| Tuesday,
==Continuing the Trade discussion
Subject: Brin on trade balance
Dr. Pournelle, on the trade deficit and liklihood of a
currency devaluation, David Brin made an interesting comment last month:
http://davidbrin.blogspot.com/2005/03/aside-how-us-saved-world-by-buying.html
I note that nowhere does Brin disagree with the
doomsayers, nor attempt to measure the downside, nor offer any way out, he
merely points out that we Americans do appear to have bought something quite
valuable for part of the coming cost - just maybe not valuable to *us*. I'd
appreciate hearing your take on all this.
-- Andrew Piskorski
===
I do not often comment on Dr.
Brin's views.
He makes several good points.
We have been extraordinarily generous in buying stuff we don't need from
foreign sources.
We also exported the
capability of making the stuff, while neglecting to improve our own
capability to make better goods at lower prices. And finally, we exported
our attitudes and beliefs: our position on DDT kills about one million
people a year: three Tsunamis a year, due to our pigheadedness on DDT, which
was itself brought on by our silly use of the stuff wholesale and everywhere
rather than indoors and in small quantities. So because we over-used DDT we
decided to ban it for the world, and we enforce that ban for all. This is
one example: I could give others. And we claim the right to export our form
of government and do that by force of arms, on the grounds that this is the
only way to preserve our own security.
We have not been building
good will by doing all this. On the other hand, Brin's point is that we sell
debt, and golf courses and buildings, as the Japanese once did, and the
Yankee horse traders won out in the end.
He does not point out, but I
do, that all these assets can be restored to American ownership by the
stroke of a pen. There are some advantages to being the most powerful
military nation on Earth.
Gold cannot get you good
soldiers, but good soldiers can always get you gold.
==From another physicist:
Subject: US trade deficit
Jerry, for what it's worth...
I remember concerns about the Japanese and Saudi's
buying US real estate I think in the early to mid-80's, as a consequence of
our trade deficit.
The following is ad-hoc, off the top of my head,
perhaps not well considered, I'm certainly no economist but I do know
something about process in general, should be taken with an
appropriately-sized modicum of salt, is is probably worth less than the
paper it isn't printed on:
I'm not sure that balance-of-trade, or even
continuous-trade-deficits, are the principal determinant here. Certainly not
as the sole factor. Consider that a "trade deficit" as the score is
currently kept means that we are transferring money (a symbol) to another
country in return for a commodity (real property/resources). This may become
an issue but other factors must be in play for it to become an issue (note
that some or all of these factors are in play, but...)
1. What is the value of the commodity purchased
compared to domestic production?
2. Does the real commodity increase economic
productivity by some measure?
3. Is there an after-market value of the real
commodity?
4. How is this analysis affected by the differential
value of money as a symbol?
This statement incorporates several complex metrics --
relative valuation of the debtor/debtee country currency, time variation of
the relative valuation of the debtor/debtee country currency, relative
valuation of the debtor/debtee courntry currencies compared to a defined
standard currency (a stable third currency or a weighted average of all
currencies broadly traded), and relative valuation of the debtor/debtee
country currencies to a defined standard commodity (e.g. a 1-lb loaf of
standard bread, a 1-lb steak, 1 troy oz of .999 gold, 1 barrel of
standard-grade Saudi crude FOB the Arabian Gulf, some
trade-or-consumption-rate-averaged-value of the above, etc.)
For example (probably oversimplified) if Country A
maintains a trade deficit compared to Country B of 1%/moth of total net
trade between the countries, and Country A's currency is inflating at a rate
of 1%/month relative to Country B, the effective trade deficit is wiped out
by devaluation of Country A's currency on arrival in Country B.
Thank You Mr. Heinlein for the Economics Lesson in
Expanded Universe and I Wish You Had Written That Book On Fiscal Theory.
5. How does Country B deal with the currency surplus?
(Real Estate in Country A as per my first note? Domestic business expansion?
Trade deficit with Country C? etc.) How is this answer affected by the
variable answers to Question 5?
6. How do the relative regulatory burdens of Country A
and B (and C and...) affect the above analysis as regards production costs,
value of maintaining a trade imbalance, etc?
When considered on a global basis, the trade balance
is a complex dynamic balance in which promises to pay of varying worth
(currencies which are being shuffled in value relative to each other) chase
commodities of both fixed intrinsic value (cost of production) and
market-derived value (supply and demand, which may for example dictate that
product X is worth less than the production price in Country B, yielding
negative market-derived net value) against a backdrop of variable median
local wages as fixed by comparative currency valuation, variable median
local wages as fixed by local purchasing power, variable overhead and profit
structures, variable cost and value of employee benefits, health care,
government oversight and intervention, profit/loss structures, mechanisms
for exercise of ownership control, corporate cooperation (price-fixing) and
competition, corporate hooliganism and fraud, government hooliganism and
fraud, independent activist hooliganism and fraud, value of security
protections against hooliganism and fraud, terrorism and counterterrorism,
and probably even more factors I can't think of off the top of my head.
Bottom line: Is a trade deficit a bad thing? Not
necessarily. Is it a good thing? It's less likely to be a good thing than a
bad thing, but again, not necessarily? Is the US trade deficit a bad thing?
On balance, probably. Does it mean the end of US society as we know it?
Probably not without other factors (again, some of which are probably in
play, but...)
Jim Woosley
==I keep coming back to this: if
you make good stuff at low prices you win. If you don't and you continue to
consume, you go broke. The story of the working man who worked much of his
life then went on a spree with his savins (or married a gold digger who did
that) is a very old story indeed. Perhaps being a government helps. But in
some of those stories the working man turned robber.
==and another view:
Subject: Off-shore outsourcing of
work & education
Jerry,
When outsourcing of jobs to low wage countries is
debated, a common prescription given to stem the flow is the improvement of
the educational system in the US. Greenspan has said this in recent
appearances before congress. It is a common theme in your blog. I don't
dispute that there is plenty of room for improvement in the US system of
education, and that having a pool of appropriated trained and skilled labor
is certainly important to retaining the industry we that we still have.
However, I have trouble reconciling this proposed solution with current
trends in outsourcing.
What we are now seeing is the migration of jobs that
used to be considered high skill, white collar work, e.g., software
development and engineering. I personally see little evidence that companies
are forced to go overseas because a shortage of skilled programmers or
engineers in the US. I see plenty of evidence to indicate that companies
want to go overseas largely because they can obtain near equivalent labor at
substantial discounts. It isn't a skills shortage in the US that is driving
the offshoring movement, it is simply the existence of a surplus labor pool
willing and able to work at substantially lower wage rates. A friend of mine
who manages a group of offshore programmers told me this about 3 years ago:
"There is simply no way even a cracker-jack developer (in the US) can
compete with the low wage structure there (India)."
When it comes to intellectual activities like
programming or engineering, there is no reason why the most gifted subset of
American brains should be any more capable that the most gifted subset of
Indian or Chinese brains, if those brains are properly nourished and
trained. The reality is that higher education is mostly labor intensive,
rather than capital intensive. Go to the average US University today, and
you will still find that the principle tools used by the professors are the
classic ones: books, chalk, and a chalk board. (OK, maybe PowerPoint is
starting to replace chalk and chalkboard.) With good teachers, you can turn
out good engineers or programmers just about anywhere. All the teachers need
is a building, some books, and some computers. The point is that, even if we
improve our educational system, the best we can hope for in the long term is
parity of intellectual capability. The dilemma is this: How does one offset
a 5:1 or 10:1 advantage in labor cost, when a 5:1 or 10:1 advantage in
intellectual capability can't be achieved or sustained?
Economists still seem willing to cite the principle of
"comparative advantage" to reassure us that outsourcing of jobs is OK, that
it is just another form of free trade what will be mutually beneficial to
both trading partners. Perhaps they are right, and in the long term, things
will evolve to something that is mutually beneficial to all. But in the long
term, all of us will be dead. In the short term, the transition could still
be very disruptive or damaging to US society! More ominously, what if the
economists are wrong. Where will our comparative advantage lie if large
numbers of jobs that formerly provided middle class lifestyles suddenly
begin to provide McDonald's like wages? I am struggling to see the answer.
C. Pawlisch, Minnesota
== which bring us to
==
Subject: Sweat ship.
There are a number of technical problems with this,
not least amongst them the facts that high-speed microwave SP service isn't
readily available just anywhere, and even if it were, the motion of the ship
even when 'at rest' on the ocean (plus the water-vapor in the air, etc.)
would cause problems for the microwave link, but it's still a heinous
concept, IMHO:
http://lavoice.org/modules.php?op=modload&name=News&file=article&sid=694
-- Roland Dobbins
We have no monopoly on brains;
and our education system is broken. Perhaps the bright kids will educate
themselves and fix it.
Pareto and others have shown
there will always be classes; the public education system is supposed to
prevent the classes from becoming castes. It appears to serve the opposite
purpose now.
==But for a more optimistic
view:
==
Subject: The educational sky is not
(necessarily) falling...
My case in point: “Teach for America”. It’s possibly
the most competitive post-baccalaureate service program in the country.
(This year there were 17,000 applicants for 2,000 open positions.) There’s a
recent NPR piece here:
http://www.npr.org/templates/story/story.php?storyId=4586832
From personal observation, I can assure you the
situation is the same here at Penn (where I’m wrapping up a Classics degree
I should have gotten 30 years ago) and I’m told the situation is the same at
the other Ivies. The willingness of the young people here to make
commitments like “Teach for America” is truly wonderful to see. These are by
far the “best and brightest” our educational system produces (I study with
them almost every day and yes the competition is, if not cutthroat,
certainly vigorous).
For the next school year TforM will have 3400 teachers
in the field reaching 289,000 students at a cost of $38,500,000. If I’m not
mistaken that works out to just over $11,323 to train and place an
enthusiastic new graduate from a top university. (Teacher pay comes from the
local school districts.)
So check TfM out at:
http://www.teachforamerica.org/flash_movie.html <http://www.teachforamerica.org/flash_movie.html>
There’s an interesting personal experience article
from the early days here:
http://www.findarticles.com/p/articles/mi_m1316/is_n6_v25/ai_13816682
(It comes with a strong condemnation of the
credentialing process which I’m sure your readers will love.)
Cheers,
-Bill Colsher
==I do not believe that anything
can defeat the credentialism now entrenched in law, and teacher unions exist
largely to protect the incompetent and represent the interests of teachers;
not of students. But there are here and there some bright spots. And despair
is a sin.
== and Mr. St.
Onge is optimistic:
Dear Jerry:
He says: "In the 1920's when Winston
Churchill was Chancellor of the Exchequer he set the Sterling/Dollar
exchange at too high a value as a confidence building measure. This
failed and participate the 1929 crash (Because assets where being
transferred into the new trading currency, so creating an asset bubble)
and lead directly to the Great Depression.
Already their have been rumours in the
financial markets about Far Eastern countries reducing their Dollar
holdings (The most recent was a rumour concerning the South Korean
Central Bank). At some stage unless the Trade deficit is reduced, major
holders of US debt (Mostly Far Eastern Countries) will be forced to
sell, or be left holding assets that have a fraction of their current
value."
Well, the yen was once 320 or so to the dollar, and now it's
about 100. So Japan lost about 2/3 of their investments. Where's the
world-wide depression?
The reason it didn't happen is, Britain in the twenties owed
gold or dollars to the U.S. Under the rules of the gold standard, when
Britain lost gold, deflation was supposed to take place, hammering down
British prices until they were competitive on the world market. The
British govt. declined to do this. The U.S. govt. spent some years
trying to prop up the pound by loaning Britain money with which it
could pay its debts to the U.S.! This only increased British debt to
the U.S.
But the U.S. is indebted overseas in dollars. The Federal
Reserve can print an unlimited amount of them. That could cause several
problems, but we can't go bankrupt unless we make a deliberate decision
to do so.
By the way, the reason the U.S. runs a trade deficit with the
Far East is because the countries there all believe that exports are
good, and imports are bad (hmm, where else have I heard that ;-D). If
they want their trade surpluses, they inevitably end up with dollars.
If the Asian countries dump them, the dollars will end up in some other
foreigners' hands, but in the end, there's only three things you can do
with greenbacks: spend them in the U.S.; invest them in the U.S.; use
them to paper your walls. Investing them in the U.S. is what's
happening now. How does it hurt us, if the rest of the world continues
to sell us stuff for dollars, and then throws them away instead?
Enefer: "What happens when the US wants to
intervene in say Iran? Well if your the Chinese or South Korean foreign
minister you mention to your US colleague that may be the US shouldn't
do that as your country receives substantial oil supplies from Iran. If
the US attacks Iran we will no longer lend your country the money to buy
our products and you boss loses the next election because 'its the
economy stupid'."
Hmm, what happens I think is that the President says, "Go
urinate up a rope. You refuse to sell goods to us, and you immediately
throw a large part of your economy into a crisis. But it won't be all
bad. With mass unemployment, you won't need to import so much oil
anyway, so our attack on Iran won't bother you as much."
Again, Efener misses the point that France and Britain during
the 1950s were dependent on U.S. dollars, the supply of which we
controlled. The U.S. is not dependent on Korean autos or Chinese
textiles. It would sting a bit if they were suddenly cut off, but not
that badly. But Asia's loss of the U.S. as a market would be a
catastrophe for them.
As for the loss of the American Dream that Mr. Efener worries
about, three words: 'The Great Depression.' Our spirits survived that,
they'll survive the hypothetical problems he posits, in the unlikely
event they ever happen.
Best,
Stephen
==The yen remained at 360 to the
dollar for a very long time. I had reason to know that value once, when I
won a very large sum of yen at a poker game. But that was a long time ago.
I point out there is a
difference between borrowing to buy tools or acquire skills, and borrowing
to go on vacation trips or buy frivolous consumer goods. The Boeing Company
used to finance the purchase of tools for aircraft mechanics: you bought
your tools, the company deducted from wages, but the tools were yours
(workers took better care of their own tool than those issued by the
company; odd that). The company credit union was happy to loan money for
home improvements. It frowned on loaning money for vacations.
And some
numbers
Just a quick follow-up
on an earlier note.
The data below are
from the Bureau of Economic Analysis. They document the patterns of
trade by end-use of commodities for 2004. The bottom line is that over
40% of the U.S. trade deficit last year was due to a deficit in consumer
goods. The number is almost two-thirds if you count automobiles as
consumer goods (though not all are, of course). Overall, there is more
total trade (exports plus imports) in capital goods and industrial
materials, but the net
flow of goods seems to indicate that, to a large extent, the US is
borrowing today to fund current consumption.
If the numbers showed
a lot of capital goods being imported on net, then I would not be very
concerned as this would be consistent with the notion that the U.S. is a
good place to invest and produce. In fact, a trade deficit of that
nature would actually be good for US workers. This is not the case for
2004, however, and I suspect the data from earlier years looks similar.
These figures are
worrisome.
|
in millions of
$ |
All Goods |
Foods, Feeds,
& Beverages |
Industrial
Supplies |
Capital Goods |
Automotive
Vehicles, etc. |
Consumer Goods |
Other Goods |
|
Exports 2004 |
819,052 |
56,354 |
203,571 |
331,094 |
88,225 |
102,828 |
36,980 |
|
Imports 2004 |
1,469,865 |
62,157 |
412,154 |
343,736 |
228,248 |
373,046 |
50,524 |
|
|
|
|
|
|
|
|
|
|
Net Exports |
-650,813 |
-5,803 |
-208,583 |
-12,642 |
-140,023 |
-270,218 |
-13,544 |
|
percent |
|
0.89% |
32.05% |
1.94% |
21.52% |
41.52% |
2.08% |
|
|
|
|
|
|
|
|
|
|
Total Trade |
2,288,917 |
118,511 |
615,725 |
674,830 |
316,473 |
475,874 |
87,504 |
|
percent |
|
5.18% |
26.90% |
29.48% |
13.83% |
20.79% |
3.82% |
Kerk Phillips
kerk@pomosa.com
===and
a question
Do you think the current account deficit is more
urgent or more important than the fiscal deficit? That is from the point of
view of keeping the economy humming. China seems to be stuck with supporting
the $US by continuing to buy lots of bonds. Its alternatives include massive
losses from pulling the rug from under the $US and, of course, giving the US
the excuse to expropriate enemy property by attacking Taiwan (which is one,
totally neglected, reason why it won't attack Taiwan any time soon).
China will of course act entirely in its own and its
leaders' interests as they conceive them but there seems to be solid
evidence that they are preparing for a float of the Yuan (renminbi - which
should it be JD, or Jason or Ben or..?) or at least a managed revaluation
and partial float. They are apparently training their future currency
traders on three main currencies in a small way.
James
See below
=====================
Comments
on the current BYTE column:
A Beaut...
Hell Jerry,
Every now and then you bang out a priceless paragraph!
Like this one:
Peter Glaskowsky suggests that given my proclivity for
keeping old machines for special purposes, I should just have a shelf of
laptops stood on end like books. One might be labeled "Taxes and
Accounting." Others might be "Chaos Overlord," "Q&A," "Railroad Tycoon,"
"This Means War," "Privateer," etc. That almost sounds tempting.
I feel you've been brightening up a bit recently after
a stretch in a rut. Interesting rut, but deep.
Cheers,
Hugh
==
Subject: Comment on "The Way We Were"
Hi Jerry,
Good article as always, Jerry. I can remember setting
up my Dad's first mailing list program on a Kaypro 10MB computer ages ago. I
can, in part, go you one better with a 2K bit core memory board removed from
service in 1985 (it was getting hard to find repair parts for that ancient
computer, so it was replaced with a Modicon 584 PLC -- a relay ladder logic
computer running 4- or 6-ganged, 4-bit-slice processors in a kind of custom,
interpreted, symbolic-electrical assembly language).
You: "If there's significant new software requiring
faster machines with more memory, I haven't heard about it."
You might consider the rapid rendering of NTSC video -
for home movies - a strain for most computers. My G4 iMac needs about a
minute of DVD rendering per minute of video -- G5's are faster. But we are
quickly approaching the era of HD video editing. That will take some
horsepower, I think.
That's the only exception that I can think of...
Cheers!
-John G. Hackett
Agreed: I thought I had said
that video editing is an exception to the "you won't notice if you upgrade"
rule...
=================
Roland
recommends you read:
Subject: Cracking 128-bit WEP in three minutes.
http://www.tomsnetworking.com/Sections-print-article111.php
-- Roland Dobbins
==
Subject: Even Monkeys Wouldn't use a Mac.
http://hardware.silicon.com/desktops/0,39024645,39129163,00.htm
--- Roland Dobbins
Subject: Aliens among us . . . a long time ago?
http://www.nytimes.com/2005/04/10/opinion/10
davies.html?ex=1270785600&en=2bd1f57cff82d802&ei=5088
---- Roland Dobbins
================
Subject: Laocoon a forgery?
http://www.nytimes.com/2005/04/18/arts/design/
18laoc.htmlei=5088&en=58ba820eb46ef4a5&ex=1
271476800&emc=rss&pagewanted=print&position=
------ Roland Dobbins
This link may no
longer be valid alas...
Subject: Holographic storage.
http://www.engadget.com/entry/1234000853040564/
-- Roland Dobbins
==
Subject: Hyde speaks out.
http://www.suntimes.com/output/novak/cst-edt-novak18.html
------- Roland Dobbins
==
Subject: $17M.
http://www.csmonitor.com/2005/0418/p01s01-uspo.html
---- Roland Dobbins
You can always find things to
spend other people's money on, so that you feel a warm generosity and tell
yourself what a good person you are.
And an observation by Harry
Erwin:
Subject: The Effectiveness of
Torture
We were discussing Bayesian analysis in my network
security class today, and my co-instructor pointed out that torture is only
effective if a knowledgeable individual is more likely to make a true
statement than an innocent a false statement. He also pointed out that
giving juries evidence about the past criminal history of an accused reduces
the reliability of both conviction and acquittal. These turn out to be cases
of the base rate fallacy.
-- Harry Erwin, PhD "If you can't be a good example,
then you'll just have to be a horrible warning." (Catherine Aird)
Compelled testimony is
effective only if independently corroborated. Jeremy Bentham did an analysis
of compulsion to testify against oneself and concluded that it was
justified, and effective; but in general it was defeated by the pathetic
fallacy, which he called the old woman's argument: "it's hard on the
defendant to be forced to tell the truth..."==
Which brings us to Martha
Stewart and Sandy Burglar Berger...
=============
My article "Pre-emptive Executions: Economist Steven
Levitt contends that abortion reduces crime rates. The numbers tell a
different story" in the May 9th issue of The American Conservative debunking
the theory promoted last week in the Wall Street Journal and the New York
Times is now available online for free at: _http://www.amconmag.com/2005_05_09/feature.html
_
. Best wishes,
Steve Sailer
_www.iSteve.com_ (http://www.iSteve.com)
========
TSA limits number of books on airplanes?
http://ross.typepad.com/blog/2005/04/books_banned_on.html
What's most frightening isn't that they're banning
books, it's that individual screeners have the authority to make arbitrary
judgments on both banning and permitting objects without regard to published
standards. So you never really know what will be allowed from day to day,
airport to airport, or even screener to screener. And of course, it's a
crime to possess banned item when going through security (regardless of
criminal intent). Put them together....
I find it amusing that we darn near need a passport to
take an airplane anywhere inside the country, yet Bush just vetoed a
requirement to have one to cross our borders.
We have done more to destroy ourselves than the
terrorists could ever have imagined.
Regards,
Doug
--
doug[@]douglhotka[.]com
"Do something you like. Forget about the pay, for
Christ's sakes. Regulate your style of living to fit your income. Just have
fun in your job, that's the main thing." ~ General Chuck Yeager
TOP
CURRENT
VIEW Tuesday |
