The State of America

[Fuchs]

We did not have a single problem that we did not or could not solve in the USA before NAFTA,China,and the repeal of Glass-Steagall. Once you change the laws so you can move money, patents and technology at the speed of light around the world countries become irrelevant and begin the long or short decent into chaos.

Dunno Glass-Steagal, but Germany happens to be quite fine with China and EU free trade.

The U.S. problems have been exposed and magnified by trade liberalisation, not created.

You guys weren't capable of producing cars that fit the European market back in the 30's, you didn't learn it in the 50's and back in the 70's you pretty much gave up. Later on you invented SUVs, but the European SUV market is now dominated by non-U.S. companies. The only U.S. carmaker with products developed in the U.S. and capable for the world market is the 4wd niche company Jeep.
That's a snapshot, but it's a representative one.

Your services stuff is competitive, most of your industry isn't.
A pipe system water flow regulator-producing company somewhere deep in a German rural area is more adapted to the world market than all U.S. companies that you and I would recognise.

The U.S. needs to produce 20-25% more goods to afford its goods consumption (not gonna happen, especially as long as there's such a resistance to resource efficiency intitiatives) or it need to crash the goods consumption of its middle class by at least a third (the rich people won't cut back and the poor people cannot).
You think this was a bad crisis? It's the foreshock.


That's the result of a refusal to think beyond the own market's (perceived) culture and refusal to develop world market-quality goods.
The free trade exposed and punished this, but without it you'd have rotten in your inefficiencies as the USSR did in its COMECON economic capsule. Globalisation is barely the catalysator for the downfall.


Shape up in regard to export-relevant manufacturing (= for export or for substituting imports) and you could rip off foreign trade partners with market dominance instead of getting ripped several new ones by Chinese companies.


Small anecdote:

I was monitoring a the European market for a specific product. Someday I got into contact with a U.S. company which said it was leading on the U.S. market and intended to export to Europe. They sent samples to me.
I refused to do anything with the samples, as they were defect (that was 100% not a transport issue and it took me about a second to learn about the disastrous quality issue).
They produced new samples, sent them over and I relayed them to a lab for tests. The product was below average in quality, while they believed it to be top notch. They closed that whole business unit a few months later.
Without these tests -without this exposure to competition- they would have kept producing their low quality stuff for years.


There are a couple good U.S. goods export companies and your services exports are about 110% of your services imports, but in the end the U.S. manufacturing sector has badly failed. That wasn't about exchange rates or wages; it was about competence. Many of your companies got smashed on the world markets by companies which had worse exchange rates, higher taxes and comparable wages.

[Steve the Planner]

Great thread. Great inputs.

Fuchs: Check your math. If the US trade imbalance is 25%. It only needs to change it by 12.5% if output is substitutional to inbound trade.

The magic of international trade.

The US has so many more resources (arable but unused land, underground deposits, water, etc...) but it is almost like an unrecognized "Resource Curse."

Because we don't recognize it, we take few steps to counter it. Because it is so abundant, we sometimes squander what we have.

My math: The US still has so many more relative resources and advantages that it is just cruel to watch how badly they are being mangled and abused.

Fortunately. the current idiots do little that cannot be rectified as long as they stop before we reach the crisis stages like the British Empire did at or about WWI (when it cost more than they had, and was worth less than it cost).

[Fuchs]

Math checked:

You produce 100.
You import net 20.
You consume 120.
You have a deficit of 20.
You need to produce 20 more to balance your trade.


In fact, I spared you guys the second order effects, such as increased replacement capital investments, increased raw material imports and population growth during the time of adaption.


CIA World Factbook (selected because no American ever appears to question it as a source):

GDP (official exchange rate):
$14.66 trillion (2010 est.)

GDP - composition by sector:
agriculture: 1.1%
industry: 22.1%
services: 76.8% (2010 est.)

.232 * 14660 = 3401 (bn)

trade balance 2010 (goods and services):
-500 (billion)

(3400+500)/3400 = 1.13
(figures vary from year to year, and look considerably worse with more 'normal' figures such as 2007 figures.)

Add material imports for 13% more goods production. Add the necessary increase in capital investments (= additional goods consumption in order to have the additional production capacity, I am not inclined to look this up again, but it's a huge deal. The last year NET capital investment was minus 1% GDP !). Add 1% population growth p.a..

Yeah, you guys need to produce 20% more, and 25% more if your economy "recovers".

What's more: Most of the manufacturing sector isn't about export. The export-capable sector needs to grow by much more than merely 20%. It's for this sector more like 50% growth required (=in the medium term not feasible without major exchange rate changes).

[Ken White]

Fortunately. the current idiots do little that cannot be rectified as long as they stop before we reach the crisis stages like the British Empire did at or about WWI (when it cost more than they had, and was worth less than it cost).

Vote 'em all out!!!

We aren't that far off track -- yet...

[Bob's World]

Another factor is the relative growth of the illicit economy as a % of the total economy. Not only does this reduce the tax base of the licit economy and reduce the ability of government to govern; it also empowers those illicit actors (such as drug cartels in Mexico) to compete and put tremendous pressure on governments.

Each dollar shifted is not an even shift either, as those illicit actors have much smaller fixed costs than governments and legitimate businesses and they also pay no taxes. So a much larger percentage of that money is available to employ however they so desire.

This is hard to measure, but it is real and growing.

It changes the old arguments about things like national sales taxes that hit the illicit actors as well as the rest of us vs. income taxes that put the entire burden on honest actors.

Another concept I am playing with is that the "cost of control" is increasing as information technology continues to empower actors outside the state to act in very state-like ways. At the same time the "cost of influence" is decreasing. So those who engage in control-based approaches (state governments) are finding their cost of doing business shooting through the roof (ex: the US efforts to regain "control" over the middle east over the past 10 years); while it is becoming increasingly easy and cheap to conduct influence operations globally. This may explain the urge of government to expand and expand as they seek to regain control over things that are in many cases forever outside their grip. Better to relax and realize somethings can simply not be controlled and rather should be influenced as best one can instead.

These are dynamic times. Clinging to the tactics of the past, be it in combat or governance or economics, is not likely to be the path to success. The fundamentals are stable, it is how they must be approached that needs a major updating.

Just some things I am thinking about...

[Ken White]

This is hard to measure, but it is real and growing.
...
These are dynamic times. Clinging to the tactics of the past, be it in combat or governance or economics, is not likely to be the path to success. The fundamentals are stable, it is how they must be approached that needs a major updating.

Just some things I am thinking about...

Apparently no on bothered to do that post 1965 and we can see where that got us.

The Wall went down in 89, took us (most of the World) 20 years to realize the world had changed (even though the signs were all there 20 years before...). I believe it'll take another 20 to get a moderately good sort on where to go -- and then 20 more to get all the Elephants turned in the generally right direction(s). In the interim, some Elephants may go rogue, others will certainly urinate all over everything in their vicinity -- or worse -- and some will try to mate at inopportune times. There will be, as always, Mice scurrying about creating pandemonium (and not really much else)...

Should be fun.

Those of us who relish change are looking forward to it and the opportunities that will be presented. Others are less happy. Unfortunately for both categories of persons and those in between, governments hew to neither view and, generally, will ask "What do we do now?" as they play Switch...

[Dayuhan]

America doesn't work like our idealized notion of how America works. Did it ever?

A pipe system water flow regulator-producing company somewhere deep in a German rural area is more adapted to the world market than all U.S. companies that you and I would recognise.

Maybe you wouldn't recognize Caterpillar or Boeing, to name a couple, but most of us would.

Many Americans would be surprised, but the US actually runs a trade surplus in capital goods.

US manufacturing certainly has its issues, but it's not a basket case; there are strengths to build on and numerous competitive areas. The single greatest distorting factor, the outrageously overvalued currency that prevailed for the better part of a half century, has already been largely corrected, though it will take a decade or more to correct the accumulated impact of that extended distortion.

Of course it will be very difficult for the US to ever move to a trade surplus until the vast expenditures for energy imports are addressed, but that's another story...

[Ken White]

Just old, I guess...

You guys weren't capable of producing cars that fit the European market back in the 30's, you didn't learn it in the 50's and back in the 70's you pretty much gave up. Later on you invented SUVs, but the European SUV market is now dominated by non-U.S. companies. The only U.S. carmaker with products developed in the U.S. and capable for the world market is the 4wd niche company Jeep.
That's a snapshot, but it's a representative one.

Two factors, one is geography and concomitant distances -- US and European automotive needs and development differed considerably and the US domestic market was and is big enough that 'world class' is not really necessary. That factor affects many things. You in Germany, an area of 357K Km² (slightly smaller than just one of the 50 US states, Montana), can afford silky smooth, precisely engineered autobahns and you naturally want cars that take advantage of them. We on the other hand at 9.83M Km² simply cannot afford that highway quality, thus our cars must withstand rougher treatment, more miles driven and as quality to support that is prohibitively expensive, have opted for more easily replaceable cheaper and thus of lesser quality automobiles. You also want and successfully fill high speed Trains and must therefor produce the precision engineering to support that -- in the US, high speed Trains are a joke other than two or three limited areas. Different strokes, as they say. Second factor below.

I was monitoring a the European market for a specific product. Someday I got into contact with a U.S. company which said it was leading on the U.S. market and intended to export to Europe...The product was below average in quality, while they believed it to be top notch. They closed that whole business unit a few months later. Without these tests -without this exposure to competition- they would have kept producing their low quality stuff for years.

A BMW 750i is top notch worldwide -- for about US $85K. For most Americans an admittedly inferior Ford Mustang GT is top notch enough for US users at about US$35K. (so I can buy two Mustangs and have 10K left for other things ).

German engineering is legendary and rightly so. US Engineering is only generally adequate by design. There are a number of reasons for this, most of which you are as aware of as I. That is, of course, the second factor, adequate design versus premium design. If you want high quality stuff, US made, it is available -- and it is costly. For most of us, the cost benefit ratio inclines toward less expensive and certainly lower quality stuff. It's a trade off and one we have made willingly. You may not agree with that willingness -- and whether the US government should is a different thread -- but the majority of Americans with whom I've come in contact are comfortable with it.

Add our size and conformation, income patterns and usage factors and one arrives at a different conclusion than will one from looking at small, crowded and generally wealthier Europe.

Having noted those two factors, this:

That wasn't about exchange rates or wages; it was about competence. Many of your companies got smashed on the world markets by companies which had worse exchange rates, higher taxes and comparable wages.

Is sort of correct. Not competence in most cases; more like both inability to foresee required changes in market patterns (due in large measure to US insularity, bred by distance...) and, even more so, unwillingness to adapt due to lack of need.