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[BGuttman]

It becomes interesting.  Remember the brouhaha that Kathy Lee Gifford had a few years back when it was discovered that the place making her clothing was using something akin to slave labor?  Nobody wanted to buy her clothes until she guaranteed that they were paying fair (?) labor rates (well, fair for there)?

I'd bet if any American had to live near a typical Chinese factory they would want it shut down.  But because it's NIMBY, we seem to be willing to let it go.  After all, who suffers?  Just some of them.

I like your suggestion about the pollution tax.  One other thing we should do: anything bought for the US Military has to be made here.  Cars, uniforms, airplanes, you name it.  Down to the screws and rivets.  Just think: if we are outsourcing supplies for the Military and a war breaks out, what do we do for supply?

[Andrew Meronek]

Tax outsourced effort.  Make it not worth the investment.

This already happens to some extent.

But to make it severe risks some very serious political fallout. What I would be worried about is this long term effect: countries not trading goods and thus ideas are much more likely to go to war than countries who are trading goods and ideas. Look at the countries that we currently do not trade with at all: North Korea, Cuba, Iran. Think about how friendly relations are. Think about how much friendlier relations are with China nowadays compared to twenty years ago, before those trade avenues really opened up.

[kbiggs]

nice stuff K - you aren't an economist are you?

Z

No, but I play one on this forum.     Seriously, though, I taught Politics and Government for a while, and I had to learn about economics and the like to pass my master's degree. 

Throwing money is NOT the way to get consumer confidence.
There are so many things that both sides of the isles have failed policies.  Outsourcing jobs, manufacturing, greed, excessive taxes, death tax, and what is next? farting tax? Exhale tax? I am going to go for a walk in my neighberhood tax?

Good regulations are good.  Bad regulations are bad.  Ignoring the regulators is worse.  That is what the dems did (if it was that important, then why did not the GOP stand up and shout really loud?)

That is the meaning of this thread.  Both sides of the isle are wrong. 

To fix it? get our jobs back, our manufacturing back, our foodstuff growers back.  A country that dreams, creates, produces, and consumes, is a country with a healthy econemy.  Specifically if it rewards EVERBODY that works hard, not punish with excessive taxes for their success.

How do you decide what's good and what's bad?  What's good for one man is bad for the next.  The present economy is bad for bankers, real estate agents, and the like, but great for foreclosure agents and attorneys representing the banks and the foreclosed. 

My point: there ain't no "good" or "bad" to it.  What we desire--what we mistake as "good"--are things like ever-increasing wealth, continued growth, financial security, a reasonable return on investment, the ability to retire without undue worry, etc.  What we don't want are things like a stagnant economy or, even worse, accelerating inflation; dis-incentives to save or invest due to low interest rates; lack of financial security, and the like.  On these things, most modern citizens of the 1st world agree.  Then again, there are values where reasonable people differ, like whether the gov't is better equipped to oversee and regulate certain areas of business, the economy, and monetary and fiscal policy, or whether those entities/institutions are better governed by themselves.  Also, how we do these things are where people reasonably differ: how and why we set up institutions and regulations to encourage one set of behaviours and discourage another set of behaviours. 

Similarly, there ain't no quick fixes.  Getting US jobs back from overseas competitors, supporting farmers, bringing blue-collar jobs back to America are all very laudable goals.  How to do it, though?  China, as one example, is a very difficult obstacle to overcome.  They've got a tremendously large workforce (cheap labor), a huge supply of raw materials, incipient capitalism and consumerism, a failry uniform gov't and society, and many other factors in their favor.  You've got to find a way to entice China to adopt better labor practices, better pollution controls, less protectionist trade policies, etc.; you've got to provide incentives for the few remaining farms and farmers (even agribusinesses) to stay in the US; and you've got to entice other people and businesses (especially "blue collar" jobs) to come here and stay here. 

Now, just try to get China to agree to reduce pollution (again, one small example).  They are already making some efforts, but some of those same efforts have costs, too, like the Three Gorges Dam.  It prevented China from making 5 or 6 coal-burning plants, but the cost was relocated lives (millions), lost farmland and natural beauty, lost architectural and historical treasures, soil erosion, other chemicals and toxins produced to create the dam. . . you get the idea.  However, a portion of the steel and concrete used to create the dam were from US manufacturers.  So, who is hurting or helping whom. . . ?

***

Back to the original topic: Like it or not, the US taxpayers will have to pay a large amount of money to dig ourselves out of this mess.  That's what happens in a participatory republic.  Sure, we'll pay taxes to cover losses that are the result of a few greedy individuals, lax politicians and regulations, margin-profit investors, as well as all the legitimate investors with 401k's and 503c's who got burned.  In a way, by buying more than we could afford (home loans that couldn't be repaid, maxed-out credit cards, second mortgages acting as ATM's), as well as electing politicians with a laissez faire attitude towards the economy, and tolerating undue influence on policy and regulations by individuals and corporations (read "lobbyists"), we all contributed to the problem.

Taxes to repay these massive losses really aren't "punishment."  It's a way of spreading out the hurt so that we all suffer a little, just like taxes used to redistribute wealth help us all a little.  (Taxes are also used for other purposes, like building and maintaining roads, police protection, mail service, safe water and sewers, paying politicians, etc., but that's a different topic.)

[puma]

Here is a model for common sense

[Exzaclee]

seriously, did you just link us to a snopes article?

 here we go - someone using their "title" trying to appear authoritative on a subject they understand little about.  while i do sympathize with a lot of the sentiments contained therein, it is still an oversimplification of an extrememely complex matter - he's the president of knox machinery - if i need a lathe he could probably point me in the right direction but his opinions are no more valid than yours or mine just because he happens to be the president of a machinery company.

who says a forklift driver shouldn't make 85K a year?  if he actually works the hours he's supposed to, he's more than earned it.  i know a lot of forklift drivers working half of what they're scheduled.  do we need to change the unions?  yup.  do we need to get rid of them?  do you know why we make more money here than  in china?  yup... unions - just the threat of workers unionizing will help you get fair wages. 

a family earning 50K shouldn't have to buy a $485K house to get out of a bad neighborhood either. - where's his solution to that?

yeah, no house in florida (house i said, not mansion) is worth $750K - tell that to the jerks in NYC selling their brooklyn lofts for 1.5M and starting bidding wars that make those prices possible. 

and what are these high housing prices cause by?

open markets.

you can't have your cake and eat it too...

z

[slidemansailor]

For the time being, we are still in the process of ‘price discovery.’ Last year, investors suddenly realized that debtors couldn’t pay their bills…that assets weren’t worth what people paid for them…that collateral was declining in price, making many erstwhile valuable credits worthless…and that revenue streams were not sufficient to maintain whole sectors of industry and commerce. They panicked. That is why these episodes were called “panics” in the 19th century. Nobody knows which assets are good…and which are bad…. or who’s solvent and who’s not…or which businesses can survive and which can’t. Everyone tries to hold onto to what he’s got…trusting no one and nothing…until the market has time to discover proper prices for things in the new post-bubble era.

In the 19th century…up to the Panic of 1921…this all happened fairly quickly. And then the economy got up off the ground, dusted itself off, and went on its way.

But since the Hoover Administration, the meddlers have intervened. Now, they try to stop the process of price discovery…by keeping zombie businesses alive…by loaning money to brain-damaged industries…and nursing the cadavers and corpses with trillions in taxpayers’ money.

Mr. Sherman continues…

“…the US government’s balance sheet looks increasingly like that of a Third World country. America’s debt-to-GDP ratio is more than 100%, including the nationalized debt of the two mortgage giants Fannie Mae and Freddie Mac. Budget deficits of $1 trillion are projected for years to come. Worse yet, America’s pension and medical obligations to the baby-boom generation and those that follow are estimated to be considerably more than $50 trillion.

“As the US government prints more money to address the crises, investors will realize that are being repaid in a much diminished currency. For the moment, foreign investors have remained relatively firm. But, at some point, foreign and domestic investors will consider the US government’s terrible fiscal position, and they will start dumping debt.”

*** That may happen next week. It may happen years from now. Remember, there are always back-eddies and countercurrents – even in the biggest flood. We’ve had a rebound, but it has been very slight. In the ’30s stocks rallied six times – more than 20% each time – before finally beginning a new bull market. And several times, investors thought the crisis was over…only to see it hit again, harder.

Our advice: stay in investments that you will not want to sell in the next ten years. What kind of investments are those? They’re investments with income and/or capital that is reliable. Forests. Down-market retailers. Apartment houses with good tenants. Farms, ranches providing foodstuffs at good prices. Basic service industries with decent revenues. Nothing fancy. The world is moving away from fancy. You want to be the low-cost provider of whatever goods or services people need.

And of course, stay in gold.

excerpted from The Daily Reckoning. Read the whole article here.

[kbiggs]

Let's pretend that we follow the advice of Bonner and Knox and just let businesses die.  GM, Ford, Pontiac all go, perhaps survived by a company or two that are combined less than half the size of "the big three"  . . . followed by most of the parts manufacturers. . . and then some of the few remaining domestic steel and aluminum producers. . . and industrial plastics manufacturers. . . and brass and copper processing businesses. . . computer chip makers won't supply to the auto makers any more because there are no more cars to build and no more car manufacturers to sell to. . . so the chip-makers (again, the few remaining domestic ones) start to lay off and then go under. . . which causes robotics, ultra-clean HVAC manufacturers and service agencies to diminish or go under. . . which causes a decrease in paper production so no one buys a new copier for office work. . . which causes Canon and Ricoh and Kyocera and other Xerox-copier companies to go under. . . and (horrors!!) human resource managers get laid off  . . . you get my drift. 

The "panics" of the late 19th-early 20th C. are fundamentally different from the Great Depression and, most people would argue, the present situation.  In addition to the several differences slidemansailor mentioned above, the panics occurred during a period of laissez faire government.   The gov't--or rather, the elected officials--believed that the gov't did not have a a large or influential role in the economy, and in monetary or fiscal policy.  Today, we have a mixed bag: some politicians do, and some don't.  Most economists do, some don't.  The operative word is "believed," which is fundamentally different from accepting economic theory when the evidence is staring you in the face. 

Indeed, the reality is that since the Great Depression and the New Deal, we've basically operated under a Keynesian economic system, assumptions and all.  (The basic assumption is that gov't has a proper place in economic, fiscal and monetary policy, and can work to stabilize markets and economies to promote the general welfare.  Since that time, most political arguments about economics are about how much or to what degree we want to endorse Keynes's assumptions, not whether.)  I think that most people, if pressed, would admit that America's growth since WWI and especially since WWII has been, in large part, due to the govt's ability to "meddle" in the economy, as advocated by Keynes and practiced by everyday American politics.  I do not want to return to the old days of financial panics: there's no security and little way to plan, except if you happen to be very rich, very lucky, or very poor (who, after all, have little to lose).   

Is economic theory "common sense"?  Of course it isn't.  Otherwise, any fool could earn a Nobel prize, just like all the other prize-winners in economics like Amartya Sen, Friiedrich Hayek, Milton Friedman, Paul Krugman. . . the list goes on. . . . Are Bonner and Knox fools?  No, but their "common sense" arguments don't account for the complexities of economics and the human condition.

No doubt someone will now counter, "Well, if it's Keynesian economic practice and gov't meddling that got us into this mess, then we need to get rid of them."  The old "throw-the-baby-out-with-the-bathwater" argument: chuck the whole lot and start fresh.  Won't work. 

If anything, we need to re-work the basic laws governing banking practices, lending, and investing.  That, after all, is how we got into this mess.  We allowed regulations to grow lax, we de-funded gov't agencies dedicated to monitoring business practices, and we turned a blind eye to people who made a quick buck on the backs of the common workers.  And it hasn't been in just the last year or two.  Remember Enron?  That was only one milestone in a very long road. 

The next argument will, no doubt, be along the lines of: "Well, who do you trust?  Government or business?"  Neither.  I trust the law and justice, even though they are imperfect and applied unequally.  I don't trust people or businesses to abide by the law of their own free will, and I don't trust them to do "the right thing."  Businesses have little incentive to do so because it often cuts into their income and profit.  And I don't trust politicians who deplore the laws that hold businesses and individuals accountable for doing "the right thing."  Unfortunately, no one has yet found a way to control and subject cupidity, selfishness and greed to the necessities of the common good. 

Enough of my rant for today. . . thanks for listenin' . . .

[puma]

seriously, did you just link us to a snopes article?

Seriously yes. What is your point?

[Exzaclee]

and the rest?

[ABinkard]

Seriously yes. What is your point?

His point was the rest of his post. There's some common sense for you.

[slidemansailor]

As much as anyone here, I wish the Keynesian mythology was valid. I wish doubling the money in circulation would solve the economic problem. I wish handing it to political friends would get us back to a vibrant economy. I wish fiat currencies did not crash 100 out of 100 times.

The Keynesians who gave US boom-and bust cycles and 95% inflation since they got their central bank and private ownership of the dollar, claimed their purpose was to prevent boom and bust AND prevent inflation. Your choice: believe what they say, or believe what they do.

Now they say taking money from farmers, shoemakers and shopkeepers to lavish on automaker and banking executives is good for the economy. Right. We won't be needing new cars nearly as much as we will be needing food.

While people do the obviously intelligent things with their personal finances, central banks prop up industries whose need has passed AT THE EXPENSE OF industries who are the highest priority.

Fortunately for the devout Keynesians, your religion preaches giving complete power to the rulers. They, in turn, love it and eagerly embrace that message ... in fact, they make darn sure that it is preached in every school that gets government money - including student loans. The FCC licenses ownership of our airwaves to 8 Keynesians, so we get to hear the same message on our radios and TVs.  Consistency is such a comfort.

Thus we all get to experience Nirvana again. As amusing as it was to read about societies dominated by central planning and government meddling, it will be so much more fun to live through it.

You can buy the script from mises.org so as to memorize your lines if you wish.

[BGuttman]

What kinds of "farmers" are you planning to help, Slidemansailor?  Archer-Daniels-Midland?  Tyson Foods?  Purdue?

The Family Farm is as dead as the small car maker.  It's as much Agri-Business as Big Pharma and Big Oil.

The only small farms left are the guys you can buy from at the local Farmer's Market, and they don't make a living at it either.

[kbiggs]

I post a serious reply with reasoned arguments and I get sarcasm back. . . I shoulda known . . . but I won't let you off that easily! 

"As much as anyone here, I wish the Keynesian mythology was valid."
Don't sound like it. 

"I wish doubling the money in circulation would solve the economic problem."
I don't think any Keynesian would propose that.  It definitely would lead to inflation.  Besides, this is not a monetary problem.  It's an economic one. 

"I wish handing it to political friends would get us back to a vibrant economy."
If wishes were horses, beggars would ride.  And you know what they say about friends in low places, yes?

"I wish fiat currencies did not crash 100 out of 100 times."
Economies of all kinds--local, regional, national, specific goods based--have ups and downs.  So, flat currencies (meaning of "flat", please?) will have ups and downs.  Not all economies crash, though. 

"Your choice: believe what they say, or believe what they do."
This, I suspect, is the real crux of the matter.  It really depends upon who you listen to, and what you've heard, now doesn't it?  It also depends upon who you're watching and what they do. Finally, all too often, people simply want to believe in the familiar, comfortable and simple.  Life just ain't like that.   

"Now they say taking money from farmers, shoemakers and shopkeepers to lavish on automaker and banking executives is good for the economy. Right. We won't be needing new cars nearly as much as we will be needing food."
Really, now: who is saying this?  Just who are you listening to?  Which farmers?  How many domestic shoemakers are there? 

"While people do the obviously intelligent things with their personal finances, central banks prop up industries whose need has passed AT THE EXPENSE OF industries who are the highest priority."
Which industries are the highest priority, in your view or in the view of the people you listen to?  Why?  And, why are they any more important than car manufacturing companies and banks? 

"Fortunately for the devout Keynesians, your religion preaches giving complete power to the rulers."
Hogwash. And again--just who are you listening to?   

"Thus we all get to experience Nirvana again. As amusing as it was to read about societies dominated by central planning and government meddling, it will be so much more fun to live through it."
If this is a thinly-veiled reference to "Communism," or Soviet-style socialism, dat dawg don't wag.  "Socialism" ain't a bad word all by itself.  After all, even America, that bastion of freedom to whatever-I-damn-well-please, has "socialistic" programs (horrors!!) even in the midst of the government itself ("Call for Joe!! Joe McCarthy, please!!").  See some of my comments above when responding to John S. Lipton's original post. 

"You can buy the script from mises.org so as to memorize your lines if you wish."
My turn for sarcasm:  Why, when you just read me the lines? 

***

C'mon, guys, why shout past each other?  Why not just have a nice, reasoned argument, rather than retreating to our comfortable, well-worn and worn-out politically entrenched positions?  It is possible, after all.  Why, I hear that it even happens occasionally in Washington DC!

[evan51]

Is economic theory "common sense"?  Of course it isn't.  Otherwise, any fool could earn a Nobel prize, just like all the other prize-winners in economics like Amartya Sen, Friiedrich Hayek, Milton Friedman, Paul Krugman. . . the list goes on. . . . Are Bonner and Knox fools?  No, but their "common sense" arguments don't account for the complexities of economics and the human condition.

Yes. Quantum physics, nanotechnology, art, language, literature, entire worthwhile and enriching areas of human thought and action are beyond common sense. Appeals to "common sense" are often nothing more than the attempt to apply an intellectual reductionist model to facts, either to understand a phenomena or, more often, to control its impact in society.  Whether and when the appeal is made in politics, economics, religion or personal and societal relationships, it lacks sufficient flexibility of thought to be of developmental value.

Even a Keynesian outlook would consider the nature of the underlying economy. In FDR's time we still had savings, lived in rural areas, grew our own food, had intact industries, and were self-sufficient in energy, resources, and people. That is not the case now and I think it's prudent to consider what the effect of mass infusion of currency will have on this economy. When I think "real economy,"  I mean that wealth ultimately derives from manufacturing, agriculture and mining. There are certainly many and varied spin-offs, but an economy lacking all of those basics is basically parasitic (or a pirate state). So I wonder what the impact of the various and stimulus packages can be? I heard on NPR that only 7% of the stimulus package actually goes to infrastructure and that the lion's share of those jobs will go to current skilled union labor. Which begs the question, where will the other jobs be created? We've rewarded the financial market makers by absorbing all of their losses. Now what is their incentive to create new jobs and wealth?

Even the Keynesians must be scratching their collective heads at this point, yes?

[Andrew Meronek]

http://news.yahoo.com/s/ap/as_china_us_economy

Apparently, China is starting to raise concerns over the ability of the U.S. to repay treasury bonds, given that they have about $1 trillion of them.

So what happens when countries decide it's not worth it to keep buying these bonds that will likely not be repaid?

[evan51]

So what happens when countries decide it's not worth it to keep buying these bonds that will likely not be repaid?

That is unlikely to happen. China is in the unenviable position of having to bolster the U.S. dollar or risk losing a major asset. But, to answer your question-----our currency would crash overnight.

[Piano man]

http://news.yahoo.com/s/ap/as_china_us_economy

Apparently, China is starting to raise concerns over the ability of the U.S. to repay treasury bonds, given that they have about $1 trillion of them.

So what happens when countries decide it's not worth it to keep buying these bonds that will likely not be repaid?

Just to clarify, I got the impression that the Chinese were worried that we'd devalue our currency and thus their holdings, not that we'd default.

Of course that doesn't change the import of your question. I don't know what we'll do if we can keep the economy afloat only through borrowing, and there's no one left to lend.

[Piano man]

Slidemansailor, I don't know about shopkeepers and shoemakers, but farmers are among the people getting the money, not the ones having it taken. Putting aside your romantic notion of the rough-handed man of the earth being robbed by the cunning suits, farm subsidies are some of the most misspent portions of our national budget.

[Andrew Meronek]

Just to clarify, I got the impression that the Chinese were worried that we'd devalue our currency and thus their holdings, not that we'd default.

Of course that doesn't change the import of your question. I don't know what we'll do if we can keep the economy afloat only through borrowing, and there's no one left to lend.

Yes, that's true. I took the liberty of running down a small chain of events:

The U.S. devalues it's currency as a way of controlling the debt.

China supports this for a while, having no choice, even though they actually lose money doing it.

China, after deciding that it's not worth it to keep supporting a U.S. economy that is based on inflation in order to control it's debt, stops buying treasury bonds. Perhaps China starts to run out of money as well at this point.

Other countries follow China's example.

Is that a slippery slope?

[Piano man]

Yes, that's true. I took the liberty of running down a small chain of events:

The U.S. devalues it's currency as a way of controlling the debt.

China supports this for a while, having no choice, even though they actually lose money doing it.

China, after deciding that it's not worth it to keep supporting a U.S. economy that is based on inflation in order to control it's debt, stops buying treasury bonds. Perhaps China starts to run out of money as well at this point.

Other countries follow China's example.

Is that a slippery slope?

Slippery, and very plausible.

The problem is that we could have a 'run' on T-bills. In other words, one country starts quietly selling them off, everyone catches wind of it, and it turns into a race to get rid of them, especially among Asian and Mideast countries.

The impediment to this is that we comprise a great market for these countries. Between that and their vast holdings in our debt, they're almost as afraid of our collapse as we are.

I guess the true US patriots are buying Chinese.