Forbes and China

By Stormy

Going to the Forbes site is very instructional. Immediately, I was confronted with a picture of Gates and Buffet, with the caption: “Who’s Richer? Warren or Bill? Click to find out!” Unfortunately, I was interested in what Forbes had to say about Ohio’s unemployment rate, which they got from a Reuter’s feed:

The state says Ohio’s unemployment rate jumped to 7.4 percent in August, up from 7.2 percent in July. It’s the highest rate in 16 years. Ohio’s unemployment figure tops the national rate of 6.1 percent. The last time Ohio’s unemployment rate hit 7.4 percent was in Oct. 1992.

The juxtaposition was darkly humorous, to say the least. And since I am not on a first name basis with either Warren or Bill, I did not click to find out. (And, if truth be told, neither Warren nor Bill can hold a small coin next to the really wealthy–you, know, the Rothschild’s.)

I was interested in Ohio’s employment. This kind of unemployment story is where America is; where America is going: Higher unemployment, lower wages.

Tax cuts for those below $200,00 and hikes for those above $200,000 make for good press. But we all have heard about the massive redistribution of wealth going to the top 1%; that is not going to change.

A friend of mine asked: “Well, what’s going to happen? What is the solution?”

I told him: “You have to see everything in a global context. America just keeps looking at its navel, wondering what happened to the umbilical cord. Americans are constantly feted as the most competitive, the most innovative people on the face of the planet. Just listen to our news media.

Such sound bites may warm your heart, but they will not put food on the table or pay the bills. If you cannot look beyond Wall Street or beyond the stock market or beyond Ohio, you will be forever staring at that stubby navel.”

Right now, there is nothing the American worker can do to regain his once exalted global status. Let’s look at some of the proposals now on the table.

  • Cut corporate tax to make us more competitive. Sorry, we cannot compete. See Stormy post here
  • Close the influx of illegal immigration. (Surprising how quickly any real effort there went off the table. Heard much about it lately? We didn’t want those jobs anyway, did we?)
  • Insist that the American worker become better educated. Hmmmm and how are we going to pay for that one? We still have to compete with highly skilled Indian and Chinese labor. It is quite cheap, I hear. For an in-depth look at IBM’s approach and understanding see here.
  • Invest in infrastructure. The effect will be temporary. It brings a number of problems. Big One: How do we pay for it? Will it make us more competitive? (Besides, the world does not quite have the same shape as it did when massive public works projects were the vogue. And, by the way, are we going to put them up for bid, via the old buddy system, Haliburton-style, that we have come to love and adore. Or will we outsource them to China, which is doing a bang up job in Africa. Or are we going to have the U.S. government the employer? )
  • Extend unemployment insurance. I can’t even bring myself to address that one. While it reveals a heart of gold, how are we going to pay for it?
  • Print lots of money. Deflate the debts.
  • Require that China compensate us for the trade deficit. (We really could use the money, especially now.) Yes, we did have a guest post on that one.

The difficulty that I see with most discussions of the issue–from the right and from the left–is that few can see past the present crisis, which is just the beginning.

As usual, we simply react to crisis. All of the above demonstrate short-term thinking, reactions problems that suddenly seem to appear. What? Employees are losing their jobs? Let’s extend unemployment insurance! And so it goes.

Many readers most probably think I was nuts talking about China and car parts. (See “Auto Parts? China? Africa? Next Question”.) What does that have to with the price of corn on Mars?

Well, China happens to be a big part of the global economy; we rushed to it with arms open, expecting riches beyond belief. Our trade deficit with China continues to increase…albeit slowing. And do you really think that China will tank along with the U.S. and Europe, tank as disastrously?

For those of you who thought I was fixated on the future of car parts, try again. I was pointing out the obvious: Who is the main driver of this small part of the Chinese economy? And, is this particular industry a microcosm of what has been happening in China?

I have heard endless talk that China will not be able to “sterilize” all those dollars, about subsequent crushing inflationary pressures on the Chinese economy. I am still waiting.

Connect these dots:

  • CEO wages have been going through the roof–not just inside banks.
  • Average wages here are stagnant at best.
  • China enjoys a massive trade surplus with the U.S., a trade surplus driven by FDI and the presence of foreign firms in China.
  • Every decision a businessman makes is driven by one concern: Profit.
  • Wages and taxation and transportation are central to his equations.
  • Trade surplus is a good thing.
  • According to Yi Xiaozhun, foreign enterprises enjoyed 83% of China foreign trade surplus. See here for a discussion.

China, right now, is well positioned: Flushed with cash and a growing export platform. Yes, it will slow down. But no one is catching up.

You asked for globalization. You got it in spades. Any solution I would propose–and I have proposed one–would be greeted with howls. Consequently, I will forego my suggestion and offer a hope instead: Hope that China can quickly become a global market for things other than raw material. Hope that its standard of living rises sufficiently fast enough to rescue ours. Otherwise, look around for a rice field.

But remember: Even China admits that it is a good 100 years behind the U.S. And start reading about how China is planning its future. (See China: Now to 2100)

Me? I will try to stay away from the Forbes site. I just get too angry. If I had my way, all those rich dudes–everywhere–, would have to empty their coffers and stop pretending to be philanthropists.

By the way, someone is going to make a fortune when the stock market hits bottom. We still need car parts.