Saturday, January 19, 2008

Smokestack light(e)ning

Michael Tams at American Federalist Blog mocks George Bush's plan to spend our way out of debt.
Forgive me if I'm not doing cartwheels for it was my money to begin with. And yours.

My colleague Matt made an excellent point today: we've for too long been an economy that rides the strength of consumer spending. We'd be wise to adopt policies that focus on strengthening the business base of the economy (think durable goods and manufacturing) to complement and diversify what makes our economic engine hum.
Too true, Michael.

It wasn't that many years ago that everybody and his dog were overjoyed that we would henceforth enjoy the benefits of a "service economy." No more grimy industrial districts and wage slaves on assembly lines. The service economy was so much cleaner and nicer.

We have our service economy right enough. Everybody is selling things made in China and Sri Lanka to everybody else. We outsource everything we can -- back office financial record keeping, programming, manufacturing, customer service -- to coolies abroad who will work for pennies on the dollar.


Most of the services that are left, if only because it isn't feasible to send them via computer networks, are grindingly menial. These are jobs that indigenous Americans aren't keen on doing -- who in their right mind would be? At the least, many Americans still have enough backbone that they would organize for collective bargaining strength, just like workers did a hundred years ago until unions were recognized in the '30s.

So companies that need service workers have taken a new tack: what they can't outsource, they "insource" -- bringing cheap labor into the country instead of sending the work to cheap labor out of the country. Thus the voice of big business, The Wall Street Journal, sings arias for immigration.

But what happens when the economy consists largely of cheap laborers selling things to cheap laborers? It can only be done with credit on top of more credit. Selling people things they can't afford and putting off the day of reckoning.

Now that the day of reckoning looks like it might actually be here, the politicians (a very big category that includes appointed ones, like Federal Reserve Board members) have no choice but to stuff the channel with funny money created by deficit spending and inflation. And so the game goes on, the stack of champagne glasses piled on one another grows higher still. And we pretend it will reach the stratosphere and beyond.


We need a recession, if not a depression. Millions of minds must be forced to grasp the idea that they can't indefinitely go on living beyond their means and expecting to be hoisted out of the quicksand. Consumers have to learn some discipline.

And on the macro scale, business and the government should start rebuilding an economy based on something other than consumer-goods price competition pegged to cheapjack labor. That doesn't mean we return to smokestack industries, but investment in innovative businesses employing brainpower and knowledge, not immigrant peasants. The economy needs once again to be based on creating value, not just flogging merchandise and selling carwash franchises.

Yeah, if Dumb George wants to hand out cash, I'll take my share. And add to my gold and commodities ETFs.



Anonymous said...

Rick - I heard you were back in the area. As high tech as I am supposed to be, I can't figure out how to find your direct email address. You can reach me at


Michael Tams said...

Mr. Darby,

We were told that we'd be an intelligent labor force. Yet, from what I hear, programming and engineering jobs are heading overseas as well, particularly to places like India.

Your comment about the jobs Americans won't do is an interesting one. I imagine some Americans might do them if the state took away public aid (which isn't a bad idea on some level).

And of all of the disgusting things I've heard with respect to the shamnesty debacle of last year, the shilling the WSJ did for the bill was right up there with the worst of it.

-Old Chap

P.S. Thanks for the link up.

yih said...

I'm not a man of means, by some standards I could be considerd 'poor'. I don't think of myself as mired in poverty.
The Visa card has no balance (paid in full to current) and my landlord never has to bug me about the rent.
I even have some meager savings.
What I DON'T HAVE is debt.
Granted, I don't have much money, but other than normal bills I don't owe either. I like living this way.
This internet connection is currently paid for. Thank you for asking.
BTW, VA is back and has disabled HaloScan (and I've even suggested that she should leave it that way).
If you want to see what's up pay her forum a visit.
I think it's worth it...

zazie said...

Please, Rick, Help.....What are ETFs ? In the comment above what is WSJ ? I usually understand what is written on English or American blogs (I find Australian ones more difficult), but I am often defeated by initials !
Now, about this post, I think I am going to print it and translate it leisurely ; our "elites" pretend they speak English ; apparently they don't, otherwise they would take such opinions as yours into consideration, wouldn't they?

Rick Darby said...

Sherry, Will do.

Michael, Lots of Americans will do jobs they'd prefer not to. Until we have robots for everything, any society has crummy, unpleasant jobs. But I've always said that society should make sure that they are at least compensated decently for doing them. Instead, we import legions of the desperate.

YIH, What's the matter with you? Not spending till your eyeballs bleed? No wonder the American economy is in trouble!

Seriously, good on you for living within your income. You'll be in good shape when and if the Big Debacle comes, except for inflation turning your savings into Reichsmarks.

As for VA's forum, despite disliking such things, I did register but when I log in I'm told the name and password I gave are incorrect. I spent 10 minutes trying to find the obscure link to the bloke who administers it and e-mailed him, but so far I'm locked out.

Chère Zazie,

ETFs are exchange traded funds, a fairly new type of investment vehicle, somewhat similar to an unmanaged index fund but trading like a single stock. There are probably few, if any, equivalents in France.

WSJ is The Wall Street Journal, the national financial newspaper and a very good one except for its strong pro-immigration policy and tendency to favor neocon foreign policy.

David said...

There's a lot more manufacturing in American than is generally realized...some interesting numbers here. (See also my post "Misvaluing Manufacturing" at the link.) Stuff made here in important quantities includes medical equipment, airliners, locomotives, tractors/bulldozers, and quite a bit of steel.

The tax code does discriminate against manufacturers and other tangible-asset-intensive businesses, in that for tax purposes, you generally can't expense a capital investment when you make it, but must depreciate it over several years. In effect, you are paying taxes on money you haven't yet made. Rumor has it that the "stimulus package" might provide a temporary/partial fix to this.

I think US manufacturing is also being hurt by the erroneous perception that jobs in this sector are only for the brain-dead (I understand that some Internet dating site found that most women would consider a job in manufacturing to be a major turn-off in a prospective date) and by the destruction of vocational education. Interesting post here about a guy who is running at 50% of capacity because he can't find machinists.