On Thu, 13 Mar 2008 02:43:51 -0400, "Ed Huntress"
wrote:


"Bruce in Bangkok" wrote in message
.. .

In closing, this subject is spreading rapidly. If we don;t stop we
will be into scientology or illegal immigrants if we aren't careful
(probably also impossible to solve subjects). I suggest that we either
end or chop it up in pieces to cover one subject each.

Ok. Here's my one subject: The idea that costs in the US are too high is a
case of looking at things from the wrong end of the telescope. The fact is
that our costs are based on an equilibrium established when there was little
foreign competition. There is only one fundamental reason it couldn't be
sustained, and that would be if there was something structurally
unsustainable about isolating ourselves from low-wage competition, in a
limited and selective way, and it cut us out of too many export markets as
well. The only model for this in recent times is Europe, which
self-destroyed its small-computer production capabilities by isolating
itself through tariffs at a crucial time; but which, on the other hand, did
the same thing with its car market, limiting Japanese imports to 10% market
share, for example, and actually stimulated its domestic producers in the
process -- producers that are now on top of the world in terms of quality of
product and demand.

I suppose it is really a matter of where you are looking from. From
the purchaser's point of view cheap is better. But from a structural
point of view you are correct. My question is whether the U.S. public
and more important the companies who took advantage of NAFTA or the
free trade or most favored trading partner agreements that the
government agreed to and now discover that their goods are going to
have a big penality applied to them are going to stand for it.

Example: Walmart, from all I read, became the largest retailer in the
world by selling cheap (mostly imported) goods. Assume that the
government proposers a law to add (lets say ) 300% import duty to
chinese made shirts so that they sell for the same price as a US made
shirt. What does WalMart think about that?

How much political power does a company like WalMart, and all the
other companies that have moved offshore, have? And how much would
they use that power in the next election? And what is the reaction of
any political party in the world to the news that the opposition is
going to have all the money in the world to contest the next election?

I don't think that whether it is the correct solution or not
isolation, or protective tariffs will work.

Now, our consumption of resources is another issue. It's unsustainable, but
China's is, too, and Europe's is problematic. That's a problem we're all
going to have to deal with soon but it's not the same thing as sustaining
relative incomes. As the world deals with limited resources, we will, too.

The lessons drawn from Europe and Japan are quite different, but we all face
similar problems. I'm not convinced that reducing our standard of living
(except for energy consumption) would materially change anything. The gaps
are too large. And it looks like Asia will take too long to approach our
cost levels. That's a long-run prospect. Something will happen, of
necessity, before they reach anything close to cost parity. In that regard,
as Lord Keynes said, in the long run we're all dead.

So we're toying with the idea of selective protectionism; a dangerous idea
but one that may be the only way to deal with it. A lot would depend on how
Europe and Japan react to the same pressures. The idea would not be to keep
our industries in a hothouse but rather to slow down the pace of change to
something that we could deal with.

To me, that's the key long-term economic issue we face. Most of what's going
on now in financial markets has little to do with it, and will play itself
out regardless of it. The question is how much damage we can afford to
sustain for the sake of an economic theory that has never, in reality, been
tried befo free trade.

Bruce-in-Bangkok
(correct email address for reply)