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fransgeraedts (99.71)

Stronger then you think; a nuanced view of american manufacturing; unwarranted pessimism 2



August 16, 2010 – Comments (8) | RELATED TICKERS: AAPL , FXP , YANG

There is an interesting inquiry going on in caps at the moment about the weaknesses and the strengths of the american economy in general and american manufacture in particular. Participating are Donnerv, Lordrobot, Freemarkets, Dwot, ChrisGraley, russiangambit, leohaas, tomlongrpv and many others. Read my take on the situation and the comments that it provoked in my earlier post Unwarranted Pessimism. 

The following article seems relevant to the debate.

I thank PEstudent for bringing it to our attention.



8 Comments – Post Your Own

#1) On August 16, 2010 at 9:53 AM, russiangambit (28.89) wrote:

Frans, I see some of what lately as well. New factories are being built here in the South, where they are no unions and wages are further depressed from the competition from the illegal labor. CAT just announced building a new plant in Victoria, a couple hours from Houston.

But the North of the country with strong unions still stagnates.

Plus, most of these plants are highly automated and don't employ many people , they all require pretty skiilled labor which is hard to fnd in China. I think this is one of big reasons as well.

However, until tax incentives are there for offshoring ( which we discussed in one of the posts), I don'ts see the jobs coming back to the US. US tax rate is 35% for corporation. Offshoring allows them to bring it down to 10-15%. US needs to get its act together and lower corporate tax rate to 20% because it is not getting more either way. But lowering the tax might incentivies the corpoation to bring some of the jobs back.

If US cam fix the immigrtion policy in addition to that, it could really be a pretty fast turn around of fortunes.

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#2) On August 16, 2010 at 9:55 AM, alstry (< 20) wrote:

There is only an American economy because Wall Street and Washington are borrowing and spending trillions per year.....just like there was only an economy before 2007 because private citizens were doing the same, many of whom were mortgaging their homes.....

If you think the government and wall street can borrow tens of trillions.....then in dollar terms, things may improve......but your life's savings will essentially be worthless.....

and in a world where American wages are contrained by international pressures......if we have inflation....we gotta a lotta pain.

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#3) On August 16, 2010 at 10:35 PM, PaxtorReborn (28.86) wrote:

alstry is right, just give up and crawl into a hole

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#4) On August 17, 2010 at 12:02 AM, truthisntstupid (77.31) wrote:

I think all this pessimism is actually coming from people that will have to be dragged into the future kicking and screaming all the way...for all the good it will do them.  The union people in this country will try to resist it tooth and nail.  "Buy American!"  they will implore the rest of us, in an effort to try to enlist our help in propping up their wages/benefits at a level the market won't support. 

Sure.  A few Americans may be convinced to do that.  Now try convincing people overseas to do it.

Because, as I pointed out in another comment on another blog, we can't just manufacture and sell things to ourselves.  We must import many of our resources to manufacture things with, and to do that we must trade with other countries.

Well, not only will people in other countries refuse to pay more so that American union workers can enjoy a higher standard of living and retire earlier than their overseas counterparts, but most Americans won't either.   And for some of us who make a lot less money than said union workers, it makes no sense for us to pay 3 or 4 times more than we have to so someone somewhere can continue to make 3 or 4 times more than we do.  For those with families, it's just plain irresponsible.  People who make $10 an hour have no business paying more than they have to for the products they need and use every day so some other family can have things their family can't.  And if they save and invest the difference, they just might get ahead a little.  Or perhaps not have to make their kids suffer so some other guy's kids can have a new car for his sixteenth birthday.

Yeah, I know all the economics books say things like wages are "sticky,"  and therefore tend not to fall.  I don't care.  "Sticky"  or not, people who have been getting on at the local plant straight out of high school, joining the union, and starting at $20 or $30 an hour or more with benefits and a pension plan too are coming up against a hard reality.  This gravy train is grinding to a halt. 

No.  I won't buy American if it means paying 3 times more for something unless it's worth it.  Someone who makes $30 or $40 an hour or more expecting charity from someone who makes $10 an hour is way out of line.  That's the way it is. People overseas won't do it - and lower-income Americans enjoying the highest standard of living people at their level of income have ever had by shopping at WalMart won't and shouldn't do it either.

Wages will fall because they must.  Manual laborers making $60K a year and up that did nothing but finish high school never should have happened.  I know it.  You know it.  The only ones that don't know it is them.

 Sorry, Joe Six-Pack.   You can go into the future screaming and cussing, but like everyone else, you will go.  You can't stay here. 

So is all the pessimism warranted?  For some people, maybe.  There will be some pain for some people.  Many others, like me, will listen to them crying on the internet how they "can't live on $20 an hour"  and actually feel kind of disgusted.  That's how I felt last year when I read comments from UAW people while they were driving their company into the ditch.

Boo hoo.

Guess what?  The world doesn't end just because "sticky"  wages become "unstuck."

Because all the money everyone makes in this world either directly or indirectly finds its way into all the products that all of us make - and use -  every day.  When wages fall enough, the cost of living goes down too.  Areas of the country where average wages are lower also have a lower cost of living. 

I probably live every bit as good as someone making $20 an hour in NYC or Chicago. 

There is no knowing how long  or how painful this period of adjustment will be (for some people).  But to think it's the end of America or the end of the world is going off the deep end.


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#5) On August 17, 2010 at 12:12 AM, truthisntstupid (77.31) wrote:

Get your act together up north.  Because if you don't, your factories will continue to move down here, and even though they will pay us less than they're paying you, they will still be paying us more than we're making now.  Heck, I might get a boat and a big-screen TV.

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#6) On August 17, 2010 at 2:11 PM, truthisntstupid (77.31) wrote:

I should amend my statement that "I probably live every bit as good as someone making $20 and hour in NYC or Chicago." 

I probably live better than someone making $20 an hour in NYC or Chicago.  Cost of living is very cheap here.  And I don't feel poor.

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#7) On August 19, 2010 at 4:25 AM, fransgeraedts (99.71) wrote:

Dear Truth,

now imagine wages rising in real terms for a long time. Unionized wages a bit less, non-unionized wages a bit more  -maybe by becoming unionized? How would that be?



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#8) On August 21, 2010 at 11:53 PM, tomlongrpv (62.97) wrote:

Interesting article.  In time globalisation may bring some jobs back to the USA as living standards increase elsewhere.  But while I am not a pessimist, I also don't buy into the "free trade" as necessarily being good anymore than "free enterprise" is.  There really isn't any free trade anyway.  Free trade would be balanced and fair and not manipulated by governments.  Yet China manipulates its currency, has no meaningful environmental protection (and indeed few meaningful laws of any sort) and exploits and abuses prison labor, child labor and other labor.  Free trade with such a fascist society (communism is just its label) is really not free trade.

Other societies may not be as bad as China, but the essential point is the same.  We are suckers for "free trade" in which we are taken advantage of.  It works out well for the wealthy salespeople and other outsourcers who dominate our economy.

Yet better economic success for other countries is good for all of us in the long run--at least if we can overcome environmental problems.  We should want others to have a higher standard of living.  It will make them better customers for our exports and improve our standard of living too.  Economic progress is not some sort of foot race or competition where we want to "defeat" others.  Such an attitude harms us all in the long run.


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