A couple weeks ago we discussed why money still flows into America: returns are higher.
Generally US assets are highly valued and money tends to flow into the US over other countries. This is because US assets out-perform. The Chinese stock market, like the US market of the 50s and 60s, trades sideways. The US stock market since Greenspan never stops going up: crashes are just speed bumps. Likewise, US housing prices just keep going up, and so on.
On its face, money flooding into the US seems odd. After all, it’s not even close to the world’s most dynamic economy. China is ahead in 80% of technologies, the world’s largest manufacturer, and increasing its lead. In the last 3 years it has increased the numbers of cars it produces by five times, surpassing the US, Japan, South Korea and Germany, all of whom it was behind.
This is a good thing (sort of) if you’re rich and own a lot of assets in the US. It is a bad thing if you don’t, and you’re American. (Europe is similar, but in some ways better for ordinary people.)
American companies just aren’t competitive, because they are always seeking higher profits, which means higher prices, and they actively work to make sure there is no real competition inside the US. Everyone wants to be a monopoly or part of an oligopoly. They want a “moat”, something that means other companies can’t compete with them and government refuses to regulate price gouging.
That produces higher returns, but if you’re going up against a country which has actual competitive markets you’re screwed because they have lower prices and always will. This is the argument for tariffs, to keep American companies competitive in America against cheaper foreign goods. To re-industrialize it would have to be profitable, and it isn’t. The US market is increasingly only America and whatever allies can be convinced to tariff China (which many do, but will they continue to do so?)
Plus, even then, American companies won’t invest unless they can make profits higher than what Chinese companies would accept.
American companies are all financialized. They’re looking for unfair profits, they’re not actually competitive and worse, they don’t want to compete.
OTOH, a lot of Chinese companies are sharks. They compete savagely and they are willing to cut profits razor thin to gain market share.
Additionally the Chinese just move faster, and they have 90% of their own stack in China, while the US has less than 50%. America, ironically, needs China’s help if it wants to rapidly re-industrialize, it needs aggressive anti-trust enforcement, and it needs to change various laws to make financialization far more difficult.
Start with just outlawing PE. Get rid of stock buybacks. Stop pumping the stock market. Ruthlessly go after everyone deliberately raising real-estate, rent, food and other prices.
Slash, in general, all excess profits (like healthcare). Crash the cost structure. Free up consumer demand.
Everything’s being spent on AI, which is increasing energy costs for every other business in the country, and draining investment from anything actually productive. and the US cannot win the AI race, it’s impossible. At best it can get a draw and I doubt it’ll even get that. Chinese AI is open source and uses far less energy, plus the Chinese are building new energy like crazy.
To re-industrialize and compete with China is impossible for the time being. Not in theory, it’s possible theoretically, but it is impossible in practice.
Why? Because NO ONE in power or who can get into power wants to give up their outsized unfair financialized profits.
This is why it’s all Kabuki bullshit. China will keep pulling away. The US cannot compete, because the US refuses to compete. Its only effective policy is to loot its vassals, but that won’t save it.
To a large degree this is why I don’t bother with wonky analysis any more, except occasionally to show it’s pointless. The game is over. The US lost its last chance in 2009, everything since then has just been playing out a game the US cannot win because its elites will never allow the policies necessary to win.
The only way out is thru. The US economy will have to essentially collapse, this type of elite will have to be driven entirely out of power and replaced by industrial elites. Only IF and THEN will it be possible to re-industrialize. That is, best case, a decade in the future, and will start from an even worse position than now.
By then we’ll have even worse climate change and cascading environmental problems.
The next 40 years are going to be UGLY for most of the West.
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Nat Wilson Turner
Sadly, you haven’t been wrong yet.
spud
if we want to compete, we must reverse every single one of bill clintons disastrous polices, go through every single thing he ever signed, including signing statements. it can’t be done.
i once read, can’t find the article anymore, that Franklin and Paine advocated the burning out of the homes of the wealthy and bootlickers of the english free traders.
many bootlickers headed for canada, the bahama’s and england itself.
https://www.dailykos.com/stories/2016/4/1/1508946/-HAWB-1800s-The-Doctrine-of-High-Wages-How-America-Was-Built
HAWB 1800s – The Doctrine of High Wages – How America Was Built
“According to the theory of protection, protection, in so far as wages are concerned, is both cause and effect. The effect of protection is to increase wages, and the increase of wages, that is, the higher scale of wages resulting as the effect of protection, increases the wealth of the country, puts into circulation a larger volume of money, and enables the wage worker to become a larger consumer, thus creating a larger demand for all commodities, and is one of the reasons (but not the only one) why the manufacturer is able to pay high wages. It is an endless chain, beginning in protection and ending in protection.”
“One of the three cores of the American school was a protective tariff, the simple mention of which will cause “very serious people,” such as economists, corporate CEOs, and celebrity journalists, to run shrieking from a room into a howling gale at night. In May, 1997, Hudson wrote, in “Theories of Economic Obsolescence, Revisited”:
The implications of technological change, industrial head starts and the causes of economic backwardness were analyzed above all by American economists in the mid-19th century who no longer are well remembered today: Calvin Colton, Henry Carey and E. Peshine Smith.
These writers were associated with Whig (and, after 1853, Republican) politicians in shaping the industrial policies that transformed the United States from a raw-materials producing (“Southern”) economy into the world’s major industrial power as a “Northern” economy. Members of the American School typically are dismissed (if they are discussed at all) as protectionists.
A more accurate name for them would be technology theorists, futurists or prototypical systems analysts. Their Theory of Productive Powers focused on industrial and agricultural technology, especially the substitution of capital for labor and land.”
” It should be noted that an important precursor of the Doctrine of High Wages was Benjamin Franklin’s 1783 essay “Reflections on the Augmentation of Wages, Which Will Be Occasioned in Europe by the American Revolution,” which was published in Paris in the Journal d Economie Puplique. It is a deliberate and comprehensive attack on the “free trade” ideas of the house economists of the British East India Co., such as Adam Smith and Thomas Malthus.
…If the term wages be taken in its widest signification, it will be found that almost all the citizens of a large state receive and pay wages. I shall confine my remarks, however, to one description of wages, the only one with which government should intermeddle, or which requires its care. I mean the wages of the lowest class, those men without property, without capital, who live solely by the labor of their hands.
This is always the most numerous class in a state; and consequently, that community cannot be pronounced happy, in which from the lowness and insufficiency of wages, the laboring class procure so scanty a subsistence, that, barely able to provide for their own necessities, they have not the means of marrying and rearing a family, and are reduced to beggary, whenever employment fails them, or age and sickness oblige them to give up work.
Further, the wages under consideration ought not to be estimated by their amount in money, but by the quantity of provisions, clothing, and other commodities, which the laborer can procure for the money which he receives.
….The horrible maxim, that the people must be poor, in order that they may remain in subjection, is still held by many persons of hard hearts and perverted understanding, with whom it were useless to contend. Others, again, think that the people should be poor, from a regard for the supposed interests of commerce.
They believe that to increase the rate of wages would raise the price of the productions of the soil, and especially of industry, which are sold to foreign nations, and thus that exportation and the profits arising from it would be diminished. But this motive is at once cruel and ill founded.
….To desire to keep down the rate of wages, with the view of favoring the exportation of merchandise, is to seek to render the citizens of a state miserable, in order that foreigners may purchase its productions at a cheaper rate; it is, at most, attempting to enrich a few merchants by impoverishing the body of the nation; it is taking the part of the stronger in that contest, already so unequal, between the man who can pay wages, and him who is under the necessity of receiving them; it is, in one word, to forget, that the object of every political society ought to be the happiness of the largest number.
…. High wages attract the most skillful and most industrious workmen. Thus the article is better made; it sells better; and in this way, the employer makes a greater profit, than he could do by diminishing the pay of the workmen. A good workman spoils fewer tools, wastes less material, and works faster, than one of inferior skill; and thus the profits of the manufacturer are increased still more.
The perfection of machinery in all the arts is owing, in a great degree, to the workmen. There is no important manufacture, in which they have not invented some useful process, which saves time and materials, or improves the workmanship.
If common articles of manufacture, the only ones worthy to interest the statesman, if woollen, cotton, and even silk stuffs, articles made of iron, steel, copper, skins, leather, and various other things, are generally of better quality, at the same price in England than in other countries, it is because workmen are there better paid.
The low rate of wages, then, is not the real cause of the advantages of commerce between one nation and another; but it is one of the greatest evils of political communities.
…. The rate of wages in Europe will be raised by yet another circumstance, with which it is important to be acquainted. I have already said, that the value of wages ought not to be estimated solely by the amount of money, nor even by the quantity of subsistence, which the workman receives per day, but also by the number of days in which he is employed; for it is by such a calculation alone, that we can find out what he has for each day. Is it not evident, that he who should be paid at the rate of forty pence a day, and should fail of obtaining work half the year, would really have but twenty pence to subsist upon, and that he would be less advantageously situated than the man, who, receiving but thirty pence, could yet be supplied with work every day?
Thus the Americans, occasioning in Europe an increased demand and necessity for labor, would also necessarily cause there an augmentation of wages, even supposing the price of the day’s work to remain at the same rate.
….Better days may come, when, the true principles of the happiness of nations better understood, there will be some sovereign sufficiently enlightened and just to put them in operation.
The causes, which tend continually to accumulate concentrate landed property and wealth in a few hands, may be diminished. The remains of the feudal system may be abolished, or, at least, rendered less oppressive. The mode of taxation may be changed, and its excess moderated.
And, lastly bad commercial regulations may be amended. The tendency of all these improvements will be, to enable the working classes to profit by the favorable change, which the American Revolution must naturally produce.”
Jan Wiklund
I suppose capitalists want as high profit as possible – everywhere.
The distinctive feature of North Atlantic capitalism is that it is so dominated by rentiers, i.e. by people who don’t organize production themselves but only profit on them. This was not true up to about 1970, at that time the dominant ruling actors were employed CEOs that considered themselves be servants of the enterprise as an organization. Which meant that they considered peoduction and market shares as their principal goals, while equity was almost irrelevant.
I suppose Chinese CEOs still keep that mentality.
Alfred Chandler believed the change to the present situation came because the corporations faced an overproduction crisis 1965-75 and needed money (Scale and scope, 1990). And the rentiers were the only ones that could provide that. They thus got power – over the entire production and the whole global region.
Dan Lynch
Matt Stoller says essentially the same thing but in a different way — that American companies spend their profits on stock buybacks to juice their stock prices, or buying out competitors so they can be a monopoly and jack up prices, instead of investing in better equipment, or heaven forbid, investing in their employees.
As for whether the U.S. can compete with China, no, but the question is SHOULD we compete? Is it necessary to be number one in everything in order to be a good country to live in? I think there is a lot to be said for being an autarky even if it means you aren’t number one. Ian is right that the powers that be won’t allow that to happen, even if they were smart enough to know how to make it happen, which they aren’t. So it would take something like a war to force a major change in policy. Trump tried, but he has neither the brains nor the motivation to do more than his crazy, on-again, off-again tariffs, which will only serve to give tariffs a bad name for many years to come. It would take not just tariffs but industrial planning and WWII-style government intervention to bring back U.S. manufacturing, and conservatives like Trump don’t believe in industrial planning or government intervention.
Troy
Japanification scared the neo-liberals shitless. They saw the stagflation and the lack of “growth”, and thought, never us, at any cost to the working and middle class.
They latched onto insane policies, such as the rich and powerful must never face consequences for their decisions. And that monopolies were a net good for society. That somehow, the following would happen:
1: Cater to the rich and powerful
2: Let the rich and powerful consolidate everything
3: ???
4: Profit!
And now we’re at the point where there’s no path forward but through collapse. Give a man enough rope, and eventually he’ll hang himself.
Like & Subscribe
The next 40 years are going to be horrific for all of humanity, not just the West. There are no winners. Only losers.
mago
Nothing to do with the topic on hand, but I do appreciate the majestic grandeur of the new mountain header. It a peaceful counterpart to the apocalyptic world.
Gaianne
What Nat said:
Sadly, you haven’t been wrong yet!
–Gaianne
spud
what the financial leeches and parasites accomplished was to squeeze out more profits from companies than those companies could naturally produce.
to do this they had to trash the companies ability to manufacture, innovate, invest in their people and infrastructure and compete.
that left them with pieces of paper proving ownership of intellectual property, pieces of paper called stock, the W.T.O. and the federal reserve as a backstop.
but the clever dim wits did not think that china, who used to get massive applauds when they opened the bell on wall street because they allowed the degradation of their labor and environment to trap the capitalist dim wits into handing over 200 plus years of americas wealth, would ever be able to understand the technologies.
today most of these companies in reality, are zombies. kept alive by the federal reserve, and are now panicking, that is why these towering intellectual mental midgets are trying in vain for AI and the implementation of a police state.
instead of taking massive pay cuts, investing in people and in their companies, which is investing in america.
the towering intellectual mental midgets should really heed bill clintons advice when he told us little people to buck it up and learn chinese.
because china really owns them now.
different clue
@Like & Subscribe,
In tomorrow’s zero sum future, the loser who loses least ” wins” most. Different people, jurisdictions, countries, etc. will take different approaches to losing least.
It reminds me of the old joke about the backpackers and the bear. The bear starts chasing two backpackers. One stands in hopeless despair. The other starts running.
The first one says: ” You can’t outrun a bear”. The other one says: ” I don’t have to outrun the bear. I just have to outrun you.”
On the one hand, in a world of 8 billion people and counting, nothing is sustainable. On the other hand, ” I don’t have to outrun the bear. I just have to outrun you.”
https://veryfunnypics.eu/how-to-become-a-runner/
StewartM
Spud
if we want to compete, we must reverse every single one of bill clintons disastrous polices, go through every single thing he ever signed, including signing statements. it can’t be done.
Bill Clinton’s? Don’t you mean RONALD REAGAN’S?
(And yes, NAFTA and free trade with China were negotiated by Reagan and initiated by Reagan, respectively. You can justly blame Clinton for continuing to implement Reagan’s policies (over the objections of many in his party) but that’s what Americans voted for, and voted for repeatedly, including many working-class stiffs).
StewartM
The only way out is thru. The US economy will have to essentially collapse, this type of elite will have to be driven entirely out of power and replaced by industrial elites.
Running the experiment again and expecting different results the next time I don’t think is very fruitful. That’s because financial profits are so much easier to game and get with less risk than the hard work of actually producing better mousetraps and superior services. Yes, you can regulate capitalism to get a desired outcome but the regulations will be hated and fought at every step of the way, and eventually overthrown. I personally don’t see the value of feeding a class of parasitic “useless eaters”, certainly not given their insatiable appetites.
Time to move to a different system, perhaps?
The types of socialism that might work better run the gamut of state companies, private companies but where the state owns a controlling share and thus has veto power over management decisions (say, to “socialize losses and privatize profits”, the easiest and now usual way that profits are generated) to co-ops, and more. All these have advantages and disadvantages, and but maybe some combination of these might avoid the problem of a powerful Daddy Warbucks always seeking to game the system.
spud
StewartM,
reagan and carter were equally dirty and share some of the blame. but it was bill clinton that gutted the new dear, the fair deal, Gatt and the great society. he almost got social security, and he did get medicare. medicare advantage is bills baby, just as nafta was.
obama bailed bill clintons disastrous polices, then doubled down on them. biden was bill and obama’s right hand man, who is responsible for trumps second term, bill and obama were responsible for trumps first term.
https://www.salon.com/2016/10/02/own-up-to-nafta-democrats-trump-is-right-that-the-terrible-trade-pact-was-bill-clintons-baby/
Own up to NAFTA, Democrats: Trump is right that the terrible trade pact was Bill Clinton’s baby
If the Democrats want to reclaim a progressive identity, they must own up to the dreadful mistakes of the past
By Paul Rosenberg
“The usually whip-smart Rachel Maddow made a mind-boggling error the day after the Clinton-Trump debate. Her first 14 minutes were fine, but when she turned to fact-checking Trump, the first of the “untrue things” she chose to correct was not untrue at all. “Bill Clinton did not sign NAFTA,” Maddow said. “George H.W. Bush signed NAFTA.”
Actually, it was both. Bush signed the treaty with Canada and Mexico in December of 1992 (his final month in office), and Clinton immediately pledged not to renegotiate it. Less than a year later, on Dec. 8, 1993, Clinton signed the treaty into law. Neither signing was perfunctory or irrelevant. Both were necessary. Clinton absolutely did sign NAFTA.
Trump is certainly wrong to assign Clinton sole or even primary responsibility for that much-villainized trade agreement. But Clinton not only willingly signed it, he fought hard to get it passed.
During the 1992 campaign, Clinton had pledged to get side agreements in the implementation process to provide job and environmental protections, which critics warned would be doomed to fail. The day Bush initially signed it, Clinton said “I will pursue those other things that I think need to be done in the public interest, then I will prepare implementing legislation and try to pass it in Congress.” ”
“Clinton struggled to get NAFTA through Congress, arm-twisting a lot of reluctant Democrats in the process. This is especially evident in the House roll call vote, where Republicans voted for NAFTA by a huge margin, 132-43, while Democrats voted against it, 156-102.
It was dramatically more lopsided in the Rust Belt states so much in the spotlight today: All 11 House Democrats from Pennsylvania voted against NAFTA, as did all 10 Democrats from Michigan and eight of the 10 from Ohio. Republican members from those states largely voted for it. At the time, it was widely conceded that the Democratic House would never have passed NAFTA if Bush had been re-elected and submitted it himself. ”
“Clinton himself promised that “NAFTA means jobs. American jobs, and good-paying American jobs. If I didn’t believe that, I wouldn’t support this agreement …. I believe that NAFTA will create a million jobs in the first five years of its impact. And I believe that that is many more jobs than will be lost.” He was dead wrong in thinking that way, of course.”
“Such are the actual origins of “the worst trade deal maybe ever,” as Trump called it during the debate. All this is a bit like being reminded that George Washington owned slaves: an inconvenient truth for just about everyone in politics. That includes Trump, since it puts him in opposition not just to the widely derided Bush dynasty but also to the hallowed St. Ronnie. And it goes double for Hillary Clinton, and the rest of the Democratic establishment, because it underscores how willingly and fundamentally they signed onto Ronald Reagan’s business-friendly worldview.”
———
this is just a small sample of what that neo-liberal fascist did to us and the world
https://prospect.org/2018/01/29/fabulous-failure-clinton-s-1990s-origins-times/
“Hillary Clinton’s loss of the industrial Midwest to Donald Trump sealed her fate on Election Day 2016. This defeat, both narrow and catastrophic, had many architects, but one of the most consequential occupied the White House nearly 25 years before, when her husband faced an America whose stagnant economy, rampant deindustrialization, and giant trade deficit cried out for structural reforms to decisively break with Reagan-style laissez-faire and renew the allegiance of hard-pressed voters with the party of Roosevelt, Truman, and Johnson. But this was precisely what Bill Clinton failed to do.”
“Although conventional historical and journalistic thinking places Ronald Reagan at the center of the conservative turn in American trade and fiscal policy, we know that ratification of such a policy turn takes place only when the ostensibly hostile opposition party accommodates and then advances this transformation.
And that is what the administration of Bill Clinton did—normalize key aspects of the Reagan economic worldview.
As Clinton famously put it in his 1996 State of the Union address, “The era of big government is over.” That declaration came after the Democratic rout in the 1994 congressional elections, but much of that policy shift toward the right came earlier, even before the GOP achieved legislative veto power”