The Nature of the Global Free Market

The significance of the global free market has been vastly underestimated in our efforts to influence our economic outlook. So much of the rest of the world is tied in with the United States in such a way that if we fail, they fail. Everyone has been forced by the extremely competitive nature of trade economics to run their country right at the edges of feasibility. This is great for progress, but it also comes with a risk of more complete failure. It is something of a synonym for our own individual or national credit-investment lifestyles.

As the economic video on a previous post humorously pointed out, in our fiat based monetary system, nations measure their currency not by any fungible commodity, but by relation to other currency. Lets take this to its logical conclusion:

• We incur a large deficit.
• We print a lot of dollars in the hope of decreasing the relative cost of our goods and value of our debts
• This causes the same sort of economic instability in other nations that caused our problems.
• Those nations print money in order to decrease the relative cost of their goods and debts.
• We end up right where we started.

What this proves is that even in a fiat, regulated, socialist heavy world, the free market is still running the show. You can push the numbers around, but in the end, what really matters is whether you produce a desirable product and sell it at a reasonable value.

I found another example of this thought in an odd cooking website, of all places. The Big Mac Index  is a method of measuring the purchasing power parity of various currencies by comparing the price of a Big Mac in each country. My immediate thought was Japan; land of the hundred dollar melon. Strangely enough, Japan wasn’t near the top of the list for cost of a Big Mac (about 280 yen or $2.62). This is because things like the purchasing power of your currency, and the number of zeroes attached aren’t the only important factors. In the U.S. it takes abut 13 minutes for the average citizen to earn enough money for a Big Mac, in Japan, only 10.

As I once learned from a business administration lecture, a man by the name of Deming revolutionized the industrial strategy of Japan after WWII. He put their focus on quality at a time when other nations were putting theirs on quantity. This is how they manage to live on a small island and be one of the best producers of high tech goods in the world, with a thriving economy. People buy their goods, not because they are cheap, but because they are too high tech to be produced in most other nations.

Rather than trying to compete with the cheap labor of China, Mexico, India, and Brazil, we should be competing with Japan for the products of tomorrow. This is the path to progress and prosperity. Adjusting interest rates and printing money is nothing but smoke and mirrors.

Update: I found a great post on the subject here: The U.S. Can’t Unilaterally Inflate

Leo Gerard on the Toyota Republicans

Leo Gerard is the International President of the United Steelworkers Union, the largest union in North America. He holds bachelors degrees in politics and economics.

Gerard wend on Bill Moyers Journal to discuss the future of labor under the Obama administration, and had this to say:

BILL MOYERS:What does it say to you that Obama names Congresswoman Solis, a real advocate of labor, and then he appoints as his nominates for his trade representative the former mayor of Dallas, who was a lobbyist for many of the companies that benefit from NAFTA? Seems to me that he has put two contradictory personalities and philosophies next to each other.

LEO GERARD:To be a bit facetious, I think he made one good decision and one bad decision. But it I think it goes to what he’s always told us. He wants counter-views. He wants to be able to see people debate in front of him. Then he’ll make the choice.

We really don’t end up with a full spectrum of discussion between a NAFTA supporter and a labor advocate, but the point is well taken. This is a big departure from the yes men of the Bush administration. On the state of labor and manufacturing:

BILL MOYERS:But the irony to me is that in this period of time that we’re talking about, the globalization has occurred so that capital goes looking for the cheapest labor it can find. So even if you had the card system over these years, wouldn’t capital still have gone to where it can hire the lowest paid worker? Isn’t that an economic phenomenon, not a political consequence?

LEO GERARD:No, I think it’s a political phenomenon as well as an economic phenomenon. It’s a political environment that’s created in America the ability of jobs to move offshore. If you go to Germany and you want to move a job offshore, there’s a huge economic price.

Everything that you put in from the management or excuse me from the government, all the training assistance and all that infrastructure, you got to put back into the social pot. Here we encourage them. We give them a tax break here to go overseas. And I’m proud of Barack Obama to say he’s going to put an end to that. And these Toyota Republicans that we-

BILL MOYERS:Toyota Republicans?

LEO GERARD:The Toyota Republicans that were prepared to destroy the American auto industry the couple of weeks after they were blind and deaf and dumb to giving away $700 billion that never did what it was supposed to do. They just gave them taxpayer dollars. And you know what? It didn’t do a damn thing. Hasn’t helped one worker get back to work.

BILL MOYERS:But they then turned around, as you wrote recently, and opposed the bailout of the big three in Detroit.

LEO GERARD:Yeah, those Republicans were prepared to bail out the people that showered before they went to work. But they didn’t give a damn about the people who had to shower after work.

BILL MOYERS:Let me read you what one Republican senator said during the discussion of the auto industry bailout. This is Jim DeMint of South Carolina telling Fox News, quote, “The take-home pay [of auto workers] is essentially the same. But gold-plated benefits that the unions have negotiated over the years have essentially brought the big three to the brink of bankruptcy. And they will freely admit that the American auto companies that are producing overseas are very competitive because they don’t have to operate under the union agenda.”

LEO GERARD:I think that Senator DeMint is delusional or being deliberately dishonest.

BILL MOYERS:How so?

LEO GERARD: Or absolutely uninformed. The difference is very simple on that issue. Most of the transplants have been here less than 30 years. I think in total they might have 300 retirees.

BILL MOYERS: The transplants being?

LEO GERARD:The Hyundais and Toyotas and the-

BILL MOYERS:The foreign company.

LEO GERARD: The foreign car companies that came into America in the last 30 years.

BILL MOYERS:Mainly in the South, right? Alabama, South Carolina.

LEO GERARD:Mainly in the South. Mainly given huge, huge amounts of taxpayer dollars to get there, in the billions of taxpayer dollars.

BILL MOYERS:By the states giving them subsidies to come there, right?

LEO GERARD:By the states who gave them subsidies. And lots of those subsidies were the flow of federal dollars. Then you end up and you say, okay, the auto industry and the American auto industry, the big three, have over a million retirees that they provide healthcare to. A million. They have pension funds. No one, no one that retires from the auto industry gets rich. They have a decent pension so that they can keep their home, that they can have a bit of comfort in their sort of autumn days. And these Toyota Republicans would want to see that taken away. The fact of the matter is that if we had universal healthcare in America, like most of the rest of the industrialized world, most of the rest of the world, that would not be the burden that’s put on the auto industry. People miss the huge burden on North American manufacturing in the way we provide healthcare in America. It’s a huge competitive disadvantage. I don’t blame General Motors for being decent enough to work with the union to provide healthcare to those retirees. If you ever worked on an assembly line for 25, 30, 40, 45 years or in a steel mill you’re tired when you’re at 60 years of age and 65 years of age. And when you retire, you ought to have some healthcare.

On universal health care:

BILL MOYERS:Is that why you are an advocate of universal healthcare, to take the burden off of companies?

LEO GERARD:I’m an advocate of universal healthcare for a number of reasons. Taking the burden off of employee employers and taking it out of the collective bargaining system is one. But also I think it’s the right thing to do as a human being. It’s the right thing to do as a civil society. It’s the right thing to do as a society that wants to I forget who said the comment. But we ought to be judged by what we do for the weakest among us.

BILL MOYERS:I know that you would like to see the Obama administration start to rebuild our manufacturing base. But what gives you hope that we can resurrect the manufacturing base in this country?

LEO GERARD:I think that we have to go back to a dialogue. And I met with some CEOs yesterday to talk to them about whether they want to get in that fight. We’d have to go back to a dialogue in America that understands that the way you really create wealth in America is by making things that people want to buy, not by creating asset bubbles and credit crunches and that kind of stuff, which has been our experience for the last 40 years.

BILL MOYERS:What do you think America can manufacture now that consumers want and that the world wants?

LEO GERARD:I think we can manufacture cars. And I think that if we had the right focus and we took the healthcare burden off not just the auto industry, all industry in America, the way the rest of the world does, that would increase our global competitiveness. I think if we enforced our trade laws so that, and by the way, when we compete with China, most the time we’re competing against the government, not against the country. So we need to enforce our trade laws. And we need to look at green jobs. We need to look at solar energy. We need to look at fixing our energy grid. We need to retrofit our public buildings. We’ve got kids that are going into buildings that are using air handling systems from the ’40s and ’30s. We need to retrofit our courthouses and our city halls. We need to fix the glass in our buildings so that they’re energy efficient. And we need to do that using American workers and American products.

An Interesting take on things. Gerard obviously is on the job and towing the union line. I’ve got no hope that we can unionize our way out of our manufacturing crisis, quite the opposite, but the concept of government health care as neo-protectionism is an interesting one. One of my problems with tariffs as protectionism, is that over time, as the companies get complacent, tariffs become subsidies, and eventually bailouts by another name. The potential benefit of health care as a competitive advantage, is that it can’t grow. Once the workers are healthy, giving them more health care doesn’t make them more competitive. I’m still on the fence about which system we should be using in this country for our health care. This isn’t my favorite, but it is better than HillaryCare. The full transcript is here.

What is the Ideal Value of the Dollar in Today’s world?

With all this talk lately of which way the economy is going to break (is it going to be depressionary deflation, or hyperinflation?), the question we really need to be asking ourselves is: what is the ideal value of the dollar in today’s world? Barack Obama doesn’t strike me as a gold standard kind of guy, so for the foreseeable future we are stuck with printable money.

If the value of the dollar is high, foreign goods are cheap to us, and our goods are expensive to them. this leads to trade imbalance in their favor. This can lead to a reduction in demand of our goods, reduction of manufacturing, GDP, wages, an increase in debt, etc.

If the value of the dollar is low, foreign goods are expensive to us, and our goods are cheap to them, leading to a boost to our manufacturing and exports.

Complicating this is supply and demand. If every nation in the world pumps up their inflation in order to boost manufacturing, pretty soon you have people working all day to build items that no one really needs any more. Once you have tires for your truck, getting eight more doesn’t do you any good. With the rise of China, we may be approaching that level where the market gets a bit saturated around the edges. When this occurs, it is time to move towards quality, tech, and automation. We can’t compete with cheap foreign labor in kind, nor should we desire to. What do you sell someone who already has all the basics covered? Better versions of what they have. Japan has survived with a currency as highly valued as it is because they sell things that are too complex for others to make.

Printing money doesn’t create wealth, but it does move it around. When they print new dollars, those new dollars are worth just as much as the dollars in your bank; those dollars just aren’t worth what they were the day before.

Back to the question at hand. What is the ideal value of the dollar, in today’s global market? I’d like to see it about 25% lower. Not all at once of course, but maybe over the course of two years.

Dammit Obama

I’m apparently having a week of breaking resolutions. I wasn’t going to say anything bad about Obama until he was in office and started screwing things up, but he apparently couldn’t wait that long.

On Feb 17, analog TV should be no more. The conversion to digital has been a long drawn out process, for which we have already paid a ridiculous price in commercials and other time wasters, and well over a billion dollars. The conversion will retire a dinosaur of a technology that has been bogging down huge swaths of prime spectrum that could be used for far more useful new technologies. The spectrum has been sold. New products that will use the new digital service are everywhere and have been sold for years. They have a better picture and better features.

Now Barack Obama puts out a last minute memo asking that the conversion be delayed until mid-summer. Heaven forbid anyone illiterate and living in a cave might be surprised to find their television not working and have to venture into reality long enough to figure out why. What we really should have done is just cut the TV resolution in half every month until everyone gets sick enough of it to get their crap together and convert.

Update: The Chairman of the FCC, Kevin Martin, has now come out at CES and said about Obama’s request, “[W]e’ve spent a lot of time and energy getting ready for the February 17 date,” “I am concerned about the consumer confusion that would be created.”

Update: Obama has named June 12 as the date he would like the switch to digital to be postponed to.

Ron Paul on Gaza and the U.S. Economy

 

I’ve been pretty quiet about the conflicts around Israel. I don’t really want to get bogged down at the moment in a discussion that always ends up invoking Godwin’s law. I will go so far right now as to say that I agree with Ron Paul on the matter. He seems to be claiming that the U.S. knew weeks in advance that the attack was going to begin. I’m not surprised in a general sense if this is true, but I always figured if the whole of congress knew, it would have been leaked early.

He is right to be more worried about inflation than deflation. Deflation may be the current issue, and if nothing is done about that, we are likely in for a long drawn out recession, but the things they have set in motion will end up causing hyper-inflation in the end. I don’t mean to make deflation seem like a lesser threat; the problem is, deflation is a lot easier to counter than inflation, just print money. We have already printed more than enough to fix the problem, but the government and banks are still keeping it out of circulation. Sooner or later they will have pulled all the strings they can pull and then we will be at the mercy of what is left of the global free market. At that point, deflation won’t be the worry.

I found the video via The Osterley Times. They are a self described left wing blog, whatever that even means any more. The site focuses heavily on very current events, providing relevant commentary and video. If they can find common ground with Ron Paul, they are Ok by me.

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