The U.S. Economy: Stand by for more worse news

[Billy T]

... That's exactly why I pointed out that there is no such assertion to be found: absent an assertion of causation, that study doesn't lend any support to your position ...

I made no assertion, not even a comment in that post! I only quoted Buffett and a Harvard economics study.

I have stated in prior posts that that US Treasury bonds are a sure way to lose purchasing power if 10year or longer issue and Buffett is just repeating what I said years ago, but not as carefully as with 2 year bonds and luck you can gain purchasing power.

I have also told that once a nation´s debt is 90% of GDP that there are only two very special cases in all of financial history where that nation has recovered:

(1) England at the start of the industrial revolution, borrowed heavily (more 90% of GDP) to make power looms factories, but it had a captive empire to sell textiles too (India etc. were not allowed to import from others and did not want to anyway as hand made textiles were inferior and much more expensive). So England paid down its debts and Sterling became what the dollar is now - the international currency of exchange.

(2) After WWII, all other nations had their industrial productive capacity nearly totally destroyed, while US industrial capacity at least doubled during the war years, with a significant one time step in the labor force. ("Rosie the Riveter" decided she liked working outside the home for pay.)

The situation in the US is very different now - our labor force is shrinking and skills are being lost. Our factories are closing or importing components from lower cost foreign producers to stay open, with a few brain power "factories” making soft ware, etc. excepted, but Indians (even some Brazilians) and others are rapidly eating into those jobs.

The Harvard Study does not exactly say that nation cannot recover from debt greater than 90% of GDP (I got that fact from an earlier study) but does confirm that once the debt goes above 90% of GDP that the GDP grow rate is reduced. They don´t say why, they only give their observations based on their large body of empirical data, but a large part of the cause, I think, is that the government borrowing for interest and principle repayment is "crowding out" the funds needed by industry etc. to invest for productive use.

As I have made these points several times over the years, I did not think I needed to make any comments on these two reports, which are basically telling what I have been predicting or telling for years.

SUMMARY: Attack Buffett or Harvard, not me - I did not even comment - only quoted.

 

[quadraphonics]

I made no assertion, not even a comment in that post! I only quoted Buffett and a Harvard economics study.

And I didn't say that you made an assertion in that post. I pointed out that you have a long, consistent history of advancing exactly such assertions in general, and as such it is implicit that you are citing those articles in support of your larger viewpoint. Do you disclaim that motive, or the validity of that line of inference? Or are you just going to attempt a cheap dodge?

Also, link-dump posts are bad form.

I have stated in prior posts that that US Treasury bonds are a sure way to lose purchasing power if 10year or longer issue and Buffett is just repeating what I said years ago,

And I have provided data that shows that you are both wrong.

I have also told that once a nation´s debt is 90% of GDP that there are only two very special cases in all of financial history where that nation has recovered:

You said nothing about that in the post in question, so I wonder why you're brining it up right now.

Could it be that you agree that your larger views, expressed consistently and over a long period of time, are indeed fair game for contextualizing and interpretting your posts, as I have asserted above?

The Harvard Study does not exactly say that nation cannot recover from debt greater than 90% of GDP (I got that fact from an earlier study) but does confirm that once the debt goes above 90% of GDP that the GDP grow rate is reduced. They don´t say why, they only give their observations based on their large body of empirical data, but a large part of the cause, I think, is that the government borrowing for interest and principle repayment is "crowding out" the funds needed by industry etc. to invest for productive use.

Ah - now you're making a claim of causation, not supported by your source!

It could well be that the causation goes the other way - that the reduction in GDP growth leads to the rise in debt (say, because the government is borrowing to cover a shortfall in revenue, or as a counter-cyclical stimulus to push back against the drop in growth).

I want to be very clear about this: not only does that study not say why growth is reduced, they do not contend that the borrowing causes the drop in growth at all. They just say that the two go together. To get to the policy prescription that we need to tamp down growth to avoid reducing GDP growth, you need the causal link to go the way you want. If it doesn't, then your policy prescription is baseless, and possibly counterproductive. Again: your position is based on the premise that borrowing causes inflation and reduces GDP growth, and your source does not support that.

In point of fact, we know for sure that the current spate of borrowing in the US was caused by the previous drop in GDP growth, and not the other way around. It's done as Keynesian stimulus to fight back against the drop in growth. Once growth recovers, we don't need stimulus and so the borrowing goes down. Thus, the negative correlation between gdp growth and borrowing is present, but the causation runs the other way and so the correct policy prescription is exactly the reverse of what you recommend.

As I have made these points several times over the years, I did not think I needed to make any comments on these two reports, which are basically telling what I have been predicting or telling for years.

So you are, in fact, insisting that we read your posting of those two linksin that context, as supporting your long-standing line about the causal relationship of government borrowing leading to reduced GDP growth and inflation.

Good. That's why I pointed out that your link doesn't make any claims about any such causality, and so doesn't directly support your long-standing line of argumentation.

Would that you could have grokked that in the first place, and so not subjected us to the above exercise in diversion and evasion.

SUMMARY: Attack Buffett or Harvard, not me - I did not even comment - only quoted.

That doesn't follow from your reasoning just above.

That said: I already dispensed with Buffet's assertions by citing the historical data on returns on US Treasury securities, as well as noting the obvious point that such securities would not be widely considered to be "safe" if they were reliably destroying purchasing power for decades now. The market will necessarily force the Treasury to offer returns that track the inflation expectations of buyers, in the long run. You have not challenged any of that, so I must conclude that you concede this point.

As to the Harvard study, I have no issues with it aside from your implications that it supports your assertion of a causal link between borrowing and reduced growth. You seem to agree with that on the one hand, but still want to have your cake and eat it too.

 

[Billy T]

... I pointed out that you have a long, consistent history of advancing exactly such assertions in general, and as such it is implicit that you are citing those articles in support of your larger viewpoint. Do you disclaim that motive,

No. I even stated that the reason I did not make any comment was that Buffett & and the Harvard study were just restating points I had made long ago.

...And I have provided data that shows that you are both wrong.

Yes, I would like to see data proving I was wrong, but note I was more careful than Buffett was.

I.e. I am sure that if you go back in time far enough and / or include new issues with less than 10 years to maturity, then yes you can show that investing in Treasuries did (contrary to Buffett´s unqualified statements) at times yield increases in purchasing power, but until you can show that for new issues of 10 or more years maturity, purchased in the last four years (when I first noted they were a sure way to loss purchasing power), I will continue to believe that I have never made a false statement on this.

...You said nothing about that {no recovery when debt is > 90% of GDP} in the post in question, so I wonder why you're brining it up right now.

Mainly becuase some years ago when I made the claim that US could not recover with debt of 90% of GDP you challenged me for the basis of that claim. - I could not find that study (still cannot) but the Harvard study comes quite close, singling out 90% as the break point, above which GDP does decline in their extensive data set. I even eventured (my opinion) as to why this is true. to quote from my earlier post:
"... but a large part of the cause, I think, is that the government borrowing for interest and principle repayment is "crowding out" the funds needed by industry etc. to invest for productive use. ..."

... Could it be that you agree that your larger views, expressed consistently and over a long period of time, are indeed fair game for contextualizing and interpretting your posts, as I have asserted above?

Yes with some hesitation I can accepted that, but unless you first copy and re-post what I said, I fear that my POV may not be accurately stated by you for your attack. - Can you understand why if you wish to attack my POV, you should first post a quote of me making the statement you wish to attack?

(Go back as many years as you like for the quotes. As you note, I have had a quite constant POV. The major theme of which is China is rising and the US is declining with dollar collapse possible any time China is willing to pay the price, which is steadily decreasing as the years passes. So much so that there will come a day when it is to China´s long term economic advantage to take that ONE TIME hit for the lower cost of its imports EVERY YEAR, with financially broke US and EU not significant bidders for the imports China needs.)

For rest of your post we agree. - As I said the Harvard study only notes the correlations in a very extensive body of economic data. It does not attempt to state cause and effect relationships - In so complex a field, they are mainly just opinions , but both of us do offer ours from time to time and when they differ, we must just accept that. I use my understand of these cause and effect relations to make some rather astounding predictions. You tend to be more cautious.

 

[quadraphonics]

No. I even stated that the reason I did not make any comment was that Buffett & and the Harvard study were just restating points I had made long ago.

And yet the entire ensuing discussion has centered on how that is not the case. You immediately go on to disclaim the specifics of Buffet's statements, and restrict them to only long-term bonds in a short, atypical period. And the fact remains, at this point unchallenged by you, that your Harvard link doesn't bear on the causal relationship that is the foundation of your predictions and policy prescriptions.

So it looks an awful lot like you should have written some actual commentary, and not just done a link dump. This kind of thing is exactly among the reasons why link-dump posts are bad form.

Yes, I would like to see data proving I was wrong, but note I was more careful than Buffett was.

So, for the record: you aknowledge that Buffet's statement about the historical performance of Treasury Securities is factually incorrect?

I.e. I am sure that if you go back in time far enough and / or include new issues with less than 10 years to maturity, then yes you can show that investing in Treasuries did (contrary to Buffett´s unqualified statements) at times yield increases in purchasing power,

Buffet specified a particular time period (196-whatever till today). That's the quote you chose to present - without any qualifications from yourself - and that's the period I used. If you want to move the goal-posts now, well, you're going to be seen to be moving the goal-posts.

If you want to have a discussion about the specific conditions today that result in the particular combination of inflation expectations and US Treasury Security prices, at particular maturities, today then we can do that. But that's necessarily going to be a detailed look at a variety of atypical, temporary factors and not a lesson in the effects of borrowing writ large. The graph that you included in the post in question shows that the returns have been positive in recent times, and have only just barely dipped into negative territory very recently, after all.

but until you can show that for new issues of 10 or more years maturity, purchased in the last four years (when I first noted they were a sure way to loss purchasing power), I will continue to believe that I have never made a false statement on this.

Hey, whatever it takes you protect your ego, I guess. Let's just note that all these restrictions you've added significantly reduce the import of the assertions in question. The idea that certain classes of T-bills might give negative expected real returns for a period of a few years in the midst of atypical global economic conditions is a far, far less impressive statement than the sweeping generalizations about government paper eating purchasing power as a matter of consistent historical certainty (which is what you chose to lead with in the Buffet quote you selected to present without any qualification or caveat).

Mainly becuase some years ago when I made the claim that US could not recover with debt of 90% of GDP you challenged me for the basis of that claim. - I could not find that study (still cannot) but the Harvard study comes quite close, singling out 90% as the break point, above which GDP does decline in their extensive data set.

That's not what the study says. It doesn't note any GDP declines. It's about reduced growth rates. And it doesn't say anything about causation - for all we know, it's the reduced growth that leads to the higher debt load, and not the other way around. It doesn't say anything about "recovery," nor have you given a clear definition of what you mean by that.

I even eventured (my opinion) as to why this is true. to quote from my earlier post:
"... but a large part of the cause, I think, is that the government borrowing for interest and principle repayment is "crowding out" the funds needed by industry etc. to invest for productive use. ..."

That hypothesis doesn't explain the effect it's supposed to address: you're hypothesizing a relationship between the rate of borrowing and growth, not a relationship between the total level of debt and growth. A country could well sustain a debt load well above 90%, but not do much of any borrowing (so the debt load isn't growing, just sitting above 90%), in which case your proposed mechanism says GDP growth should be fine - which defies the result of the study. Likewise, a country with low overall debt load (say, 5% of GDP) could go on a borrowing binge. According to your mechanism, then, they should see a big reduction in GDP growth - again, in defiance of the results of the study.

So, the study doesn't support your original contention, doesn't bear out your proposed mechanism of interaction, and doesn't say anything at all about causation. It does not, at the end of the day, lend weight to your position overall.

Yes with some hesitation I can accepted that, but unless you first copy and re-post what I said, I fear that my POV may not be accurately stated by you for your attack. - Can you understand why if you wish to attack my POV, you should first post a quote of me making the statement you wish to attack?

(Go back as many years as you like for the quotes.

I'm not going to accept any homework assignments from you. I'm going to continue to rely on my ability to read, recall and interpret. If we encounter an instance in which you feel I'm misrepresenting your views, then you will be free to point that out and define your own position as you see fit. This is how adults interact.

At this point, I'm also going to add that you have a reputation for revising your position while claiming that it hasn't changed (often via semantic gymnastics and self-serving reinterpretations of standard terms), and then deflecting by insisting that you were misrepresented. So, don't expect much sympathy for such claims unless you can substantiate them unequivocably.

As you note, I have had a quite constant POV.

Pet fixations that are impervious to data or reasoning do tend to be very constant, in general.

The major theme of which is China is rising and the US is declining with dollar collapse possible any time China is willing to pay the price,

You realize that China only holds about 10% of American debt, right? And an even smaller portion of the dollars in circulation? You really think that size stake is big enough to tank the dollar? I don't.

And you drastically underestimate the costs to China of throwing away their foreign exchange reserves. China is a developing country with serious structural vulnerabilities. They'd be crazy to destabilize their whole system that way - and certainly, the CCP, of all governments, would never be so reckless.

which is steadily decreasing as the years passes. So much so that there will come a day when it is to China´s long term economic advantage to take that ONE TIME hit for the lower cost of its imports EVERY YEAR, with financially broke US and EU not significant bidders for the imports China needs.)

You're talking about a hypothetical future time when China has become a fully-developed country with a consumption economy. In the first place, that's decades away. In the second place, by the time that happens China will have already left behind its position as a major holder of US paper. Indeed, they've already put the brakes on the accumulation of such as they've transitioned into more of a middle-income status.

Basically, your scenario is more of the same have-your-cake-and-eat-it-too thinking that you're famous for. There's no scenario in which China has both the incentive to tank the dollar and the ability to do so. This is exactly why trade is different from war - it's not a zero-sum game. The USA would never have been content to borrow huge sums of money from China in the first place, if doing so didn't also create for China a clear incentive to maintain the value of the dollar.

For rest of your post we agree. - As I said the Harvard study only notes the correlations in a very extensive body of economic data. It does not attempt to state cause and effect relationships - In so complex a field, they are mainly just opinions , but both of us do offer ours from time to time and when they differ, we must just accept that.

Not when one interpretation is demonstrably incorrect, as yours are here. There is nothing about sloppy, biased reasoning leading to nonsense interpretations that I am obliged to "accept." We are dealing in questions of fact and logic, and not any kind of purely subjective "opinions" here.

I use my understand of these cause and effect relations to make some rather astounding predictions.

And if we compare those to what's actually occurred, we are left unimpressed with your predictive power.

Notwithstanding your persistent revisionism to pretend otherwise, of course, but nobody buys into your self-serving reframings.

You tend to be more cautious.

The difference is not one of "caution." You seem to imply that I fundamentally agree with you, but then scale back the severity of my expectations out of some kind of dispositional timidity. That is not the case. Rather, the difference is that I am cognizant of the structural factors and incentives that militate against the sort of dramatic, emotional scenarios you enjoy fantasizing about.

The issue is that you are caught up in your fantasies of America being "punished" for your pet peeves, and so tend to come unmoored from sensible, objective analysis. I speculate that this tendency stems from a desire for external validation of your decision to expatriate many years ago. This whole line of ideation looks for all the world like a revenge fantasy against American friends/family who disapproved of (or maybe, mocked) your decision to expatriate and reasons for doing so (probably many of these same people still roll their eyes when you launch into these tirades during holiday visits, I would guess). You'd be better off just having it out with them directly, rather than making SciForums into your personal China-Eats-USA fantasy blog.

 

[Billy T]

... So, for the record: you aknowledge that Buffet's statement about the historical performance of Treasury Securities is factually incorrect?

Yes; it is too general and un qualified, as I recall, but will not bother to carefully read again.

... I'm also going to add that you have a reputation for revising your position while claiming that it hasn't changed (often via semantic gymnastics and self-serving reinterpretations of standard terms), and then deflecting by insisting that you were misrepresented. ...

That is another personal attack. Please give at least one such example - I.e. my later "after post" contradicting my earlier "before post" (with links to posts I can check).

 

[quadraphonics]

Yes; it is too general and un qualified, as I recall, but will not bother to carefully read again.

The time to carefully read your sources and figure out what qualifications you'd place on their statements is before you post them.

That is another personal attack. Please give at least one such example - I.e. my later "after post" contradicting my earlier "before post" (with links to posts I can check).

Maybe if I get some extra time I'll dig up a better example, but your tactics so far in this very exchange are sufficient demonstration as far as I'm concerned.

 

[Billy T]

"... Many on the long list of nations that dislike America are pondering ways to reduce American influence in their affairs. Ditching the dollar is a very good start. …
Russia and China are leading the charge. More than a year ago, the two nations made good on talks to move away from the dollar and have been using rubles and renminbi to trade with each other since.

China—and the third-largest economy on the planet—Japan—followed suit, striking a deal to promote the use of their own currencies when trading with each other. The deal will allow firms to convert Chinese and Japanese currencies into each other directly, instead of using US dollars as the intermediary …
China is now discussing a similar plan with South Korea.

Similarly, a new agreement among the BRICS nations (Brazil, Russia, India, China, and South Africa) promotes the use of their national currencies when trading, instead of using the US dollar. China is also pursuing bilateral trades with Malaysia using the renminbi and ringgit. And Russia and Iran have agreed to use rubles as a means of currency in their trades.

Then there's the entire continent of Africa. In 2009, China became Africa's largest trading partner, eclipsing the United States. Now, China is working to expand the use of Chinese currency in Africa instead of US dollars. Standard Bank, Africa's largest financial institution, predicts that $100 billion worth of trade between China and Africa will be settled in renminbi by 2015. That's more than the total bilateral trade between China and Africa in 2010.

Several major oil-producing nations have begun selling oil in currencies other than the dollar, and both the United Nations and the International Monetary Fund (IMF) have issued reports arguing for the need to create a new global reserve currency independent of the dollar.

The supremacy of the dollar is not nearly as solid as most Americans believe it to be. More generally, the United States is not the global superpower it once was. ..."

From: http://www.moneyshow.com/investing/...ars-Reign-Over?aid=guru-27953&iid=GURU&page=4 (and 1, 2 & 3 pages too)

In a few years, rarely will American get to pay for real goods and services, with printed green paper – they, despite their high labor cost, and the loss of many skills as factories closed or “outsourced” to stay open, will have to make real goods and services, not green paper, to pay for imports.

China wants that “pay with printed paper” advantage too and is taking many of the steps needed to get it. They are going slow as they want to still be able to control the value of the RMB, at least until exports to US and EU are a smaller part of their GDP.

Most of the rest of the world is already happy to accept the appreciating RMB, including Kuwait, Iran, and some other oil exporters, but not openly, yet.

 

[Billy T]

I think people should have a choice about what to worry about so,
Here are the current first six articles listed by Bloomberg´s "quickview list":

U.S. Stocks Tumble* Amid Slowdown Concern

Commodities Enter Bear Market

Oil Drops Below $80 First Time in 8 Months

Bird Flu May Be Five Steps From Pandemic: Study

As Italy Passes New Taxes, Italians Openly Ignore Them

Greenspan: `Global Slack' in the Economy

* BTW gold tumbled too - dropping $50/oz to $1565/oz

PS If none of the above mets your worry needs, there is more (and more current) at: http://www.bloomberg.com/quickview/

 

[quadraphonics]

Commodities Enter Bear Market

Oil Drops Below $80 First Time in 8 Months

* BTW gold tumbled too - dropping $50/oz to $1565/oz

Why would your average SciForums reader be worried by those developments? Cheap gas is supposed to be some kind of problem? Maybe for Vladimir Putin or Hugo Chavez, but certainly not for me.

Moreover, why do we need a dump of the current six stories floating on Bloomberg? Your post is nearly content-free, and has no particular bearing on the thread topic.

 

[Billy T]

Why would your average SciForums reader be worried by those developments? Cheap gas is supposed to be some kind of problem? ...

For next few months, not a problem*, but if you can read between the lines and know the fact that Saudi Arabia is pumping at highest rate in 30 years and have read the very probably true, multi-source rumored deal between Saudis and Obama´s election people, it is a big problem for Americans (and others) by Christmas 2012.

I.e. Deal is help Obama with his main re-election economy problems now and Saudis get to recoup current losses (due to excessive oil production) with > $5 dollar per gallon gas prices before end of 2012 and still higher prices later, at least until US has a lot of NG powered cars. (By then, China´s rapidly growing liquid fuel demand will keep pushing oil prices higher.)

---------------
* except for Romney

To answer your other question - I was just illustrating that all of today´s news is very black - as reflected in huge drop in stock markets, etc today. Actually the most worrying for me is the bird flu story. All five mutations needed to make it an air-born killer (of ~ 60% of those infected and treated too late) have occured - but not yet in one strain of the virus. US Homeland security is so worried that they blocked publication of the research paper until it was less informative as unfortunately in the modern world there are at least a million very willing to did if they could kill nearly half of the US population.

 

[quadraphonics]

For next few months, not a problem*, but if you can read between the lines and know the fact that Saudi Arabia is pumping at highest rate in 30 years and have read the very probably true, multi-source rumored deal between them and Obama´s election people and the Saudis, it is a big problem for Americans (and others) by Christmas 2012.

I.e. Deal is help Obama with his main re-election economy problems now and Saudis get to recoup current losses (due to excessive oil production) with > $5 dollar per gallon gas prices before end of 2012 and still higher prices later, at least until US has a lot of NG powered cars.

Well, that is a pretty kooky conspiracy theory.

Saudi Arabia is pumping oil as much to squeeze Iran and forestall further investments in alternative energy sources, as to support Obama. They know perfectly well that a high oil price will allow Iran to ignore the sanctions, and will speed up the rate of transition to other energy sources - they're playing a long game. It isn't about taking a hit now and then jacking up prices later - it's about paying a cost now to get their way in geopolitics, and ensure that demand for oil is steady in the long run.

 

[Billy T]

... Saudi Arabia is pumping oil as much to squeeze Iran and forestall further investments in alternative energy sources, as to support Obama. They know perfectly well that a high oil price will allow Iran to ignore the sanctions, and will speed up the rate of transition to other energy sources - they're playing a long game. It isn't about taking a hit now and then jacking up prices later - it's about paying a cost now to get their way in geopolitics, and ensure that demand for oil is steady in the long run.

I agree that is strong factor, but it also makes the rumored deal more attractive to both parties. (US wants regiem change in Iran, especially now as they plan to open non-dollar oil bourse later this year.) We won´t know if there was truth in the rumor until post election.

I would not bet that it is false. US & Saudies have worked together for more than 30 years. US promissing to look the other way about gross human rights abuses and help keep the Kingdom in power for Saudis doing what US wants with oil production. Do you recall when Saddam was going to sell oil not for dollars, Saudis punished him by driving price per barrel below $15 dollars?

 

[Billy T]

Export of US jobs is good news for other countries, for example the Philippines:

"... Pixar, the American film studio that outsourced this work {animation on film “The Incredibles”} to the Philippines, is just one of many global companies to have taken advantage of the island nation’s thriving business process outsourcing (BPO) industry— {usually the} contracting out work related to back office operations for cost savings.

The BPO industry began emerging in 2000 and has grown at a rate of 30% {per year} over the last decade. ... It is also a key generator of new jobs in the Philippines, creating work for more than 638,000 employees in 2012. That figure is estimated to grow to 1.3 million by 2016, according to the Business Processing Association of the Philippines. ... The typical profile of the average BPO employee is a college-educated woman in her mid-20s who generally earns a starting salary of a few hundred dollars a month and receives some health and other benefits. ... Global firms will likely continue to be attracted to the Philippines’ large pool of college-educated workers, relatively low costs and multilingual skills. "

From today´s Email to me from: Teresa Kong, CFA, Portfolio Manager
Matthews International Capital Management, LLC

Bill.y T comment: In less than a decade only food grown in the fertile mid west and some thermal coal, will be exported by the non-competitive high-wage level US. That employees less than 5% of the US work force. The rest, if they have any job at all, will be cutting hair, flipping burgers, driving taxis, etc. - low pay local service jobs; however, some US made large airplanes may be able to compete with those then made in China* (and air bus if Europeans have already taken deep wage cuts).

* “… This agreement, signed in Hong Kong, brought the total orders of C919s to 215 and displayed "the market and customer's confidence" to the airplane, according to Commercial Aircraft Corporation of China (COMAC)'s statement. CALC is the tenth customer to buy the 150-seat narrow-body C919, China's first domestically-developed large passenger aircraft for mass production. …”
From: http://www.chinadaily.com.cn/china/2011-12/09/content_14242532.htm

First flight with FAA approval of the C919 is now scheduled / expected for late 2014, but probably more than a decade still before China is making large airplanes that compete for the global market.

 

[quadraphonics]

In less than a decade only food grown in the fertile mid west and some thermal coal, will be exported by the non-competitive high-wage level US. That employees less than 5% of the US work force. The rest, if they have any job at all, will be cutting hair, flipping burgers, driving taxis, etc. - low pay local service jobs;

It cannot simultaneously be the case that the USA is uncompetitive due to high wage levels, and also that Americans suffer from very high unemployment and those who work earn only low pay. Those two things are directly contradictory.

 

[Billy T]

It cannot simultaneously be the case that the USA is uncompetitive due to high wage levels, and also that Americans suffer from very high unemployment and those who work earn only low pay. Those two things are directly contradictory.

yes if considered on an absolute scale, but US wages even if TWICE what the multi-lingual College-educated worker of the article gets (couple of $100 per month) would seem low to most Americans and still be non-competitive.

It is the comparative wages, not the absolute wages, that are important. For example in US, $500/month can be called both "non-competitive" and "low wages." That is not at all "contradictory."

 

[quadraphonics]

It is the comparative wages, not the absolute wages, that are important. For example in US, $500/month can be called both "non-competitive" and "low wages." That is not at all "contradictory."

So, to be clear, you are predicting that US wages in general will remain far higher than those abroad - that US citizens will continue to enjoy a much higher standard of living than China or the Philippines or wherever, despite the predicted dissatisfaction with the level of wages?

Anyway, you are - as usual - excluding many important factors from your "analysis" of export competitiveness. Labor costs are only one factor, and not always even an important one. You haven't even brought up the exchange rates - despite your long-standing prediction of a collapse in the dollar's value, which would by itself make the USA extremely export competitive - nor the questions of labor force productivity, capital productivity, etc. You skip right over the basic question of business operations: not all jobs can be profitably shipped off to wherever has the cheapest labor on a given week.

A good example of that, actually, is exactly Pixar - they normally refuse to outsource such work, since doing so prevents their creative directors and other high-level types from being intimately involved in the process. Pixar only outsources this way when working under contract to Disney, who demands such an arrangement - and this caused Pixar to stop working with Disney years ago, now. So, your article there is highly misleading when it sites Pixar as emblematic of outsourcing.

Basically, you present nothing that could be called a serious analysis of export competitiveness. It's just a hollow rant that conveys little more than "suck it, dumb Americans!" All of which is rather trite and, by this late date, extremely boring.

 

[Billy T]

So, to be clear, you are predicting that US wages in general will remain far higher than those abroad - that US citizens will continue to enjoy a much higher standard of living than China or the Philippines or wherever, despite the predicted dissatisfaction with the level of wages? ...

Not exactly; Certainly not "far higher" than low wage regions. I specifically compared $500 vs ~$250 per month average wage for equal skills as being enough for US to be non-competive in jobs that are mainly labor in their costs (like the Back-office paper work records keeping or making animations for films, which the article mentioned)

Certainly I have never suggested that Americans would continue to enjoy the high standard of living they have enjoyed until recently, say in 2007. The US is headed into deep depression with significantly reduced standard of living compared to that of 2007.

 

[quadraphonics]

Not exactly; Certainly not "far higher" than low wage regions. I specifically compared $500 vs $250 per month average wage for equal skills

So, double the income isn't "far higher?"

Because it seems pretty significant.

Certainly I have never suggested that Americans would continue to enjoy the high standard of living they have enjoyed until recently, say in 2007.

But you do maintain that they will enjoy wages that outstrip those in other major countries by something like a factor of two. No?

Meanwhile, you have no particular basis for any of these specifics, that I can see. And, again, no accounting for exchange rate, productivity, corruption, etc. in your "analysis" of labor force trends.

 

[Billy T]

So, double the income isn't "far higher?" Because it seems pretty significant.

Yes it is very significant - $50,000 savings per month for company needing to hire 200 new workers but only $250 more in salary is not "far higher" salary for the worker.

But you do maintain that they will enjoy wages that outstrip those in other major countries by something like a factor of two. No?

No, not "outstrip those in other major countries." I specifically said: "...not "far higher" than low wage regions. now made bold as you must have missed that qualifier to read "in other major countries."

SUMMARY - all I have done is to suggest what is already happening will continue. I.e. US has lost jobs to other countries AND for first time ever, or at least many decades, the current college graduates have lower standard of living than their parents had when they graduated from college - living standards are going down for the coming generation of workers.*

BTW, it is not me, but the Business Processing Association of the Philippines which projected that in the Philippines alone, the number of outsourced jobs would double to 1.3 million in by 2016 - in less than four years!

*And even some who are retiring - I just saw on TV story about family who was $80,000 in debt at >7% interest due to "parent of student loan" and that in 2000 only 11% of parents were with these debts, but now 17+% were AND that the typical debt had more than tripled. This TV featured couple will be paying $1000 / month for three decades and both must continue to work so they can not retire as they had planned.

SUMMARY 2: The descent into a lower standard of living is well under way with salary purchasing power down 7% in last few years.

 

[quadraphonics]

Yes it is very significant - $50,000 savings per month for company needing to hire 200 new workers but only $250 more in salary is not "far higher" salary for the worker.

That's silly. If you doubled my salary, I'd consider that very significant. Likewise if you cut it in half.

You can't have it both ways - it can't simultaneously be the case that Americans are uncompetitive in wage terms with low-wage regions, yet somehow do not enjoy a significantly higher standard of living than said regions. Those things are two sides of the same coin.

No, not "outstrip those in other major countries." I specifically said: "...not "far higher" than low wage regions. now made bold as you must have missed that qualifier to read "in other major countries."

You do not consider China and the Phillipines to be "major countries?"

Then how is it that their labor costs are going to have such massive effects on the labor market in the USA? That would seem to be the relevant definition of "major" to me. Seems like you're just trying to avoid addressing my point with a bunch of semantic blather.

SUMMARY - all I have done is to suggest what is already happening will continue.

Indeed, competition with low-wage labor is nothing new. But, that's been going on for a long time now, without causing the kind of apocalypse scenario you predict. How is it that the Philippines is going to make the difference, especially as the era of cheap labor in massive countries like China is coming to an end?

I.e. US has lost jobs to other countries

I don't buy that characterization, by the way. Jobs are being lost to robots, and the CEOs and politicians are pointing their fingers at other countries to distract from their role in that. As you're so fond of reminding us, major employers in China are in the process of going the same road right now, what with all the massive orders for industrial robots and so on.

AND for first time ever, or at least many decades, the current college graduates have lower standard of living than their parents had when they graduated from college - living standards are going down for the coming generation of workers.*

You're looking at a few exceptional years in a major recession, and then extrapolating that into a long-term trend. That's silly. More than that, it's invalid and dishonest to cherry-pick data points to extrapolate that way. If you are serious and honest, you'll do a longer-term analysis. Moreover, the tendency to argue from cherry-picked anecdote is a major problem with all of your output - like this latest post, where you post a few facts about business process outsourcing in the Philippines, in isolation, and then leap to wild conclusions about major systemic trends in the world economy from that. It is not convincing. It is, in fact, insulting.

BTW, it is not me, but the Business Processing Association of the Philippines which projected that in the Philippines alone, the number of outsourced jobs would double to 1.3 million in by 2016 - in less than four years!

So what? That's not enough jobs to seriously effect wages in the USA - even if all of those outsourced jobs came from the USA, which they do not. You have presented zero analysis of where those jobs come from. They could be coming from China or India for all you know, as the Philippines competes with them to get jobs that were already outsourced years ago.

But, again, your big, scary number there is 650k jobs over 4 years. That's around 13,000 jobs a month, which is not a big number in the labor markets you are addressing - the USA creates more than 5 times that many new jobs in bad months. If that's the extent of the Philippino impact on the labor market, then it's not much of a story as far as impact on wages elsewhere is concerned.

*And even some who are retiring - I just saw on TV story about family who

That's an anecdote, not data. You should learn the difference.

SUMMARY 2: The descent into a lower standard of living is well under way with salary purchasing power down 7% in las few years.

Again, you are cherry-picking data from a recession and insisting that it represent a long-term trend. That is dishonest and, given your extensive history of relying on such tactics, frankly inexcuseable at this point. You should at least attempt to be honest if you want to be taken seriously as an analyst of such trends.

Real median household income in the US increased by 4% in the final four months of 2011. It has been flat since then. Unemployment is declining, and GDP is growing - those are the current trends.