What Export Boom?
One of the most read posts I ever wrote was a piece in April called The Hollowed-Out Economy, in which I mocked Treasury Secretary Paulson’s contention that Bush’s economic stimulus package was going to create 600,000 new jobs in America. I think he secretly thought it wasn’t the stimulus checks but rather the falling dollar that would revive America’s hollowed-out manufacturing base.
This morning it’s clear that not only was Paulson wrong about the job creation, but the current boom in exports is not from manufacturing, but rather from selling corn and soy.
Exports are the bright spot this year in an otherwise bleak economy. But the world is not suddenly snapping up made-in-America goods like aircraft, machinery and staplers. The great attraction is decidedly low-luster commodities like corn, wheat, ore and scrap metal.
This helps explain why manufacturing jobs are continuing to disappear by the tens of thousands and factories are closing even during a miniboom in exports. While the surge in commodities is a welcome relief, it is an unreliable prop for an industrial power.
As I have tried to point out in America Since Reagan, the 38 year trajectory of Republican political economics has hollowed out our manufacturing prowess, reduced our competitiveness, put us deeply in debt to the Chinese and the Russians and eviscerated parts of the Bill of Rights. Like a third world economy, we are reduced to export dependence on a literal commodity product that can be bought from Argentina or China. The vaunted knowledge economy value add cannot be applied to a shipping container full of grain. I am well aware that for a company like Whirlpool to manufacture their product abroad may make sense, but when they are shipping washing machines from their factories in Germany to South America, you’ve got to wonder if we can ever rebuild a vibrant manufacturing economy that puts good jobs in America.
I followed the link to Brad DeLong’s Weblog and quickly noticed a reference to an intersting fact that reminded me of a important economic effect that hides among the arguments for deregulation and wage competition.
He mentions the cost of labour in Germany compared to the U.S for the company Whirlpool: “$32 an hour, including benefits, versus $23 in the United States”.
He makes the point that the cost of labour wasn’t decisive in locating manufacturing but the effectiveness of the skilled and experienced labour.
When business leaders are allowed to relax and take easy options, where the regulatory regime allows them to put pressure on wages, the easiest way for them to profit is to drive labour costs down.
If you can threaten your labour with cheap competition (or prevent union membership, or have no minimum wage and legislated benefits to match etc) it becomes an easy road to squeeze profit out of lower wages.
But if legislated barriers to doing that, such as high minimum wages, contributions to pension and health care, stronger two way employment contracts and legislated discouragement in shifting locations forces higher labour costs on employers they have to work harder and find a way to profit elsewhere.
That is done by investing in better plant, employee skills and efficiency.
It’s an oft ignored economic pressure that in many (obviously not all) circumstances higher wage costs help the broader business environment because it compells investment in staff and technology (that staff must be trained for) that creates products better than the cheap competition does.
I followed the link to Brad DeLong’s Weblog and quickly noticed a reference to an intersting fact that reminded me of a important economic effect that hides among the arguments for deregulation and wage competition.
He mentions the cost of labour in Germany compared to the U.S for the company Whirlpool: “$32 an hour, including benefits, versus $23 in the United States”.
He makes the point that the cost of labour wasn’t decisive in locating manufacturing but the effectiveness of the skilled and experienced labour.
When business leaders are allowed to relax and take easy options, where the regulatory regime allows them to put pressure on wages, the easiest way for them to profit is to drive labour costs down.
If you can threaten your labour with cheap competition (or prevent union membership, or have no minimum wage and legislated benefits to match etc) it becomes an easy road to squeeze profit out of lower wages.
But if legislated barriers to doing that, such as high minimum wages, contributions to pension and health care, stronger two way employment contracts and legislated discouragement in shifting locations forces higher labour costs on employers they have to work harder and find a way to profit elsewhere.
That is done by investing in better plant, employee skills and efficiency.
It’s an oft ignored economic pressure that in many (obviously not all) circumstances higher wage costs help the broader business environment because it compells investment in staff and technology (that staff must be trained for) that creates products better than the cheap competition does.
“Like a third world economy, we are reduced to export dependence on a literal commodity product that can be bought from Argentina or China. The vaunted knowledge economy value add cannot be applied to a shipping container full of grain.”
I couldn’t agree more.
No Product. No Market. No Sale. No Pay.
But if people won’t work for market wages, how do you expect a government to both guarantee freedom while controlling market conditions?
What do I want?
Smart trade policies that do not make it impossible to do business globally, but do not make it impossible for America to compete in markets that do not require highly specialized educations because we have our share of non-advanced workers.
We say caste systems are evil. Caste systems of skill and education are very real and natural. All America guarantees is that these are not hereditary by law.
Or do we?
“Like a third world economy, we are reduced to export dependence on a literal commodity product that can be bought from Argentina or China. The vaunted knowledge economy value add cannot be applied to a shipping container full of grain.”
I couldn’t agree more.
No Product. No Market. No Sale. No Pay.
But if people won’t work for market wages, how do you expect a government to both guarantee freedom while controlling market conditions?
What do I want?
Smart trade policies that do not make it impossible to do business globally, but do not make it impossible for America to compete in markets that do not require highly specialized educations because we have our share of non-advanced workers.
We say caste systems are evil. Caste systems of skill and education are very real and natural. All America guarantees is that these are not hereditary by law.
Or do we?
I think it is the other way around: higher investments help wages in the long-run as new industries, products, and inventions provide even greater competition over labor.
I do think a weak dollar has probably helped US exports survive the slowing world economic scenario, but then again, weakening the dollar is not so much a “solution” as much as it is simply shifting economic effects around (from one effect to another). More investing and less borrowing for overspending governments would help America more in the long run.
I think it is the other way around: higher investments help wages in the long-run as new industries, products, and inventions provide even greater competition over labor.
I do think a weak dollar has probably helped US exports survive the slowing world economic scenario, but then again, weakening the dollar is not so much a “solution” as much as it is simply shifting economic effects around (from one effect to another). More investing and less borrowing for overspending governments would help America more in the long run.
Wonderful point, Fentex. Henry Ford noticed the same thing nearly a century ago, and provided an excellent model for corporate social responsibility in the process.
Here’s an interesting article from the Times that describes it, and notes the benefit of not treating your staff like a commodity.
http://www.nytimes.com/2006/04/05/business/05leonhardt.html
Interesting, too, because the writer goes on to ask if this idea is outdated (this was in 2006, when profits were soaring – safely, it seemed – as payrolls were slipping behind inflation).
I remember reading this when it was first published, and asking myself what made the writer think that there had been some fundamental change, and that, in this ‘new economy’ you could, in fact pay people less for more, year after year. It sounded awfully like the ‘profits don’t matter’ nonsense that was fueling the dot.com boom.
I keep wondering if the health care system isn’t at the heart of this particular mess. After all, we’ve escalated costs outrageously by allowing insurance companies to govern every transaction with the health care industry (imagine if your home insurance had expanded to cover basic maintenance, and made you fill out a co-pay form buy some fertilizer for your lawn, or your that your auto insurance had become so invasive that they could deny reimbursement for you gas purchases because they were made at an ‘out of network’ station).
For one thing, you could expect to pay a LOT more for insurance, without getting better coverage in times of serious need. Combine suddenly unmanageable prices with an employer-based approach to health care that means your boss is, effectively, your only viable source for coverage, and all of a sudden, you find that workers have had their negotiating power cut dramatically – especially when only the most established companies can take advantage of this leverage in the market.
Not only do workers suffer, but entrepreneurs as well, and an entire class of business that could offer stability through diversity.
In short, we’ve taken something of (literally) vital importance, set up twin price plans (one outrageous, one merely expensive) and have handed the discounted access to select economic players, granting them (a) a wildly unfair advantage in the labor market and (b) serious leverage over the people they do employ.
I’m sure there are other reasons for chronic wage stagnation, but I can’t think of a bigger one. And I can’t imagine anything further from the ideal espoused by Ford.
Wonderful point, Fentex. Henry Ford noticed the same thing nearly a century ago, and provided an excellent model for corporate social responsibility in the process.
Here’s an interesting article from the Times that describes it, and notes the benefit of not treating your staff like a commodity.
http://www.nytimes.com/2006/04/05/business/05leonhardt.html
Interesting, too, because the writer goes on to ask if this idea is outdated (this was in 2006, when profits were soaring – safely, it seemed – as payrolls were slipping behind inflation).
I remember reading this when it was first published, and asking myself what made the writer think that there had been some fundamental change, and that, in this ‘new economy’ you could, in fact pay people less for more, year after year. It sounded awfully like the ‘profits don’t matter’ nonsense that was fueling the dot.com boom.
I keep wondering if the health care system isn’t at the heart of this particular mess. After all, we’ve escalated costs outrageously by allowing insurance companies to govern every transaction with the health care industry (imagine if your home insurance had expanded to cover basic maintenance, and made you fill out a co-pay form buy some fertilizer for your lawn, or your that your auto insurance had become so invasive that they could deny reimbursement for you gas purchases because they were made at an ‘out of network’ station).
For one thing, you could expect to pay a LOT more for insurance, without getting better coverage in times of serious need. Combine suddenly unmanageable prices with an employer-based approach to health care that means your boss is, effectively, your only viable source for coverage, and all of a sudden, you find that workers have had their negotiating power cut dramatically – especially when only the most established companies can take advantage of this leverage in the market.
Not only do workers suffer, but entrepreneurs as well, and an entire class of business that could offer stability through diversity.
In short, we’ve taken something of (literally) vital importance, set up twin price plans (one outrageous, one merely expensive) and have handed the discounted access to select economic players, granting them (a) a wildly unfair advantage in the labor market and (b) serious leverage over the people they do employ.
I’m sure there are other reasons for chronic wage stagnation, but I can’t think of a bigger one. And I can’t imagine anything further from the ideal espoused by Ford.
Len, re. your quote: “We say caste systems are evil. Caste systems of skill and education are very real and natural. All America guarantees is that these are not hereditary by law.”
Note that our current Repub president was a very mediocre student at Yale, and the current Repuke presidential candidate was in the bottom one percent of his class at the Naval Academy. What does this tell you about how Repugs value intellect and education?
Len, re. your quote: “We say caste systems are evil. Caste systems of skill and education are very real and natural. All America guarantees is that these are not hereditary by law.”
Note that our current Repub president was a very mediocre student at Yale, and the current Repuke presidential candidate was in the bottom one percent of his class at the Naval Academy. What does this tell you about how Repugs value intellect and education?
Nice one, Rick.
So much for ‘The Party of Ideas’
Nice one, Rick.
So much for ‘The Party of Ideas’
Also, the jag about health care may have seemed a bit off topic, but the key line from the Times piece seemed to be this:
“What was so comforting about Fordism was that it suggested that the economy operated on a virtuous, self-reinforcing cycle. Only when the middle class did well could the country do well. And as the country grew ever richer, so would the middle class.”
Earlier, it’s noted “More production could lead to better wages, which in turn would lead to more spending by the public, yet more production and eventually even higher wages.”
That, of course, is exactly what hasn’t happened. Partly because so much production now happens elsewhere, but again, why?
Here’s a provocative piece from the WSJ pointing out the parallels between health insurers and the mafia.
http://online.wsj.com/article/SB120813453964211685.html?mod=djemEditorialPage
I don’t want to suggest anything so simplistic as ‘blame all this on the HMOs’. But the more time I spend on this blog, coming to realize just what it means to live in competitive, global economy, the more I think we need to stop worrying about what everyone else is doing, and really focus on keeping our own house in order.
This applies on many levels. Health care (and its effect on competitiveness) is just one of them.
Also, the jag about health care may have seemed a bit off topic, but the key line from the Times piece seemed to be this:
“What was so comforting about Fordism was that it suggested that the economy operated on a virtuous, self-reinforcing cycle. Only when the middle class did well could the country do well. And as the country grew ever richer, so would the middle class.”
Earlier, it’s noted “More production could lead to better wages, which in turn would lead to more spending by the public, yet more production and eventually even higher wages.”
That, of course, is exactly what hasn’t happened. Partly because so much production now happens elsewhere, but again, why?
Here’s a provocative piece from the WSJ pointing out the parallels between health insurers and the mafia.
http://online.wsj.com/article/SB120813453964211685.html?mod=djemEditorialPage
I don’t want to suggest anything so simplistic as ‘blame all this on the HMOs’. But the more time I spend on this blog, coming to realize just what it means to live in competitive, global economy, the more I think we need to stop worrying about what everyone else is doing, and really focus on keeping our own house in order.
This applies on many levels. Health care (and its effect on competitiveness) is just one of them.
Aaand just to wrap it up with a Warren Buffet quote cited earlier by Jon,
“A country that is now aspiring to an ‘ownership society’ will not find happiness in – and I’ll use hyperbole here for emphasis – a ’sharecropper’s society’.”
This really seems to nail it – the idea that the New Federalism is really about dignified self-possession, and the notion that societies of individuals operating from this basis can (a) do better in the long run than collectives that function well, but only at the cost of individual dignity (b) prompt those loosing collectives to allow greater levels of individual dignity to keep up (c) effectively defend themselves against aggression from societies that don’t change for the better and (d) ultimately undermine the governments and institutions that keep life miserable for the unfortunates they represent (like Afghanistan, where laws against sex outside marriage are so strict that getting raped is a crime).
Aaand just to wrap it up with a Warren Buffet quote cited earlier by Jon,
“A country that is now aspiring to an ‘ownership society’ will not find happiness in – and I’ll use hyperbole here for emphasis – a ’sharecropper’s society’.”
This really seems to nail it – the idea that the New Federalism is really about dignified self-possession, and the notion that societies of individuals operating from this basis can (a) do better in the long run than collectives that function well, but only at the cost of individual dignity (b) prompt those loosing collectives to allow greater levels of individual dignity to keep up (c) effectively defend themselves against aggression from societies that don’t change for the better and (d) ultimately undermine the governments and institutions that keep life miserable for the unfortunates they represent (like Afghanistan, where laws against sex outside marriage are so strict that getting raped is a crime).
I can’t dispute their grades, Rick. But then being buttermilk (white kid raised in a black neighborhood), I’ve seen that enterprise is the key to landing upright when society tosses us in the air and the family can’t afford the trampoline. The quality is getting back up and getting back to work, not my GPA.
That said, how does a top of the line Turner nylon string compare to a top of the line Godin nylon string? What about the fittings? The point is that McCain attended a very different kind of university than Obama. Not only is the emphasis different, but so are the fittings. Obama’s education emphasized analysis and elucidation. McCain’s education emphasized leadership and action.
One really wants all of these in an executive so a) the times matter and b) the VP matters. Should be a fun week.
My blog ended with a question. Anecdotally or IME, hereditary wealth is an enormous advantage in a society where opportunities are guaranteed but not outcomes. Being blonde with big blue eyes and a prodigious set of twin snoopies is an advantage too. Thus Paris.
Then is the test only what they’ve done with their education and can you fairly compare outcomes based on age? Some say judgement is more important than experience and some reply that without experience, judgement hasn’t really been tested.
I find myself wanting to be less reactive so less easily played. Once past the Big Shows in the next two weeks, the debates will start. If I can keep my head out of the entertainment-as-war aspects of the campaigns, I will sort enough out of the platforms, then judge for myself, the only judge I trust, who I think is offering the most reliable credible deal. I listen, quibble with people I respect (why I’m here) and then choose.
I voted for Nixon in ’72. Why? I met McGovern. When I took a hard look at what we were up against, I judged he wasn’t up to the job at the time. We needed a ruthless S.O.B. to dig us out of the mess and was confident once he did the job, we’d roast him. On the other hand, McGovern would continue to serve and we needed him to keep doing that. I look at Hillary as VP the same way. I’d rather preserve the option and let her continue to gain power in the Senate where she can do some good. Pelosi, on the other hand, is toast if Obama doesn’t win and may be toast anyway.
I can’t dispute their grades, Rick. But then being buttermilk (white kid raised in a black neighborhood), I’ve seen that enterprise is the key to landing upright when society tosses us in the air and the family can’t afford the trampoline. The quality is getting back up and getting back to work, not my GPA.
That said, how does a top of the line Turner nylon string compare to a top of the line Godin nylon string? What about the fittings? The point is that McCain attended a very different kind of university than Obama. Not only is the emphasis different, but so are the fittings. Obama’s education emphasized analysis and elucidation. McCain’s education emphasized leadership and action.
One really wants all of these in an executive so a) the times matter and b) the VP matters. Should be a fun week.
My blog ended with a question. Anecdotally or IME, hereditary wealth is an enormous advantage in a society where opportunities are guaranteed but not outcomes. Being blonde with big blue eyes and a prodigious set of twin snoopies is an advantage too. Thus Paris.
Then is the test only what they’ve done with their education and can you fairly compare outcomes based on age? Some say judgement is more important than experience and some reply that without experience, judgement hasn’t really been tested.
I find myself wanting to be less reactive so less easily played. Once past the Big Shows in the next two weeks, the debates will start. If I can keep my head out of the entertainment-as-war aspects of the campaigns, I will sort enough out of the platforms, then judge for myself, the only judge I trust, who I think is offering the most reliable credible deal. I listen, quibble with people I respect (why I’m here) and then choose.
I voted for Nixon in ’72. Why? I met McGovern. When I took a hard look at what we were up against, I judged he wasn’t up to the job at the time. We needed a ruthless S.O.B. to dig us out of the mess and was confident once he did the job, we’d roast him. On the other hand, McGovern would continue to serve and we needed him to keep doing that. I look at Hillary as VP the same way. I’d rather preserve the option and let her continue to gain power in the Senate where she can do some good. Pelosi, on the other hand, is toast if Obama doesn’t win and may be toast anyway.