One Measure of US Economic Failure

[al_bundy]

For how long have we worried that foreign competition would impoverish us?  At least back to the 1920's when "Under the watchful eye of Senator Reed Smoot of Utah, the party drafted the Fordney-McCumber tariff act in 1921 with an eye to increasing domestic firms' market share."    After the stock market crash of 1929 Senator Smoot joined up with Hawley to pass another tariff increase, which is widely accredited with prolonging the Great Depression. 

Fears of foreign competition go back decades, if not millennium.  History has repeatedly shown, however, that international trade and competition increase economic growth and living standards - but no one seems to pay attention.  More recently we've been treated to various theories of how the Japanese would "eat our economic lunch", followed by the "Asian-Tigers" and now China and India.  Over that entire time (since 1981) Real GDP has grown 3.1% and Real Wages have grown 1%.  Notwithstanding increased global competition and all the xenophobic fears accompanying it, we are wealthier then we've ever been. 

I have to admit that it’s dispiriting to see an internet forum presumably populated by financially savvy folks fall for this tired and discredited protectionist rhetoric.  If this group doesn’t know better, what hope does the nation have in fending off wrong-headed protectionist policies, which are the real threat you should all be worried about. 

i was studying for a US History CLEP a few months back and found that most of this restriction of trade nonsense comes mainly from the interior of the country. the coastal states' legislators are mostly for free trade.

 

[al_bundy]

Cell phone design is being transferred to Asia/China and is an example of US firms desire to outsource more design work to Asia/China just as they have outsourced much manufacturing.  Don't underestimate the talent and creativity of Asian/Chinese engineers.  And at $10k to $12k salary, they represent a huge savings over US engineers.

what exactly is cell phone design? the major parts like the operating system, other software, video chips are designed in the US by companies like Microsoft, Openwave, Nvidia, ATI now AMD and a few other companies. Maybe the the lower end work like putting all the high tech pieces together is being sent overseas.

It's like the Ipod. It's really nothing special and nothing high tech. just a bunch of existing tech and some apple made software to tie the whole thing together.

 

[youbet]

I have to admit that it’s dispiriting to see an internet forum presumably populated by financially savvy folks fall for this tired and discredited protectionist rhetoric.  If this group doesn’t know better, what hope does the nation have in fending off wrong-headed protectionist policies, which are the real threat you should all be worried about. 

I see here a forum with folks worried/curious about what changes need to be made by the government, businesses and individuals so that Americans continue to enjoy a good standard of living spread across the entire population.  To the degree that foreign competition changes the kinds of jobs that are available, skills that are needed, income distribution, etc., people need to be prepared to change to survive. Discussing what's happening and what's likely to happen in the future in this regard isn't dispiriting to me at all.  Would you rather that citizens march forward blindly and wind up unprepared to work in tomorrow's economy?

 

[youbet]

what exactly is cell phone design? the major parts like the operating system, other software, video chips are designed in the US by companies like Microsoft, Openwave, Nvidia, ATI now AMD and a few other companies.

The chip sets are designed as you describe as far as I know.  Software is being increasingly outsourced.  Circuit design, PC board layout, mechanical tooling, reliability and performance testing, manufacturing systems, etc. are being increasingly outsourced. 

 

[wabmester]

We've obviously lost many sectors of our economy to foreign competition: consumer electronics, semiconductors, automobiles, textiles, manufacturing, etc.

So, the argument for US economic growth is that for every sector we lose, we grow or gain another.

Is there a scorecard someplace where I can get a sense of which sectors of the economy shrank and which sectors grew (or appeared)?

I know about the dot-com boom and the recent job growth in real estate (something like 40% of new jobs created in the last few years), but that's arguably not sustainable growth. So, where are we kicking butt?

 

[haha]

I have to admit that it’s dispiriting to see an internet forum presumably populated by financially savvy folks fall for this tired and discredited protectionist rhetoric.  If this group doesn’t know better, what hope does the nation have in fending off wrong-headed protectionist policies, which are the real threat you should all be worried about. 

Ideas in politics and economics are cyclical. What is "tired and discredited" today, at least according to you, may be the latest great new thing tomorrow.

This is like trying to collect bets before the game is over.

One thing I wonder about- without credit cards and home re-fis, where would the fuel to run our consumption based economy come from?

My personal opinion is that one doesn't need to make any so called economic arguments. I don’t think it is possible that an equilibrium can hold that depends on military power, without the manufacturing and natural resources to back that military up. I doubt Americans can be rentiers on the world very much longer.

Who thinks that the UK would have had their incredible rebirth over the last 25 years without the North Sea? British manufacturing, iron and coal mining were dying. The financial power of "The City" has always been there and very dominant worlwide, but it wasn't keeping the British economy afloat until it floated up on a sea of crude.

As North Sea production declines, what will replace it? Back to surgery performed on sheiks, tourists looking at Big Ben (likely well to do Asians), high class hookers serving  the international elite. You know, economically similar to Jamaica plus Bermuda today. And we are next!

We are walking loudly, and carrying a large but rotten stick. I have too much experience with real life to expect the nations with resources and/or manufacturing power to put up with this crap very long.

Ha

 

[JB]

I know about the dot-com boom and the recent job growth in real estate (something like 40% of new jobs created in the last few years), but that's arguably not sustainable growth. So, where are we kicking butt?

Here's a start: financial services, media and entertainment, biotechnology, weapons systems, consulting services (oops, Accenture is headquartered in Bermuda!)

I have a friend who's a german software developer working for Nokia in Helsinki. His employeer is a british division of Accenture and several developers on his team are in India.

I still think the trade deficit doesn't properly account for intellectual property. When an Intel engineer designs the next chip and e-mails the plans to a Taiwan fab, that "export" does not count as profit for an American company. Yet the money Intel makes on that chip design is far more profit than any Asian computer manufacturer makes on a laptop based around that chip.

Intel's new Core 2 Duo (Conroe and Mercom) chips are getting excellent reviews. They were designed in Haifa Israel by the same team who developed the Pentium-M, Intel's last good design. I remember that much of the original Pentium multimedia architecture (MMX) was also designed in Israel. Itanium was designed in the US.

 

[perinova]

Where things are designed and who has the IP only matters to the engineers designing. As far as the world economy goes what is important is: Who is manufacturing and who is buying.

Another comment I want ot make here is if you are a stock holder of an international company (American or not) you will do well regardless of the exchange rates, the education of workers etc. Why: Because it is not that difficult for a company to move capital and operations form a country to another.
Workers though can be jirked around and this is only the beginning of the trend.

Kyiosaki who says a lot of stupid things could be right on that one: Which
quadrant would you like to be in. For good reason most on this forum have left or work hard to leave the Employee quadrant to the Investor one.

 

[al_bundy]

The chip sets are designed as you describe as far as I know.  Software is being increasingly outsourced.  Circuit design, PC board layout, mechanical tooling, reliability and performance testing, manufacturing systems, etc. are being increasingly outsourced. 

except for software which is still controlled by US companies everything you named is low end stuff at least for the cheapo cell phones. the expensive cell phones use parts made and designed by US companies. Even a lot of contract manufacturers like Jabil are US based companies. The whole reason for outsourcing is that it allows companies to concentrate on a smaller number of things like only marketing and let the experts like Jabil take care of the engineering and manufacturing.

Your high end Motorola cell phone is going to have most of it's parts made or designed in the US.

 

[Scrooge]

I have to admit that it’s dispiriting to see an internet forum presumably populated by financially savvy folks fall for this tired and discredited protectionist rhetoric.

The way internet forums work is that no single poster is good at everything. There will be contributors who are good at some aspects of finance or economics or LBYM or something else. And then they will make a comment about something outside their area of expertise that will make you question their sanity

 

[REWahoo]

And then they will make a comment... that will make you question their sanity

You mean like this one about your annual "living" expenses?

The total comes to $19,826....

 

[Scrooge]

And then they will make a comment... that will make you question their sanity 

You mean like this one about your annual "living" expenses? 

The total comes to $19,826....

Oh, no, LBYM is my area of expertise! Now, if you want to know my opinion about overrated junk well received movies like "Lawrence of Arabia" or "The Lord of the Rings", we can take it to PMs  8)

 

[al_bundy]

We've obviously lost many sectors of our economy to foreign competition: consumer electronics, semiconductors, automobiles, textiles, manufacturing, etc.

So, the argument for US economic growth is that for every sector we lose, we grow or gain another.

Is there a scorecard someplace where I can get a sense of which sectors of the economy shrank and which sectors grew (or appeared)?

I know about the dot-com boom and the recent job growth in real estate (something like 40% of new jobs created in the last few years), but that's arguably not sustainable growth.    So, where are we kicking butt?

IT is still running pretty strong but unlike the dot com boom it's more specialized and you have to know something more than just how to spell computer

 

[wabmester]

IT is still running pretty strong but unlike the dot com boom it's more specialized and you have to know something more than just how to spell computer

I looked for good data on GDP growth by sector, and I haven't been able to find something that gives a good picture. The BEA has a lot of data available, but it's hard to connect all the dots. The one thing that is clear is that IT had annualized growth of around 22% from 1995-2000, and now that growth has slowed to about 11%.

So, we have some healthy sectors, but even the healthy ones don't seem to be as strong as they once were.

 

[al_bundy]

11% is still three times as good as economic growth of the last few years

no sector goes up strongly forever. there are economic cycles and different sectors go up at different rates in different cycles.

 

[wabmester]

no sector goes up strongly forever. there are economic cycles and different sectors go up at different rates in different cycles.

Right.   We don't need to start worrying until overall GDP slows or declines.   I'm just curious about what our current economic growth engines are now that we've lost a few and others are in decline.   It seems pretty clear that we're becoming a service-based economy.   I wonder if we'll continue to gain share in services, or if other countries with large well-educated populations can take that away from us as well.

I don't see doom and gloom in the current trends.   I figure the worst case is that we basically become like Europe  -- more vacation time for everyone!

 

[Gone4Good]

I looked for good data on GDP growth by sector, and I haven't been able to find something that gives a good picture.   The BEA has a lot of data available, but it's hard to connect all the dots.    The one thing that is clear is that IT had annualized growth of around 22% from 1995-2000, and now that growth has slowed to about 11%.

So, we have some healthy sectors, but even the healthy ones don't seem to be as strong as they once were.

Another interesting factoid from the BEA data is that corporate profits from manufacturing have increased 867% (6% CAGR) over the past 35 years. Hardly the decline most here would assume. Just another case of people not seeing the forest for the trees.

 

[al_bundy]

Right.   We don't need to start worrying until overall GDP slows or declines.   I'm just curious about what our current economic growth engines are now that we've lost a few and others are in decline.   It seems pretty clear that we're becoming a service-based economy.   I wonder if we'll continue to gain share in services, or if other countries with large well-educated populations can take that away from us as well.

I don't see doom and gloom in the current trends.   I figure the worst case is that we basically become like Europe  -- more vacation time for everyone!

we are doing a huge business in manufacturing and services for building infrastructure for developing nations and we would not have this business if it wasn't for free trade

health care is pretty big too

 

[haha]

health care is pretty big too

So if we were all doctors, we could get fat and happy treating one another's hemorrhoids?

Repeat after me- traded goods, traded goods…

 

[al_bundy]

plenty of medical devices and drugs being developed and made in the USA along with jet engines, heavy machinery and all kinds of other high tech products

 

[mathjak107]

for the most part the trade deficit is alot of bull.... we buy alot of foreign goods because to us  it represents the best value ..i buy items from japan not because the emperor is coming to my place of business and buying something from me but because i feel they make a product that may be better than any other competitors product...what the trade deficit dosnt mention is all the billions or even trillions that come back to our financial markets for reinvestment as they are not part of the deficit numbers..you cant spend a dollar in tokyo,it has to be traded to someone who has someone who ultimately has a need for a dollar..ultimatley all dollars have to recirculate here eventually... the japaneese dump billions into our treasuries     ..an american auto worker out of work makes great political news,,,the fact we excell in farm equipment,,,medical and bio-tech equipment and everything else we export dosnt make good political news .......lets face it back when the rest of the world had nothing to sell us except those little umbrellas with the secret messages we were the king exporters but times changed and each area of the world excells at something else making it better and cheaper than anyone else......man i hate to think if it wasnt for the japaneese we would still be driving those crap quality cars detroit was handing us

 

[al_bundy]

US still makes good cars, they are just made by Toyota and Honda and now hyundai

 

[astromeria]

I used to Buy American. When we got a Plymouth Voyager van and I read the manuals, I discovered that it was assembled in Canada and had a Japanese engine and other foreign-made components. I guess the American part was the sales & marketing and executives . That was our last "American" car.

Speaking of which, does anyone else remember the song that advocated buying American goods made by union labor (it was written for the ILGWU--International Ladies Garment Workers Union--my Mom taught me to look for their union label when I was growing up in the 50s & 60s--man, those days are long gone!):

Look for, the union label,
When you are buying a coat, dress or blouse.
Remember somewhere,
They're people sewing,
Their money going,
To feed the kids
And run the house.

We work hard,
But who's complaining?
For in the ILG we're earning our way.
So, always look for
The union label.
It means we're able to make it in the USA!

I actually get goose bumps hearing it in my mind.

 

[FinanceDude]

US still makes good cars, they are just made by Toyota and Honda and now hyundai

 

[Nords]

We've obviously lost many sectors of our economy to foreign competition: consumer electronics, semiconductors, automobiles, textiles, manufacturing, etc.
So, the argument for US economic growth is that for every sector we lose, we grow or gain another.
So, where are we kicking butt?

I think you answered your own question.

We're kicking butt in the industry of dreaming up (or discovering) new concepts and finding ways to pay other country's workforces to execute them for us while we retain the lion's share of the margins. It's the ultimate outsourcing.

Example #1: Warren Buffett. Heck, he even outsourced his charitable giving to Melinda Gates!