Authored by A.Gary Shilling, op-ed via Bloomberg.com,
The disruptions caused by the spread of the coronavirus mean supply chains will be moved closer to home rather than in foreign lands…
The coronavirus’s depressing effects on the global economy and disruptions of supply chains is no doubt driving the last nail into the coffin of the globalists.
They believe in the theory first articulated by Englishman David Ricardo (1773-1823) that free trade among nations benefits all of them. He argued for the comparative advantage of free trade and industrial specialization. Even if one country is more competitive in every area than its trading partners, that nation should only concentrate on the areas in which it has the greatest competitive advantage. He used the example of English-produced wool being traded for French wine—and not the reverse.
But Ricardo’s simple trade model requires economies in static equilibrium with full employment and neither trade surpluses nor deficits, and similar living standards. These aren’t true in the real world. Also, Ricardo didn’t consider countries at different stages of economic development and different degrees of economic and political freedom, or exchange rate manipulations and competitive devaluations since gold was universal money in his day.
Ricardo also didn’t factor in trading partners with huge wage differences such as the U.S. and China. As a result, China can produce almost any manufactured good cheaper than America. The result has been the huge and chronic U.S. trade deficit with China.
Trade wars are normal as countries with insufficient domestic demand to create full employment strive to unload their problems on trading partners. They promote weak currencies to make imports more expensive for residents in order to encourage local production and to make exports cheaper for foreign buyers. Subsidies for exporting companies, now widespread in China, are another tried and true technique.
Free trade is rare. Historically, it has been largely confined to periods when a major global power promoted the free exchange of products in its own enlightened self-interest. That was true of Great Britain in the 19th century after it spearheaded the Industrial Revolution and wanted to insure the easy flow of raw materials for its factories from abroad and foreign markets for their output. After World War II, Americans used trade to rebuild Western Europe and Japan to counter the Soviets, and accepted the lack of reciprocity by some of those lands, notably Japan. This was cheaper and more acceptable in the Cold War era than garrisoning more American troops around the world and risking more military confrontations.
Consequently, there were eight global tariff-cutting rounds in the post-World War II era, from the 1947 Geneva Round to the Uruguay Round in 1986-1994. That was it. The 2001 Doha Round has gone nowhere because, by then, Washington no longer needed to support the free world. Also, U.S. trade deficits were chronic and growing, especially as globalization transferred manufacturing jobs to China and other low-cost Asian countries. U.S. factory positions collapsed from 21.7 million in 1979 to 11.5 million in 2010, with only a modest recovery after the Great Recession to 12.9 million in February of this year.
Largely as a result of these developments, real wages for most Americans have been flat for several decades, making voters mad as hell. President Donald Trump played to their plights and was elected by blaming weak incomes on imports and immigrants. Lack of real income growth also convinced voters in Europe that mainstream politicians weren’t effective. The result was Brexit and an attraction to far right and extreme left parties.
Globalization not only left the U.S. highly dependent on China for manufactured goods but also spawned efficient but vulnerable supply chains. Textiles produced in capital-intensive Chinese factories are sewn into garments in Vietnam where incomes are only 28% as high, according to the OECD. Semiconductors from South Korea go into subcomponents in Taiwan and are assembled into smart phones in China for export to the U.S.
The coronavirus’s disruption of supply chains not only unhinges U.S. imports but also raises national security concerns. China is the world’s biggest supplier of active pharmaceutical ingredients and the Indian generic drug industry, which the Food and Drug Administration says supplies 40% of U.S. generic drugs, relies on China for most of its active ingredients.
Even after the virus scare subsides, look for more pressure from Washington for more reliable sources of goods, among other protectionist measures. Domestic producers will benefit but so too will those in Mexico. The results will be lower global efficiency and slower economic growth.
And don’t believe the protectionists’ siren songs that American jobs and incomes will benefit. As in the 1930s, the economy-depressing effects of trade barriers will dominate.
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Globalism would not be complete without a discussion of “vulture capitalism“, which goes hand-in-hand with globalism.
Wall street sees “labor” as being a necessary evil, its true value to be minimized at all cost while valuing the CEOs and “stockholders” above and beyond their true worth.
This even applies to CEOs, that run their corporations into the ground while still receiving massive “rewards” for their “expertise”.
Let’s not forget the corporate vultures (a la Mitt Romney) that specialize in parting out viable businesses in order to maximize their “profits”
Henry Ford “got it right” when he CREATED a market for his cars by making them inexpensive while paying his workforce a decent wage. He realized that a well-paid workforce would be able to buy his products, among other things.
It could be safely argued that Ford, CREATED the middle class.
Automobiles, once “playthings for the rich” were made affordable for the “ordinary common man”.
Henry Ford KNEW who the banksters and vulture capitalists were and made no bones about calling them out and naming them, Father Charles Coughlin did the same thing and was ostracized by the Catholic Church for pointing out the TRUTH about our vulture capitalist society.
“Vulture capitalism” can be defined as the owners of businesses and industries that collude with each other, also in collusion with the “money types” (banksters) depressing wages solely to increase their stockholder “profits” at the top while impoverishing those who actually WORK, producing their products.
All one has to do is look at today’s CEOs, even in failing companies, being paid exorbitant salaries, along with stock options and other “perks” while pleading poverty, pushing down wages for their employees.
Today’s capitalist “mantra” is that labor costs must be as cheap as possible while the “value” (profit) to the stockholder must be as great as possible. Sacrificing labor on the altar of “maximum profits” NEVER works in the long term.
Of course, in the short term, with cheap Chinese goods flooding the market, the economy looks, good, but without CONSUMERS who hold jobs that pay reasonably well, all bets are off. There needs to be a balance between profits and labor.
Presently, labor is looked upon as a “necessary evil” to be minimized at all costs. The problem arises-without labor there are no consumers. As I previously stated, a “balance” must be maintained. Labor is not evil, but a necessary component of capitalism.
Pre-WW2 Germany’s economic successes and the rapid rise of the German economy was predicated on labor being assigned “value”and monetized-something that is (and has been) missing in capitalist societies today.
If labor costs need to be trimmed to assure “profit” at the top, something is seriously wrong. In fact, in the well-paid American automobile industry, labor costs account only for approximately 10% of total costs.
Offshoring production results in consumers (customers) being “lost”.
As to “tariffs”, the American country ran on tariffs from its inception until 1913, when the “income tax” and “federal reserve” was established.
The American economy is being propped up by the “social safety net” which obscures the TRUE economic situation in the U S .
This is complete and utter bullshit. The author kind of gives it away when he writes:
Centrally planned economies, which includes dishonest, fake money is the entire reason the world is in this position. The U.S., for the most part, isn’t trading ANYTHING for foreign goods. Unless you call FRNs printed out of thin air something. The U.S. government’s economic policy is to blow up and/or sanction any country that threatens to trade in anything other than dollars (Iraq, Iran, Lybia, Venezuela, etc.)
It’s a nice shell game and they have been largely successful in convincing people that it’s the Chinese that are screwing us. Think about it: how would we be getting goods from China or anywhere else if we couldn’t just print the money? We’d have to (re)build factories and trade actual stuff! That’s how a real economy works.
The author mentions gold dismissively, while also admitting the real problems: “exchange rate manipulations and competitive devaluations”, both of which are euphemisms for printing currency out of thin air. Imagine what it would be like if all 50 states printed their own currency and engaged in exchange rate manipulations and competitive devaluations. Sneering at the use of real money, i.e. gold, is just an exercise in ignorance.
The other insinuation is that if you trade with other countries, you somehow hate your own. That is just incredibly stupid. Do I hate my home state if I buy a car from Michigan? Don’t get me wrong, “nationalism” in the sense of loving your country, its history and tradition, and its people is a fine thing. But thinking each nation should be a self-contained fortress is moronic.
As long as the base requirement for all social systems panders to the notion that success is the achievement of the ultimate Holy Grail, that is, obtaining “something for nothing,” you will see one system after the next designed exactly to this end.
The bottom-line has ALWAYS been, “How does one most efficiency make theirs, ours.”
There is nothing wrong with sourcing materials outside of your own “neighborhood.” Borders are simply arbitrary, government imposed lines. It is a longer supply line from LA to NY than it is from Maine to the UK. Additionally, there are simply some products/commodities that are no longer feasible to produce in the US. We grow acres and acres of cotton in areas of this country that get no water (talking about CA, not the deep south). We grow rice there as well. We manage that because government STEALS most of the water from the Colorado river and sells it beyond dirt cheap, all to buy the votes of farmers that should not be growing what they are growing, where they are growing it. And that is just a couple of examples. Lower cost items benefit producers and consumers alike, and some folks are better at producing a good than someone in the US. Freedom means allowing free choice.
Does that mean that government should use its power, its regulations, its oppressive tax code, and other strategies to push companies out of this country, push supply lines out of this country, and otherwise drive up the cost of domestically-produced goods? Of course not. They should not insulate corporations from the consequences of their choice of foreign-sourced material (as the pharmaceutical cartel is protected). And if there is a proper opposition to the purchase of foreign goods, it should be directed at everything government does to INCENTIVIZE the behavior. Globalism as it is termed, is the product of these coordinated government actions, tax policies, etc., not the natural outgrowth of a free market.
We are about to learn how important local farming really is, when stresses stop trade and countries decide to feed their own citizens instead of foreigners.
Borders are arbitrary and unimportant – until a foreign government decides it wants YOUR land, labor and factories and is willing to go to war to get it. I don’t think anyone is yet stupid enough to invade America to try to take it for themselves (even if a Chinese general was supposed to have said as much, he was looking for a bloodless method to do it: Coronavirus was the result?); but if I were a neighbor of China’s, I would keep the border patrols active and well-armed.
Oh, I should hope so (regarding the title) but these GD pieces of shit are doing exactly what they do:
https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart
So, now, void of cash (because they spent it to buy back shares and thereby drive up share prices):
https://www.cnbc.com/2020/03/16/us-airlines-seek-more-than-50-billion-in-aid-as-coronavirus-roils-business.html
Having learned from the Banksters, now EVERYBODY wants to privatize profits and socialize losses, and this shit has to stop. Our system is not and has not been for some time “Capitalism” but straight-up Fascism. The corporations own the government and the government gives them exactly what THEY want by stealing it from the rest of us. Fuck them all.