Economics: the dismal science predicts a US fall
 

Dr. Paul Craig Roberts, a former Assistant Secretary of the US Treasury for Economic Policy in the Reagan administration, in an article titled: "Impending Destruction of the US Economy" is predicting dire consequences for the USA if its dollar continues to fall against the Yuan, Yen, and Euro. Interesting and slightly scary read when one considers the impact that might have on the rest of us (not to mention the citizens of the USA).

Nah!!! We can keep spending Trillions of dollars on foreign wars while large corporations ship good jobs out of the country by the tens of thousands without lowering prices. All we have to do is believe we can do it.

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I have heard the view expressed that, with such a massive National Public Debt, almost any other debtor nation than the USA would find its economic policies large dictated by the IMF. I have no idea whether or not that is true, but something is obviously very out of kilter here.

I wish I knew more about macro-economics, but this is one field that I sorely regret missing out on in my university studies. And so I feel largely ignorant.

As far as I know, the US Dollar has dropped more than 10% against the Norwegian Krone in just a few months. That is extraordinary!

One admonition, however: Let’s please keep to the economic side of this discussion, foregoing what could all too easily spiral downward into political commentary, innuendo and heated stance-taking.

The Macroeconomics class I took was largely propaganda, and promoted economic strategies that were not mathematically sound.

I am not looking forward to any economic slow down.. as I work in one of the first industries to get hit! And the US and UK economies tend to be very closely linked.

I know a lot of people have been predicting the fall of the US (in a similar way to the British Empire, the Romans or the Egyptians) but I would prefer the devil I know... :D

I try to do my bit of Euro/US jobs by driving a German car made in Belgium, specifying British, American, Spanish, French, Portuguese and Danish furniture in my job, eating local English produce and choosing products and services that have their call centers in the UK. Its not that I have anything against ChIndia, I would just prefer that my friends and neighbors get my business before anyone else.

Ahhh.. the role of the individual in the global economy eh!

If things go really bad I might just move to Dubai.... they are always looking for Interior Designers.... and they have more money than sense!

I'm afraid that we here in the US are doing our best to make certain that things go really bad. We complain about the costs of energy, yet we refuse to give up SUVs, we build houses more than twice the size of our parents homes and still think they're not big enough, we use leaf blowers instead of rakes, snow blowers instead of shovels, etc.

It seems that everything we do is designed to use more energy than necessary, which keeps us physically inactive and increases health care costs. The dangers are clear, but are we doing anything about them? Not really. You can still get a better tax break on an SUV than an economy car, incandescent light bulbs are still cheaper at the register than compact florescent even though a tax on incandescent could easily be used to subsidize a tax deduction on compact florescent bulbs, which are cheaper to operate.

Now, after decades of wasting money on excessive use of oil, replacing good jobs with low wage jobs while spending trillions on questionable foreign policy, and letting our waist lines strain our healthcare system to its limits, we're wondering where we went wrong!

The clout of two destructive industries
 

Ah, the collateral blessings of the sugar and tobacco industries...

In joyous combination, don’t these account for a very significant portion of efforts (person-years?) in the health care sector? Not just in the US, but in Europe as well?

Gro Harlem Brundtland, our former Prime Minister, certainly noticed the clout of both of these health destructive, profit-grabbing industries during her sincere efforts as Director General of the UN’s World Health Organization.

I’ve seen statistics on increasing weight and midriffs here in Norway, and they’re not encouraging, although we still have some "catching up" to do. Come to think of it, I’d better deal with my own... :o
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I think that dealing with my own is what got me thinking about how crazy our society has become. There is real pressure here to be overweight. Make an effort to get into shape and you find that there are lots of sugar/fat pushers out there. Even total strangers will try to get you to eat more!

I have several good friends who have found a high-fat, almost-nil-carbohydrate diet very effective for weight loss, neutralising diabetes problems, etc. I also seem to recall Carlos writing about that in another thread.

But I digress...

I'm not trying to lose weight (anymore - I've been at 180 lbs and 5'10" for about 8 years) but I feel the pressure to gain it. It's as if people don't believe that there is a significant economic cost to obesity.



By the way, for anyone interested in losing weight, I've found that exercise, especially resistance training, is critically important. Dietitians and trainers will tell you that diet is 80% of the battle, and they're technically correct, but exercise has a way of positively influencing your diet where dieting tends to discourage exercise. If I exercise, I don't want to eat junk food and undo my hard work. If I diet, I feel tired and don't want to exercise.

The adjustment is long overdue. We've been in the red for many, MANY years in our balance of trade/payments. There are many complications and no doubt some unforeseen consequences attached to a falling dollar given some other nations hold dollars as backing for their currency.

Bottom line, short term, is our exports should go up (they're now cheaper overseas) and our imports should go down (they are now higher). This is good for US based business and a long overdue move to get our balance of trade/payments in line.

A dollar free fall, however, could have dire consequences and destroy our ability to do business on the international market.

As for the causes of this (there are many), the main culprit is the massive debt brought on by.... well, better stop there lest it get political. It is normal for currency values relative to other nations to fluctuate within a narrow range. The problems come when a nation refuses to let it's currency fluctuate as this is an impediment to fair trade and can cause other nations to retaliate resulting in trade wars and stagnant international business.

What the dollar will buy in the US has not changed, except for minor inflation of less than 3 percent annually.

True, except that the companies with the most influence on our standard of living are not US based. They're multinational, with no allegiance to anyone but their majority stock holders. This doesn't bode well for the US or any other country, as these companies scour the globe for areas with the cheapest labor and the lowest accountability for the damage they do to the environment.
Not true at all. A dollar today buys about a third of the gasoline or diesel fuel that it bought twenty years ago, and it buys less of everything that depends on those fuels to get to the store. In 1987 I took a crappy temp job at $12/hour while between jobs. What do crappy temp jobs pay today? About the same, possibly less! Check the help wanted ads. Employers are generally too embarrassed by what they're paying to include it in their ads.

And vis-a-vis health care, it's not just sugar/fat, it's salt, bad for the blood pressure and makes you retain water.

I am fortunate, in a sense, by having strange tastes -- I don't like sweet things or chocolate, I prefer spicy, sour, and bitter to sweet and prefer fruit to almost any other dessert, preferably tart fruit. I get restless if I don't do something physical in the course of a day so I've always been involved in sports: gymnastics as a kid, rowing and skiing all through 10 years of university, competitive sailing, bike riding, skiing and snowshoe hiking after graduation, walking several miles to work every day before I retired.

I'm also not a habitual person so don't have pangs before mealtime -- I get hungry when food is presented (or when I smell it in preparation). Years ago, I discovered that by not eating lunch I got a ton of work done while others ate theirs, no one interrupted me, and my admin assistant and secretary were out. When later in life I began to gain weight, I quit breakfasting too - for years now I've only eaten one meal a day at which I eat all I want, heavy on the meat.

It has paid off too. When I joined the RCAF in 1956 as a pilot trainee, I weighed 168. Now I weigh 176. Beer consumption is decreased if I go over 180 until I get back to 175. Physical activity declines when one is an arthritic 70 year old, however, more or less down to strolling.

So, a hypothetical question for you. I'm currently thinking of opening a "ebusiness", and this slide of the US dollar is kind of scaring me. So I wonder, is there anything stopping me from selling my products for a more stable currency like the Euro or Pound? Would it be a bad idea?

In some ways pounds would make sense...the wife and I have been talking about moving to England anyway...

Your potential US customers would stop you by staying away. In addition, most credit card companies charge a hefty 2 - 5% or more for foreign exchange transactions and e-commerce is all about credit cards. Then when you go to your bank to convert your foreign currency to money you can spend, there's another hit, typically 2 to 2.5% for converting back. Add that to the percentage that credit card companies extract to honor your business and you've seriously depleted your earnings.

Hmm, that makes it sound like I ought to keep an eye on exactly what country is the most interested in my products. It seems like any exchange would be bad for me.

Not to mention the nasty tax complications that arise.

where abouts you thinking of?

Stay away from London.... Oxford it very nice :)

That's so, so true. All diet does is control inputs. But exercise does more than burn calories, it has many positive side effects like muscle tone, stamina, better sleep, etc. Dieting alone will not help your heart and blood pressure, where exercise will. Someone told me that one reason strength training is good is because larger muscles burn more calories than smaller muscles, during times when you are just sitting around doing nothing.

We really don't know. We only just started discussing it a week ago, but in that week we have found quite a few reasons to move. I'd go into details, but discussions are ongoing.

I know I'd personally want to look into somewhere near the south of England, because I think it would be fun to take the train over to France on occasion. So, Oxford may work for that.

I might be asking a bit much, but could you tell me why I should move to Oxford as opposed to some other place in England? I'd also be most appreciative if you could dispel some of my illusions regarding England. My only real knowledge of the place comes from my wife (who has been twice and loves it), and watching Dr. Who or Top Gear.

Or, perhaps if you have some time to be peppered with questions, PM me your email address and I can write a thoughtful email with some basic questions I would like answered...

Oxford is nice. Its full of posh people, rich foreigners and tourists. Because it is a University town and its got a lot of money it means it is nice, crime free and has great restaurants and night life. Its also historic and a 30 min blast from London.

I lived there back in 2001, and would really like to move back there... If you can afford to live in Jericho.. do.

I like Oxford because it is busy if you want it... but sleepy if you like that too..

but I am not a big city person...hence why I live in Warwick.....I like Warwick... coz its relaxed.... but has some great restaurants and pubs and is relatively close to the major cities and airports. (and my job!)

It depends what your after... what are you after? :D

Well, the US dollar is kind of imaginary in a sense. It is no longer backed by anything, and the Federal Reserve is loaned money from private banks....

What we are doing is creating a gap, a very large gap between the upper and lower classes, by basically destroying the middle class. About 1/3 of my paycheck goes to taxes every month, and I hate it.

Everything in our Government is for self interest. So, obviously the rich are going to get richer while the middle class gets wiped out and you create a larger gap between the two.

I just read that right now there are more millionaire's per capita in the US than ever before in the history of the US. The gap is already starting to get bigger and bigger.

As long as the super rich can keep people thinking about taxes and not equitable pay, the situation will get worse.

Lower taxes and you lower them most for the richest among us, while increasing the national debt. It happened in the 80s, and it has happened over the last 7 years. Tax and Spend is far cheaper than Borrow and Spend, partly because of the interest, but also because when Congress starts borrowing it doesn't know when to stop.

Meanwhile, according to Forbes, the average CEO of a top 500 company raked in $10.2 million in 2005. If you work for one of those companies and you make $200,000 per year (considerably more than the average worker) then those CEOs made on average about 51 times what you make. You can be sure they'd much rather have you thinking about saving a lousy few thousand dollars in taxes than getting a pay raise to bring you closer to their pay, say to a reasonable 10% of what they make.

I was kind of referring to what counts as taxable income. If you get paid in stock, or you make most your money from funds, you get taxed less. Like for example if your company instead of giving you a paycheck gives you a mutual fund or a bond or something else, you still pay taxes on it and it is still considered income, but you don't pay any medicaid taxes, you don't pay any social security taxes either on it. Where as the people who only have paychecks get taxed to the fullest.

The problem lies with in the system IMO. Even though I would like to get paid more, I am sure I make more than a lot of people my age, so I don't really complain about it. I just wished some of the taxes did not allow the rich to making tons of money and paying less taxes for it.

A company may pay a CEO 200,000 in pay check form each year, but they also get stocks, bonds, mutual funds, etc which count as investments and aren't taxed like normal income. Which makes them hit that several million mark but they are only getting fully taxed on $200k.

I think that's a red herring.

Obviously there are numerous exceptions due to shady/incompetent Boards of Directors, but, for the most part, the value of the the CEO making 10 Meg to any company is worth more than the value of 100 lower level employees each making 100K.

Equitable pay, in my opinion, means paying people commensurate with their value to the profitability of a corporation, not paying them all roughly equally.

I really like big cities...or at least being within a close distance of them (like, less than an hours drive).

My wife, of course, would like a big town because she's a dance teacher, and the bigger the town (or, perhaps, just the more wealth you have in one area), the better chance you have of getting a bunch of students.

As for me, I'm not sure what I'm going to do with my life just yet. I have a history degree with a minor in CS. I think I'd be a good salesman, but I worry that I won't know enough about British culture to just walk into a British corporation and sell things...though I suppose one never knows.

In reality, we just want to take two years outside of America after we graduate to gain a sense of perspective. England is a front runner along with Japan (we both speak a nominal amount of Japanese.) So...I need to find a place where I can get a job to pay off school loans, whilst I also want to be in a place that I can receive a more diverse cultural experience.

Kind of complex, but if you have an answer for that one... ;).

Paying with stocks & bonds is just an accounting trick to lower the tax rate for both the company and the CEO. It actually makes their pay even higher, as if it isn't far too high already.

I agree with your opinion of the definition of equitable pay, but there is no way that the average CEO is worth 100 times the value of the average $100K/year employee. There are very few CEOs that could possibly be worth that much more. You need to think about what that number means. It means that if a highly skilled, well educated worker who makes $100K per year were to make that amount every year for 100 YEARS, they would accumulate the same pay as the CEO made in 1 year! That's absurd.

Or looked at a different way, it means that there is a 1% probability that any one of those highly skilled, well educated workers could perform the job of the CEO as well as the CEO performs.

Given our obviously different life experiences and viewpoints, we will just have to agree that the other's opinion in this case is absurd.

I am curious, though - if you were to find yourself in a position in which you could effect some changes, how would you propose to change this alleged "unfair" compensation differential, and what sort of objective criteria would you use to define "fairness"?

The cultural differences are greater than some would have you believe. You need to be aware of British humour. It is heavy on sarcasm and irony and many Americans take offence when confronted with it the first few times. Interestingly, we only use it with friends that we consider reasonably close.

You will have good fun with the spellng - all those unnecessary letters that the Dutch taught us to use all those years ago...;) Generally speaking, the Brits do not like being sold to. odd, because they need to be sold to more than most!

The weather: The reticent Brits can only start a conversation with a stranger by commenting on the weather. Bog-standard opener, that one.

I would recommend reading this book:

http://www.amazon.com/Watching-Engli.../dp/0340818867

I read it and cringed at it's accuracy. We really are a bizarre bunch.;)

While CEO pay is outrageously high, it isn't calculated by value to the company. It's calculated by the market for CEOs. You can start and become the CEO of your own company and vow that your salary will never be more than 10x the average employee. That's fine, and it will work. But the second you decide to move on or step down, the company needs to find a new CEO. Now you have to find a CEO who's willing to leave their typical CEO salary job for yours, taking a dramatic drop in pay. Or, to attract the CEO you need and make an offer comparable to the competition, well, you have to pay market rate.

That's not saying it's right. Pro athlete salaries operate the same way and they are out of control. The problem is that it's going to be hard to find a soul who believes that they are doing right by their family by taking a salary so much lower than the rest of the industry. To lower CEO or athlete salaries, the majority of CEOs and athletes are going to have to say "this is ridiculous, we all need to make a lot less." And who's going to go first, second, and third on that one? You might find a first, but after that...good luck

I agree with your point about market forces, but I see other complicating issues. I believe that the reason you state is one of the main reasons CEO salaries seem to be totally out of hand. Another is the incestuous relationship with corporate management and the Board of Directors. Another is just general incompetence on the part of many Boards.

The fact remains that, in principle, even in the example you cite about athletes, the pay is a function of what they bring to the table. Pro teams pay the exorbitant salaries to certain athletes because the return on the investment (in increased ticket/concession sales, TV revenue, etc., etc.) is greater than what the athlete is paid. The same applies to many top CEOs, as well - they bring more value to the company than the amount of their compensation. One example we're familiar with here is Jobs. He took over a stumbling, going-nowhere Apple from the likes of Scully and Amelio, and turned it into what it is today. Granted, he doesn't make a salary per se, but the millions in stock options that he gets are a small fraction of what his return has meant to the value of the company.

Actually, the situation is better with athletes than for many corporations. Note that it is only the high performing/popular athletes (who will increase the income to the team owner) who get the big bucks, not all of them. While (in my opinion, at least) a large fraction of CEOs are worth the high compensation packages, it appears that many boards do not seem to concern themselves with the "pay for performance" issue, but go with the flow - i.e., if a CEO at a comparable company X gets paid a certain amount, they will offer the same or better package to hire their own CEO, without due consideration of actual worth or performance. Therefore, the trend becomes that any CEO of a particular size corporation gets paid comparably to all the others, rather than just the ones who really are worth that much - which seems to be exactly the point you were making. Hell, if someone were to offer me a small fortune to take a job I might not be qualified for, I'd be the last one to complain.

Another issue is that it is Boards who offer the compensation packages to CEOs and it is CEOs who directly influence the remuneration that Board members get. This tends to result in spiraling compensation packages, also. If that's not incestuous, I don't know what is. In my view, it should be considered as criminal conflict of interest, but it's not.

I believe the crux of the problem is that only very rarely is a compensation package defined in terms of truly meaningful and objectively measurable criteria. Very often the bonuses are given for profits over one or more quarters or a number of years. What is neglected, is that if a CEO churns out short term profits for a time while he is driving the the substance of the company into the ground, that will rarely result in anything worse than his bailing with a golden parachute when the company finally goes under. And the Boards get paid, no matter what.

I would set some rules/tax incentives or penalties that would ensure that the ratio of CEO pay to the average employee's in a company would drop back to what it was when America was at its peak.

Now I have a question for you. Given the undeniable fact that CEO pay has been rising significantly faster than employee pay for a long time, do you believe that today's CEOs are significantly better than those of 20, 30, 40, and 50 years ago? If so, what makes them better? Is it their greater willingness to use layoffs to increase short term profits, despite the long term implications it has on their companies and the economy?

Re: Unstable currencies like the US Dollar...
 

I don’t see why that should be any problem. And I understand your sentiments.

Recently it made international headlines when top model Gisele Bundchen made it clear that she would no longer accept payment in an unstable currency like the US Dollar. For some strange reason that made waves!

Personally, I recently lost a fair bit of money after delivering 10 articles for publication in a new US magazine. By the time the editors paid me, the dollar had taken a nosedive.

I just checked... I can still buy an 18 can fridge pack of high calorie, low taste beer for $9.18 at the local market. The sky has not yet fallen.

One's salary is set by the market. Why would an employer pay more when there are 20 other candidates for the job who are just as qualified and are willing to do the job for that same wage? Increasingly, the competition for that job may not all be in the U.S.

In the U.S., the rich are indeed getting richer and the poor are indeed getting poorer. There are many examples of how and why this is happening (the housing market downturn for example). At this point, it becomes a political debate; one we can view regularly on TV as the election nears. And, I hope I don't cross the line when I say, "I ain't rich!'

I think you're giving the captain of the ship far too much credit for setting the course. While deciding where to go and when is important, there are many other jobs that have as much or more influence on the condition of the ship at the end of the journey, yet the pay is significantly less.

Just look at the oil industry, where Occidental Petroleum CEO Ray R Irani was paid 64.1 million dollars in 2005. Meanwhile, companies like his have highly educated and very well trained scientists scouring the globe for new sources of oil. The decisions these people make every day are much more critical to the company and to consumers than any decision the CEO will make because they determine whether or not oil will be found! Without them, the company would cease to exist. Are they paid the same as Ray? No. Half? No. Twenty five percent? Certainly not. What are they paid? I don't know, but if they're paid a half million a year, that would be an enormous sum for them, but it would only be 0.78% of what Ray raked in. Once again, it would take more than a hundred years for people who are better educated, better trained, and more critical to the success of the company to earn what the CEO was paid in one year — and that assumes they're paid $500,000 per year, which is likely more than double what they actually make!

When business management becomes cybernetic
 

Definitely not.
Sure, in the short-term all the layoffs and the exporting of jobs to India, China, Mexico or wherever may stuff lots of extra profits into the pockets of shareholders.

This may, however, prove to be as though they’re urinating in their trousers to keep warm, to quote a Swedish politician.

In the long run I am convinced that many companies are eroding their future customer base in a potentially catastrophic way.

Furthermore, although I don’t have documentation to back it up, I believe that more CEOs of the past made moral choices. If a CEO puts morality above profits today, he or she is likely to be out of a job. Fast.

So what we end up with is essentially a cybernetic process, where the human and moral aspects of top management decisions are taken out of the loop.

That’s more than a disgrace, more than a tragedy; it may well prove to be our undoing.

Respectfully,
ArcticStones
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A wise man once said:

"Money is a lot like manure.
If you spread it around on your crops, it does a lot of good.
But if you pile it all up in one place, it smells like s***."
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Interesting perspective on US dollar & petroleum
 

This isn't the exact link for which I'd been looking. A couple years back I came across this point of view. In googling a moment ago, this came up, and it will suffice.

It suggests an interesting explanation for recent world events.

http://www.energybulletin.net/12125.html

Another interesting point of view regarding a direction we may be headed.

http://www.theatlantic.com/doc/199203/barber

http://www.theatlantic.com/doc/199203/barber
He lost me a bit when he included the Macintosh in his list because the name fit in with his alliteration. Macintosh is to McDonalds what the PC is to BMW. Other than that, it is an interesting article.

What's being missed in the sub-thread about management salaries versus skilled worker salaries contrasted with athlete's and entertainer's salaries is that all salaries are set in a marketplace. No company pays anyone more than is necessary to get them to sign up, participate in the first place, or stay in the face of competition. It's not a matter of true intrinsic value, it's a matter of availability at a price.

I did a lot of consulting work years ago for a company that made printing presses (average price then $6M). Their star salesman worked on straight commission and made well over $1M/year. The CEO wasn't paid that much, and rather than give him a raise (or he would leave), the Board decided to pay the salesman on a sliding scale to limit his income. He left when he was informed of that - on the spot - moving from the "Hertz" of that crowd to the "Avis" of that crowd whose market share promptly increased.

Still timely after almost 16 years. It was only last year that I had come across it, being referred to in an article in our local newspaper.

I agree, the Macintosh reference was probably alliteration. Close, but no cigar.

Over the past 16 years, world events appear to have gone in the direction he was postulating.

Although I think that there is a resurgence of nationalism, regarding China on the international stage. China is emerging as the next economic world leader, and may be poised to over take the US. They would be an example of the exception to McWorld as Barber phrased it. China is outside the major corporate globalism and is a major threat to it.

I believe that's one of the most significant reasons behind the corporate world's attempts at gaining footholds in China. If corporations can make inroads there, then over the long term, China might be "brought into the fold." The trouble is, China's economy doesn't resemble the corporate world, with its mix of central direction and entrepreneurship. If there can be enough privatisation of China's economy, then the McWorld scenario of Barber's may continue.

As well, this may tie in to the other article I linked. Should petroleum be untied from the US dollar, and then be tied to the yen, the western world is sunk.

That is only true in a purely Capitalistic society. With the laissez fare government we've had over the last 30 years or so, we've devolved towards Feudalism, with the first step being the large oligopolies we see today. As examples, the CEOs of the large music companies cannot possibly be worth what they're being paid, and no one here can justify the income of Ray Irani vs the people who do the important work at Occidental. I remember the golden parachute of Aetna's CEO about 10 years ago was enormous at a time when the company had huge layoffs and lost much of its value. These are only three examples of highly overpaid executives, but it's far too easy to find many more.

I didn't say they weren't overpaid, CWT, I said that in the current marketplace they are able to get those deals as terms of employment. Once they are in place, however, then your comment works -- the Board and CEO can, and obviously do, cut deals that don't make economic or marketplace sense.

Quite the contrary. I was restating your point from a statistical perspective. I didn't disagree with your point at all.

Sorry,
Now that I reread it, I see what you mean. It's highly unlikely that only 1% of them could do the CEO's job. They probably know more about the business than he/she does because of their education, training, and much more intimate day to day dealings with critical aspects of the business!

I was going to post a similar article. Since it was written by a current US presidential candidate, I decided against it.

The "petrodollar" still isn't a backed currency, per se, since the relative values fluctuate. It does, however, keep international demand for the dollar propped up, so long as the dollars used to purchase oil are not immediately sold back to the market, which is less likely when the dollar is weak.

With the relatively recent trend of foreign state owned businesses investing heavily in US companies (e.g. Citibank) long term stability of the dollar seems even more uncertain. Without getting into politics, I'll just say such investments offer potential benefits and/or potential detriments in the long term.

Now is a good time for foreign investors to invest in the US dollar, while the exchange rate is so favorable. Barring the collapse of the US government, the dollar's value will eventually rise again. Buy low and sell high is applicable as ever.

I don't recall seeing this link here, but it certainly ties in with CWT's take on Capitalism from a different viewpoint:

The Rise of Disaster Capitalism by Naomi Klein in The Nation.

Not directly on subject, but certainly related and a good read.

One day mainstream economists will give up on their pie in the sky viewpoints and recognize that John Nash highlighted a major failing of Adam Smith's theory. Game theory has demonstrated the fact time and again, yet there is still irrational belief in the US that capitalism is the single greatest economic strategy.

China can work out the maths, why can't the US? It's not that complicated.

First Japan, then China, have beaten the West at its own game.
(And by that I certainly mean Europe as much as the USA.)
Result: Howling cries of foul play! :eek:

Fact of the matter is that the USA is the most debt-ridden country in the world, and that China is one its most important creditors -- i.e bankrolling the continued budget deficit.

As far as I am aware, this Third Gulf War (the first was Iraq–Iran) is the first instance where the American government has not raising taxes to bankroll a war effort (an astonishing part of which has been outsourced to Blackwater* Worldwide Inc and the like, but that’s a separate issue). Instead, future generations are being mortgaged. The only other option is corresponding cuts on social expenditures, now or in the future, and foreclosing on the nation’s Social Security obligations, by "privatising" it.

Is that not a correct understanding of the economic side of things?
(never mind the political)

-- ArcticStones



The name Blackwater seems particularly well chosen, especially when we keep in mind these alternate meanings:

1) Blackwater: "a term used for sewage containing fecal matter."
2) Blackwater fever: "an acute kidney disease characterised by the leakage of blood from the kidneys into the urine, where it has a dark appearance when voided."
.

I blame that on our failed educational system. Specifically, the "New Math" they taught in the 60s and 70s. How else could grown adults not see that it's more expensive to borrow and spend than it is to tax and spend? I guess it's too difficult a word problem to expect them to incorporate interest into their calculations.

Legendary Tom Lehrer
 

Anyone else here a fan of Tom Lehrer?
Well, folks, I present you "New Math".

Quite frankly, I am unable to judge relative worth of many of today's CEOs with those of the past, so I can't give you an answer to your question.

My belief that many CEOs are worth what they receive in compensation is based on a feeling that if, during their tenure and due to specific executive decisions that they make, the net worth (or book value, or whatever specific measure one chooses to use) of the company is increased, awarding them some fraction of the increased value is justified. Even if the value of the increase is in the hundreds of millions, I can't find fault with rewarding the management team responsible with a few percent of this increase in company value.

You may have noticed that, in an earlier post, I expressed my disgust with corporate strategies that increase near-term benefits at the expense of the "big picture" or long-term best interests of the company.

Perhaps I wasn't clear enough in my first post in this thread. I, too, find the "undeserved" overcompensation of corporate executives reprehensible. I, too, believe that a large fraction of corporate executive compensation is unconscionable. I just don't find a problem with what I consider "deserved" compensation being any number of multiples higher than anyone else's.

This is where you and I part company. While I would never make the claim that the US system is a capitalistic free market, I do not believe that any legislated rules specifically designed to influence relative wage levels is the way to go. I do believe that a consistently applied tax policy, coupled with the "clean-up" of the rules of fiduciary responsibility of corporate boards to shareholders and a "clean-up" of the "corporate personhood" issues (currently being discussed in another thread) would serve to restore sanity to a broken (or at least severely damaged) system.

This justification is used frequently, and it is what leads to the kind of short term thinking that gets qualified people laid off to increase profits just long enough to increase CEO bonuses. When the inevitable losses occur, the CEO takes his golden parachute and leaves.

Honestly, I don't believe that on average, CEOs in the 50s, 60s, and 70s were worth the pay they were receiving. I only find it acceptable because during that time, an average wage earner could potentially support a family. Today it takes two incomes to do that, and most Americans are still struggling to maintain a decent standard of living.

Without legislated rules, any semblance of Capitalism would disappear almost instantly, leaving behind a new Feudalism where the workers are serfs and the CEOs are the Lords.

It's virtually impossible to make tax policy consistent without changing the current pay inequities in large corporations. The fact is that when it comes to pay, it is a zero sum game. A company has only so much that it can pay out, and when the CEO takes tens of millions, there is that much less available to pay the people that do the real work of the company.

While I don't disagree with you, that is not what I was referring to.

John Nash received a (shared) Nobel prize in Economics in 1994 for his "pioneering analysis of equilibria in the theory of non-cooperative games." He proposed what is now known as a Nash Equilibrium, which is essentially when, during a game involving two or more players, without a known ending, there can exist an equilibrium, at which time it is in no single player's best interest to change their strategy, but it is in every players' best interest for everyone to change their strategy.

Relying on Supply and Demand to dictate the market will lead to just such an equilibrium, non-optimal as it is.

Game theory has demonstrated experimentally that a cooperative/competitive hybrid strategy (i.e. Tit for Tat) is superior to purely competitive strategies and purely cooperative strategies. China has implemented such a hybrid strategy, with their combination of entrepreneurship (competitive/capitalist) and central control (cooperative/socialist), and is doing quite well for themselves. That's not to say that their implementation of such a hybrid style economic strategy is the best implementation possible, just that a hybrid implementation is superior to a non-hybrid strategy.

Supply and demand certainly has a place in economic theory, but there are other important factors to consider. Its model does not always accurately predict consumer reaction to market changes. Specifically, it breaks down any time the consumer has no option to not buy a product.

For example, raising the price of fuel does little to decrease demand, since it is viewed as a necessity. In fact, I have often seen lines at gas stations when the price of fuel increases substantially, which exactly the opposite reaction as supply and demand predicts. A drastic increase in the cost of healthcare does not decrease the demand for healthcare, it merely shifts the demand from preventative healthcare, which can require immediate payment or guarantee thereof, to emergency healthcare, which, while much more expensive, generally does not allow providers to turn away patients in need due to inability to pay. This shift further increases the cost of healthcare, feeding a downward spiral of increased inefficiency.

The irony is that many of the most vocal supporters of a free market controlled exclusively by supply and demand ignore the work of Nash, and others like him, claiming that the market cannot be modeled mathematically. Yet, they have no problem relying on the mathematical model of the law of supply and demand.

The fact is, a free market approach is not the best strategy in every industry, although for some industries it can be. Likewise, increased taxation is not always a bad thing for the people of a nation, although sometimes it can be. Economics is not such a complex subject that it cannot be understood. However, when it is over simplified to the extent that there is a widely held belief that one practice is always good or one practice is always bad, the return on the investment of society's resources is sub-optimal, and everybody loses.

We can all agree, I think, that equilibrium is rarely achieved outside a perfect pure competition market, which does not exist.

In our system, the price is set by supply and demand. The price, in turn, is the mechanism that distributes scarce resources for which there is an unlimited demand. It is certainly not perfect and may not always provide for the most efficient allocation of investment resources.

However, if we should choose to dump the market system in favor of another system of resource allocation, then what would that system look like? Who would make the decisions as to who will get what? Will that system achieve the perfection that is lacking in the market system in terms of investment resource allocation?

That said, I agree with what I think your premise is... sometimes the market system does not achieve the optimal result. In my humble view, there really are some things that government does better than a free market driven only by the profit motive. I would suggest national defense, public transportation, and health care are some examples of this.

I would prefer that the government go back to maintaining a free market, which means strictly enforcing anti trust laws. As it is now, we have nothing resembling a free market.

Agreed. Far too often in the economic realm, we define "good" as that alternative that generates the most income.... which ignores where that income goes and what is best for the nation as a whole. I worry a lot about the demise of the middle class and the way of life a large middle income class makes possible.

A proper free market would seek to enlarge the middle class as much as possible, because a large middle class represents the most lucrative market into which you can sell products and services. Like when Henry Ford realized he'd better pay his employees more or none of them would be able to buy up the cars he was making. As it is, what we have now are people being too greedy and looking out for short-term self-interest instead of long-term self-interest.

What I like to think of as the MBA effect -- the myopic focus on immediate bottom line targets without regard for the "big picture", and the casual destruction of small business to increase profit.

Further, the middle class own virtually all the small businesses in an economy -- they really are the engine of the economy since most of the cash flow in an economy passes through their tills. If they have no profits, then they can't invest in themselves, and if they don't invest, they don't innovate and create new businesses.

Very few big corps, the big pharmas are a good example, do any of their own research any more -- they have to buy it from the little guys who have the ideas. Put the little guys out of business and lose the innovations they would have injected.

While I agree that the system as it is is non-optimal, I remain extremely skeptical that changing the motivations which drive these decisions from "profit maximization" to "getting re-elected" would result in any improvement in the overall picture. The picture would change, yes, but I doubt if for the better.

Even in the case of national defense, government doesn't do it because it "does it better", but because nothing else can do it at all.

To paraphrase the common saw about lawyers: 90% of the politicians give the entire political community a bad reputation.

Why would you be skeptical that changing back to a system that worked wouldn't result in improvement over the radical (and failing) system that has been implemented over the last thirty years?

"back to a system that worked . . . "?????

I don't understand what you're referring to. The US gov't was never in charge of the overall health care business or the transportation industry.

For the (relatively) small segments of those industries that it does control directly (e.g., VA healthcare, AMTRAK), the record for performance and cost efficiency has been less than stellar. For things like the national highway system which it "controls" indirectly but funds a large portion of, you might recall the "get me re-elected" mentality of which things like the "bridge to nowhere" is an exemplar.

The US Government did take anti trust laws seriously up until relatively recently. Most of our current problems can be traced to oligopolies shipping high paying jobs out of the country while maintaining or increasing prices for their products.

There is not now, nor was there ever a need for the US Government to control industries, but that is completely separate from the constant (and now critical) need for the government to control large corporations abilities to adversely affect our standard of living.

There can be no free market when monopolies are allowed to form.

You're missing the point. In my post #61, I was responding to aehurst's post #56, not to you.

Please allow me to "... revise and extend my remarks." When I said government does do some things better I was thinking specifically of those necessary or highly desirable things that would not otherwise be done at all because there is no profit to be made. We would not, for example, have a national highway system or roads to rural communities absent government intervention.

I was also suggesting that leaving 1 in 5 people in my state without health insurance is a failure of the free market system to provide health care and that government may have to intervene to provide this necessary and highly desirable service. As you are probably aware, the US health care system ranks in the 20's internationally on most outcomes (such as infant mortality, longevity) while we spend more per capita on health care than any other nation. There's no profit in insuring the sick or poor.

You know, my wife and I decorated for Christmas this past weekend and on a whim I decided to actually look at all the knick-knacks and decorations and see where they were manufactured. Of the hundred or so things I looked at that had a 'Made in X" label of some sort, all were made in China.. save one. Which was made in Korea and assembled in China. :eek: :rolleyes:

To call our so-called 'free market' health care system a failure just isn't a strong enough word, although I doubt there is one. We tend to think that we're either insured or we're not, but the reality is that even people with health insurance aren't really covered. Many have 'discount health plans' that can't even be called insurance while many others have health insurance that's riddled with internal limitations. People who have group insurance at work are really only covered for minor illnesses and injuries because if something major comes up, they can lose their job, in which case they go on Cobra for 18 months and then lose all coverage. Not exactly the safety net that insurance is supposed to provide.

I had an interesting conversation back with a friend of a friend at a halloween party back last Halloween. He was obviously conservative, and I think he was raised that way and taught that way in college. He actually literally believed that trickle down economics works. He actually believed that all the slave labor in china would eventually trickle into making china a power house of industry.

He was taught this at a well known university and he majored in business. So, why would he not believe it? I mean this is higher education right? Or is it?

When China Privatizes, and they start owning their own industry, then they will make the money and become a world competitor. Until then, whatever we trickle into their economy through slave labor is doing nothing but oppressing them, and possibly making a few of them rich (like less than 1%).

That's sort of like saying that any positive number, no matter how small, is greater than zero.:)

What we have here is an inappropriate usage of terminology.

". . . leaving 1 in 5 people in my state without health insurance is a failure of the free market system. . ." is an invalid statement, IMO. By definition, a "free market" system works to provide things on the basis of profit, thus the "free market" system is working.

The fact that the "free market" does not always produce socially desirable outcomes, is a horse of a different color. As you say, it may be desirable to have government provide things that the "free market" does not. However, then the topic of conversation must be changed to getting common understanding of what is "socially desirable", etc. While a number of things are probably relatively easy to agree on, the contentiousness of our political system reflects the scope of the problem on getting agreement on what is and what isn't "socially desirable".

Be that as it may, no matter how one defines socially desirable, I remain firmly convinced that the "get me re-elected" aspect of government programs will always result in waste, inefficiency, and many other unintended negative consequences that often (though not always) are nearly as bad as the original problem the government tried to "solve". Please note that I am not saying that government should not play a role in these instances, just that it rarely ends up being the "nice", effective solution that people would like it to be.

Also note that I use "free market" in quotes, as we don't really have one.

Nor, IMHO, does one exist anywhere at the macro level; our only instances are probably flea markets and farmer's markets.

iampete, point taken. We would disagree only in the fact you seem to think people get elected with votes, and I am not at all sure that is the case. Or, at best, they get elected with votes but rarely respond in a manner designed to get more votes. My personal belief is they most often vote the way the lobbyists convince them is correct.

tlarkin... it really is amazing how many have bought into the trickle down myth.

It's downright scary. I could see taking it on faith if it was a concept that was hard to grasp, but all you need to do is look around and you can see that virtually nothing is trickling down.