America and Manufacturing

Drilling fluids, all made in USA. Forest products, like sawdust, bark, etc. Stone, sand, brick. Military equipment, obviously. Complex and/or massive, hard to transport, parts for plants, mines, etc. Concrete premanufactured shapes, the list could be long.
Basically everything that
1) unique (for time being)
2) massive, low weight/high volume
3) Requires low amount of labor/unit

 

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OK but not the ones I made bold.

I own stock in Brazilian paper pulp producer, world's largest and lowest cost one, which is mainly exporting its production, Aracruz, (ADR symbol is ARA) so "forest products" are shipped globably. (I do not consider saw dust or bark as "forest products" - think the sawmill will pay you to haul it away to land fill, especially with stronger air polution CO2 laws now.)

For last 30 years or so, Brazil had the world's largest hydro-electric dam (and still has by some measures) by any standard before China's Three Gorges Dam was put on line. The turbines that water goes thru are enormous (much bigger than a house) one piece castings (almost sure) and then machined to high tollerance and well balanced (all in Brazil !). Brazil is shipping the turbines for the Three Gorges Dam units to China. Hard to guess what they weigh, but probaly more than 500 SUVs in one piece, when shipped at least, to keep the rotational balance. (Why I made that third item bold.) China has the newest, best port facilities in the world and is helping Brazil improve its ports - build new one as shippments to China are rapidly growing.

Russian is exporting a lot of military equipment, but not as much as US still, They have planes even bigger than the C-5. It is easy to deliver even tanks by air if cost is not a problem and you are in a hurry. Certainly, ocean shipping is both possible and cheap if you can take a week or two for delivery of ANY military hardware.

China, with Brazil's Embraer* (also own ADRs of it) is now producing 100 + or - 25 seat airplanes in joinly owned/ operated factory in Harbin China. (I think wings still are shipped from Brazil. - I.e. low mass/ large volume required items are shipped) In a decade, China will not place any more orders to Boeing. In fact, in a decade, there will be nothing except food stocks the US can sell competitively to Asia (no subsidies) other than farm products. Brazil and a few others with more sun, cheaper labor and land will undercut the breakeven US price, if the wages in US remain as high as today. (Even if not that not true, the corn to alcohol stupidity and expense to tax payers will prevent / price food exports to Asia out of the market.)

SUMMARY: Ocean shipping is cheap - not going to "save the US economy."
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*Now rapidly growing and world's #3 having pushed Canada's Bombair in to fourth position. Their corporate jets are running away with the international market - in part because they are by far the best and cheaper, but in part because of recent mid -air collison with much bigger Boeing plane that destoryed the Boeing (it broke up in air and fell in two widely separated places, killing all ~150 people on it.) but the small Embaraer jet only lost part of one wing and tip of horizontal tail. It few for half hour more to nearest air field and landed safely. After that, Embarear had to hire more people to respond to corporate inquiries and the back log of orders is now several years long. Embaraer is expanding the plant but that takes time.
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Someone here commented that US might become like Brazil in a decade or so (referring to the run-away-inflation Brazil had ~5 years ago). I was tempted to post reply: "If it is luckly." as US is rapidly going down while Brazil is rapidly going up with currency growing stronger every year instead of dropping like the dollar is.

 

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I've meant the wood stuff used to make plywood. However, they ship even recycled newspapers to China. But I think paper is much more dense.

Brazil has a unique product Chinese have not learnt how to make yet. Thus, shipping costs, etc. are secondary considerations. Chinese could pay for a redesigning a ship to transport those generators.

Yes, it's easy. However, because it's so called "national security" issue, Russian plants are safe from being moved to China. American military contractors can be sure that assembly plants (at least) and plants manufacturing key, classified components are in the safe zone. Even though, technically, there is no problem in moving Norfolk Navy yards to Indonesia and building ships there, it's not going to happen no matter the savings.

A cargo ship consumes around 80 -100 tonnes of oil products per day to propel itself through waters. If that is acceptable cost to run "global" economy, Something is really wrong with priorities and sanity of the involved.

You are wrong, China can't manufacture even 1/10th of the military gear USA can, Chinese have got no clue how to do it and they are desperate to learn.

There are countries (6 of them) with higher wages than American why wouldn't Brazil compete them out of existence first

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. Whom Brazil will outcompete in the trade with the USA, Americans themselves? What the point of such a trade? From a common sense point of view, you trade with a country X, if you want something that a country X has to offer. If there is nothing you are interested in, you don't bother to trade. Locals without access to the superior and cheap Brazilian goods, manufacture their own erzatzes. So, if Americans are expensive and produce nothing of value, why would Brazil bother to trade with USA at all? Isn't that kind of stupid?

 

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This is a famous problem Adam Smith solved - it was a problem because we can observe exactly such trade happening, and both sides better off, despite its not making sense at first glance.

He showed that if the relative production cost of the products is different, each country is better off concentrating on its comparatively more efficiently produced item, and trading it for the other item from the other country, regardless of the absolute efficiencies of production for either item. The country less efficient in general will be poorer in general, afterwards, but not as poor as it would be without the trade, and the more generally efficient country will be even wealthier than it would become by producing both items itself.

The thread here is about another consideration: regardless of net gain in wealth, does a country lose something important when it loses capacity to produce certain kinds of goods at all? We speak here of a large country, with a mostly internal and complex economy.

 

I think Smith couldn't imagine that 0.1% difference in returns on investments between plants A and B will result in moving Plant A across the globe, destructions of livelyhood of thousands while extracted (by investors)0.1% would be used to run all kinds of financial casinos. He couldn't imagine that this comparative advantage thing will be extended to absurdity. He couldn't imagine transEuropian corporations having more power over "comparative advantage" than all the natural factors combined. Yeah, it's good to explain why exchange of French wine for Scott's wool is a good idea (if peasants removed from the land by sheep are not concerned). However, don't tell me that burning tens of millions of tonnes of supposedly scarce resource to deliver socks ten thousands miles away making anyone better off except investor class. I do accept an idea that growing banana in Michigan is stupid and banana supply should be left to the winners of banana "comparative" advantage. However, to give away all economy of the state on the mercy of "comparative advantage" (in modern world, it usually means - cheaper labor) that's to become a hostage of the external forces, you have no control over. In other words, to become a slave of an abstraction (and its creators) hoping to win a good slave reward.

Besides, in the age of possible energy shortages, it would be reasonable to use ENERGY not paper currency. Minimization of the energy required to produce and distribute a given amount of staple goods should be goal. Energy shortages didn't bother Smith. From energy minimization standpoint, global economy is suicidal insanity. Whatever are gains, they are temporary and the price for the fun could be heavy, up to the terminal. So far, economies maximize the amount of $ in the hands of 1%, you can't eat that, you can't fuel tractors with that, you can just heat up yourself little bit with that.

Define efficiency? The only efficiency humans should be concerned is maximum output for a unit of energy (not labor, not money - ENERGY. That what moves and shapes nature). Since labor costs are defining in deciding what goods have a comparative advantage, what don't we maximize real world economy using abstract human concepts and social indoctrinations, at the same time we prefer not to wear dollar bills and don't stuff them in a fuel tank.

Again, definition of "efficiency" is a must. Since a corporation A desings the same factories for various regions of world, using the same training, the same processes. What does efficiency amounts to?

Sure it loses, first, it become a hostage of the external money grabbing forces, having 10% cheaper socks so you could save to buy some useless crap isn't worth it. Country becomes a hostage of disasters&crisis. If the sock flow will be interrupted, a sock plant will not materialize out of nowhere. Lastly, inhabitant of the state have limited career choices, their possible talants are underutilized, country loses expertise (i.e. people able to understand intricacies of sock production without extended training may extinct).

 

{1}If news paper can be economically shipped, surely finished plywood can be as it must be nearly an order of magnitude more valuable (by volume or by weight - take your choice) - I.e. you are supporting my point!

{2}You did not fully understand - I said the turbines, the sort of "water wind mills" that turn the shaft, not the generators - I bet they are wound near the dam - must be even more massive with all that copper and "magnet iron".

{3}Yes, most nations want to make their own food and guns if they can. I think it is illegal to import rice into Japan, but perhaps just a very high tariff - that small densely populated island of rice eaters AND FARMERS could not compete in rice production with a "level playing field" Also main thing now blocking the peaceful rejoining of Taiwan with the main land (under a one government -two systems plan / deal like Hong Kong made) is the farmer of Taiwan - they can not compete with the mainland (nor even the US rice farmers, for that matter).

{4}Interesting. How many tons of cargo is this ship to which this applies? \How does the rental fee per day compare with the fuel and crew cost factors (I am assuming the crew cost is minor in comparison.) My ex-wife's father was chief engineer for major Norwegian cargo line company (He spent several years in Japan overseeing construction of the world's largest diesel powered oil tanker.) I was once with him for few days in NYC as he stopped there to visit Norwegian buddy who ran a major ship engine repair shop* on Long Island and because his company had a ship with cracked piston in Central American harbor. They were making the final adjustments to the replacment piston - it was more than a meter in diameter and very heavy. They had a chartered plane waiting to fly it to the ship as just sitting at anchor, the idle ship was costing the company more than $1000/hour! I won't go into details about how they "adjusted" it, but it was by hammer and thin slips of paper to tell (by pulling them out) if the clearances were correct - amazing to watch!

Ever since then I have wonder about the break down of ocean shipment costs. - Capital vs fuel on the trip and what sets the speed of the ship for the least shipment cost trade off. Must be very complex problem when wave state, weather, contract late delivery penalties, etc are all factored in. If you know anything about this, please tell.

{5} I was speaking only of comercial aircraft. - I doubt Boeing is permited to sell military planes to China. I can not be sure of this because there is a lot of truth in Carl Marx's definition of a "capitalist" as the guy who will sell you the rope to hang him with. (freely translated from the German.) US is certainly loading China's "economic gun" with which it could now destroy the dollar (at great self damage also) and will someday do so (after it no longer needs sell to the US market due to the rapidly increase of domestic market and exports to pay for the raw materials, food stocks and energy it is increasingly importing) I.e. China will destroy the dollar and US & EU economies when it is to China's economic advantage to plunge the US and EU into deep depression and thus reduce the cost of these material and energy imports by lowering global demand for them.

{6} Brazil's trade with US is rapidly decreasing and that with China, rapidly increasing, but iceaura's "Adam Smith" comments are correct; however, they need not imply that there will be any Brazil / US trade. US is in the process of "blowing Brazil" as source of lower cost energy. - Japan is busy signing up long term contracts to take all the alcohol Brazil can produce in excess of its domestic needs. - Joe American will be stuck with high priced fuel AND high priced food AND higher taxes (for the subsidies) if celulosic alcohol is economically non competitive. Sort of looks like that will be the case because of all the extra steps required to cleave the cellulose into a mix of different polisacarides and then that complex mix will need a host of different yeasts, perhaps many centrifuge stages to separate each before even starting to ferment etc. It is no doubt possible, but cost may be much higher than gasoline from $100/ barrel oil. In contrast: Alcohol from sugar cane at my local "gas staion" is now 45% of the cost of gasoline and there is no subsidy for it! More at my old thread: "How DUMB can US voters be?"
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*It no longer exist in the US, of course.

 

You simply do not know what you are talking about. Please read any of the following links, all of which include Social Security (and all of the other mandatory spending components) in the budget:

http://en.wikipedia.org/wiki/United_States_budget_process
http://www.gpoaccess.gov/usbudget/fy08/browse.html
http://www.gpoaccess.gov/usbudget/fy08/pdf/budget/ssa.pdf
http://www.whitehouse.gov/omb/budget/fy2008/pdf/08msr.pdf

For future reference, please note that simply repeating blatantly false assertions is ineffective at convincing me (and, hopefully, everyone else) of their correctness. The only thing I take away from it is the knowledge that you're a nutcase, and a slight bafflement at your apparent belief that redefining the word "budget" is somehow crucial to your argument.

 

And the only thing I take from your insistence on hiding SS inside the federal budget is that you are comfortable with the idea that borrowing from SS is a legitimate way to "balance the budget".

Apparently you, in common with the Current Occupants, are not planning to pay that back through federal taxation. We will find out what you guys are planning to do later, I suppose.

As far as my argument, you may recall that my central point - the US spends a good deal more than 25% of its budget on the military every year - did not depend on rescuing honest handling of SS from the current political sleight of hand (that whitehouse budget link you've got there is a doozy).

Nor is an accounting of the many military siphonings of monies from departments such as "energy" and "science" and "transportation" necessary.

Simply prorating the debt - the minimum that an ordinary householder would do - takes care of that assertion. Actually assigning the debt to its proper category would be more accurate - but we musn't expect miracles from those who include piles of borrowed cash as income in their "budget".

 

You do realize that you sound like some kind of backwoods gun-nut, right? Nobody has proposed balancing the budget by borrowing from Social Security (other than some unnamed politicians that you are, apparently, fixated on). Madanthonywayne suggested across-the-board spending cuts which, presumably, would include mandatory as well as discretionary spending. The fact that the cuts to mandatory spending would require the passage of laws (and, presumably, a much more contentious and drawn-out political process) poses no fundamental barrier to this suggestion. Also note that I never endorsed his recommendation; I simply provided the numbers. Your insistence that SS is somehow off-limits is absurd: the growth of mandatory spending is the primary determinant of the deficit, in the long run, and so any attempt to cut our way out of a deficit will necessarily include it.

We're counting on economic growth to boost tax revenues. In case you hadn't noticed, the deficit this year is half what it was a couple of years ago, without any increase in federal taxation.

Okay, so we're agreeing to include both discretionary and mandatory spending in the budget (putting total spending at $2.97 Trillion) and we're including in the military spending both the defense budget ($699 Billion including the supplementals) and some portion of the debt service ($244 Billion). Even if we assign ALL of the debt service to the military spending category, we get the result that military spending is 32% of the budget. If we use a more realistic rate, say 50%, we find that it is 27.5%. So, okay, you've demonstrated that the military budget is 28% rather than 25%. I'm sure that that proves something very meaningful, although I can't see what it could be.

 

No need to wait until later - I will tell you now:

When the FICA tax on the poor working stiff (the Joe Americans whose job has not been outsourced) finally revolts and threatens to vote out all the current Congress men (and ARPA's support for the needed hike in FICA fails to counter balance) then the Congress will tell the mint to "run the presses" 24/7.

That is assuming,of course, that the FED has not already issued that command as no one will roll their outstanding Treasury bonds when they mature.

All will be

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and many will :bawl: but what else is possible (only default :shrug

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?

 

Probably true. (Your facts are usually correct, so I will accept your word on this.) BUT if true, it is only because you have "sliced and diced" the total US debt to find a part which is not as bad as it was.

The total US debt goes up ever year and foreigners are no longer willing to lend to the Treasury to cover it if Aug07 trend continues.: China, Japan, S.Korea & ? were net sellers in Aug07 of Treasury bonds (I forget No.4, but see my post in "Sovern Funds ... " Thread for the actual net dollars sold of Treasury bonds from Bloomberg data.)

I see you have data on the debt service ($244 billion dollars) - Trend of that (normalized by GDP to percent) is my main concern. What year is the $244e9 for and do you have the prior year also? Do you have any projections for 2007 (when average interest rates are increased over those of 2006)?

 

Well, that's what these guys have been doing so far. Should they stop?

So you are going to pay back SS with tax revenues, as promised - interesting. That means, since the economic growth has been confined to the upper 20% of the economy, taxing the rich to pay SS to the poor - the reverse of the current setup. That's good - it'll be kind of expensive, but it's more my way of doing things. And the payoff to SS is going to be a large part of the budget, along with the payoff to the Chinese, etc.

So there is no solvency problem in SS. Good.

If by that you mean including SS in the budget, we have no such agreement. That's your own little fantasy. In my world, all budgetary expenditures using SS money have to formally borrow from SS to do that, and pay interest, just like they do to the Chinese.

It's a 12% difference even with your completely unrealistic assumptions. With realism, ie honesty, the military share of the US budget goes well over 50%.

This has a direct bearing on the nature of "shrinking" government and reducing taxes. The problem is not welfare recipients - at least not poor ones.

And it ties directly into the problems with US manufacturing - the shrinking part is the civilian stuff. The military side is not shrinking. So the shrinking is worse, in its influence on everyday life, than the overall numbers say.

 

Not sure that Treasury is paying interest on the money it borrows from SS, but at least the Treasury's "IOU papers" do exist. The SS administration keeps them in a filing cabinet in West Virginia.

This seems potentially like a good system, even when the expenditures of SS exceed the FICA income. I.e. instead of admit that the US is bankrupt, can not pay its debts except with "printing press money" all it needs to do is start sticking "negative IOUs" in that filling cabinet. Should work just fine until some little boy, ignorate of high finance, says: "Look, the king has no clothes."

Added by edit:
On second thought, inaddition to the ignorant little boy problem, there is the "FED problem." I.e. sticking "negative IOUs" in that filling cabinet is a way to make money out of "thin air" - the FED will probably feel threatened (that is their job) and expose the unsoundness before the little boy has finished his breakfast.

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This is a very important point, one I have often made. This is a strong driver of inflation, which the FED fights with higher interest rates, which then reduce further the economic activity of the private sector.

The reason why military spending is a strong driver of inflation (and the private sector is not, just the opposite it reduces push to inflation) is that the workers making bullets and bombs etc. are paid like all others (actually often better) and yet their production does not result in any goods or services Joe American can buy. I.e. it adds to the money in circulation but not to the goods in the market place - best way to make inflation.

The fact that the militray budget is debt financed, also adds to the inflationary effect of the military spending (and that borrowing "crowds out" marginal private investments).

In many ways the rapid growth to world power status (economically) of Japan is due to the fact at end of WWII, the US dictated constitution prohibited them from rebuilding their military.

Best thing US can do to hurt its enemies is encourage them to have a strong military! Reagan destroyed the USSR this way. US is destroying itself - but what else do you expect from the most stupid president US has ever had? :shrug:

 

Without knowing who "these guys" are, I have a hard time answering this question. Exactly who is it that thinks the budget is balanced anyway?

Not me, the federal government. Dare I ask what else you would expect them to do?

It may come as a surprise to you to learn that there are other sources of federal tax revenues than the income tax. For example, corporate taxes. You will perhaps be interested to learn that a major effect of the 2003 tax cuts was to shift the tax burden away from individuals and onto corporations. This also points out why your conflation of "economy" with "workforce" is so ill-advised: there are plenty of players in the economy that aren't in the workforce, or even people at all.

But, yeah, the wealthier segments of society have always paid the lion's share of the income taxes, and I don't forsee this changing any time soon.

Oh, so you have your own world? No wonder you are so oblivious to the real world. You're just testy because you got caught not double-checking your math before claiming that your nonstandard SS accounting (and creative pro-rating of all other government expenditures) didn't affect your point.

Okay. Who ever said they were the problem? Moreover, I never suggested shrinking the government, so I'm not sure why you think I'll care about this.

 

Iceaura:
"you are going to pay back SS with tax revenues, as promised."

Quadraphonics (replying):
"Not me, the federal government."

Quad this reminds me of meeting of some farmers wanting the Mayor to pave their dirt road. (In Brazil. My farm was on that road, but I only listen as the dielect was thick, and feared I might be misunstanding.) The mayor agreed to do so and suggested that there be a special assement for one year to pay for it. The farmers replied as you have to iceaura:
"But we want you to use the city's money, not ours."

Just where do you think "the federal government" gets "its money" from, if not you and me?

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PS, I admit that some of the funds needed to pay the SS benefits in the future when FICA tax alone is inadequate do come from the tax on corporations (I think FICA already does hit the corporations too, but not sure of this.) This leads to the question:

Just where do you think "the corporation" gets "its money" from, if not you and me?

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Trust me: You and your kids, if you have any, are going to pay. (ARPA will see to that - a very well organized voting block, second only to the NRA!)

 

There's no way they're going to pay the full rate on Social Security. They're going to cut benefits and raise retirement age to the point no one qualifies for benefits. That's the only way a ponzi scheme like social security can work. After all, 65 was first set as retirement age by German Chancellor Otto von Bismarck.

Back then, most people were dead by that age or would die quickly upon reaching it. Nowadays, we're living too long to retire at 65. What's the point, anyway? After working your entire life, you want to sit around and wait to die your last ten or twenty years?

I strongly suspect that this idea of taking your last twenty years of life "off" will be a twentieth century phenomena. We'll be back to working your entire life the way it was for all the rest of human history before long. (So long as you're healthy enough)

 

To Quadraphonics:

I tried to find your post that pointed out US debt as percent of GDP was not notably different from many other advanced nations (but failed). By accident I had open the following Economist table:

http://www.economist.com/markets/indicators/displaystory.cfm?story_id=9803820

where both the current counts (trade + FDI, I think) and domestic budget are given as percent of GDP. For example:

USA............-5.7....-1.3 = 7.0% twin deficit total
Euro zone.....0.0 ....-0.6 = 0.6% twin deficit total (less than10% of the US's !)

Now it is true that a few of the countries have higher total "twin deficits" than the USA:
Greece has 11%
Italy has 10.9%
Turkey has 9.1%

But they are certainly far from major or "model economies" and more importantly the rest of the world is not holding trillions of their central banknotes as is the case for the dollar. In fact, Spain, Germany, Norway, Netherlands, Denmark, Sweden, Switzerland and Russia all have budget surplusses. (Like US had under Clinton.)

Norway has oil income so is in envious position of having positive 14.9% current account and 16.8% budget surplus, but
Austrial
Belgium
Denmark
Netherlands
Germany
Russia
Sweden
Switzerland
all also have positive current account balances.

Summary: I had come to trust you data without checking, but now I have my doubts. Do you have some source that contradits the Economist? Or perhaps I am not reading their table correctly? You effectively said "not to worry about US's twin deficits as in percent terms not as bad as some in Europe." This is much less reassurring when you see who those few are and when you realized there are trillions of dollars in Treasury Bonds out against the US that could, if only one major holder* chose to, trigger a run on the dollar.

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*With about 10 Trillion, China can kill the US economy where ever China wishes. Not likely to do so for a few years, but as China now has a sovern fund agency set up to buy real assets (instead of Treasury PAPER) it seems to be moving into a position where it can destroy the US (send US into deep depression) and only lose a few trillion dollars at most doing so. This loss, it will gain back in a few years by the reduced cost of oil, raw materials, and food stocks it increasingly needs to import. (US not buying hardly anything with its recession and collapsed dollar's low purchasing power.) Brazil, et. al. will be transfromed into "economic colonies" of China and will be in a minor recession because most of their sales to the US are gone.

I think China WILL harm US as soon as they think they (the CCP) can avoid "excessive loss." (i.e. Not wait until it is profitable to destroy the US.) I.e. CCP's idea of "excessive loss" is that it is OK for their people to suffer, but not if that suffering is so great that the CCP is in danger of a people's revolt.

Are you not the least bit concerned with this possibility? Do you trust China to do no harm to US when they can? I do not! However, I expect they will not destroy the US because GWB is the US President and appears to be quite capable of destroying the US without any help from the Chinese.

 

SS is a welfare system, a transfer payment - not an investment program. It's not a Ponzi scheme, then, jsut a bad welfare setup.

It could be made sound overnight, permanently, by two expedients: paying out only to poor people (below median income for age group), taxing all income alike.

If Robin Hood systems seem suspect to some, they are certainly better than reverse: right now, the working poor pay over 12 % of their wages, and most of the money goes to fairly wealthy old folks.

Away from rich individuals, unto their corporations - what a fine way to ensure that corporations were not penalized whatsoever for redoubling and retripling their executive payouts, or their support of their stock prices.

Of course the rich pay the most income taxes - if we were talking Pharoah's Egypt, the Pharoah might pay all the income taxes; likewise the owner of a slave plantation. Who should pay for a system but its beneficiaries? Of course, it can be difficult to collect - - -

 

The data I gave earlier was for the external debt as a percentage of GDP. The tables in the economist are the trade and budget deficits as a percentage of GDP. These are not the same things. The data for the external debt and GDP can be obtained from the cia world factbook site.

Err, no. There's only about $3 Trillion in outstanding treasury bonds out there, and China has about $800 Billion or so. You're off by an order of magnitude.

A "few trillion dollars" is about equal to the entire GDP of China (currently about $2.7 Trillion). There is absolutely no way that they can afford to lose an entire year's worth of income. That would be far more damaging to China than any of the actions you've suggested would be to America.