Category Archives: Politics

The Free market destroys its creators – how the Free-market mindset is destroying the USA Economy

By Alan McCrindle

I constantly hear Americans and American politicians talking about how innovative the USA is. America is the home of “the free market”. This is something that Americans are incredibly proud of and a major reason that they site for the economic success of the USA.

Yet I predict that this very same fee market is paradoxically going to be the cause a  major economic decline in the USA.

This economic decline is already evident and has been occurring for some time now. However this trend was hidden by a ponzi scheme driven by cheap debt, low interest rates and lax lending standards combined with shonky Government economic Statistics.

Real Wages in the USA have been falling since the 70's - shonky CPI data has hidden the depth of the decine

While real wages from employment were falling for the majority of Americans,  households were bolstering their income with imaginary profits from unrealised gains in house prices . At one point almost  8% of annual USA GDP was coming from equity withdrawals predicated on unrealised profits from the housing boom.

Without the “false income” generated by home equity withdrawals the US economy would have looked very sick as illustrated by the chart below

There is a conceptual failure to understand that the free-market does not care about countries – competitive reality will force corporations to dump uncompetitive US businesses and labour for greener pastures

What most people forget about capitalism and the free market is that it is based on competition between companies and not countries. Companies have no loyalty to countries. If companies want to survive in a global market place against global competitors they need to think and act globally.

This is why manufacturing has been in decline in the USA and other parts of the developed world and why it is now taking place in places where labour costs are lowest – all other costs considered.

So far it has really only been blue collared jobs that have gone off-shore. The American’s feel that the highly skilled engineering jobs that have maintained their global leadership edge in new product innovation are safe. It is assumed that these high paid jobs will stay in the USA and countries like China and India will get the low skilled and low paid jobs.

This is a delusion. High-tech R&D is starting to shift out of the USA to China. Moreover this shift is set to continue and accelerate – competition and the free-market will drive it now that it has started.

Extremely cheap highly skilled staff in China

Take a look at the city of Xian, located about 1000 km south west of Beijing. According to a New York Times article titled China draws high-tech researcher from the USA it has 47 universities and other institutions of higher learning. Engineers with masters degrees can be hired for $730 per month.

And the result is that Applied Materials, one of Silicon Valley’s most prominent firms and the worlds biggest supplier of equipment used to make semiconductors, solar panels and flat-screen displays, has just built its newest and largest research lab in Xian. And, in addition, Mark Pinto, The chief technology officer of the company has relocated to China too.

High Health Care, Housing and tertiary Education Costs in the USA have created a structurally high wage economy that can’t compete with low Chinese wages

How can the USA compete? It cant. Thanks to the free-market almost 20 cents in every dollar in the US economy is spent on health. And when high health care costs are added to high house costs it is easy to see why someone on $760 a month in the USA would starve.

And besides, with the cost of a 4 year University degrees in the USA as high as $200,000, big salaries are required to justify this sort of cost. Moreover this is just the price of an undergraduate degree and apparently reflects only half the cost of delivering it.

The reality is that in a globalised free-market  expensive health care and expensive houses translates into wage needs that are globally uncompetitive.

And there are other reasons why the USA will find it difficult to compete against the likes of China – the free-market mindset is reluctant to see the government get involved in the market in any way. This doesn’t work when governments in other countries act differently.

For example, Western companies relocating to China not only get  local access to the worlds largest Auto, and desk top computer markets and cheap highly skilled labour – they are often also offered subsidies by many Chinese cities and regions, particularly for green energy projects.

For example, in the case of the new Applied Materials Lab,  the Xian city government sold a 75-year land lease to the company at a deep discount and is reimbursing the company for roughly a quarter of the lab complex’s operating costs for five years.

President Obama and American politicians talk about creating new Green Tech jobs in the USA but this is likely to be a pipe dream. Even if he could muster the political will to stand up to the Republican free-market right the competitive playing field is tilted against the USA.

The bitter irony is that the free-market is and has destroyed its inventor and greatest proponent. Even more surprising is that these proponents don’t seem to be able to either see this or understand it.

The same is true for democracy – it is a system that holds in it its own seeds of destruction. I will leave that for another day.

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The Con in Economics – how we are being fooled by shonky Government Economic data that is fooling even the experts

http://wp.me/plM5Z-2I – shortlink

By Alan McCrindle

It is amazingly easy to hoodwink economists using shonky government statistics – even in this age when there are easily accessible articles that can be found with a few simple internet searches that point to the errors in the data.

Shonky USA productivity Data fools the Economist Magazine

A current example is a piece in the Economist based on a report by a USA based organisation called the Conference Board. The Economist – Slash and earn Productivity has surged in America and slumped in Europe. Neither trend can last – rightly questions large differences in recent productivity growth between the USA and Europe. In the article they speculate as to the reasons for the large increases in productivity in the USA.

However no where in the article do they even question the validity of the data as a proxy for measuring productivity growth in the USA.

If the Economist had done an internet search they would have discovered the same article that I had read a few weeks earlier that explained the issue. The article – an op-ed piece on this in the New York Times titled – Trading Away Productivity: How American Trade Policy Relies on faulty measures of Productivity

To quote parts of the article

“But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.”

“The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.

“This oversight is no secret: as Labor Department officials acknowledged at a 2004 conference, their statistical methods deem any reduction in the work that goes into creating a specific unit of output, whatever the cause, to be a productivity gain.

This continuing mismeasurement leads economists and all those who rely on them to assume that recorded productivity gains always signify greater efficiency, rather than simple offshoring-generated cost cuts — leaving the rest of us scratching our heads over stagnating wages.

“Above all, if offshoring has been driving much of our supposed productivity gains, then the case for complete free trade begins to erode. If often such policies simply increase corporate profits at the expense of American workers, with no gains in true productivity, then they don’t necessarily strengthen the national economy.

In this regard, the case for free trade as a stimulus for innovation weakens, too. Because productivity gains in part reflect job offshoring, not just the benefits of technology or better business practices, then the American economy has been much less innovative than widely assumed.”

Shonky Economic Data is widespread and Used by Governments of all political persuasions

Maybe it is time for the Economist to do an article on how governments of all persuasions around the world have changed how they measure statistics such as employment, inflation, productivity, debt levels and GDP to mask economic problems, dodge liabilities and justify damaging economic policies that help special interest groups at the expense of the general public.

Kevin Phillips has an excellent article on the subject in the MAy 2008 edition of Harpers Magazine. In the – Numbers racket: Why the economy is worse than we know

To quote his article:

“since the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is”

The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.

The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3–4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?“

Another interesting article written by Chris Martenson looks at USA economic data and attempts to divide it into 3 groups – Good Data, Murky Data and Unreliable Data.

Is the Internet setting us free or being used to delude us?

The commonly held idea is that the easy accessibility of data via the internet is making it harder for  governments and special interest groups to deceive us. The internet is supposed to be devolving power to the people.

But as I have attempted to show here it is surprisingly simple to delude even so called experts

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Bankers and Politicians a threat to society

Democracy and Capitalism share a common trait that is turning them into a problem and a threat to society. And the common thread is their short term focus which itself is a function of the prevailing world-view and the systems, laws and institutions that represent it.

This short term perspective allows both politicians, banks and other corporations to profit in the short term by “legally” stealing from the future. The losers are the general public.

If you wonder why Governments around the world have been bailing out banks rather than bailing out tax payers the relationship between Goldman Sachs and the Greek government is a good case study.

In 2001 Goldman is purported to have made a $300m profit on a deal it structured for the the Greek Government that allowed it to legally side step European Union rules on debt and deficit ratios. And as late as November 2009 a team from Goldman apparently arrived in Athens with another similar deal.

The New York Times has a good story with more details titled – Wall Street Helped to Mask Debts Shaking Europe

Gikas A. Hardouvelis, an economist and former government official who helped write a recent report on Greece’s accounting policies encapsulates this succinctly – “Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it”

Where does this leave the average citizen? Neo-classical economists are in denial of the fact that economic growth is dependant of new debt rising faster than GDP. They are even in denial of the role that credit plays in economic growth.

With the general public and business at debt saturation levels the reality of the bankruptcy of the the capitalist model and many states has been hidden temporarily by governments who have taken up the role of providing the new debt required for economic growth. This is simply putting of the day of reckoning and setting us up for an even harder landing.

And you probably don’t have to guess to hard to work out that their accomplices that are facilitating this – and making big bonuses for doing it – are none other than the banks.

It is no wonder that the Tea baggers in the USA are a growing movement. I expect that similar movements will gain is strength across the world as the economic situation inevitably declines. The public is losing trust in its politicians – democracy is under threat.

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The Common root causes of sickness in Bees and Humans – are we both headed towards the same early human caused extinction?

The BBC has an interesting article today that links the decline in bees in many countries to the decline in biodiversity. I agree with the article and have a further take on the subject.

Shock horror – bees are getting sick for exactly the same reasons as humans – they are eating a diet and getting stressed in ways that their systems weren’t evolved for – and the cause is the modern human environment, diet and lifestyle.

Just as we are increasingly eating a diet of processed sugars and carbohydrates – that come from fewer and fewer food sources so are the bees.

Note: Processed and reconstructed variations of corn and soy make up an increasing component of the diet of humans and animals, and this includes bees. One of the ironies is that bees have access to a more diverse diet in cities than they do in the country side – there is now more plant diversity in cities than in the modern farming countryside.

Bees no longer live in stable environments. The bee industry has been commercialised. Bees are now dragged all around the country in trucks to service different farms. This constant change and travel causes stress in much the same way as we humans are stressed by changing jobs, work environments and constant travel. And it should be no surprise that chronic stress weakens their immune systems in the same way as it does ours.

And, to supplement their bland diets and increased workloads, commercial bees are fed simple sugars in much the same way as we feed ourselves sweets, sugary drinks and coffee to keep ourselves going.

The problem for the bees, and poor humans, is that they don’t have choices like the well off humans do. Their environmental choices are set and limited by the environmental conditions created by the wealthy humans who own the businesses that create these environmental conditions and employ the less well off.

The bad news for the wealthy humans is that they are shooting themselves in the foot. If the bees die off the human species will die off too.

The downside of being at the top of the food chain is that we humans are dependent on the survival of the species lower down the food chain for our survival.

While the wealthy have the option of escaping climate change and environmental damage in the short run, by moving location and putting on the air con, the species on which our survival depends do not have this luxury.

99.9% of species that have been on this planet are extinct and we are now in the midst of the 6th great extinction. And this extinction is being caused by us humans.

Alan McCrindle

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Filed under ecology, Economics, Evolution, Politics, Strategy, Yoga

Quiz: Are you a COMMUNIST or a CAPITALIST?

Quiz: Are you a Communist or a Capitalist?

 

To find out simply answer these questions.

 

1. Do you want fewer and fewer options as a consumer as small independent businesses and genuine free enterprise are marginalised or crushed?

 

2. Do you want the public to be at the mercy of a small cartel of unaccountable despots?

 

3. Do you want to be continuously assaulted by relentless propaganda?

 

4. Do you want your economic system to be doomed to end in failure?

 

If you answered YES to most or all of these questions then YES you are a communist or a capitalist.

 

If you like this sort of satire it is from a 4 part series titled Silly Money by Bremner, Bird and Fortune. Replays are available on Googlevideo

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