy, especially one which pursues profit above all.
The economy should be a tool in service to outcomes we actually desire.
Like software built to do a job, not simply designed for the production of specific features.
This is where global financial capitalism (as the US has a giant capital surplus which balances its trade deficit) needs to be called into question.
Internal free markets is one thing. But not having a national industrial policy which prioritizes the well being of domestic workers and their families over well being of multinational corporations and banks makes our system quite degenerate over time.
People should really take a few minutes and watch these 2 videos explaining the current account[0] and capital account[1] relationship, and understand that how we operate now is a political choice, which has massive consequences on who benefits of this system accrue to, and who pays the costs of this system.
This system is maintained by having the reserve currency and the state using strong efforts over many years to not only maintain this GRC but strengthen it, not allowing the natural devaluation of the $ that would close these 2 imbalances and more closely balance capital and labor.
Also, it is not a requirement to have a well developed economy and run massive trade deficits or not have a thriving industrial sector. Germany and Japan are 2 examples that do not run giant trade deficits like the US [3]
https://youtu.be/dirBYVjDk7A [0]
https://youtu.be/AimYG1jYD0A [1]
https://www.conradbastable.com/essays/the-germany-shock-the-... [3]
The blind pursuit of efficiency optimizes for the macro numbers at the expense of gutting the structure of the labor market and lived experience of people.
It’s far better to have a lower per capita GDP with a more equitable distribution of resources (such as a higher household income across quantiles)
It seems clear that some level of tariffs, caps on FDI, etc are “good inefficiencies” if done correctly.
In the countries with low GDPs and highly equitable distribution of resources -- North Korea, East Germany, Cuba, the Soviet Union, for example -- the border guards' job is to prevent people from escaping.
As for mass produced surgical masks? Yeah we don't have the manufacturing base for that sort of thing anymore unfortunately.
And funny enough our gov't (I'll let you guess which political party) struck a deal with Foxconn to produce LCDs in Wisconsin. It has failed miserably: https://www.theverge.com/2020/4/12/21217060/foxconn-wisconsi...
At what point did I ever say Republicans were dumb for wanting it? I'm mocking the idea that Republicans actively denounced corporate welfare (saying it's a Democratic thing), yet just do it themselves (and then fail at actually make the change for that matter).
Take your triggered self over to Reddit.
I don’t think your comments have added anything of value to that discussion, just bringing politics in for the sake of mocking.
> the last LCD panel manufacturer in the US closed around then and we could no longer manufacture LCD for our military vehicles
Where did they say it was a good idea or a bad idea? Where did I say it was a bad idea? My reply was commenting specifically on the fact that the party he supports literally tried to manufacture the one item he was referring to and failed at it.
Maybe YOU'RE the one with little value added to this discussion other than getting triggered.
EDIT: Just to clarify - you seem to be only focusing on one part of my comment an interpreting exactly what you want to hear. Maybe take a step back and realize what's important to you.
The entire comment made the case. But if you want specifics, how about the sentences immediately prior to the one you pulled out of context: “I argued vociferously to a Dem friend in 2000 that our inability to manufacture critical components was going to kill us. Kind of literally:”
But yeah, I’m sure the problem here is that I’m “triggered.”
For the record - manufacturing output in the US is trending upward[0] (sans recession). Manufacturing employment is down, not because it's outsourced to China, but because its being automated.
[0] - https://fredblog.stlouisfed.org/2016/05/manufacturing-up-dow...
They spent years training the Chinese side-by-side in the US.
In the end they still haven’t exactly caught up to the quality we had in the US. However, they now have 5x the tool & die makers in China.
To compete, you really do have to cut minimum wage. You have to loosen regulations, and importantly, you have to do massive tariffs / sanctions on China for the next decade.
There are enough people still here to teach and expand the Industry. However, if you don’t start now. Like today. We won’t ever recover. Once enough manufacturing is gone, it’ll be impossible to come back - we are almost there.
You are competing against a foreign power who uses slaves. You either let free people work for what ever wage they can achieve or we risk becoming slaves ourselves.
No, you just have to do what China (as well as countries like Germany and Japan) do and have the government subsidize preservation of the industrial base. Screwing over workers gets you nowhere but further populous unrest and social decay.
Germany still has a strong industrial base, without a race to the bottom and with strong unions. So it is possible :)
It's hard to parse what you are asking for - what more economic incentive would you imagine there to be; I think the problem with this line of thinking is that you are taking a far too simplistic model of the world where our problems are caused by people being "lazy". I think the world you are wishing for existed - it's probably the hunter/gatherer model; any more sophisticated organization of civilization requires some level of socialization. I think your "darwinistic" approach is a flawed philosophy upon which it build a nation or a global superpower.
It's interesting because the article posits, and makes a very good case for, systemic issues that has caused the erosion of manufacturing base - however politically we are unable to move beyond simply understood talking points such as "minimum wage".
Asian or "factory" countries (not necessarily from Asia but for illustration) have an "artificially" held minimum wage, which indirectly subsidizes the US minimum wage. This is happening to all wages not just minimum wages mind you, so the market needs rebalancing. Wages need rebalancing, taxes need rebalancing, but most wages, including the minimum wage need to come down (in real terms not necessarily in fiat terms).
Of course, all things aren't always equal, but if you're going to argue its going to be different this time around, i think there is some onus to argue why the present would be different from the past.
Wages in the US are artificially high because of the dollar's position, but the US needs to either a) match the wages of the countries producing similar stuff or b) increase productivity and value to the levels of countries like Germany.
Since b) requires decades in factories, supply chains, trade agreements and most importantly training in actually producing things which means science and engineering, exactly the occupations an increasingly large portion of the US population has been taught to abhor, it is very unlikely to happen. The US has spent the last decades destroying all those things, so the only real option is to sadly let wages fall to levels markets are willing to pay for. It will bring a lot of suffering but is the consequence of decades of mismanagement and complacency, and it is unavoidable so it will either happen by will or by force. And we know it won't happen by will.
Of course there is always c) keep forcing the rest of the world to pay for the US standard of living while they themselves live beneath their means, but that is the actual problem now so how much longer can it last?
Our entire society is built on this, though. Silicon Valley wouldn't exist if electronics couldn't be produced for comparatively cheaper overseas. You bring up an interesting moral point, but if you're serious about that there's a lot of reckoning society will have to deal with. It's not just going to affect minimum wage lol. It'll affect wages across the board. You're really talking about totally reforming the economy
Silicon Valley literally exists because it was an electronics manufacturing center.
Factories will need to adjust their prices, now you take that as you will, and if one is naive one can think it means executives will take a pay cut while workers do not, but in the end it mean less wealth for everyone, less money for taxes, less money for shareholders, less money for executives, and of course less money for workers. That is less wealth for the nation.
So yes, owners will take smaller profits, along with everyone else.
If you’re going to make US manufactured goods cost competitive with foreign goods, much of it has to come out of that 95% operating revenue that is operating expenses, most of which will be employee wages. There’s no way around this.
It's because they build the machines to build the product the Chinese manufacture. The Germans have forced themselves to be at the top of the Manufacturing Food Chain (engineering, etc) while letting the Chinese/Rest of the world build the crap we buy.
I don't think we could get there manufacturing the "Trinkets" the Chinese mostly manufacture, that is a a race to the bottom where either automation or cheap labor win.
I agree with you that trying to compete on low-cost, low-margin is a race to the bottom. We could conceivably bring manufacturing of iPhones back to America. I would also imagine that manufacturing of silicon is largely automated, so the US could try to build the best fabs.
Assuming that the goal is saving the American industry (whatever that means) - if the plan is 'good people will save it' then failure is already baked in. That plan never works. The plan should be 'whoever saves it will become fabulously and disgustingly wealthy' - then greedy opportunists will save it for you and people can go protest about how greedy they are.
Relying on good people to act is dicey. Relying on greedy people to act is a safe path.
Reading this as a non-American. Isn't 'opportunity' the whole reason behind immigration?
If your country relies on continuous supply of heroes and not sound systems and policies, no one single person can save you.
its called being a capitalist; anyone leaving money (capital) on the table by favoring thier home country will get squashed by those who dont...
The thought that comes to mind is when American railways tried to import German locomotives in the 1960s. They were appealing because they offered higher horsepower ratings than anything domestic, but they required too much babying and maintenance to keep healthy and were quickly scrapped. I hear strikingly similar things from people buying German cars today-- everything tends to be expensive to keep running after the warranty expires.
I wonder if American manufacturing needs to develop its own meme. I'd suggest the old line about GM products-- they'll run poorly for a lot longer competing products run at all. That could be a compelling argument when you're selling to a manufacturing sector that's rolling out in low-development countries with unstable infrastructure, poor environmental conditions, and low-training staff.
That gives us a niche we can target and use as a base to re-bootstrap ourselves into competitiveness. We need to be decidedly better than bottom-bit Chinese (etc.) tooling, which is probably still within our abilities, and if we overdeliver there, we can begin to position American-made as a premium choice.
Chinese manufacturing is now at a very high level, to the point where many western brands have effectively become "fabless", leveraging the fact that Chinese brands still struggle with poor reputation even domestically. In this symbiotic relationship, the fact that Germany is literally "the land of virtue" in Chinese might play a role.
Chinese labor has now too become relatively expensive, its economy is moving to become a service economy, and manufacturing gets outsourced from China to even cheaper countries.
So I guess not?
A lot, and I mean a LOT, of German industrial base is now located abroad, in Poland, Czechia, Slovakia, Hungary, Romania. These countries are rather close, but because they belonged to the Soviet Bloc, their economic development was retarded so much that local wages are 20-30 % of wages in Bavaria, but the workforce is qualified and the infrastructure adequate. This is a historic anomaly you do not have in the U.S.
Come here (I am in Czechia) and look around, the countryside around cities is absolutely dotted with German-owned factories that mostly produce parts. Those parts are then moved by trucks to Germany where the final product is assembled - and so the miracle of higher "work productivity" in BRD is created. Of course you have nominally higher productivity if you finalize products.
This is, by the way, how Viktor Orbán gets his political way. Hungary is absolutely vital part of German industrial base and German industry gets premium conditions on the ground. So for all the shouting about values and rule of law, German CDU/CSU and Orbán always find a way to coexist.
And as for race to the bottom, look to former East Germany. There, people want German wages from German bosses. They do not get them, most of the industry moved abroad where cheaper workforce is. Former GDR is an economic periphery where anti-system parties command majority of the vote.
Part of the problem here is that the existence of some kind of universal "more regulations / less regulations" slider is an illusion. It allows the problem to be cast in partisan terms when that isn't the problem at all, because the problem isn't more or less lines of regulatory code but rather higher or lower regulatory efficiency.
Some regulations save a thousand lives at a 0.02% increase in costs. Repealing those is bad. Enacting them is good. Some regulations save two lives at a 5000% increase in cost, which could equally be saved by some less expensive regulation. Enacting those is bad. Repealing them is good.
The real problem is that politicians lack the qualifications and incentives to do this well. If good rules don't exist, then someone gets hurt and there is a call for "more rules" rather than "better rules". Politicians who don't know what they're doing pass bad rules. The bad rules cause costs to exceed what they are in China, so manufacturing moves to China. Then the local lobby for improving the rules evaporates because there are no longer local manufacturers to propose or lobby for more efficient rules, and the continued existence of those rules on the books causes no more to form.
We clearly need to throw away the existing rules -- they're not working -- the question is, how do we actually get better ones?
As I understand it, the US status as a global reserve currency requires us to maintain a perpetual trade deficit - other countries need dollars and we must give it to them. This is done by buying goods from overseas which has eroded our manufacturing base, as the foreign demand for the dollar is greater than the local demand (which means there is a cheaper manufacturing market).
I'm not sure what regulation you could enact here that wouldn't severely depresses other sectors as they exist today.
https://atrpodcast.com
Fused with Graeber and @dredmorbius phrasing where "deregulation" means "pro-monopoly" and "anti-competitive".
I'd like to learn more about "regulatory efficiency".
--
Law (et al) is much like source code. Technical debt, path dependencies, tooling stack, managing complexity and risk. You get the idea.
So of course there's evergreen debates about refactoring, rewrites, paradigms.
This is something that eludes most people, especially among progressives.
Not to get political but this reminded me of covid-19. Masks and social distancing are an obvious 0.02% increase in costs that save a thousand lives. Lockdowns and extended stay-at-home orders and shutting down businesses so that we start needing to send out trillions upon trillions of stimulus cash to keep companies and people afloat start to cross into "save 2 lives at a 5000% increase in cost" territory
Taiwan is an example of a country that managed to eliminate covid-19 without lockdowns, so it is possible, but part of their success is likely due to the fact that the authorities acted very early to impose strict quarantine rules and contact tracing (when there were fewer than 10 new cases per day!) AFAIK every other country that has managed to eliminate community transmission has done so via lockdowns.
'The observed temporary excess mortality likely arises because people in vulnerable groups die weeks or months earlier than they would otherwise, due to the timing and severity of the unusual external event.' https://www.medrxiv.org/content/10.1101/2020.11.11.20229708v...
You're in a car crash? To bad hospital is saturated. You got 4th degree burn in a burning building? To bad hospital is saturated.
Do you realise that is the problem?
Hospitals are saturated, because we want to keep these people alive for few more months. Younger people don't need hospitalization.
You are in car crash, too bad hospitals are only admitting people with covid. This is current situation in Poland.
Youngers are less affected but some absolutely do need hospitalization. Reality is not as black or white as you're making it.
The situation is like that in Poland ... and the solution is geronticide ?
Correct solution is to treat covid like very strong flu.
You're not going to defeat China by cutting wages unless you address the societal issues that cause US wages to be high. We already haven't raised the federal minimum wage in decades.
That’s not what Germany has done but there’s little doubt that Germany’s manufacturing ability is held in a higher regard globally.
So i challenge the “have to”. It’s the unproven talk of a particular tribe but i stress unproven since economics is a social science. That means there’s lots of science but is fundamentally stories we tell each other and not akin to, for example, the unassailable truth of gravitational pull.
Manufacturing is still moving to SE Asian countries (Viet Nam in particular), but even there producers are increasingly moving production in India and East Africa because of rising costs (e.g., wages).
The article points out other ways to reduce the cost of domestic labor: namely, shifting away from high payroll taxes and severing the link between health insurance and employment.
Instead companies who manufacture in China should be taxed at much higher rates to account for the negative externalities they benefit from otherwise.
Arrogance, this is one of the factors that killed US manufacturing.
Minimum wage already isn't really a living wage in much of the country. Rolling back regulations is jumping headfirst into slavery, whereas.. I'm very critical of China but don't see the connection between their expanding industry and slavery. Businesses are diversifying their supply chain in the face of this pandemic.
Only difference is that the wealthy in the US will carry more of the burden instead of the working class.
And that’s why we don’t have many advocates for it even though it will solve the manufacturing problem almost overnight
Moving inflation to 6% will create millions of working class jobs in the US due to both a weaker dollar and cheaper money supply for value creation.
The losers in all of this are wealthy Americans. They will see their assets depreciate and buying power diminish. And that’s why we don’t do it.
But I guess since what you want is inflation that is one way to get it, tho it will not be 6% but closer to 30%.
Yield curve control has not worked for anyone, it is a death spiral that results in zombie economies, at best.
How does this harm a working class American that derives all of their income from working wages as opposed to assets?
> it will not be 6% but closer to 30
Cite and example where a country did not default/print money for their debt payments and inflation went to 30%
> Yield curve control has not worked for anyone, it is a death spiral that results in zombie economies, at best.
How does this harm a working class American that derives all of their income from working wages as opposed to assets?
Lastly, address how any of the above prevents an increase in manufacturing jobs, which was the intent of the measures originally listed.
Their wage-dollars will now buy less stuff.
> Cite and example where a country did not default/print money for their debt payments and inflation went to 30%
The US has the world reserve fiat currency, so there are no examples because a fiat reserve currency has never existed before, but we know hyperinflation is a likely outcome. Now, from the experience we do have, ~30% inflation like in the 70s is the best we can hope for. A zombie economy like japan's would frankly be fantastic given the conditions.
>How does this harm a working class American that derives all of their income from working wages as opposed to assets?
Their wage-dollars will now buy less stuff.
> Lastly, address how any of the above prevents an increase in manufacturing jobs, which was the intent of the measures originally listed.
Don't worry, americans will have plenty of $1/hour manufacturing jobs like asians do now (or the nominal equivalente to $1 in a hyper-inflationary world). The US doesn't have the technical capacity or workforce to compete in high paying manufacturing any more and will take decades of pain to build.
https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
You are now outright lying.
Well, you don't seem to understand the fundamental problem. Whatever labor force exists in America should see rapidly growing wages because the unemployment rate is relatively low. The reality is that not only do we not see inflation the fed has set the interest rates to almost zero and injected an insane amount of money into the stock market with no change in sight. There is slack in the system, a lot of slack. This causes wage growth to stagnate while rich people in the USA still make loads money off Chinese labor. They don't have to care about Americans because there are work forces abroad waiting for them.
>The US has the world reserve fiat currency, so there are no examples because a fiat reserve currency has never existed before, but we know
This is completely irrelevant. The primary benefit of a world reserve fiat currency is running a trade surplus without financing but if you don't produce anything, not even housing that advantage is meaningless.
>hyperinflation is a likely outcome.
Banning investments into real estate might not be optimal but hyperinflation is not going to happen because the economy isn't even close to it's production capacity.
>Now, from the experience we do have, ~30% inflation like in the 70s is the best we can hope for.
There is a response to your commend that disputes that we even had this "experience".
>A zombie economy like japan's would frankly be fantastic given the conditions.
The USA is already partially a zombie. You have public companies with record stock growth despite no changes in fundamentals. It's easier to make money off the stock market because that's where the rich are using the watering can of the fed even though there are lots of withering plants surrounding the almond farm. The stock market looks significantly brighter than it should.
Only if they don't find a better alternative than real estate.
I have about $20k in bank accounts. I owe $450k at 2.5%
6% inflation? Don't throw me in the briar patch!
Not so, import taxes and one avenue that should be explored is true carbon costs/impact factored in. Why should something made locally be more expensive than something made the other side of the World and shipped all that distance. Clearly some impact costs not being factored and the whole carbon aspect should be utilised for many benefits - balancing out imports for one.
We should work for slave-like wages voluntarily or have it forced upon us?
This is a poorly thought out argument. Cost of living, housing, etc. is obviously different in US, you might end up with less income than is necessary for survival. What makes you think you will be able to find any workers at all, let alone those trained to the necessary standard and skill?
It should be obvious that appropriate responce to a crime (slave labour) being committed is not to commit the same crime yourself.
Any products with stolen materials, stolen labour, or stolen taxes should not be allowed on the market at all.
As for bringing back manufacturing home, you need to find two things to make that work. First massive subsidies and tariffs to drive up the cost of foreign imports, imposing huge costs on tax payers and consumers; and tens of millions of people willing to work in factories. The US long term unemployment rate in 2019 was about a third of a percent. Where are you going to find the money, and where are you going to find the people?
I don't mean wages, I mean safety, overtime, etc. Labor needs to be valued at home and abroad.
Minimum wage workers do not think they are making too much money, also there are a lot more of them then you.
I agree with you on the tariffs. China should not be able to outcompete us because they pollute and use slave labor. Force them to compete on fair terms.
You discuss tool and die makers, a very highly skilled profession; one that I would argue takes many years of training and labor to master. I would further argue that in the manufacturing world, when it comes to hands on work, tool and die guys are near the very top.
Yet at the same time, you talk about cutting the minimum wage. Tool and die makers (of any sort) aren't going to be working for minimum wage.
While I don't disagree with the importance of American manufacturing, I think your prescription is wrong. We don't need lower wages, we need better education, more apprenticeships, more buy in from industry to spend money on training their employees. Because sooner than people think, China will have labor cost parity with the US, and we'll find that labor cost isn't solely the reason they are a manufacturing power house.
There are quite a few European countries with very robust manufacturing bases who are far more regulated (both from a labor and capital perspective). So, minimum wages, labor unions etc have little to do with the US' manufacturing base. In fact, one could argue that weaker unions, if anything, have contributed to the decimation of the manufacturing base.
There should be more machining and making in the US; everyone would like to have solid US-made hardware, but success in small-business machining and manufacturing, and scaling to large scale without off-shoring, requires a discipline and commitment to self-improvement that is difficult to cultivate.
Pretty depressing.
"I sincerely believe with you, that banking establishments are more dangerous than standing armies; & that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale" - Thomas Jefferson
"I have two great enemies, the southern army in front of me and the financial institutions in the rear. Of the two, the one in the rear is the greatest enemy" - Abraham Lincoln
In reality they just want to help themselves in the easiest way they can.
I mean, I guess the point remains valid in that everyone can see that a lot of manufacturing has left the US in the past, I dunno, fifty years. But if you don't even know whether the anecdote you mention is true, why bring it up? Why comment at all?
It has enough military for safely making this again and again for tens of years at least.
If not - the politics is involved in selling decision making - then the US starts a sanctions war, as China example shows. It sells in the end, but after being economically punished.
PPE shortages in hospitals were because of unprecedented demand levels, not because China didn't continue to export it. A country is actually a lot more likely to have problems handling that kind of short term demand shock if it relies entirely on domestic manufacturing
[1] https://voxeu.org/article/industry-anatomy-transatlantic-pro...
1) USD reserves allow us to import more value than we export so it offers a better standard of life for the consumer than otherwise.
2) It allows us to have a bigger consumer market than we would otherwise have and incentive for countries to partner with us to sell their stuff to. If you've lived outside the US you know every business wants to sell their stuff here either as #1 or just after their home market.
Under those purposes it seems to have worked very well. Of course theres the risks of crashes along with it too.
Why not just a direct subsidy to US manufacturing under the usual tax code?
In which sense?
1. Regulations. Both the OSHA and EPA had a measurable negative impact on manufacturing productivity growth. [1] I suspect the most harmful regulations are those that constrain contract freedom by requiring employers to give unions a negotiating monopoly, aka collective bargaining, over any work unit where they emerge. This would devastate any of the bright spots in American industry today, whether it's Tesla, or Amazon, or Google. The threat of unionization also discourages these firms from expanding into areas that require employing high concentrations of less-skilled workers in immobile capital intensive projects, as these are the most susceptible to unionization.
2. The massive rise in social welfare spending [2], diverting capital from productive uses to unproductive ones.
[1] https://www.jstor.org/stable/1810223?seq=1
[2] https://fivethirtyeight.com/features/what-is-driving-growth-...
Think of the supply chain of something immensely complex like the Boeing 787, which has, quite literally, millions of parts (including LCD screens). Many if not most of those parts are imported. If there are tariffs on imports, either:
1. Boeing will pay tariffs, increasing the cost of each plane. Great for Airbus, bad for Boeing.
2. The parts are sourced locally instead. These parts will invariably be more expensive, as if there were cheaper local options, they would have been sourced locally before. Again, Boeing planes get more expensive, great for airbus, bad for Boeing.
3. Boeing, to avoid raising prices and giving market share to airbus, decides to move manufacturing outside the US.
What applies here for Boeing, is also going to apply to Tesla, Caterpillar, and hundreds of other companies. Tariffs create incentives to source locally, but they simultaneously create incentives to manufacture abroad. It is a very thin tightrope to walk and I haven't seen any evidence that Washington can.
On the topic of national security: “When goods don’t cross borders, soldiers will.”
I'm far less concerned about a war breaking out between two countries with healthy trade relations and cultural exchange. Do we want China to be our enemy? Why?
Shifting manufacturing to China makes absolute sense when you look and care about the the quarterly/yearly performance. And if you decide not to do it well tough luck because your competitor is and will have better results than you.
If you look at it with a 20/30 years perspective then it becomes obvious that outsourcing is completely the wrong move. You basically get rid of your local expertise, train your replacements, slim down your middle class (the folks buying the products!). Then your manufacturing partner starts vertically integrating and designing it's own competing products and you are pretty much left out of the equation. It's almost as if, thanks to support from the party, Chinese businesses can plan for 20 years ahead but western companies can't because they HAVE to maximize the quarterly results!
> I argued that, even in the presence of free trade, a country should have the ability to tariff imports to the extent that that country could maintain a 25% (or something) domestic market share.
Tariffs and trade wars seem completely useless to me when done between G7 countries because we're all in the same situation regarding China. To achieve any sort of paradigm shift we'd need to stop each having a 1:1 relationship with China and start negotiating as a block.
It's not a universally accepted opinion but I take Martin Felix's view, articulated in "Money," that credit predates coinage.
It's turned me off the article and as a consequence I can't read any more.
It's also interesting to see how step by step some myths are disappearing. For instance, the article recognize the importance of taxes as a main drive of giving value to a fiat currency.
I did read the rest of the piece and found it very informative and enlightening, I highly recommend reading it, especially if you are interested in the nature of money.
The problem is there is no alternative. The Euro has it's own structural issues and as we saw in March when folks got scared they sold alternatives like Bitcoin down hard. In short, there is no alternative without international cooperation to make a change which doesn't appear likely any time soonish.
The larger shift is out of Treasury bonds into different reserve assets, such as commodities (oil, gold, alternative currencies). That one is very real.
Can't the increased M2 money supply be interpreted as a move to stabilize the value of the dollar? Maybe the crisis made that increase necessary to maintain the value?
> On the other hand, a structural change could happen with a shock and stepwise change, like the end of the Bretton Woods system. This can happen in a few ways, but becomes more probable if the United States decides to actively promote a change rather than defend the status quo.
1) Price of the energy when you pay for it only grows over time. Short disruptions are possible but overall trend persists.
2) More energy also correlates to more goods produced so unless artificially manipulated the ratio should stay more or less the same.
3) All major currencies undergo inflation so even if energy becomes more plentiful there is nothing really new here
But if the world energy production doubles, do you think that scarce resources cost the same? Prices of e.g. concert tickets or art pieces will adjust.
If you do not like it you're always free to by gold or whatever resource does not depreciate long term.
Then those resources will cost the same in units of energy
>Other will increase in price as they're limited by other factors.
So why use energy to store value and not those resources? Of course I am free to choose gold on a personal level, but shouldn't it be the default strategy of every investor to not store value in energy?
Going back to your first comment:
>Everything we produce can be measured in / has energy cost. So maybe some kind of energy units should be the universal currency.
I can imagine that energy can be used as the unit for value transactions. For value storage however, it's the other way round: I think value has to be stored in assets that don't depend on energy.
Rats leaving the sinking ship that is the US dollar and all fiat currency seems to be happening very quickly. I hear almost everyone talking about it now, it isn't the loonies anymore. Money that isn't tied to whatever stupid policies your government has implemented will always be attractive. No one asked me if I wanted to prop up the stock market by printing ~25% of all US dollars that have ever been printed, in 2020.
https://digitalik.net/btc/
People who appreciated the technology initially but changed their minds seeing it being driven by what people often consider a toxic community who hides behind the pretense of technology to make money.
People who think Bitcoin itself, despite the technology, is no good for it's stated initial purpose of being a peer to peer electronic cash system. Whether that's true even with additional layers like lightning remains to be seen perhaps.
People who either missed out on the rise, sold early or lost money trading it in the past. Frustrated or bitter perhaps, wanting to be right about Bitcoin so much that they've shut out any possibility that it will succeed.
And I guess people who don't quite understand the technology, purpose or possibilities Bitcoin and other cryptocurrencies bring to the table.
And obviously all the "tether scam" people.
There is positive and negative to cryptocurrencies, same as there is with the internet itself. Do we wish for the internet to fail (if somehow that were even possible) because it enabled mass manipulation of people through social media? Well maybe some people do but I think the vast majority take the good with the bad and some are working to try and solve these problems.
Will Bitcoin fail? I don't think it can at this point to be honest. Genie is out of the bottle, interest is there and it's getting more legitimized every day, whether it's through the direct actions taken by individuals, companies or institutions to further the entire space or through the inaction of governments who don't want to stifle innovation or possibly don't see it as the threat to the monetary system it could (potentially)_be.
Time will tell!
[1] https://www.bbc.com/news/technology-48853230
Especially since Trump's election, I have always wondered about the future of America, not just socially but also economically. Trump's excessive use of sanctions and bullying comes at a major loss for future generations. And this line from the article elucidates it:
"However, when major powers like China, Russia, and India begin pricing things outside of the dollar-based system and using their currencies for trade, including for energy in some cases, the US can’t realistically intervene militarily, and instead can only intervene with sanctions or trade disputes and other forms of geopolitical pressure."
and
"Chinese officials have said on numerous occasions that their reliance on the dollar system is a security risk for them. Having surpassed the United States as the world’s largest trading partner and world’s biggest importer of commodities, China increasingly has an interest in being able to acquire commodities and perform global trade without dollars, which as we see with trading partners like Russia, or with China’s yuan-based oil futures contract, they’re increasingly able to do with small steps at a time."
The bullying is the last straw. A lot of countries are very independent and are only trading in dollars because of oil. Take that away with sanctions and the demand for dollars drops rapidly. Thus, US dollar doesn't need to be a major reserve currency, holding US dollars might even be a risk.
Had bitcoin not been deflationary, bitcoin could have filled this gap. More likely though is that the declining faith in American politics will force other countries to go back to a multicurrency system and thus, US will no longer remain the top dog.
History repeats.
By letting go of reserve status, we don't need to go to wars, we'll get some manufacturing back domestically and less shipping from across the world.
Sure, we'll have to reduce our quality of life with smaller houses, smaller cars, denser towns and lesser "stuff" in general but that's not a bad thing necessarily.
So what if gas costs $7/gallon, we just need to reduce our consumption.
3-5 years isn't really saying much especially given that the US dollar does not have much movement, and that this is effectively the same as being bullish on the Euro and Pound and Yen, which are the biggest competing currencies. I do not see any reason why those currencies will see a sudden inflow. That last time that happened was in 2002-2008, but that was when there are much more interest in foreign assets , whereas today foreign assets are shunned in favor of domestic assets and tech. Pensions, hedge funds seek safe US assets such as investment-grade corporates bonds and treasury bonds, not riskier foreign assets.
I do not expect any sort of fraying of the US dollar as the global reserve currency system though.
Some of the conclusions the author draws are wrong or dubious, such as the purported inverse relationship between the US dollar and corporates profits. The dollar surged in 2014 but corporates profits did not fall.
https://www.marketwatch.com/investing/index/dxy
Example: the Swiss franc, but you see the same with GBP, EUR, and JPY:
https://finance.yahoo.com/quote/CHF=X?p=CHF=X&.tsrc=fin-srch
Imagine a world where etheruem has enough market cap where it's volatility decreases, smart contracts for services are wide spread, everyone works free-lance giving the economy a inherent conflict of interest problem that rockets innovation forward while at the same time of having the effect of directly capturing some of the wealth you create by charging on a 'free-lance' model.
No need for the dollar, but it does change the inventives built into the system and will have radical effects on globalism.
I'm not sure whether the volatility of ETH price matters much when stablecoins are readily available.
Generally: I'll switch to ethereum for daily spending when I can spend through a proxy that allows revert an erroneous transaction (e.g. a overcharge or wrong recipient), perhaps necessarily arbitrated by a 3rd party. It's just a little too stressful sending >$100-500 frequently w/ ethereum right now.
This week, I bought a little airbnb pre-ipo, then sold post-ipo through Ethereum->FTX exchange.
Also bought some 24 hr traded synthetic tesla stock on eth.mirror.finance. (completely anonymously)
Wild times. Hard to go back once you have a taste of financial freedom.
But tbh your whole second blurb goes over my head.
I agree, it's great of contractual/conditional speding.
But I think it'll be used for daily spending in the next 5 yrs.
My business receives payments via stripe where they take 2.7% fee. then i have to wait 2-3 business days to receive it in my account. I hate this & already offer a 2% discount when buyers pay my business in crypto. And a surprising # of my employees (~35%) would prefer to get paid in crypto.
In fact, if anything, it complicates taxes because it is just one more thing to track. I opted not to do this, despite being heavily pro-crypto. In fact, my company is in the crypto space.
I'm curious what your employee reasons are. Maybe if you aren't in the US, it could make more sense, but I'm not seeing it. Insight welcome.
No wonder Facebook continues to fight hard for their Libra / Diem project
This is the article’s key insight. Dollar hegemony no longer works for anyone.
The Fed needs to support international payments in multiple currencies and build its non-dollar reserves. Congress should prioritise domestic manufacturing and wage growth.
No regulation changes bring manufacturing back with this strong of a dollar.
https://www.google.com/amp/s/www.wsj.com/amp/articles/edward...
Being a cynic, I've studied many aspects of this system for some time. I have to say I'm shocked how obvious the PR has been for some of this stuff.
A favorite example is the Iraq war. Clearly a mafioso protection racket type of move. Nice country you got here, quit using Dollars and see what happens...
The 1970s in can be almost explained in the sense of a 1930s style run on the bank, except this time it's allies and foreign countries after their gold. The Saudi benefit from attacking Iraq probably even mirrored what France thought it was getting in "French Indonesia and French Vietnam". You can almost imagine a scene playing out between French and U.S. diplomats where the French ask for their gold and the U.S. goes, "well... here's the thing about your gold, tell you what let us call it even and we will spend a decade or more at war for you? Deal?"
The entire thing is absolutely crazy and the way it is taught to average people is complete bullshit.
Question answered.
All the people who have dollars or bonds will be happy to see their money evaporate. And no one will be concerned if the US defaults, because they have nothing of value anyway worth liquidating or foreclosing.
And we could never have another global war. We are completely passed that now of course. All of the recent wars have been totally isolated incidents, mainly caused by evil dictators.
/s
However the author lost me a bit when he started talking about bitcoin. I get why bitcoin might be appealing to a country like Iran with cheap energy and sanctions preventing them from participating in the world economy. I also get why it would be appealing to individuals in developing countries with unstable local currencies, and perhaps limited access to harder assets. I don't get what the benefit would be to national reserve banks and finance between countries in the general case, where special circumstances (like Iran) don't apply.
Skim reading this, I provisionally label Lyn Adlen as an advocate of monetary policy.
As every one knows, abandoning the gold standard, adopting fiscal policy, makes monitarians anxious.
Over time, I'm leaning towards a refreshed Keynesian view: empire means huge military means deficits. Both trade and federal.
I'm not a classical Liberal or a Neo-Liberal. I'm just saying Keynesian and MMT notions seems like useful metaphors for understanding the current world.
--
Lyn Adlen does mention petrodollars. But doesn't provide a clue to what comes next.
Rare earth dollars? Gigawatt hours dollars? Some kind of PoW (and therefore measure of energy) crypto coin?
Does it even matter? Are petrodollars just a shibboleth for monetarians that can't accept there's "no there there" when money became fiat?
Petrodollars are backed by the ability to apply force.