Possible Deflation Scenario

[Cut-Throat]

I posted this on another forum. It has scary implications for not only those who are working, but also anyone trying to calc a SWR.

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There are thousands of very highly educated young people pouring out of Universities in India and other countries. A highly skilled engineer with a Masters Degree will work in these countries for $250 a month ! $3 Grand a year. This is too tempting for U.S. companies that are exporting jobs by the thousands. They are working at U.S. companies over the phone lines. This is real, is happening and is growing by leaps and bounds!

If you do your work over a telephone and computer, you are at risk. If this continues and we keep bleeding jobs there will be no sustained recovery. When unemployment rises in the U.S. to levels not seen since the depression, jobs will be going for a small percentage of what they have been. The cycle continues with people buying less, causing more unemployment and lower salaries. Prices drop because of little demand, causing more unemployment.

Deflation on a Grand scale! Depression could be the worst in U.S. History. Capitalism run amuck! Politically, this will be a cry for more government! To regulate the jobs being farmed out. Hoovervilles will be constructed once again. A new FDR may have to step up to the plate!

 

[dory36]

Cut-Throat - I share your concerns, but this post is technical, for everyone who hasn't enountered this strangeness in the forum.

See the "–" above? That seems to happen whenever anyone copies and pastes a message. Some non-standard ascii punctuation characters get reproduced that way.

Just fyi...
Dory36

 

[Cut-Throat]

Dory,

Yup, I noticed it when I posted it. It was either a dash or an exclamation mark. I fixed it.

I thought it may have been a swear word, but no; it was clean.

Do you have a clue?

BTW - your move to land has squashed the vagabond dreamer in me

 

[Michael]

Jobs have been going overseas for a long time without depression setting in. The only difference is that white collar jobs are now joining the exodus. The relatively higher taxes in the US put labor at a competive disadvantage on the world market. The few thousand per year that an Indian engineer earns would not pay the property tax on an engineer's home in the US. Companies hire overseas labor when they can, but political instability makes them wary of building all of their expensive plants overseas. This keeps a certain number of jobs in the US by necessity.

The baby boom's looming retirement may slow the economy if the boomers trim expenditures the way previous generations of retirees have. The exodus of jobs caused by the uneven playing field may worsen the trend a bit also. Warren B's estimate of 6% return on equities may come to pass if the boomers slow the economy in years to come. For now though, the fed is applying stimulus like never before in history, which may give us a few more good years. Who knows, immigration may compensate for the boomer retirement and keep things humming right along. It may be best to stay flexible and pay attention as things unfold. I don't see white collar job exodus derailing the economy all by itself in the face of the fed's stimulus.

 

[dory36]

Re the funny characters -- some applications convert ascii characters to somehing else that only that application ues. Curly quote marks, for example, are not part of the standard ascii character set. When you paste those (and a few others), the forum software doesn't know what to do with them, and just prints the code for that character.

Microsoft Word is probably the wors culprit.

Dory36

PS: Don't give up on the vagabond dream -- we just bought our first vehicle in many years, for pulling the large RV we will be moving into! We didn't stop vagabonding -- just changed to something that will get us to landlocked Dallas. I doubt we'll quit traveling for years to come.

 

[Mr._johngalt]

Just a short note re. Dory's traveling plans. I wouldn't say that I don't enjoy traveling. In fact, I have taken at least one trip every month this year so far. But,
these tend to be of short duration and low budget affairs. A lot of traveling tends to add
stress to my life unless I can do it on a very unscheduled basis (motorcycle trips for example where
you kind of make it up as you go along). The Terhorst's perpetual traveling would kill me in short order. Luckily
my wife is kind of a "homebody" too and is quite content
to play with the dogs, fish and tend her garden.

 

[Ted]

To get back to the original post, in "chicken little" fashion, it warns of two alleged economic "problems" that really aren't.

(1) Deflation.  Deflation was a symptom of the collapse of the money supply that turned the economic downturn of 1929/1930 into the depression of the 1930's.  Virtually all mainstream economists now recognize this, and recognize that the solution is for government (particularly the Federal Reserve) to (a) insure the solvency of financial institutions that hold people's money and (b) keep the overall money supply growing at a modest rate.  The latter is what the FGederal Reserve has been doing for the past couple of years, and if it hadn't, the recession doubtless would have been mush worse.

(2) "Loss of Jobs" to workers overseas.  This populist nonsense also contributed to the 1930's depression, when to "protect domestic jobs" the major countries in the world raised tariffs, thereby shutting down international trade and REALLY destroying jobs.  And that was at a time when foreign trade represented a much smaller fraction of the economies of the U.S. and other nations.

The simple, common sense explanation as to why foreign trade does not "cost American jobs" is that "trade" means "trade."  No country can engage in trade without producing things for export.  The things that are imported (at a lower price to domestic consumers) do "cost jobs" in some industries, but the things that are exported create jobs in other industries that, on the whole, provide workers with a higher real income (that is, more purchasing power).

Increased immigration is not the long term solution to economic growth.  The immigrants tend to be very highly motivated people who contribute to the output of the economy.  The "catch" is that they compete with natives for available resources, some of which (such as desirable residential land) are limited.  

Actively trading with foreign countries (without tariffs) is the best way to benefit from their skills, and to get the "best price" for the skills of our own population, without the need for foreigners to physically relocate to the U.S.

In another post, I recommended Tom Friedman's book, "The Lexus and the Olive Tree."  In it, he discusses the benefits (and rational concerns about) globalization in a way that is far more comprehensive than is possible in posts like this.  He is more favorable to immigration than I am because he recognizes its economic benefits but not its associated costs.

 

[Telly]

I certainly agree that there are two separate issues in this thread.

Deflation - I just don't see it, looking into my crystal ball . Health care costs aren't going to go down, I don't expect any terrific long-term drop in energy prices that would ripple through everything. And there is a pent-up demand to raise prices in many companies now. But they are holding the line on price so as not to lose what customers they have in the present climate. So I expect prices to rise to boost (or allow?) profits when things turn up more. Can housing prices drop in some selected markets? Sure. Just like they always have, just as some of the same areas were "hot" once and they rose highly.

Jobs going overseas - Do I like it and think its a good idea? Certainly not! But to paraphrase one of Isaac Newton's laws of motion "for every action, there is an equal and opposite reaction". I would add that the reaction in this case takes some time. Small comfort to those immediately affected, I know .

Japan, the industrial powerhouse. Most manufacturing jobs are going to Mexico. The "Seven Tigers" of the far east (remember them?). Korea is going to eat everyone's lunch. Etc.

I worked for a company that had some of their mfg. operations in Mexico. A place and culture really for mature products that just needed the crank turned to build them. Perform changes with work in progress, or newer state of the art products? No way. Confusion, mistakes, halted production. Chain of command too long, design crew not there, lack of real expertise locally, needed different parts not there etc. etc. And Mexico is "losing" its low wage status at that. And all that was without time zone difficulties. Imagine a totally different culture on the other side of the world!

We hear about the jobs going somewhere else, but we rarely hear about a "post mortem" on it as to if it really worked out long term. Why? Well, from my own observations... the media isn't really interested, and most media people are really too stupid to grasp anything that a camera can't just be over-zoomed at in about 10 seconds. And most companies don't perform post mortems. A post mortem is viewed as an acknowledgement of failure, rather than a learning tool. So mistakes aren't made

So we will hear about the one way traffic, and there are countries that are probably overjoyed about what they are getting now. An have delusions that they are well on their way to becoming world experts in "X". But there is that balance in nature that Sir Isaac expressed...

 

[Michael]

I do see that international trade has benefits. I just wonder if the uneven taxation in various countries is having unintended consequences. A higher tax in one country effectively places a unilateral tariff on their exports, one imposed by their own government. This makes it harder for companies in high tax nations to compete on the world market. For trade to be truly free, tax rates would have to be uniform in all countries. Otherwise, international trade is less efficient at producing global gain.

 

[Ted]

A higher tax in one country effectively places a unilateral tariff on their exports, one imposed by their own government.  This makes it harder for companies in high tax nations to compete on the world market.  For trade to be truly free, tax rates would have to be uniform in all countries.  

As I noted in another post, the real cost of government to the American people is what government spends.  On the one hand, the taxes required to finance government expenditures reduce people's purchasing power, but what is less readily apparent is that most government expenditures also greatly enhance commerce, and thereby, on balance, increase people's real standard of living.  Examples are expenditures on education, roads, airports, and national security.  The continuous challenge is to insure that the benefits derived from government programs exceed their costs.  That's what political debate is all about.

Neither high taxes nor high labor costs will shut down international trade, as long as currencies are allowed to float.  For example, if the prices of U.S. goods and services become too high to be competitive on world markets, then demand for U.S. dollars falls, and the dollar depreciates until the prices of U.S. goods and services on foreign markets are once again competitive.

The U.S. has higher taxes per capita than most other countries.  But it also has the world's highest per capita standard of living (with a possible few minor exceptions like Switzerland and Bahrain) and dominates the world economically and culturally.  

I'm not so nationalistic that I regard American culture as superior in every respect.  However, the reality of geopolitics is that, in the absence of a powerful nation, the world degenerates into chaos.  In this age of nuclear and biological weapons, we can no longer afford to sit back and let the rest of the world go to hell.  

Perhaps a "progressive" country like Denmark or New Zealand would do a more "moral" or "culturally refined" job of leading the world, but among the realistic candidates for the job I can't think of a better one than the U.S.  So I support taxes, and also support political leaders like John McCain who work to see that they are collected efficiently and not spent frivolously.

 

[Mr._johngalt]

God (if there is a God), I hope you're kidding.

 

[Mr._johngalt]

I can see now that brevity was not the soul of wit
in my last post. I invoked the name of The Almighty
but was unclear about what I referred to. It was the
final sentence of the prior post, specifically re. John McCain and taxes. Some of the post made sense, but
suggesting McCain could be trusted to spend our taxes wisely?? Couldn't swallow that one.

 

[Ted]

suggesting McCain could be trusted to spend our taxes wisely??  Couldn't swallow that one.

From previous posts, it's clear that JohnGalt doesn't trust politicians, lawyers, doctors, financial advisors, or much of anyone else. Rational skepticism is a good thing, but at some point people need to trust somebody else in order for society to function. A few of us might be able to move to a cabin in the woods somewhere and be self-sufficient, but most of us can't and wouldn't want to.

Regarding John McCain, Citizens Against Government Waste (hardly a bunch of wild-eyed liberals) rates his votes on spending issues as 88% in agreement with their preferences, which places him just slightly behind 3 other senators. In comparison, Minority Leader Daschle rates 10%. Website: http://www.cagw.org/site/PageServer?pagename=Ratings_Senate

And for those who are "conservative" on matters of national defense, like I am, I don't think that McCain's commitment to it is subject to question.

 

[Mr._johngalt]

Hey Ted! Just to be clear. I trust myself, all others
are suspect . Seriously, some of my best friends
are doctors and lawyers. And, while I am very cynical and egocentric I do want everyone to be happy.
I would just prefer many of them being happy far away
from me. As for the "cabin in the woods" idea. I've thought about it. Finally re. McCain and politicians in general. You are pretty close there. Partly why I no longer vote.