Sarah Sheard's Thoughts and Theories

Monday, December 22, 2008

Fundamentals

It’s about fundamentals.

Recent efforts to “stimulate” the economy seem to me like injecting adrenaline into a very sick patient. The patient needs to rest, but instead, we want it to *look* healthy, so we keep telling the patient to Sit Up. Act Happy. Act Energetic.

Are we making it sicker with all this adrenaline?

What are the fundamentals? What’s really going on? A good doctor would hardly look at a bedridden patient and say, “The patient is sick because he/she is bedridden.” Clearly there is something wrong that the appearance of illness is a result of.

Surely, thinking the economy is sick is hastening its decline. But making people think it’s not sick when it is is not doing anyone any good. You see a slight blip up in the stock market as the patient temporarily feels energetic enough to sit up, but then the illness takes over and we see that it is now even more tired from the fake response to the stimulation.

What can really fix the economy?

In this engineer’s view (see previous post on engineers vs. economists), we really have to know what the problem is.

Here’s my view.

1) Many decades of isolationist growth starting with World War 2... everyone’s wages went up.
2) Global awareness and the global market made it clear that cheaper labor is available just about anywhere else on the globe. Certainly the supply of cheap labor seemed, and still seems, unlimited.
3) Anything that could be outsourced was outsourced. Now we don’t do much manufacturing in this country. We even eat foods grown on other continents. We still need people in this country to run brick-and-mortar stores, so retail is still going on (but the wages are minimum). We still need services; the service economy is about all that is really strong.
4) Now if we need something, whether medical supplies or a big screen TV, chances are very few Americans had a hand in making it. At best they got it to us.

We have a basic weakness in fundamentals.

We need to understand
1) The global cheap wage market is going to drag down what we can have. We won’t settle for a day of work for ten cents, but we won’t be averaging a hundred dollars an hour either.
2) People will still buy what you make if you make something they need. If they have no money, they’ll try to do without or make it themselves, but chances are, someone will bring them something made by ten-cents-a-day labor somewhere else.

Seems to me we could improve our lot by imposing huge tariffs on things made by cheap labor, but in the long run that will only:
a) Make currently inexpensive things cost more (i.e. bring apparent wages across the globe up to what Americans charge to spend their time working).
b) Make other countries who count on exports to us angry, to the extent that they refuse to buy things from us.
So since I’m not an economist, ignore what I say.

But still, think fundamentals. What do you do, that is worth something to someone else? That they can’t replace with something made in a cheap-labor economy?

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