(03-11-2009 09:38 AM)emmiesix Wrote: I was not under the impression that the US economy was supported by export sales, or at least not like other countries. The one thing I was aware of was food (particularly grains), and given the subsidies there it seems unlikely we'd kill the agricultural business.
I need more numbers here, if you have them. What kind of increases do "extra tax and overhead load" imply? If US-made goods are priced above those available from other countries, can't you just put taxes on those imports to balance things out? I realize that might not sound so great to the consumer, but it would place the advantage supplying the US population with those based locally.
In a very basic sense, you can have a country which is completely self-sufficient on one extreme, or a "world economy" where every country trades with every other, on the other. It seems untenable to me to try to maintain the vastly different standards of living the US enjoys as we move towards the latter. I get some sense that this is just a tectonic shift of sorts. I certainly have never believed the US would maintain it's high differential during my lifetime.
So... are you saying the plans to reduce the deficit will fail? Because of the closing up of ALL US businesses? I'm a little confused how this follows. I understand you're making an intuitive argument, but I don't really connect the dots here.
I would say it's far more likely that we end up with a socialist-democracy type system, where the government controls most banks, and healthcare, and retirement. Our military expenses will be curtailed greatly, and while standard of living will drop for some, it will actually rise for others. Something like Australia might be a good model.
I would actually operate all government rules and regulation on the principle that people are inherently bad, and will act in short-term selfish ways even to their long-term detriment. Somehow I wish we could get decent laws out of a system of mutual distrust, but instead we just get the pay-off lobbying we see now.
Sorry, but I don't know how to split quotes up, so I'll try to take these from the top.
The US economy is not supported by export sales. It used to be, but not anymore; that's the problem. We used to bring in raw materials, turn them into finised goods, and sell the finished goods both domestically and overseas. The goods we sold overseas were worth more than the imported raw materials cost, so there was a net influx of wealth. We performed functions that added value, and that added value represented wealth to be distributed among Americans.
You are correct that we export agricultural products. Unfortunately we are on our way to becoming a country that exports nothing else. There's a name for such countries--banana republics. Think Nicaragua. Honduras. That's where we are headed.
Since the 1960s, the value added functions have left. In their place, we have a retail/service driven economy. Perot wrote about this extensively in 1992. The guy who ran a steel mill a generation ago is delivering pizzas today. Delivering pizzas doesn't add as much value as making steel, so we don't pay the guy today as well as a generation ago. I find it interesting that people attribute the widening gap between rich and poor to the "Bush tax cuts." It has been going on since the 60s, pretty consistently regardless of the president or party in power. If this trend was well enough established that Perot could write about it in 1992, it obviously wasn't caused by Shrub's tax cuts.
Some people like to say that we cannot compete against countries that pay slave wages and destroy the environment. We obviously can't compete in those areas. So our choices are:
1. Lower wages and loosen environmental standards to compete. Not going to happen, nor should it.
2. Force other countries up to our standards. And how big an army do you think we'd need to enforce this?
3. Find other offsetting areas to compete and win.
4. Lose.
Fortunately, labor and environmental costs are just two of many areas that businesses consider before locating their plants, so we can attract businesses by winning some of the other areas--productivity (largely influenced by infrastructure and education), taxes, costs of legal and regulatory compliance, proximity to market, availability of raw materials and labor, political risk. We used to pile up enough wins in those areas, and by wide enough margins, to offset the obvious losses and keep businesses coming here. Today we still win on political risk by a wide enough margin to keep some money coming here (hence the dollar's strength), but we don't get the wins in areas like productivity and tax advantages like we used to.
As for extra tax and overhead load, one example will hopefully illustrate some things. Ten years ago, the top US corporate tax rate was 35%. The average top rate for all developed countries (OECD) was 33.6%. Competitive. Today the top US rate is unchanged at 35%, but the rest of the world average has dropped to 27.6%. Not so competitive. If we are targeting an after tax net income of 12%, the US company has to charge 2% more if all other factors are equal. That's huge when you are competing with French and German companies for international sales. Particularly if you assume that winning the tax game is one way to offset higher labor and environmental costs.
29 of the 30 OECD countries utilize a VAT, GST, or some other form of national consumption tax. We, of course, are the outlier. Let's say we have a 15% VAT. That means that we can, under international law and treaties to which we are a signatory, charge a 15% tax on all imports and rebate 15% on exports. When labor unions and others rail about foreign countries subsidizing exports "unfairly," this is what they are talking about. It's perfectly okay under international law--as long as what you are doing is rebating a consumption tax. No consumption tax, no can do; it's a treaty violation. Do you see how that hurts us?
The problems with just slapping tariffs on imports are (1) doing so may violate international law and treaties to which we are a signatory, and (2) doing so gives us no help on export sales. In fact, it actually hurts export sales. If you manufacture something out of steel, and we put a tariff on Chinese steel, your cost just went up. If France does not have a similar tariff, your French competitor can use Chinese steel and make his product cheaper than you can. That hurts your ability to sell to, say, India.
I'm not saying all US businesses will close. But the 40-year trend, where those dependent on export sales become non-competitive and either close or move, will continue and will be exacerbated by Obama's policies generally. As we lose export sales we lose the ability to bring wealth in. And that will blow a significant hole in an already weak economy.
The Australian model won't work here. Australia is a sparsely populated country with immense natural resources. Australia can create wealth in its domestic economy simply by exploiting and exporting its natural resources. We have to import significant natural resources. If we are to create any wealth to be distributed, we have to make those natural resources into more valuable finished goods. We're steadily getting worse at doing that now.
When we get to 20 to 50 million unemployed and 20% to 50% inflation, I think all my alternative scenarios are in play. You think they are unrealistic because you are thinking in terms of going there directly from where we are today.
The problem with your "treat everybody as inherently bad" scenario is the the government bureaucrats doing the regulating are inherently bad too. All politicians are corrupt. It's the nature of the beast. Bureaucrats are politicians who don't have to stand for reelection. Most of them are simply immune to accountability. That's not who I want in charge of my life.