Guru of economics does an about-turn on free trade

Indian Express Newspapers (Bombay) ^ | Tuesday, October 19, 2004 | Jay Bhattacharjee

[Jaysun]

You'd be very hard-pressed to show us the union-shops in electronics and computer manufacturing. Most electronic "internals" were made in union-free environments--and PC's (outside of IBM, initially) were not union-made.

OK. Let me rephrase that: Are you asserting that our workers are more productive than the japs in those fields? If not, can you blame free trade?

[Moonman62]

NO ONE has ever won a war without infantry occupation, and China has infantry.

These days it's technology and superior logistics that win wars. China could have an extra billion soldiers and it wouldn't matter since they'd be unable to feed, equip, or coordinate them.

Your comment about "helping" the US is not even deserving of riposte.

Yeah, I just hate it when someone supplies me with the goods I want at lower cost.

[Sam the Sham]

Chinese total indifference to patents and copyrights makes quite clear that they do not care a fig about the "rule of law" and have no respect for rules that are not backed up by coercion. It is naive to believe that thieves will play nice.

Your fundamental failure is to pretend that only a communist China could ever wish to be America's enemy. Basic great power hyper nationalism (and there was plenty of "place in the sun" hyper nationalism in Wilhelmine Germany, well before Hitler) of the sort we are already seeing stimulated by the Chinese government to deflect internal tensions will place it on an inevitable collision course with American geopolitical interests.

Destroying our own manufacturing base to "buy China off" is ridiculous. In the long run it will fail as weakness is perceived and then exploited.

[ninenot]

http://www.federalreserve.gov/pubs/oss/oss2/2001/scf2001home.html#summary

Scroll down a bit and you'll find an Excel download with some good numbers. (Unfortunately, the most recent survey is for 2001, which has a "skew.")

At any rate, in 2001, "home-secured" and "other residential" debt was 81.5% of debt; the rest was cars, leases, credit cards, etc.

At that time, debt/total assets was 12%, a decrease from the 14+% of 1995 and 1998. Of course, 'total assets' in 2001 reflected the pre-bust stock market, as well as a runup in housing value which had begun in the early 1990's.

In another Googled item, it is reported that "Household debt as a percentage of assets reached the historic high of 22.6 percent in the first quarter of 2003."--which would be a LARGE jump from the number that FRB reported for 2001.

In the end, though, the question is hot "housing"- or "not-housing"- related debt. It is the VALUE of housing on which the debt depends.

[Moonman62]

Basic great power hyper nationalism (and there was plenty of "place in the sun" hyper nationalism in Wilhelmine Germany, well before Hitler) of the sort we are already seeing stimulated by the Chinese government to deflect internal tensions will place it on an inevitable collision course with American geopolitical interests.

There are nationalists in the US and every other country you can think of. If the conditions aren't right they won't come to power. Provided that China has a peaceful path to increase their standard of living, odds are that's the path they'll take. Like I said, Taiwan is dominated by nationalists, yet they haven't been a problem, probably because of their prosperity.

Destroying our own manufacturing base to "buy China off" is ridiculous. In the long run it will fail as weakness is perceived and then exploited.

The US manufactures more goods in dollar terms and as a percentage of GDP than ever before. Since it doesn't require as much labor as before, some people don't recognize it.

[ninenot]

More, from http://www.federalreserve.gov/releases/G19/current/

It appears that "consumer credit" has increased from $1.7 trillion in 2000 to $2.05 trillion as of 3Q04, or about 18%. This increase would approximately equal the increase in value of one's house during the same period--but "consumer debt" is generally higher-interest debt than 1st or 2nd mortgage-debt.

[iconoclast]

When did we ever have free trade with the Japs (or anyone else for that matter)? Globalism is not free trade.

[Jaysun]

When did we ever have free trade with the Japs (or anyone else for that matter)? Globalism is not free trade.

Globalism, free trade, call it anything. The assertion that this guy makes is that globalism is going to result in America losing it's productive edge. To me, that seems absurd. How could lower priced goods from other countries have that effect? The competition causes us to seek ways to increase productivity - at least that's what I would think.

[Sam the Sham]

You are distorting the argument by confusing big-N nationalism (The Kuomintang Party of Taiwan) with small-n nationalism (the inevitable drive on China's part to challenge American superpower status). Of course we have no trouble with Taiwan because it is our ally. China emphatically is not.

And what does this do with "increasing the standard of living" ? Why do you assume that that is the only or even the primary goal of a nation state ? I kinda recall "glory" or "honor" or "prestige" being national goals. And goals which the Chinese people patriotically support and have nothing in the least to do with communism.

[Jaysun]

In the end, though, the question is hot "housing"- or "not-housing"- related debt. It is the VALUE of housing on which the debt depends.

Right. As I said earlier, if you believe that the value of housing is in trouble, you'd have reason to worry. I just haven't gotten my head around the idea that housing prices are out of control.

Historically, nominal housing prices haven't declined on a national average basis. The Office of Federal Housing Enterprise Oversight's Home Price Index has never fallen on a year-over-year basis in the 29 year history of the series. It's also worth noting that housing inventories remain near record lows. Demand is still growing faster than supply.

I suppose the only thing we can do is simply wait and see. Eventually short rates will have to rise, and long term rates will rise further. At that point we'll find out if the reallocation of capital to housing was a misallocation.

[raybbr]

How could lower priced goods from other countries have that effect? The competition causes us to seek ways to increase productivity - at least that's what I would think.

We are already one of the top productive nations on earth. We can't compete with China for wages and labor supply. Once we have stopped manufacturing here in the U.S. and millions of workers are out of work, how will they afford cheap goods at any price?

[Jaysun]

We are already one of the top productive nations on earth. We can't compete with China for wages and labor supply. Once we have stopped manufacturing here in the U.S. and millions of workers are out of work, how will they afford cheap goods at any price?

The total number of jobs in the United States is largely determined by fundamental macroeconomic factors such as labor-supply growth and monetary policy. Trade with other nations does not reduce the number of jobs, but it does quicken the pace at which production shifts from one sector to another. Trade, like new technology, lowers demand for some jobs while raising demand for others. Trade allows the United States to produce more Boeing jetliners, pharmaceuticals, software, and financial services for export, but trade also means we produce fewer shoes, T-shirts, Happy Meal toys, and computer memory chips. Meanwhile, total output and total employment keep growing.

In reality, larger trade deficits correlate positively with falling unemployment.

[Moonman62]

And what does this do with "increasing the standard of living" ? Why do you assume that that is the only or even the primary goal of a nation state ?

Because it's the only way to keep a billion people happy. Using oppressive government is just too inefficient and can't be sustained forever. Happy people with a rising standard of living don't start wars.

[FITZ]

Remove the regulations so traders cannot be sued.

Well of course --- a freetrader would not like regulation of filthy foods --- that gets in the way of someone making a profit which is the only goal of free trade.

[FITZ]

But the population must be able to PAY for the housing.

To free-traders that doesn't matter because the government can provide housing subsidies to those on welfare and who earn minimum wage -- and quite a bit more. With housing subsidies averaging $500 to $700 a month --- housing isn't a problem --- we can live easily with minimum wage paying jobs now --- the government takes care of everything you see.

[Willie Green]

The US manufactures more goods in dollar terms and as a percentage of GDP than ever before

The fallacy to that statistic is that full credit is taken for finished product despite the increasing proportion of foreign materials and components. (IOW, a product may be 95% foreign made and 5% finishing touches here in the U.S., yet they take full credit for doing 100%)

[Moonman62]

Do you have a source for that? I'm using Bartlett at the NCPA for mine.

[Willie Green]

Will this do? Study Confirms Manufacturing's GDP Decline

[Moonman62]

That article is a bit sparse. I'm interested in how the foreign parts are accounted for in our GDP calculations. Don't feel that you need to rush. Quality is better than speed. Thanks.

[Sam the Sham]

Happy people with a rising standard of living don't start wars.

Oh, yes they most assuredly do. To be savagely blunt it was we who started the Mexican and Spanish wars.