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Subj: Re: questions
Posted: Fri Oct 17, 2008 at 06:21:46 am CDT (Viewed 653 times)
Reply Subj: Re: questions
Posted: Thu Oct 16, 2008 at 09:45:00 pm CDT (Viewed 620 times)

> See, that's the thing. In a globalized world, there is only 1 labor market for a lot of jobs. At a given quality level, companies are looking for the cheapest labor worldwide. So an American factory worker is trying to compete for jobs with a Chinese factory worker. Since they are bascially competing for the same job, they are in the same labor market and both would be considered participants even though only 1 gets a job.

First, thank you again for your patience.

Now - here's what I think is an important point, but I may be off base. The worker and the consumer are the same person. If the labor market is global but the consumer market is local, this seems to enable damaging inequities, doesn't it? Here's what I mean. You've explained how the American worker and the Chinese worker are in the same labor market. But they're in different consumer markets, because consumer markets are local. A bag of rice in China costs far less than a bag of rice in America, and the American worker can't buy the Chinese bag of rice except by traveling to China, which would of course be prohibitive from both a cost and time perspective. This means that if I make six dollars an hour in America, I'm poor, but if I make that same amount in China, I think the sky is raining gold. Thus it isn't possible for the American worker to compete with the Chinese worker fairly. The Chinese worker must win, because the worker and the consumer are the same person, and the Chinese consumer faces far lower prices than the American consumer. This is a damaging inequity for the American worker, isn't it?

> As an aside, I should also say, one complaint is that countries like China aren't playing fair because they manipulate their currency, which makes labor costs in their country look even cheaper to outsiders. Those sorts of distortions aren't good.

That word "good" is a funny one, as you've noted previously. If China takes actions that benefit China, one would likely consider that "good" from a Chinese perspective, and if I were Chinese, I would applaud my government. Would I be wrong?

> That's an interesting question, and it's hard to say for certain. I guess what I would say is the best case would be if we (Americans) saved more money ourselves so that we didn't need to borrow from other countries. Since we've chosen not to do that, it's better to borrow than not. If we didn't borrow, even more jobs would leave because there would be lower investment and lower production.

Do my personal savings, or lack thereof, impact domestic investment? I guess the answer would be yes, because the banks use my money to invest.

Yet the main reason most people don't save is that their mortgage monthly payments are so high, devouring their paychecks, and the reason for that is the absurdly inflated housing market. Absent this inflation, discretionary income would be higher, enabling greater savings, at least theoretically. No?

> Honestly, no one really knows for sure. A lot of people would say that the government budget deficit is the main cause. Budget deficits and trade deficits tend to go together.

That makes sense, because budget deficits causes much of our tax money to be spent repaying government debt, when that same money could instead be invested in America, either by the government or by citizens and businesses paying lower taxes and thus having more discretionary income.

> Ironically, Friedman would argue almost the opposite. He'd say that the safety and security of investing in the US is the root cause (in other words, it's a good thing).

That explains the high capital "inflow" from other nations, but doesn't explain our low domestic investment. Or did I miss something?

> > If American companies stopped outsourcing, wouldn't foreign companies still be free to invest in American assets? Or am I missing your point?
> Yes, they could, but they wouldn't. Basically, if we limit outsourcing to say China, then China will likely retaliate and lend less money to us. They wouldn't have to retaliate, but there is some probability that they would.

Doesn't that imply that the Chinese view their lending to us as somehow altruistic? Otherwise, if they view it as being in their own self-interest, wouldn't they keep on doing it regardless what we do? The exception would be if we attack them militarily, of course.

I would have figured the Chinese profit by lending to us and profit by us outsourcing to their country. No?

> It is certainly possible that other countries gain more from free trade than the US. The US still gains, though. For example, it is likely that NAFTA is a much more positive thing for Mexico than for the US or Canada, but the US and Canada still benefit from it.

I don't see how. In the final analysis, our losses would exceed our gains, and we would end up with a net loss, no? I guess you're saying it isn't a zero sum game: Mexico's gain doesn't equal our loss. But it seems zero sum to me. If I buy a Mexican tomato instead of a New Jersey tomato, Mexico made money and New Jersey didn't. If a job goes to Mexico instead of Texas, then a Mexican got the job and a Texan didn't. I realize the arithmetic is much messier than that, since Mexican tomatoes and New Jersey tomatoes aren't equal monentarily, nor are Mexican jobs and Texan jobs. But if we simplify to speak in terms of units, tomato units and job units, we would say that every Mexican tomato unit that gets purchased in America equals one American tomato unit that didn't, and every Mexican job unit gained (if the employer is an American company) equals one American job unit lost. In terms of units, America has a net loss. No?

> > Do you think it's true, as I've been assuming, that the best foreign investment (from the American worker's perspective) is that which builds new work sites from the ground up, because this creates new jobs in America?
> Not always. What you are talking about, I think, is called "greenfield investment". A lot of investment is actually through mergers or takeovers, which isn't from the ground up. Also, there is portfolio investment, which is simply buying stock and bonds. It's probably true that a greenfield investment project creates more jobs than the other types simply because it is more expensive and time consuming. I don't have any number or percentage off the top of my head. I'm sure it could be found on some government website.

I think you're saying X investment will lead to Y job creation, regardless what form the investment takes, with X equaling the dollar amount invested and Y equaling the number of jobs. I think that would be true if our economy was primarily a job creation engine, as it should be, but our economy is primarily a business owner profit engine, and business owner profits experience negative pressure in direct proportion to the size of payroll, creating an incentive to keep payroll as small as possible. For this reason, I would think some investments are more job-conducive by their specific natures, in that some investments directly and unequivocally require the creation of jobs, for example the building of a new factory. No?

> Ok, there are actually different economic definitions of efficiency. That Wikipedia entry contains some of the overly complicated ones. When I said "efficient" I meant the second definition "More output cannot be obtained without increasing the amount of inputs". In other words, using your scarce resource to produce the most output is efficient. Markets are believed to work because resources go to where they are the most productive.

And productivity is measured ultimately in terms of profit for the business owner, right? And profit for the business owner is inversely proportional to the size of payroll, right? Doesn't this tell us that economic efficiency pushes in the direction of fewer jobs and lower wages?

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