As information and goods become easier to move around in the modern world more current third and second world countries change economic policies (e.g. china), more people get access to education, and capital monies flow more freely than before how can America hope to remain competitive enough (in the long run, say, 40-50 years) not to have our standard of living signifigantly decrease?

I realize we have entrenched advantages, such as our currency and wealth accumulation, but how long can these sorts of things continue to hold us up to our vastly superior consumption in the face of huge improvements in the rest of the world's productivity?

11/30/2006 9:18:11 AM

Lavim, we aren't playing a zero-sum game, you know that right?

11/30/2006 9:20:50 AM

Lavim, we aren't playing a zero-sum game, you know that right?

11/30/2006 9:56:53 AM

we can all grow, but we still have to compete

11/30/2006 10:12:17 AM

Yes, of course we aren't ... I assume that people assume some basic level of intelligence so that I don't have to state the obvious.

As technology and productivity advance, of course the overall economic level of America and the world will increase.

That said, do current world trends as outlined above point towards America's level of economic growth having a lower derivative than say many of the new emerging countries (china, india) as well as many of the old guard countries (EU)?

Will we eventually have to cut back on our excess and largese or will the same things that have kept us going strong in the 20th century keep us strong well into the 21st?

11/30/2006 10:21:51 AM

Well sine you're talking about the rate of growth (i.e. the derivative), but granting that it will still be positive growth, then no, we would never have to cut back on our excesses, because they'd still be growing.

Regardless of what you're after here, the answer is: possibly but not probably. Americans will still continue to find a competitive advantage and exploit it.

11/30/2006 10:43:46 AM

I think what he is asking could better be expressed as "Do you guys think that america will lose economic dominance to growing foriegn powers within a few decades?"

11/30/2006 10:48:57 AM

Well sort of ..

I guess more of the question is whether or not a lowering of the degree of our economic dominance would neccessarily result in a shift towards lowering our standard of living or whether we would be able to maintain our high standard of living in the face of real economic contest?

11/30/2006 11:00:54 AM

^ The answer is absolutely. Just because Chinese are wealthy does not make Americans poor, all it does is make us relatively poorer. The average American will no longer consume 20 times what the average Chinese consumes.

However, it is a real question whether Americans will be absolutely wealthier, and there are forces in both directions.

More rich people should mean greater economies of scale overall, but this is not a given. More free-market territory should mean greater access to resources, but it is possible that the Chinese mainland will be devoid of resources or equally bad simply locked up by a communist state that has liberalized the industrial and consumer sectors but not the resource extraction sectors. What it should mean, however, is greater free-market research and development which boosts technological advancement. So, even if current technology does not allow greater economies of scale and China does not possess any resources then at least there will be Chinese helping to invent greater efficiency of production and boost resource production in the rest of the world.

So, overall, while it is possible that a wealthier China makes Americans absolutely poorer, it is unbelievably unlikely.

11/30/2006 11:14:25 AM

Globalization necessitates increased education for America to keep up. How much our standard of living changes depends on this.

11/30/2006 11:17:00 AM

^ Not true. Barring resource constraints America cannot be impoverished by foreign trade because American labor and business is not competing with foreign labor and business. On the contrary, American labor is competing against other American laborers. As I explained to Kris in another thread:
"American television makers are competing with American airplane makers. This is thanks to a floating exchange rate. If America made bad airplanes then Mexico would buy airplanes from Europe and Americans would not have pesos to buy televisions from Mexico."

So saying Mexicans make cheaper televisions is insufficient, Americans need a source of pesos to afford Mexican televisions. Pesos that they can only get by selling goods to Mexicans, such as airplanes. This is because if at the current exchange rate both Mexican televisions and Mexican airplanes are cheaper than American counter parts, then Americans will buy a lot of both, flooding Mexico with US dollars, driving down the value of the dollar and making Mexican goods more expensive in comparison. This trend will continue until either US televisions become cheaper or US airplanes become cheaper. As it happens, the US is better at making airplanes, so Mexico's airplane makers will go bankrupt and Americans will buy all their televisions from Mexico. This is an over-simplification, but the point is the competition is not between Mexican labor and American labor, but instead between American airplane makers and American television makers. If American television makers got better at their job then they would bankrupt the American airplane makers, causing a revival in Mexican aviation.

11/30/2006 12:47:15 PM

Quote :

"So saying Mexicans make cheaper televisions is insufficient, Americans need a source of pesos to afford Mexican televisions. Pesos that they can only get by selling goods to Mexicans, such as airplanes."

This makes no sense. Americans can either 1) engage in global currency exchange markets or 2) pay the Mexicans in US$ dollars.

If you don't think Wal-Marts and Best Buys out there haven't already solved this problem (buying cheap foreign goods), you're wrong. This puts pressure on US factories to either 1) move labor overseas to match the cheap production costs or 2) go out of business. In either case, most front-line US workers are out of jobs... hence the need for more education.

[Edited on November 30, 2006 at 1:05 PM. Reason : .]

11/30/2006 12:57:21 PM

Quote :

"1) engage in global currency exchange markets or 2) pay the Mexicans in US$ dollars. "

You must not know how global currency exchange works. This isn't like Monopoly (TM) with a banker that will make change for you. Someone has to have a supply of the desired currency and be willing to trade it for another currency. FX markets don't act out of benevolence.

They could pay the Mexicans in US$, but only if the Mexicans will accept this. They will only accept this as long as there is a demand for dollars somewhere else so that they can swap them for whatever desired currency they need to purchase the goods they are interested in.

11/30/2006 1:35:24 PM

^ I know it's not simply "making change". Anyone who has traveled to a foreign country and had to exchange currency knows this--you pay the broker. Though, in the same vein, it costs *nothing extra* to use a credit service, such as Visa or Mastercard, in a foreign country. There are clear workarounds to a simple physical currency exchange. Besides, the Mexicans don't want the currency as much as they want profit, investment, and capital. Your (^^^) argument places too high a value on physical currency, especially in this day in age. I really don't buy the insulated American market argument. Business will find a way to not need to sell Airplanes to Mexico in order to get pesos to buy TVs from Mexico.

And I'm not sure if you are arguing that the dollar is less attractive than the peso, but if so I'd tend to disagree with you. Show me one Latin American country that would rather be paid in its own currency when given the choice of a dollar.

[Edited on November 30, 2006 at 1:44 PM. Reason : .]

11/30/2006 1:37:48 PM

Quote :

"Show me one Latin American country that would rather be paid in its own currency when given the choice of a dollar."

To push the point home: Show me one Latin American country that isn't using mostly American made aircraft in its airline fleet. Show me one Latin American country that isn't swamped with American made movies and music.

Everyone accepts American dollars because everyone can find something they want to buy in America. This is why I can say Americans spending American dollars on televisions from Mexico is not a problem for American workers: the Mexicans will turn these dollars around and buy whatever they want from America, be it aircraft, media, investments, machinery, whatever, and American workers will be expected to provide it through their labor. If Mexicans ever stopped wanting stuff from America (impossible, I know) then they would stop accepting dollars and international trade would come to a stop.

11/30/2006 3:32:47 PM

^ding ding ding

We aren't placing too much emphasis on the physical currency, we're simply not ignoring that currency (physical or in electronic form) does play a major role in international trade and there is really no way around it. If you want to buy something from another country that doesn't want to buy something from you, then they will not accept the deal unless they think they can find someone else who is willing to either purchase something using that currency or willing to hold that currency as a store of value in and of itself and thus trade currencies.

11/30/2006 3:37:31 PM

Quote :

"Everyone accepts American dollars because everyone can find something they want to buy in America."

That wouldn't explain our balance of payments deficit.

11/30/2006 3:37:48 PM

Kris, you do realize securities count as "something to buy"

Which explains are HUGE capital accounts surplus.

God damn get yourself to a trade class NOW nigga.

EC 348 + EC 448, get in them so you stop the nonsense.

[Edited on November 30, 2006 at 3:41 PM. Reason : .]

11/30/2006 3:41:20 PM

Quote :

"Kris, you do realize securities count as "something to buy""

Sure, but he was talking about actual products. I made my point.

11/30/2006 3:44:28 PM

Securities are products. You made your point? What we're talking about is why currency matters and why someone has to be willing to accept dollars.

Why would someone accept dollars? Because they can use them to make a purchase. They look on the shelves and say "I don't like any of this physical stuff, let me get a slice of that bond over there." Alternatively, they can say "I'm just going to hold these dollars for now, I'll come back in later to shop." That's ok too, because inflation eats at the purchasing power over time and we're getting a free loan.

11/30/2006 3:47:27 PM

Kris, I think you misspoke, we have a trade deficit, sure enough, but the balance of payments always sums to zero (after a little tweaking), so a "Balance of payments Deficit" is not logical. If you believe wikipedia in 2000 the U.S. had a Current account balance or -415 billion and a Financial account balance of 415 billion for a balance of payment of zero.

All in all the balance of payments was squared up in 2000 by foreigners buying over a trillion dollars worth of America assets (property, stock, bonds, etc) and the U.S. buying 560 billion dollars worth of foreign assets (property, stock, bonds, etc).
http://en.wikipedia.org/wiki/Balance_of_payments

11/30/2006 3:49:19 PM

You're right Shark, I gave him the benefit of the doubt. I just skipped over it assuming he was going to try to make a point about the current account (which I'm like 99% sure he meant to)

11/30/2006 4:20:19 PM

Quote :

"we have a trade deficit, sure enough, but the balance of payments always sums to zero (after a little tweaking), so a "Balance of payments Deficit" is not logical"

I think it was obvious what I was talking about.

Quote :

"All in all the balance of payments was squared up in 2000 by foreigners buying over a trillion dollars worth of America assets (property, stock, bonds, etc) and the U.S. buying 560 billion dollars worth of foreign assets (property, stock, bonds, etc)."

Great history lesson, what the hell does it have to do with anything?

11/30/2006 5:32:12 PM

Kris:
"Everyone accepts American dollars because everyone can find something they want to buy in America" does in fact explain the trade deficit. Foreigners, holding dollars, found something the wanted to buy with them: property, stock, bonds, etc.

11/30/2006 9:00:49 PM

Oh it does work, when you completely change the context of what you were talking about. You were talking about goods, not investments.

12/1/2006 12:05:18 AM

I did not intend to limit myself to goods. Doing so always struck me as kinda silly; a share of stock or a copy of Windows 2000, the differences are merely semantics.

12/1/2006 1:28:24 AM

Quote :

"I did not intend to limit myself to goods."

Then you should have used a less specific context.

12/1/2006 11:49:01 AM

Either way, globalization continues to work as advertised as average hourly wages of production workers is testing new records in growth:

12/1/2006 12:04:25 PM

It would be more apt to compare actual earning rather than change in earnings.

12/1/2006 12:23:00 PM

I don't see how, it's just a continuously upward sloping line, it is very hard to tell much of a difference in eras. That's why I posted the derivative, or rate of change, since it exagerates the information, making it quite obvious.

12/2/2006 8:15:36 AM

Quote :

"I don't see how, it's just a continuously upward sloping line, it is very hard to tell much of a difference in eras."

Just compare the eras to the slope.

12/2/2006 1:18:22 PM

Kris, a graph of the "change in earnings" is the graph of the slope of "actual earning[s]"

You have taken pre-calculus, right?

And like I said before, comparing the slope to the eras demonstrates that today's earnings are setting new records for growth.

12/2/2006 3:54:30 PM

Quote :

"And like I said before, comparing the slope to the eras demonstrates that today's earnings are setting new records for growth."

That could be shown in your graph, the causation you intially stated, however, cannot.

12/2/2006 7:27:36 PM

Causation or not: you can't argue the two are negatively correlated in modern data sets.

12/2/2006 7:50:45 PM

I didn't try to, I just said your graph wasn't right.

12/2/2006 8:06:50 PM

What's wrong with my graph? I was talking about rising wages and rising living standards, so I posted a graph showing the net change in hourly wages for production workers, how is that not right?

12/2/2006 8:14:22 PM

It didn't show the causation you stated. How many more times should I say that?

12/2/2006 8:15:08 PM