Boycott China..

[doodle]

The United States has become a Banana Republic...a plutarchy. Unbridled adulation of free market economics has given us a country in which almost 80% of the wealth is controlled by 5% of the population. Unfortunately after the bank bailouts of 2008 the trend continues. In the Tampa Bay area  where I live the top ten local companies CEOs pay increased markedly in 2010 relative to the previous two years while across the board middle class wages have fallen and teachers haven't seen a pay increase in more than 5 years.

Meanwhile certain politicians are saying that we need to decrease taxes on the wealthiest 2% presumedly so that they can buy another private jet to visit the sweat shops they have set up in China.

Ultimately this inequality will need to be redressed as it is very destabilizing.

When things get bad enough people will eventually turn off The Jersey Shore or Real Housewives and start demanding real change.

I am entirely disappointed in Obama and can only think that he is holding back on real change for the second term. He found out early that going against embedded power structures is a delicate process.

[MediumTex]

The whole issue of increasing concentrations of wealth and the destabilizing effects it can have on a society is a thorny issue with no real satisfactory answers.

I did a thread on this topic a while back and there was some good back and forth on the issue. 

I really don't know what the answer is.

[AdamA]

Our country will not suffer 10% plus employment for decades to come. I don't see America as a country that will muddle through this like Japan has done.

Why are we different?

[Tortoise]

I am really beginning to question the wisdom of free trade and its benefits to our communities and citizens.

I would question it, too, if free trade actually existed in the U.S. But it doesn't. We have not had anything even closely resembling a free economy in the U.S. since before the New Deal. We have a mixed economy--an amalgamation of capitalism, socialism, and fascism/corporatism.

To blame America's ills even partially on supposed failings of the free market is like a person blaming his TV's manufacturer for the fact that his TV doesn't work after he opened it up with a screwdriver and attempted to "improve" it using a pair of pliers and a soldering iron. When one tinkers with something that is not meant to be tinkered with, one voids the warranty and can no longer blame the manufacturer if the results do not turn out as expected.

If someday I see a truly free society with a truly free market--one that is not saddled with layers upon layers of oppressive taxes, corporate bailouts by the government, countless regulations that favor big businesses by making it prohibitively expensive for startups and smaller companies to compete, fiat money and government-enforced fractional-reserve banking, etc.--and if that free society shows the same ailments as our heavily-regulated (i.e., not free) one, then I'll start to seriously contemplate the possibility that there may be something fundamentally wrong with the free market. We're not there yet; not by a long shot.

I am curious what others on this board feel regarding this topic and whether anyone makes an attempt to consume American made products. I for one am willing to pay more for a product that is made in America knowing that it will keep one more of my neighbors employed and an American community intact.

I consider the United States and its founding political principles to be the best yet devised by the mind of man, but I drive a Japanese car, wear clothes manufactured in third-world countries, and consume countless products made in China and all across the globe. I buy them because the equivalent American products (where they even exist) are typically either of lesser quality or, if of similar quality, are significantly more expensive.

I could be "patriotic" by buying an American car I don't really want or paying a higher price for an American product, but in a sense I would actually consider that a disservice to my nation. When American businesses can't compete with foreign competitors, it is often because they are forced to pay higher taxes, comply with more onerous regulations, and deal with more government-supported labor union demands than their foreign competitors are. If I deliberately make less efficient use of my capital by "buying American," I am in a sense supporting America's over-reaching government and parasitic labor unions.

If my purchase of cheaper and/or better-made foreign goods provides even a small amount of financial motivation for American "zombie" corporations on government life support to fundamentally reconsider the inefficient way they do business (which would probably involve a heavy dose of government lobbying by the corporation to effect change), then I suppose that indirectly, I am being a patriotic consumer.

[doodle]

All too often what you are buying though is not necessarily a better car...but the same t-shirt, shoes, furniture that costs 20% less because it was built by someone in China making 200 dollars a month....

Maybe we should lower Americans wages to 200 dollars a month so we can compete. Of course the CEO should continue to make millions every year.

The reality is that our demand for cheaper products is that we pay more for entitlements, jails, police forces, etc. as our communities are eviscerated and people turn to desperate measures.

We use the same logic with oil and gas where we spend trillions on war rather than reform our consumption habits or accept the true market price.

[dualstow]

China doesn't play fair, and that is frustrating.
As for losing manufacturing, there's a good radio episode on that by Harry Browne. Wish I had the specific show date.
He was responding to an author lamenting, among other things, the fact that our manufacturing base is no longer domestic.

[Wonk]

Now, you might say that the manufacturers are just giving people what they want. They are reacting to the demands of the marketplace. Frankly, I think that is crap. People's wants and desires are shaped by a huge advertising industry that tells them what their kitchen should look like, or what clothes they must wear to be trendy. Advertising manufactures demand. In other words, we don't tell the companies what to produce, they tell us what we "need" and then sell it to us.

And so in America instead of investing our money in infrastructure, education, and science and technology we increasingly just send it overseas to buy more disposable junk that we will dump in a few years anyways. Meanwhile, the advertisers are working on what next years furniture, clothes, kitchens, cars, etc. should look like.

For my entire professional life, I've worked as a marketer both for my own start-ups as well as other companies.  I've been directly involved in the advertising industry as well.  I can tell you the idea of "advertisers telling us what to buy" is not compatible with reality at all. 

Do you live in a shack with a corrugated steel roof and use a campfire for heat or do you live in more comfortable accommodations?  Do you wear a loin cloth or do you wear fancier clothes?  Do you eat maize or do you eat tastier and more prepared meals?  Everything above the most basic needs of human survival is a personal decision--one that you've made because of the innate desire for "more."  As a marketer, I can bring out all the reasons why someone will want to buy my stuff, but I can't convince them to do something they don't already want to do.  There's a huge difference.

Good marketers and advertisers know human psychology well.  After the basic needs are met, we all want more--and it never stops until we make a conscious decision to be happy with the lifestyle we have.  But to think marketers and advertisers implant that desire in us is erroneous. 

I really believe that unbridled consumption and avarice for cheap material goods is a detriment to the United States. An unbridled free market might create more material wealth, but it doesn't lead to better communities and happier people. The dislocations that it causes in society run counter to the majority of humans desires for stability and security.

I agree that consumption doesn't make a person happy.  Maslow's hierarchy makes a good case for what does.  Sometimes the irony is that one person's stability and security is another person's form of slavery.

[Lone Wolf]

I just finished watching a CNBC program that provided an interesting insight into the US economic relationship with China. I must say it was distressing to me to see so many Americans in our manufacturing sector put out of work by companies that have chosen to move overseas to take advantage of lower labor costs and less environmental regulation.

For the purposes of this discussion, let me set aside the concerns about how China treats the environment (because these concerns are legitimate and well-documented.)  When thinking about trade with China, I ask myself the following sorts of questions.

Why wouldn't I want to have as many trading partners as possible?  What benefit is it to me to restrict myself from forming a trade relationship with over a billion people?

Should I be upset if I buy a product from California rather than one made in my home state?  Am I richer or poorer because I am permitted to trade with an individual in California?

If unable to trade, my family would live at subsistence level (or worse.)  We'd be better off if we could trade with those in our community.  Better still if we could trade with those in another city.  Free trade throughout the United States would make us even wealthier.  Why would trading with foreigners then impoverish us?

Would a completely isolated United States be able to survive?  I say yes, but would we be as wealthy as we are today?

Perhaps these questions have convincing answers that I haven't been exposed to before.  On the whole, though, I think we're much better off being able to trade with foreign nations.  The worst thing that China does to us is act as "enablers" for our excessive government debt.  Isn't this really our fault rather than theirs?

Unbridled adulation of free market economics has given us a country in which almost 80% of the wealth is controlled by 5% of the population. Unfortunately after the bank bailouts of 2008 the trend continues.

Nah, the opposite's true.  As a very simple example, the bank bailouts you mention don't even exist in a free market.  As Tortoise pointed out, we haven't enjoyed anything like a free market in many decades.  We're now one of many high-tax, high-regulation mixed economies.

[doodle]

Mr. Invisible hand himself Adam Smith even saw the necessity of government regulation especially with regards to the banking sector.

"To restrain private people, it may be said, from receiving in payment the promissory notes of a banker for any sum, whether great or small, when they themselves are willing to receive them ; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty, which it is the proper business of law not to infringe, but to support.

Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed."

I too have taken a big gulp from the free market kool aid jug. While on the surface the arguments seem to make sense, I am beginning to investigate and question all of the externalities that people tend to forget when focusing blindly on the aquisition of material wealth to the detriment of human relations and communities.

[doodle]

The perversion of Adam Smith's message might be a place to start.... I for one haven't read the entire Wealth of Nations....only excerpts in college. Maybe its time we all pick it up so that we can stop misusing his words:

Below is quoted from Christian Science Monitor article:

Adam Smith published his “Inquiry into the Nature and Causes of the Wealth of Nations”? in 1776. A revolutionary book, “Wealth”? did not aim to support the interests of any one class over another, but rather the overall well-being of an entire nation. Smith discovered, of course, “an invisible hand,”? an utterly unsought convergence whereby “the private interests and passions of men”? will lead to “that which is most agreeable to the interest of a whole society.”?

Through capitalistic modes of production and exchange, therefore, reasoned Smith, an inextinguishable social inequality might still be reconciled with broad human progress.

But today’s conservative defenders of Smith usually ignore, either deliberately or unwittingly, the full depth of his rather complex thought. A system of “perfect liberty,”? as Smith called it, could never be based upon any encouragements of needless consumption. Instead, he argued, the laws of the market, driven by competition and a consequent “self-regulation,”? strongly demanded a principled disdain for all vanity-driven consumption.

“Conspicuous consumption,”? a phrase that would be used more effectively by Thorstein Veblen at the start of the 20th century, could thus never be the proper motor of economic or social improvement.
To be sure, Adam Smith understood the dynamics of conspicuous consumption, but (and this part is widely disregarded) he also loathed them. For him, it was only reasonable that the market regulate both the price and quantity of goods according to the final arbiter of public demand. Yet, he continued, this market ought never to be manipulated by any avaricious interferers.

More precisely, Smith excoriated all who would artificially create or encourage contrived demand as mischievously vain meddlers of a “mean rapacity.”?

Today, of course, with engineered demand and hyper consumption as both permanent and allegedly desirable market features, we have lost all sight of Smith’s “natural liberty.”? As a result, we try, foolishly and interminably, to construct our economic recovery and vitality upon sand. Below the surface, we still fail to recognize, lurks a truly fundamental problem that is not economic, fiscal, or financial. Instead, as Adam Smith would have us understand, it is a plainly psychological or human dilemma.
Wall Street’s persisting fragility is largely a mirror image of Main Street’s insatiable drive toward hyper-consumption. This manipulated drive, so execrable to Adam Smith, has already prompted certain learned economists to warn repeatedly against saving too much. Upon reflection, could any advice be more ironic?

[Coffee]

Our stainless steel tea pot just broke.  Apparently, the material around the mouth wasn't actually stainless steel and it rusted out.  

I decided I wanted to buy a tea pot that would last for the rest of my life.  So, I set out to buy one made in America or Germany.  (Germany because, according to "Vince" the Sham-Wow guy... they make good stuff!)

Couldn't find one.  They're all made in Thailand.  

Some guy in China is shopping for a tea pot right about now thinking to himself, "WTF does a guy go, to buy a tea pot made in China anymore?"  LOL.

[MediumTex]

Next thing you know they'll stop making tea in China, too.

[Tortoise]

doodle, I share your frustration with this culture of pushy, in-your-face marketing that attempts to drum up demand where none existed before. I do think it causes many people to consume more than they would have otherwise. Often needlessly and wastefully. If the values of simplicity and durability were more highly prized in our culture than conspicious consumption and social status, I think our society would more closely resemble the one that Adam Smith envisioned when he wrote Wealth of Nations.

But it's important not to blame the free market on the social ills we observe around us. Government regulation and intervention does not improve the situation. The reason is because government is not some abstract entity that can be considered as separate from the society it governs. The government's members are drawn from the very society it governs.

If the society is corrupt, the government will be corrupt, too. And if the society is virtuous, it will have little need of a government in the first place.

I wish I knew how to go about creating a virtuous society, but I don't. As Harry Browne wrote, however, our energy is most efficiently spent focused on that which we control most effectively: our own personal growth and happiness. Not false, empty happiness, in my opinion, but rather--if one is honest with oneself--the kind of lasting happiness one can achieve only through personal struggle, redemption, victory, and increased self-awareness. If people spent more time on these "selfish" pursuits than on allowing themselves to be distracted and led astray by base cultural forces, I have no doubt that we would be living in a more virtuous world.

[moda0306]

Tortoise,

Your points go directly to questions I ask myself every day.  I don't trust so much of the "free market," so, like Doodle, I feel it "can be improved."  Further, though, I know most of my distrust lies not with the market itself, but the individual players, who are often unvirtuous and dishonest (even if it's tricky sales techniques that aren't really dishonest or wrong).

Those same individual players make up government, so how are we going to reach anything any different... part of me thinks that the lack of a profit motive in government can lead to a different dynamic that is in some ways positive.

For instance, as much as I dislike about social security, I'd probably trust a representative at my local social security administration more than a financial advisor trying to sell me an annuity.  Also, many of my interactions with local governments seem to be free of that "what do I have to do to put you in a car today" type attitudes, and really do provide honest, helpful service.  I tend to think that in markets that are 1) inefficient, and 2) provide for basic needs without which someone would be in dire straights, there may be a situation for government to improve things.

By "inefficient market," I mean one as unlike selling a widget on ebay as possible.  If one needs Lasick eye surgery, they're probably in a position to be an informed, reasonable consumer.  If one gets in a car accident and is hemmoraging, they're obviously less likely to be able to seek out a doctor for the best surgery at the best price.

I guess I see the possibility of thousands, maybe millions, of salt-of-the-earth Americans with little financial knowledge (not necessarily the "unvirtuous" but moreso "uninformed") being duped by financial wizards into bad financial plans, and maybe it's not the worst thing to have some basic level of old-age and disability insurance as social insurance run by the government.

Of course, once you say that, 80 years later you have what we have today, which is WAY too much of a wage-earners income (14% about) going to support retirees, which is just disgusting when compared to the 2% SS started as.  I'm not saying I approve of our system... simply that I think the market doesn't necessarily effectively weed out the bad players in certain circumstances.

[Tortoise]

part of me thinks that the lack of a profit motive in government can lead to a different dynamic that is in some ways positive.

For instance, as much as I dislike about social security, I'd probably trust a representative at my local social security administration more than a financial advisor trying to sell me an annuity.  Also, many of my interactions with local governments seem to be free of that "what do I have to do to put you in a car today" type attitudes, and really do provide honest, helpful service.

Jack Bogle has an interesting comment in his book The Battle for the Soul of Capitalism that is somewhat related to your observation (boldface is mine):

"What's the bottom line?" is not only an irritating maxim used by the narrowly focused members of the business and investment fields but a revealing abstraction about our society, one that prizes money over achievement, measures our worth by how much we earn and spend, and erodes the virtuous circle of trusting and being trusted on which in the long run our society so keenly depends.

This devolution is hardly limited to the mutual fund field. It is reflected all across our society, as one profession after another has taken on the defining attributes of a business... as so many of our nation's proudest professions--including trusteeship, medicine, accounting, journalism, law, and architecture--gradually shift their traditional balance away from that of trusted profession and toward that of commercial enterprise, the human beings who rely on those services are the losers.

Bogle's explanation is that he thinks this gradual shift has had a lot to do with the gradual separation of ownership and management in our society. In other words, we are increasingly finding that the interests of the people who manage our money, our health, our corporations' balance sheets, etc., are not as closely aligned with our interests as they used to be in previous decades when trust and professionalism were more highly regarded than bottom-line metrics like profit and market share alone.

As for why management has gradually become increasingly separated from ownership... Bogle does not say. He seems to imply that it's a general moral failure, and he suggests various government solutions (new regulations, etc.). Personally, I suspect the solution is not as simple as making some policy recommendations.

I guess I see the possibility of thousands, maybe millions, of salt-of-the-earth Americans with little financial knowledge (not necessarily the "unvirtuous" but moreso "uninformed") being duped by financial wizards into bad financial plans, and maybe it's not the worst thing to have some basic level of old-age and disability insurance as social insurance run by the government.

Of course, once you say that, 80 years later you have what we have today, which is WAY too much of a wage-earners income (14% about) going to support retirees, which is just disgusting when compared to the 2% SS started as.  I'm not saying I approve of our system... simply that I think the market doesn't necessarily effectively weed out the bad players in certain circumstances.

Agreed, but keep in mind, the "bad players" are often given an unfair advantage through government interference or connections within government. In most causes, I think unfair behavior in the market is most effectively minimized by getting the government out of the way and letting market forces sort out the situation.

Look at the "bad apples" who ran so many of our largest financial institutions into the ground a few years ago. Were it not for the government bailouts, they certainly would have been weeded out by the market. Their corporations would have been sold to more competent and prudent businessmen, but instead they were kept in business--with lavish salaries and bonuses, to boot--due solely to the government interference.

[moda0306]

Tortoise,

I like your input on this.  I would say, though, that the "corporations" themselves that were bailed out did nothing.  A corporation doesn't fear for its survival.... it's individual employees and shareholders do.  And being fired as a CEO deosn't mean you're in the poor house... it simply means you've quit earning a salary from your financial institution.  Simply letting these corporations fail would have been the equivalent of "firing" the bad apples.  They then either go work somewhere else or live off of dividends and interest of all the wealth they have obtained by doing what took years to finally fail.  People then get a warm feeling inside because "Lehman Brothers finally got what was coming to it."

This may have to do with the "misaligned interests" you mention.

As efficient as our system of stock trading is, everyone is so disconnected from the full implications of "owning a business."  This isn't to say being a passive investor is bad or having liquid securities is bad, but that the unintended consequence of people being able to buy and sell shares so fast can lead to extremely short-term thinking by the board of directors and management.  I'm not sure of the regulatory solutions or the lassais fair logical conclusion, but it doesn't seem to me to ONLY be a function of government interference.

[Lone Wolf]

A corporation doesn't fear for its survival.... it's individual employees and shareholders do.  And being fired as a CEO deosn't mean you're in the poor house... it simply means you've quit earning a salary from your financial institution.  Simply letting these corporations fail would have been the equivalent of "firing" the bad apples.

Right, it's the shareholders that get wiped out when no bailout rides to the rescue.  I, the unwise investor, lose all my money.  The CEO was my employee and he blew it, therefore I lose.  I was rewarded for years of returns that dwarfed those of the more cautious investor.  Now I should pay the price when the bill for all that risk comes due.  This is all as it should be,

The flipside is that without bailouts, the prudent investors get rewarded with increased market share and the opportunity to buy up the remaining bits of the failed companies.  When the smoke has cleared, more capital is in the hands of people that resisted the urge to take excessive risks.  Less capital is in the hands of those who were behaved foolishly.

Bailouts prevent that process from taking place.  Capitalism requires losers, not just winners.  Losses, not just profits.  When you take that away, you've got... something else.

[Tortoise]

I'm not sure of the regulatory solutions or the lassais fair logical conclusion, but it doesn't seem to me to ONLY be a function of government interference.

Yes, I agree. In my example of the 2008 financial collapse, what I said was that the government was solely to blame for the bailouts and the resulting moral hazard--not the financial collapse in the first place. The government--particularly the Fed--did have a heavy hand in inflating the credit bubble that led up to the crash, but I agree that the market participants are far from blameless.

LW summed it up nicely by observing that capitalism requires profit and loss as motives. When the government rigs the game in such a way that the likely profits far outweigh the worst-case possible losses (because of artificially low interest rates induced by the Fed, as well as the moral hazard of guaranteed or implied bailouts), it's easy to see that many market participants have a distinct financial incentive to make "bad" choices. And when people are given incentives to make bad choices, we should not be terribly surprised when they do so.