US economy may be stuck in slow lane for long run

[shady28]

Tell me who makes more money:

Apple, who designs the iPhone.

Or Foxconn, who builds it.

Therein lies the answer.

Apple is a manufacturer.

They simply have a model where they subcontract out the manufacturing. They make most of their money by manufacturing and selling hardware. They use software to add value to their hardware.

This is an IP-based company :
http://www.intellectualventures.com/

This is Apple :
http://www.apple.com/

Note that on the Apple site, there is a store where you can buy stuff they manufactured (or had manufactured).

 

[BoberFett]

Just in case anybody wants to question my street cred, in the mid-90s I was working the overnight shift in a plastic factory. You know those translucent white corrugated US Mail totes? I made those for $7/hr. Yep, those were the good old days of building wealth, living high on the hog. Yeah, I'm privileged like that.

 

[mikegg]

Of course we're not going to grow.

Do people pay attention to the economy? The Fed has printed $5 trillion into the market and inflating asset prices. Who owns the most assets? The rich.

 

[Engineer]

Just in case anybody wants to question my street cred, in the mid-90s I was working the overnight shift in a plastic factory. You know those translucent white corrugated US Mail totes? I made those for $7/hr. Yep, those were the good old days of building wealth, living high on the hog. Yeah, I'm privileged like that.

Funny, I was working at Kroger around that time for $4.25 per hour (actually $4.15 - which was below minimum wage - after the $0.10 per hour forced union dues that I was paying). I was doing great too! Between myself and my wife, we made a grand total of $15,000 that year and was denied financial aid (other than high interest loans) because we made too much money.

Heck, you must have been doing great considering you were making almost as much as 'today's' minimum wage nearly 2 decades ago.

 

[theeedude]

Just in case anybody wants to question my street cred, in the mid-90s I was working the overnight shift in a plastic factory. You know those translucent white corrugated US Mail totes? I made those for $7/hr. Yep, those were the good old days of building wealth, living high on the hog. Yeah, I'm privileged like that.

It's not about you. It's not about anyone individually. It's about aggregate demand. Being rich doesn't make you bad, but it does make it less likely that you will spend an incremental dollar of income on goods and services.

 

[BoberFett]

Funny, I was working at Kroger around that time for $4.25 per hour (actually $4.15 - which was below minimum wage - after the $0.10 per hour forced union dues that I was paying). I was doing great too! Between myself and my wife, we made a grand total of $15,000 that year and was denied financial aid (other than high interest loans) because we made too much money.

Heck, you must have been doing great considering you were making almost as much as 'today's' minimum wage nearly 2 decades ago.

Hell yeah, I shared an apartment with a friend and ate macaroni and cheese every day. I wiped my ass with nickels. They aren't very effective for that purpose, but who cares! I was rich, bitch!

 

[Engineer]

Hell yeah, I shared an apartment with a friend and ate macaroni and cheese every day. I wiped my ass with nickels. They aren't very effective for that purpose, but who cares! I was rich, bitch!

Awesome. Someone making the same equivalent wage today would be at $11.94 per hour (based on minimum wage then and now). Not to mention, most full time factory workers get benefits paid by the company. They may not be rich, but it's far better than the low wage service jobs that many of the people who would have been making stuff are now taking (selling stuff) and they certainly have a much better chance of getting off of the government's dime. It's funny how the decline of manufacturing has led to a shortage of skilled trade workers.....so many of who started on the factory floor to work their way into those skilled trades through company training programs or simply working around the machinery that makes the parts.

Hell, I might just retire early, get one of those great low wage service jobs (stocking shelves or something like that) part time and get on the government's dime. I can then blow my kids education money and because I'll be making much lower income, they'll get all kinds of financial aid. Can get free/cheap Medicaid too! I think I've been doing it wrong for decades now. Starting to wonder who is the smarter....

 

[Doppel]

I'm a knowledge worker, like most here, but I don't presume to think everybody can be one. Manufacturing has been kind to the US, but if it is to come back--and I don't mean one worker per four mostly-automated $1M machines--it can only be competitive by protectionism. I don't know if that's a bad thing or not. If anyone can pull it off it's the USA, due to its native resources and people.

I expect things will become more socialist over time. The disparity in wealth is gaining and it's bad for the country (at least 99% of people).

 

[First]

Very well said.

Thanks First, good post.

Thanks.

I'd like to note that I think Engineer's point is maybe a little bit more targeted; that a manufacturing economy on the order of the 1950's is probably just pipe dreaming, but that doesn't mean we should wholesale abandon prioritizing more manufacturing, be it old-school manual labor jobs or (more likely) technicians who maintain the machines that are now doing the same job. In other words, no point in throwing the baby out with the bathwater. I'd rather hire Americans for manufacturing if the cost difference were minimal, which it is indeed becoming now that Chinese labor is so much more expensive than it was 10 years ago and how difficult quality control can be in India. To be completely honest on that last point though, these are the anecdotes I hear from a couple business owners I know in addition to Bloomberg articles I read, so I may very well be wrong about the quality control issues in India and elsewhere these days.

I also think a lot of people would like to regulate away the ability of companies to do business with foreign entities that don't adhere to a particular level of worker rights (reasonable hours, reasonable pay, etc.), as that would level the playing field more with the US, since we pride ourselves on the strength of our individual rights and liberties (well, ideally). Of course, labor quality is always relative because every country is in a difference stage in their labor evolution, so it starts becoming a zero sum protectionist game once you start that gambit, to say nothing of the legal and diplomatic implications of sanctioning countries that don't adhere to particular levels of fair labor treatment. So as Engineer said, the genie is indeed out of the bottle here, and it's hard to put back.

But, having seen how positive Chinese investment can be, particularly here in SoCal in both residential and commercial real estate, it becomes hard for me to get too bent out of shape about negative foreign influences. If I had to bet, on the net they've been overwhelmingly positive, but I haven't done a thorough enough mathematical analysis of the literature to know for sure. The national trade imbalance is indeed real, despite some positive movement in the right direction recently.

 

[First]

I'm a knowledge worker, like most here, but I don't presume to think everybody can be one. Manufacturing has been kind to the US, but if it is to come back--and I don't mean one worker per four mostly-automated $1M machines--it can only be competitive by protectionism. I don't know if that's a bad thing or not. If anyone can pull it off it's the USA, due to its native resources and people.

I expect things will become more socialist over time. The disparity in wealth is gaining and it's bad for the country (at least 99% of people).

Yup, this is generally my feeling too. More protectionist policies would only be a piece of the puzzle though, as that only goes so far before you start tariff and duty wars.

Becoming more socialist over time doesn't worry me too much either, presuming we don't raise taxes an inordinate amount. If our population grows at a decent clip much of the economic growth and tax receipts that follow would ideally pay for baby boomer retirement.

 

[Doppel]

Yup, this is generally my feeling too. More protectionist policies would only be a piece of the puzzle though, as that only goes so far before you start tariff and duty wars.

Becoming more socialist over time doesn't worry me too much either, presuming we don't raise taxes an inordinate amount. If our population grows at a decent clip much of the economic growth and tax receipts that follow would ideally pay for baby boomer retirement.

One issue is that if the US keeps holding its dick and watching the middle and lower classes fall deeper in the well it's going to be less able to even exert protectionist policies because it won't be strong enough to do it.

Otherwise, maybe we can start being honest with ourselves and do away with OSHA and minimum wage and whatever else. I find it fundamentally dishonest to say we have certain work standards for workers who build products domestically and yet we have absolutely no qualms with letter workers in some other country eat lead and play with poison while building stuff that we use anyway. In truth, those are our employees. If we outsource, they are ours, but since it's outside US borders nobody gives a shit. And those laws here end up impacting people: too expensive to safely employ an American, and so since it's okay to employ a guy in China you do that instead. So what has your law done to help the American?

Make no mistake I don't want to see worker protection go away. I think foreign companies should be held to the same standards or else illegal to do business. Funny thing is if you did that you'd find it's no cheaper to outsource after all.

 

[Engineer]

Not only safety, but do you think China (and other countries) play 'fair' when it comes to currency or so called 'free trade' pacts? FREE trade is trade...trading our better paying jobs for their manufactured stuff and then borrowing more money from them to pay for the government programs to pick up the pieces at home.....works until you can't pay the bill....or print more money, I suppose.

 

[BoberFett]

Not only safety, but do you think China (and other countries) play 'fair' when it comes to currency or so called 'free trade' pacts? FREE trade is trade...trading our better paying jobs for their manufactured stuff and then borrowing more money from them to pay for the government programs to pick up the pieces at home.....works until you can't pay the bill....or print more money, I suppose.

Unfortunately instead of doing the right thing, the hard thing, and telling people to stop their whining and buy American if they wanted to keep their jobs, politicians bought votes and papered over the ill effects of offshoring and a massive trade deficit with massive deficit spending giving us the illusion of prosperity. It's a clusterfuck, from top to bottom.

 

[First]

One issue is that if the US keeps holding its dick and watching the middle and lower classes fall deeper in the well it's going to be less able to even exert protectionist policies because it won't be strong enough to do it.

Otherwise, maybe we can start being honest with ourselves and do away with OSHA and minimum wage and whatever else. I find it fundamentally dishonest to say we have certain work standards for workers who build products domestically and yet we have absolutely no qualms with letter workers in some other country eat lead and play with poison while building stuff that we use anyway. In truth, those are our employees. If we outsource, they are ours, but since it's outside US borders nobody gives a shit. And those laws here end up impacting people: too expensive to safely employ an American, and so since it's okay to employ a guy in China you do that instead. So what has your law done to help the American?

Make no mistake I don't want to see worker protection go away. I think foreign companies should be held to the same standards or else illegal to do business. Funny thing is if you did that you'd find it's no cheaper to outsource after all.

Yeah I hear what you're saying, but it's very difficult to simply stop trading or seriously curtail trading without starting a trade war, simply because another country is younger and going through pretty standard growing pains. What I can say, based on my experience traveling a bit (having recently headed to Taiwan to visit my in-laws last month), is that more and more I've seen very stark differences between, in this case, Taiwan and China. These are very instructive test cases I think because both have obvious shared history, language and customs, but where they differ most starkly is their government, particularly the complete control China exerts with their firewalls, arbitrary and corrupt regs and rulings. Taiwan meanwhile is essentially the democratic version of China, and my general feeling having interacted with the people there (granted, I've spent no more than a grand total of a couple months in Taiwan during my life) is that they prioritize markets, life and rights enough to recognize its immense benefits. They've reached that evolutionary stage, and their prices for goods and property have correspondingly reached more free market Western levels (while tech there is obviously less expensive, Taipei's real estate, specialty services and even food really isn't that much cheaper than your average urban American city).

I mention all this because my feeling is China simply can't be forced to evolve their (especially large) population to values all advanced economies eventually find out on their own is best. Free, open stock markets, free press, individual liberties all have universal appeal and all are prioritized to varying degrees in all advanced economies. China is still in their early industrial revolution stage and they haven't come to those same time-tested truisms as a result, so to severely limit or sanction trade with them I feel isn't in their best interest nor ours, and is overly burdensome for a country that has made such great leaps and strides since Mao was defeated less than 40 years ago. It hurts them more than us to limit trade, but think about it from this perspective; what if Britain had cut off free trade with the U.S. during our industrial revolution because we still practiced slavery at the time? Their standard of living was far superior to ours and we clearly did not treat labor fairly by our standards today.

So yes, we should definitely realign the next free trade agreement to be more favorable than, say, NAFTA, with a particular emphasis on the Chinese. But I'm certain making it "illegal" for American businesses to do trade with China the way it is to do business with Iran (assuming this is really your prescription) would not be the way to go. Reasonable curtailment in some targeted areas perhaps, like garment production or tech manufacturing.

 

[Doppel]

Yeah I hear what you're saying, but it's very difficult to simply stop trading or seriously curtail trading without starting a trade war, simply because another country is younger and going through pretty standard growing pains. What I can say, based on my experience traveling a bit (having recently headed to Taiwan to visit my in-laws last month), is that more and more I've seen very stark differences between, in this case, Taiwan and China. These are very instructive test cases I think because both have obvious shared history, language and customs, but where they differ most starkly is their government, particularly the complete control China exerts with their firewalls, arbitrary and corrupt regs and rulings. Taiwan meanwhile is essentially the democratic version of China, and my general feeling having interacted with the people there (granted, I've spent no more than a grand total of a couple months in Taiwan during my life) is that they prioritize markets, life and rights enough to recognize its immense benefits. They've reached that evolutionary stage, and their prices for goods and property have correspondingly reached more free market Western levels (while tech there is obviously less expensive, Taipei's real estate, specialty services and even food really isn't that much cheaper than your average urban American city).

I mention all this because my feeling is China simply can't be forced to evolve their (especially large) population to values all advanced economies eventually find out on their own is best. Free, open stock markets, free press, individual liberties all have universal appeal and all are prioritized to varying degrees in all advanced economies. China is still in their early industrial revolution stage and they haven't come to those same time-tested truisms as a result, so to severely limit or sanction trade with them I feel isn't in their best interest nor ours, and is overly burdensome for a country that has made such great leaps and strides since Mao was defeated less than 40 years ago. It hurts them more than us to limit trade, but think about it from this perspective; what if Britain had cut off free trade with the U.S. during our industrial revolution because we still practiced slavery at the time? Their standard of living was far superior to ours and we clearly did not treat labor fairly by our standards today.

So yes, we should definitely realign the next free trade agreement to be more favorable than, say, NAFTA, with a particular emphasis on the Chinese. But I'm certain making it "illegal" for American businesses to do trade with China the way it is to do business with Iran (assuming this is really your prescription) would not be the way to go. Reasonable curtailment in some targeted areas perhaps, like garment production or tech manufacturing.

Just posting to say I did read this :thumbsup:

 

[ralfy]

It's a reserve-currency economy that's heavily dependent on borrowing and spending.

 

[OverVolt]

Apple IS NOT a manufacturer. Foxconn does all their manufacturing. Apple designs products and software, but does not actually manufacture them. Foxconn is the one actually making the phones.