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Old 05-18-2011, 10:01 AM   #61
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We cannot compete with China, India, etc... based on lower wages. Not possible when the cost of someone in the U.S. is 5x the same person in China. Our real competitive advantage is advanced technology, sophisticated manufacturing, etc...
I'll assume that when samclem said lower wages, he meant relatively lower wages, as in lower than current US wages, not lower than current Chinese wages. Lowering US wages would make us relatively more competitive.

Not many people want to hear that, but it is a reality. The only other reasonable option I see is to increase our productivity even further (in those areas you mentioned, and more) to close the gap. Maybe we could do some of both, but I think wage compression to some degree is inevitable.

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Old 05-18-2011, 10:55 AM   #62
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I'll assume that when samclem said lower wages, he meant relatively lower wages, as in lower than current US wages, not lower than current Chinese wages. Lowering US wages would make us relatively more competitive.

Not many people want to hear that, but it is a reality. The only other reasonable option I see is to increase our productivity even further (in those areas you mentioned, and more) to close the gap. Maybe we could do some of both, but I think wage compression to some degree is inevitable.

-ERD50
Relatively lower wages still won't solve the problem. Absent protectionist policies (which would violate numerous treaties), the U.S. must find a way to distinguish itself from emerging economies through the production of more sophisticated products than can be manufactured in such economies. Unfortunately, the U.S. is woefully behind in math and science education, so the average worker won't be able to qualify for the high-tech jobs that would embody such distinction.

So what is the answer?

In the short term, focus on those jobs that can't be outsourced (e.g., the trades - plumber, electrician, carpenter, masons, welder, etc....) These domestic service-sector jobs formed the backbone of the U.S. economy from the late-1940s until the 1980s. There is a dearth of qualified tradespeople, with 200,000 trade jobs going begging for lack of skilled talent.

In the long term, focus on manufacturing jobs that require construction of sophisticated technologies that can be used domestically and exported to emerging economies who don't have: (1) skilled labor, and (2) natural resources to manufacture them. A good example of this is the cell phone and smart phone industry, as many poor countries lack the infrastructure to build land-based phone systems.
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Old 05-18-2011, 12:39 PM   #63
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Relatively lower wages still won't solve the problem.
I think we are talking about a matter of degrees and relative gains, not the absolutes of "solving" a problem. There is no doubt in my mind that lower wages in the US would help to make us more competitive. It's basic supply/demand.


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So what is the answer?

In the short term, focus on those jobs that can't be outsourced (e.g., the trades - plumber, electrician, carpenter, masons, welder, etc....)
Well, a factory needs all sorts of skilled trades people to support it. So if we had more manufacturing we would also have more demand for these skilled trades. Of course, wages are not the only thing, business hates uncertainty when it tries to plan something like setting up a large factory. Uncertainty about tax rates, possible union demands, healthcare costs, and other things are a problem.

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There is a dearth of qualified tradespeople, with 200,000 trade jobs going begging for lack of skilled talent.
Can you provide a reference for that? I was under the impression that with building at a standstill, there was an oversupply of trades people.

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In the long term, focus on manufacturing jobs that require construction of sophisticated technologies that can be used domestically and exported to emerging economies who don't have: (1) skilled labor, and (2) natural resources to manufacture them. A good example of this is the cell phone and smart phone industry, as many poor countries lack the infrastructure to build land-based phone systems.
I don't think your cell phone example is a good one. China is building these for the world right now. They have plenty of labor that is skilled enough for this task, and willing to work for lower wages/benefits. From what I've read, Apple is making more profit on each iPhone or iPod than the Chinese make by supplying the labor to build them, but that seems to be an exception.

You can say we need more Apple Incs, but as long as we keep doing things like tie health insurance to employment, we limit entrepreneurship. We are doing lots of things wrong, and I suspect it is going to take lots of things done right to turn this around, or even to slow the rate of leveling of the 'flat earth'. OTOH, I can make the case that we shouldn't slow it down - a small rise in the standard of living in those third world countries would probably bring more comfort overall to the world than the discomfort a few 100 million Americans might experience by a slight drop in their standard of living. Not that it has to be a zero-sum game, but the distribution of any real growth might well be skewed enough to be negative for advanced countries.

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Old 05-18-2011, 01:12 PM   #64
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Have to disagree with you. We cannot compete with China, India, etc... based on lower wages. Not possible when the cost of someone in the U.S. is 5x the same person in China. Our real competitive advantage is advanced technology, sophisticated manufacturing, etc...
Lower US wages will help us be more competitive, it's not the single-source answer to everything.
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Highly-talented younger workers who see no career/promotion path (or feel that their careers are being stymied) will leave for companies where such opportunities exist - or will start their own companies.
Great. As long as those opportunities exist, competition will take care of the problem.

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Absent protectionist policies (which would violate numerous treaties) . . .
Yes, but we could amend or withdraw from those treaties very quickly. Nations have an obligation to withdraw from treaties that don't serve their self interests. The best reason not to adopt protectionist policies is that this would severely damage our economy and be counter to our self interest.
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Old 05-18-2011, 05:17 PM   #65
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Would not a fall in the value of the dollar relative to other currencies (especially the yuan) accomplish a relative downward adjustment in US wages and lead to greater competitiveness?
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Old 05-18-2011, 05:21 PM   #66
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Would not a fall in the value of the dollar relative to other currencies (especially the yuan) accomplish a relative downward adjustment in US wages and lead to greater competitiveness?
Yes. Isn't that their plan ?
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Old 05-18-2011, 11:33 PM   #67
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Would not a fall in the value of the dollar relative to other currencies (especially the yuan) accomplish a relative downward adjustment in US wages and lead to greater competitiveness?
Yes, and in the same stroke it cuts the amount we owe to the Chinese. But, I think folks are on to us and are going to ask for more money to stay in the game.
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Old 05-19-2011, 08:29 AM   #68
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I'll assume that when samclem said lower wages, he meant relatively lower wages, as in lower than current US wages, not lower than current Chinese wages. Lowering US wages would make us relatively more competitive.
Agreed . . . over the long-run.

But at the moment the U.S. is caught in the 'through the looking glass' kind of world where economics is turned on its head (thrift and productivity are counterproductive, for example). It's a world where demand, rather than supply, determines output. In that world, lower wages result in lower demand, and, therefore, lower output. Said another way, lower wages lead to lower employment, not more.

I understand that is counter intuitive, and contrary to the way economics normally works, but that is how the world works in a liquidity trap.
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Old 05-19-2011, 08:33 AM   #69
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But, I think folks are on to us and are going to ask for more money to stay in the game.

Yup, look at how much they're asking . . . ("Interest rates are going to soar any day now" vintage 2008, "just around the corner" 2009, "soon" 2010, "next year" 2011 . . . ) Something else liquidity trap economics says is that large fiscal deficits and aggressive monetary policy don't lead to higher interest rates and inflation. That is also counter intuitive. But guess what?

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Old 05-19-2011, 09:22 AM   #70
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Interesting article from Yahoo that's relevant to our discussion.

people-work-into-70s-marketwatch: Personal Finance News from Yahoo! Finance
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Old 05-19-2011, 10:04 AM   #71
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Agreed . . . over the long-run.

But at the moment the U.S. is caught in the 'through the looking glass' kind of world where economics is turned on its head (thrift and productivity are counterproductive, for example). It's a world where demand, rather than supply, determines output. In that world, lower wages result in lower demand, and, therefore, lower output. Said another way, lower wages lead to lower employment, not more.

I understand that is counter intuitive, and contrary to the way economics normally works, but that is how the world works in a liquidity trap.
I'm late to this discussion, but in reading through the thread I think this is a good point that is generally misunderstood. It is similar to a deflationary price spiral in the wage market. Although past isn't prologue, history has shown that developed economies can weather and eventually prosper after this type of environment either through increasing productivity or raising the wages in lower wage cost economies. I think it is almost always a combination of both.

In terms of free trade vs. protectionism, I don't know of many examples in history that don't show that certain types of protectionism are better for the residents of the protected economy while free trade makes the world better off in the aggregate but generally leads to painful labor markets in developed economies and even makes residents of those countries worse off in the short or medium term. I'm no fan of government intervention, but the case for some level of protectionism is fairly strong in my opinion.
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Old 05-19-2011, 10:56 AM   #72
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Yes, and in the same stroke it cuts the amount we owe to the Chinese. But, I think folks are on to us and are going to ask for more money to stay in the game.
The dollar's predicted demise continues to elude many. I bet there's a lifetime left on the downward glide slop.

During the Great Recession, I was extremely surprised by the rest of the world's flight to dollars and Treasuries. Apparently our domestic problems are not the epicenter of the universe after all.

I think that the American economy and "land of opportunity" dream will continue to sucker encourage a continued demand for government-sponsored debt. But I have a hard time coming up with a logical reason for this crowd's behavior.
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Old 05-19-2011, 02:11 PM   #73
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The dollar's predicted demise continues to elude many. I bet there's a lifetime left on the downward glide slope.
True. And as other countries' currencies and economies rise in prominence, they will continue to object to the dollar being the world's reserve currency. Unfortunately, there isn't another single currency with which to replace it. Accordingly, we'll likely see a basket of currencies take the dollar's place (probably 3 currencies, with the dollar being one of them). Eventually there will be a single world currency.

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During the Great Recession, I was extremely surprised by the rest of the world's flight to dollars and Treasuries. Apparently our domestic problems are not the epicenter of the universe after all.
This has more to do with the fact that the U.S. Government always pays its debts, even if it has to rob Peter to pay Paul.

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I think that the American economy and "land of opportunity" dream will continue to sucker encourage a continued demand for government-sponsored debt. But I have a hard time coming up with a logical reason for this crowd's behavior.
Yes, this will be the case for quite a while. Yet the U.S. hasn't really been the same "land of opportunity" as it was in the early-1900s, late-1940s-early-1950s, or even the 1980s. That said, it's still easier to make a fortune in the U.S. than anywhere else on Earth.
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Old 05-19-2011, 04:09 PM   #74
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Yup, look at how much they're asking . . . ("Interest rates are going to soar any day now" vintage 2008, "just around the corner" 2009, "soon" 2010, "next year" 2011 . . . ) Something else liquidity trap economics says is that large fiscal deficits and aggressive monetary policy don't lead to higher interest rates and inflation. That is also counter intuitive. But guess what?

Anyone who tells you when inflation and Treasuries are going to begin their ascent is a Dirty Market Timer, and I ain't one of those.
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Old 05-19-2011, 04:12 PM   #75
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Eventually there will be a single world currency.
Maybe, but it will have to wait until we get a single world government. Europe is now showing us what happens when nations have a common currency but disparate degrees of fiscal discipline.
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Old 05-19-2011, 04:42 PM   #76
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Interesting article from Yahoo that's relevant to our discussion.

people-work-into-70s-marketwatch: Personal Finance News from Yahoo! Finance
And from that article, this:

Still, there's a problem for those who plan to work well into their 70s: That strategy assumes they'll keep their jobs and stay healthy.

"Planning not to retire is not a retirement strategy," Collinson said. "Too often, life's unforeseen circumstances can dictate otherwise, be it through a job loss, health issues or life's other obligations."

What are these non-retirement people thinking? That they won't age? I understand that many people love their jobs...but sometimes their bosses just don't love them back quite so much. And I understand my generation (boomers) are generally fitter and healthier than our parents were at our ages, but we're still going to age. And some people whose jobs involve physical labor simply cannot keep up the same level of productivity and energy at 65 that they could manage at 55. They just don't know that yet.

And the article goes on to say that these non-retirement people have also failed to come up with a back up plan. For many people, I suspect it will end up being SS and a reduced standard of living.

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Old 05-19-2011, 04:59 PM   #77
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What are these non-retirement people thinking? That they won't age? I understand that many people love their jobs...but sometimes their bosses just don't love them back quite so much. And I understand my generation (boomers) are generally fitter and healthier than our parents were at our ages, but we're still going to age. And some people whose jobs involve physical labor simply cannot keep up the same level of productivity and energy at 65 that they could manage at 55. They just don't know that yet.

And the article goes on to say that these non-retirement people have also failed to come up with a back up plan. For many people, I suspect it will end up being SS and a reduced standard of living.

LadyPatriot
Those I have talked to in real life, either think they will never age or often they seem to be thinking in the back of their minds that their children are going to take them in and support them if need be.

To me that seems like a huge burden to put on a child during the years when the child should be struggling to save for his/her own retirement. So, there is no way I am going to appear, hat in hand, on my daughter's doorstep with big moon eyes and tears at age 80+. But different families and different cultures view this practice differently, and of course they have as much right to do things their own way as I have to do things my way.
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Old 05-19-2011, 05:38 PM   #78
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The sandwich generation

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Those I have talked to in real life, either think they will never age or often they seem to be thinking in the back of their minds that their children are going to take them in and support them if need be.

To me that seems like a huge burden to put on a child during the years when the child should be struggling to save for his/her own retirement. So, there is no way I am going to appear, hat in hand, on my daughter's doorstep with big moon eyes and tears at age 80+. But different families and different cultures view this practice differently, and of course they have as much right to do things their own way as I have to do things my way.
they have a name for people supporting both their indigent parents and putting their children through college and attempting to save for their own retirement. They call them the sandwich generation.

It's a struggle.
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Old 05-20-2011, 08:42 AM   #79
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Those I have talked to in real life, either think they will never age or often they seem to be thinking in the back of their minds that their children are going to take them in and support them if need be.

To me that seems like a huge burden to put on a child during the years when the child should be struggling to save for his/her own retirement. So, there is no way I am going to appear, hat in hand, on my daughter's doorstep with big moon eyes and tears at age 80+.
My parents assumed financial responsibility for my grandparents when the latter were no longer able to drive and/or started to run out of money (lived until their 90s, with one still alive at 100+). I believe it's appropriate for children to assume such a burden. By such time, the adult children are probably in their 60s and have the financial resources to do so. Medicaid, Medicare and Social Security can help ease the financial costs. Besides, and not to sound morbid, but the "burden" of caring for aging parents in their 80s or 90s probably won't be more than 10 years (if not less).

That said, it's another thing entirely for a spendthrift parent to show up at his/her children's doorstep when s/he is still fit enough to get a job. My grandfather applied for a retail shoe store job at 75 and got it over a dozen other guys - many of whom were much younger than him. He didn't do it for the money (though it certainly helped), but rather because it kept him young. Dealing with discerning customers (it was a high-end men's shoe store), combined with going to the back room and climbing the ladder to shelve/unshelve shoes, gave him plenty of stimulation.

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But different families and different cultures view this practice differently, and of course they have as much right to do things their own way as I have to do things my way.
This seems to be the traditional "Asian" model. Yet many young Asians in the U.S. are resistent to the idea that their parents will move in with them, even though there are certainly some advantages (in-home childcare, help with cooking and cleaning around the house, etc...)
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Old 05-20-2011, 09:17 AM   #80
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Anyone who tells you when inflation and Treasuries are going to begin their ascent is a Dirty Market Timer, and I ain't one of those.
I don't think this has anything to do with market timing. It has a lot to do with bad economic analysis, pushed by places that should know more than they apparently do (like the Wall Street Journal).
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