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Andy Grove advocates protectionism and more
Old 07-02-2010, 08:55 AM   #1
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Andy Grove advocates protectionism and more

I don't know what to make of this. Thoughts?
How to Make an American Job Before It's Too Late: Andy Grove - Bloomberg
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Old 07-02-2010, 09:04 AM   #2
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I wish I believed protectionism could work, but I don't think it can. The global economy genie is out of the bottle and I don't think we can put it back. Believe me, I think many of us who still have to w*rk would love the employment deals of the 1950s and 1960s before cheap global competition started to make them unfeasible and unsustainable. It's no accident that private sector unionism was at its peak then -- times were good enough that companies could give them most of what they want, and there wasn't cheap global competition to price them out of the market.
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Old 07-02-2010, 09:11 AM   #3
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I wish I believed protectionism could work, but I don't think it can. The global economy genie is out of the bottle and I don't think we can put it back. Believe me, I think many of us who still have to w*rk would love the employment deals of the 1950s and 1960s before cheap global competition started to make them unfeasible and unsustainable. It's no accident that private sector unionism was at its peak then -- times were good enough that companies could give them most of what they want, and there wasn't cheap global competition to price them out of the market.
I remember my grandfather refusing to buy a transistor radio because it was "made in Japan" and as he said: "which meant that it was a piece of junk"............
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Old 07-02-2010, 10:09 AM   #4
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When Andy Grove talks, people listen.

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I wish I believed protectionism could work, but I don't think it can. The global economy genie is out of the bottle and I don't think we can put it back. ...
Having spent a good part of my career in the manufacturing sector, I am betting to many of my cohorts are not represented on this forum. It is not news that manufacturing has been on the decline in the US during most of my lifetime.

I do not think that Mr. Grove is advocating ignoring the global economy, just responding appropriately to it. There are many things that we can do short of erecting trade barrier walls.

The first and foremost is to recognize that we have a problem that needs to be solved. We need manufacturing for many of the reasons that Mr. Grove cites and others as well. What manufacturing provides is nothing short of the basis of our economic prosperity. Also, it will cause the demise of our global leadership in the military arena. That's right, it will make us militarily weak and vulnerable to harm and ultimately, domination from our enemies. These are long term trends that are measured in decades and are not easily seen.

Perhaps more later.

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Old 07-02-2010, 01:21 PM   #5
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Having spent a good part of my career in the manufacturing sector, I am betting to many of my cohorts are not represented on this forum.

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Mr. Groves comments are quite sobering. I don't know if I accept the setup to his conclusion as being relevant though.

OK, so let's accept that the Chinese govt got involved and this helped them to attract all those jobs. From that, you can say that govt involvement is a good thing for job creation. But in that case, the govt probably just greased the skids a bit in what would be a natural progression. Their workers were happy to work for a fraction of what workers in the US demanded. So there was a natural 'force' for jobs to move overseas.

For the US govt to bring jobs here, they would need to work against that force, rather than with it. That is a tough nut to crack, and I don't think our Govt is up to the task (a mild understatement, IMO!).

Groves seems to see protectionism as a necessary evil (my words) to avoid civil unrest here. Maybe, but I suspect that protectionism would create more problems than it solves. Is our standard of living really going to be better if we are forced to pay more for things we could import cheaper? I guess we could go back to the rural agricultural economy we had in the 1800's. We would not have to import food and it would create a lot of jobs. But would it 'solve' anything?

I don't know the answer, but I suspect that it involves some creativity in adopting to a new reality, rather than trying to protect and lock-in a past reality.

Gloomy stuff though.

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Old 07-02-2010, 01:27 PM   #6
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My thoughts? How will I ever be able to FIRE if the price I have to pay for most things increases? Sounds like a bad deal for me.

Hey, maybe this trade protectionism could help me after all. Create a larger market for legal advise regarding how to avoid protectionist tariffs and taxes on foreign labor. Increasing trade transaction costs (like my legal services) helps the economy overall, right?
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Old 07-02-2010, 01:43 PM   #7
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The article is about 30 years too late.
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Old 07-02-2010, 03:42 PM   #8
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If you want to attract more business in the US you should cut/eliminate corporate taxes. Businesses are willing to pay a premium on salaries here for the stability the US provides, but many are not willing to pay a premium salary, high local taxes, high federal taxes, and try to comply with changing regulations and permit requirmements.

Corporate taxes are just consumer taxes anyway, just because it is paid before you buy a product doesn't mean you didn't pay it.
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Old 07-02-2010, 03:48 PM   #9
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If you want to attract more business in the US you should cut/eliminate corporate taxes. Businesses are willing to pay a premium on salaries here for the stability the US provides, but many are not willing to pay a premium salary, high local taxes, high federal taxes, and try to comply with changing regulations and permit requirmements.

Corporate taxes are just consumer taxes anyway, just because it is paid before you buy a product doesn't mean you didn't pay it.
+1

In addition.... no corporate tax means those products can be sold cheaper overseas. And that would help to create (or at least maintain) demand for jobs in the good old US.

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Old 07-02-2010, 03:51 PM   #10
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Corporate taxes are just consumer taxes anyway, just because it is paid before you buy a product doesn't mean you didn't pay it.
But the converse is not necessarily true. Just because corporate taxes are cut does not automatically mean the products will be cheaper to the consumer. The tax savings could flow through to equity holders.
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Old 07-02-2010, 03:56 PM   #11
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Corporate taxes are just consumer taxes anyway, just because it is paid before you buy a product doesn't mean you didn't pay it.
Many people don't understand that. Also, corporation are painted as bad and rich - so tax them. The ironic part is that the politicians that say they are for the poor promote this form of a regressive tax.
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Old 07-02-2010, 04:06 PM   #12
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But the converse is not necessarily true. Just because corporate taxes are cut does not automatically mean the products will be cheaper to the consumer. The tax savings could flow through to equity holders.
I would rather a stock holder control the money than any form of government!

Many people also forget that those big bad companies are nearly 100% of their portfolio. Name something Index 500 or Large Cap and people don't realize they mean Exxon, Wal-Mart, Microsoft, Newscorp, BP, etc.
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Old 07-02-2010, 04:15 PM   #13
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Many people don't understand that. Also, corporation are painted as bad and rich - so tax them. The ironic part is that the politicians that say they are for the poor promote this form of a regressive tax.
It seems like we have made some progress in reducing the percentage of revenue the government receives from corporate income tax.

What are the federal government's sources of revenue?
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Old 07-02-2010, 04:29 PM   #14
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But the converse is not necessarily true. Just because corporate taxes are cut does not automatically mean the products will be cheaper to the consumer. The tax savings could flow through to equity holders.
I don't buy that statement. The competitors are getting the tax elimination also. So, if Company X could get away with charging more than Company Y (assuming equal value of products), they'd be doing it already. As long as we are in a competitive environment, any reduction in the cost of doing business will lead to lower prices for the consumer. If that industry is so profitable as to be immune to this, other businesses will move into their territory to get a piece of that sweet pie.

I'd expect the consumers and shareholders to get about the same cut of as they do now. Again, this assumes a competitive environment.

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It seems like we have made some progress in reducing the percentage of revenue the government receives from corporate income tax.
Interesting and encouraging!

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Old 07-02-2010, 04:35 PM   #15
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As long as we are in a competitive environment, any reduction in the cost of doing business will lead to lower prices for the consumer.
It depends on the elasticity of demand and whether prices are, for lack of a better word, "sticky". For a variety of reasons, competition is not perfect in every market.
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Old 07-02-2010, 04:36 PM   #16
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But the converse is not necessarily true. Just because corporate taxes are cut does not automatically mean the products will be cheaper to the consumer. The tax savings could flow through to equity holders.
Tying this in to another thread, it really depends on the economic environment as to whether businesses would "pass on" their tax savings.

In an environment like this, I would expect businesses to pass tax savings on to customers in the form of lower prices (assuming healthy competition exists), but would not expect them to pass decreases in taxes on labor to employees as increased compensation elsewhere. Customers are in a position of bargaining strength relative to businesses providing goods and services now. Yet these businesses are also employers, who are currently enjoying a position of bargaining strength relative to their employees.

In a different market dynamic, corporate response might be different. I don't think it's static at all; it depends largely on overall macroeconomic conditions. Businesses have to jump through hoops to get customers today, but not to hire and retain labor. In 1998, they may have had to jump through hoops for labor. Not today.
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Old 07-02-2010, 04:38 PM   #17
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Nice post Ziggy.
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Old 07-02-2010, 04:41 PM   #18
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It seems like we have made some progress in reducing the percentage of revenue the government receives from corporate income tax.

What are the federal government's sources of revenue?
This doesn't tell the entire story. You need to see the whole pie, just not percentage of the pie. A lot of the decline in percentage of corporate taxes is from corporations moving operations overseas to maximize profits. They would happily open shop here if we did not have such a oppressive tax system.

Payroll taxes are worse than income taxes, and income taxes are deplorable. Taxing success is ludicrous and in my opinion the only logical tax is a consumption tax.
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Old 07-02-2010, 04:45 PM   #19
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It depends on the elasticity of demand and whether prices are, for lack of a better word, "sticky". For a variety of reasons, competition is not perfect in every market.
The tax elimination, price reduction and penalties can be legislated with the change in the corp. tax.

When the UK currency went from the English system to the metric they had a system of monitoring/reporting prices that were not adjusted properly.
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Old 07-02-2010, 07:08 PM   #20
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Mr. Groves comments are quite sobering. I don't know if I accept the setup to his conclusion as being relevant though.

...

Gloomy stuff though.

-ERD50


Having been privileged to spend almost 10 years sitting 30' from his cubicle, I can say that having an Andy Grove talk, described with adjectives sobering, scary, or if you were the subject of his talking, downright terrifying is very common.

Grove was revered among Intel folks, even among those he fired, the question was "is Andy Grove one of the smartest people you've met or THE smartest person?" . I am in THE smartest category.


I found that even when you disagree with him, as I do in this case, only a fool won't carefully reexamine their position. Not to say that he is infallible, on many occasions I have seen people (even myself) with more data, and more knowledge successfully argue with him. However, when he has carefully studied a subject as appeared to have here, I assume he is right and I am wrong. Now I accept subject matter expertise easily, a doctor, an auto mechanic etc. But for policy matters like this, why I figured I am smarter than the average bear and I'm right and you are wrong. Grove is literally the only person who I assume the opposite.

Last year I attended an Intel Alumni talk on CleanTech and Andy made a similar point about the problems of scaling alternative energy. Essentially he said that America is good at doing R&D for alternative energy and getting early adopters. But for the multi-trillion energy business there just isn't enough capital (or incentive for energy companies) to move to the stage where approximately 20-25% is alternative energy. Once a energy technology reaches critical mass Grove assumes the forces of capitalism will do a good job driving widespread deployment.

I am personally quite interested in the CleanTech and I have seriously looked at making many investments, since Hawaii is obviously a good location. However, what I have discovered is that while there a fair amount of dollar available from VC, Angel investors, state and local government for alternative energy inventions (better grid management software, better genetic engineered Algae etc.) there is almost no capital available to actually construct large wind farms, large solar energy facilities, biomass plants etc. Without DOE, State grants and utility mandates I don't think we'd see any alternative energy projects being made. Heck even T Boone Pickens has failed to raise capital.

Now a good free market capitalist (and believe me I love John Stossel's reports, Milton Freidman etc.) would say that reason we don't have alternative energy is because it isn't cost competitive with oil, or gas. They'd be right I doubt that any of these will ever be competitive without subsidies until oil hits $250/barrel.

However there is a huge chicken and the egg problem, without economies of scale these techs won't even be competitive at $250/barrel. But because economics are so bad, and amount of capital required so large, no individual company can afford to make the investment knowing they will be losing money for years if not decades. So I very reluctantly conclude that alternative energy requires collective subsidy by all of us. AKA the incompetent government.

Frankly, I wish it was a simple as cutting taxes. Cutting tax rates is almost useless to break even or money losing companies, and lets face it profitable US manufacturing companies are pretty rare. ~75% of Intel chips are manufactured in US and 75% are sold outside of the countries and I believe Caterpillar does most of it manufacturing in the US and is also quite profitable same thing with Boeing. But I'd be surprised to find more than a dozen companies which have more than 20,000 manufacturing employees in the US and have been constantly profitable over the last twenty years, who would greatly benefit from lower taxes. I bet none are on the scale of FoxConn.

My disagreement with Andy is the in relative importance of manufacturing job. Left unsaid in his article is this simple fact, manufacturer jobs like agricultural jobs at the turn of the 20th century are simply vanishing. The largest loser of manufacturing jobs in the last decade by far was China. Now some of these jobs moved to even cheaper countries like Vietnam, but most of the rest were lost to more efficient machinery and industrial robots. So I question given the inability of the government to get any industrial policy right is this the most important one for them to focus on.
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