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Can America Ever Hope to Compete?

By Rick Ackerman Posted on December 3, 2009, 1:11 am EST Last Updated December 3, 2009, 1:27 am EST

If America ever escapes from the current economic morass and decides to give capitalism a try, here’s a Wall Street Journal headline that suggests what we’ll be up against: “Sharp’s New Plant Reinvents Japan Manufacturing Model”.  The article goes on to describe the $11 billion investment Sharp recently made in a huge manufacturing complex designed to keep Japan competitive with China and other Pacific Rim countries in the manufacture of liquid crystal display panels. The complex covers enough land to occupy 32 baseball fields and is viewed as the cutting edge of Japan’s efforts to compete in high-tech manufacturing against countries with a very significant wage advantage. Compare that to the $3 billion “investment” U.S. taxpayers recently made to stoke the Cash for Clunkers giveaway.  Where would you rather put your money?

Sharp

The sad fact is, we don’t have any investable money — not just in theory, but in practice, since it would have to come out of household savings. A CNBC-type economist would probably point out that Americans have begun to save like crazy. We don’t doubt it, since that is exactly what debt deflations such as the one we are currently experiencing cause households to do. But those savings have in fact already been pledged ten times over to pay for an increasingly State-run future that is long on promises and short on revenues. The mirage of savings vanishes entirely when you consider that Americans will soon be on the hook for a trillion-dollar health care boondoggle; for several times that sum to finance a bank-system bailout that cannot possibly succeed; and for who-knows-how-much to sustain a Social Security system whose costs had far outstripped affordability even when the U.S. economy was booming. 

Daiquiri Parasols

A no-nonsense economist from the Austrian School would probably view the situation as hopeless, looking out 10-15 years. Where, he might ask, will the savings come from to build the ultra-modern factories needed to keep America in the game? Indeed. So intent is President Obama on taxing away the average middle-class household’s already meager savings that we won’t have enough left over, even, to ramp up capacity in the tropical-drink parasol niche. Meanwhile, with the possible exception of Boeing, we cannot think of a single American company with the guts to build a big new factory in this country to take on competition in heavy manufacturing from Asia, India and Brazil. 

It didn’t have to end this way. If Americans had been ants rather than grasshoppers since the 1970s, favoring saving and investment over consumption, we would now be producing cars that could be profitably exported to the rest of the world. Instead, we continue to export jobs with no end in sight while CNBC-type economists get revved up about America’s supposed productivity gains. They tell us that recession is making us lean and mean, but where’s the payoff? Here the Austrians are most clear, for they place no special value on productivity other than what it begets us in higher real wages and increased output. By that measure, the supposed productivity gains of the last twenty years have earned us nothing. We are deeper in hock to the world, deeper in hock to ourselves, and all we have to show for it is bigger homes, bigger cars, and much bigger government. If those are the fruits of capitalism, then perhaps the time is right for Mr. Obama’s brand of eurosclerotic socialism. 

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  • Rich December 4, 2009, 4:25 am

    Lots of smarts from the hearts and good humour here today.
    With respect, XOM the largest American corp ($356 B to WMT $210 B) and patenting lithium ion proton membrane, hydrogen and algae energy, perhaps one reason WEB bought it. Buffett or Gates at Columbia said healthcare, energy and infotech where the action is and will be. Might add military hardware, BA from 28 to 69. Although expecting S&P and Gold to swoon more like the close today, nibbling at UNG 8.51 to 26, JPX 18 to 43, MXF 10 to 50 and SG 20 to 40 could reward. BTW, based on calls to refi cash out woth a lower payment, banks making 60% LTV mortages these days. 0 adviser Moody’s Mark Zandi says we’re down 32% so far, with another 38% to go. We disagree on when. MZ says 2010 and Marty Armstrong says 2012. Big Banks flush with our cash may be waiting to buy or repo at lower prices. Judging from Senator Bunning’s high, hard and inside brush off of BB’s renomination hearing today, and unemployment report tomorrow, Big D may be less far away now. Still have a long-shot hope that all this depression talk means things may get better after some time. Why not let the Total Transparency Transaction Tax hit Wall Street where it feeds for awhile to balance the budget on their backs for a change?…

  • any joe December 4, 2009, 2:12 am

    Cold fusion
    Maybe legitimate CF researchers are frozen out the same way Steve McIntyre and the AGW skeptics were frozen out

    The Japanese had the most recent advance and created a stir about 18 months ago. CF is real. I think the unstated problem is you need $10,000 worth of equipent to make 10 watts of anomalous energy. Unaccountable under present science

    If I were king I would sink one billion into cold fusion research but it shouldn’t need that. I can’t figure out why big investors haven’t given it a chance.

    &&&&&7

    Maybe because most physicists laugh the idea out of the park, like they do when perpetual motion machines surface. Fleischmann-Pons’ falsification error in Utah in the 1980s killed cold fusion’s credibility for a generation or two. RA

  • J Jay December 4, 2009, 1:20 am

    Let’s face it this place is bankrupt in every sense of the word.
    However, perhaps the CIA can fire up HARP in Alaska, and trigger enough earthquakes in China to flatten the entire country. Problem solved. Other than that, it’s Grapes of Wrath meets Mad Max in the good old USA!

  • Chris T. December 4, 2009, 12:32 am

    M.W. Hastings:

    Unfortunately, you fall into the trap of believing that Reagan was the unfettered free-market opposite of Carter. Nothing could be further from the truth.
    He did talk that talk, but he did not walk that walk (sounds like Obama in 2008 versus 2009, ironically). Maybe, had the assasination attempt of 3/81 never happened, he would have converted on the talk, but we will never know.

    What emerged, was just more furtherance of the corporate-fascism business model propagated for decades now by the red party, and actually also the blue party (Clinton anyone).
    That is not the free market you meniton or seem to fear. Just one example of the talk:
    Reagan campaigned for small(er) government, one of his signature issues was abolishing the Dep. of Education, then only a few years in existence.
    It’s still there, and made a monster bureaucracy by GWB, another corporate-fascist.

    Your points:
    2. A consumption tax (VAT)

    We already have a consumption tax (in most states), its called the sales tax.
    It is not different in kind to the VAT, only in execution and in the amount levied.
    Europe now takes between 15-22% VAT, our sales taxes top out at maybe 8-9%.
    They could easily be raised to Europe’s VAT levels, if you think making them more regressive is the answer.
    As to the other difference: Mainly VAT allows the taxing entity to collect is pound of flesh sooner than sales tax, as it is levied at every step of production. Sales tax is only levied at point of sale, so for larger items such as cars, the money takes much longer to hit the robber barons’ coffers (the transmission housing could have been made months before the car is sold).
    BUT, other than the difference in rate levied, there is no different in the amount collected, only when.
    Thus, we already have this.

    3. Single payer health system (now 16% of gdp is spent on health; no one else spends more than 10).

    And if you compare the depreciation of the dollar versus, the German Mark, or the Swiss Frank, they also didn’t depreciate nearly as fast since 1950 as the dollar.
    Equalize out that difference, and you account for you 6-8% difference in take-of-GDP. Because the medical profession as a whole (providers, insurance, pharma) exist in an oligopolistic bubble, they have been able to keep up with that depreciation, unlike other parts of the economy. Hence the greater proportion of GDP.
    (As Rick has previously pointed out, this also includes education, and government)
    If you would like to point ot Britain as an example against the Germany /Swiss ones above, well, that is THE country in Europe that has what one would have to call a rationed provision of medical care.

    4. Eliminate the personal deductability of interest (i.e. on mortgages).

    Yes, indeed, government should not subsidize one form of consumption, housing ownership.
    BUT, your statist approach presupposes that the undeducted tax-level is the proper level, which should not be undercut by a deduction.
    Rather, the subsidy you rightly object to should be jettisoned by LOWERING the tax-take for ALL individuals to that enjoyed by only some, who have the deduction now.

  • Corey December 3, 2009, 11:40 pm

    M.W. Here is something: you can always move out of this “bad country” and go find that utopia B.H. Obama thinks he can create. You sound like someone I’d even help pack & buy your plane ticket.

  • Reg December 3, 2009, 11:27 pm

    oops
    Re. Boeing
    !. Plant assembles parts made all over the world.
    2.Wings made in China are delaying production since they don’t fit or something.
    Guess they should have made them here.
    3. also, Chinese now have been equiped with and taught how to make and use high tech composits for wings etc. amd say since they now have the capability and knowledge to make parts they are considering making their own airliners to compete- did it to ourselves again.

  • gary leibowitz December 3, 2009, 8:05 pm

    The exporting of jobs has been ongoing for decades. The “service” economy works great as long as you don’t need to bailout our debt ridden economy.

    The health care system is bankrupt today. Doing nothing will create a tripling of government payouts within 20 years. Obama is actually shifting costs partly to individuals and partly to the health care institutions. Its actually the only thing he can do. Without a doubt health insurers will cut their profits “if” we have a public option. Without it then this is a complete shame bill.

    Notice that the service sector contracted when it was expected to have a nice expansion. This is the last straw in the equation of inflating our way out of this mess. Deflation is now a given along with a “debt” depression not seen in centuries.

  • Doug December 3, 2009, 6:43 pm

    I had an interesting conversation the other night with a fellow supposedly “in the know”. He said that the hope for America’s future is our energy policy and the conversion to new, alternative energy. You know, the current administrations green jobs mantra. He cited the PC boom, the internet boom, and now the green energy boom. I pointed out that neither the PC, nor the internet, were mandates by the government. Both were funded by VC equity, not public debt. Both grew virally, motivated by greed, not idealism. I am pretty sure you can’t legislate prosperity. But what do I know?

    To this point, there was a great piece (I think) written over at Seekingalpha about the problems with our energy policy and the unintended consequence of burning your capital in the name of green: http://seekingalpha.com/article/176373-energy-impoverishment-heading-back-to-coal

    The number one heating fuel in Afghanistan is wood. Strictly, just a point made that poor economies make economic decisions at the expense of the environment. Environmentalism is a luxury. Who knows what a carbon atom is worth? I think we may never find out, but what we will find out is how much it costs to price fix it.

    &&&&&

    I agree that energy (and perhaps medical/biological) innovations that we could sell to the world hold the key to America’s economic future. But it cannot be predicted whether or when Yankee know-how will rise to the challenge of creating, say, cold fusion. Were we to “solve” the world’s energy problems, it would turn the odds heavily in our favor, economically speaking.     RA

  • Ryan December 3, 2009, 6:37 pm

    I couldn’t agree more. The key to recovery is employment, and we’ve shipped all of our jobs overseas. What incentives do US companies have to hire locally, especially now that all of the infrastructure is in place overseas?

    The worst part is that Congress is oblivious to this.

  • Ira December 3, 2009, 5:38 pm

    With the targeted removal and outsourcing of computer related jobs and clothing industry jobs back some 30 years ago, I’ve personally seen 2 different fields of work go away. In this current downturn with some 10 million jobs lost and many millions more without benefits , the health care political issue was inevitable. If you’ve lost a job , had employer health care and went to the doctor, you are denied coverage on an individual plan. Could the ancilliary benefit to the social engineers
    of the support of Fed and Wall Street easy money policy and planned job lose all these years be in the bust the expansion of the social safety net is more acceptable?

  • any joe December 3, 2009, 5:35 pm

    I admire Sharp’s patriotism in doing for their own meaning Japanese industrial workers. We need more of that here. About 14 years ago WalMart surpassed GM as our largest corporation. The big money found they could get better returns selling things instead of making things.
    The consumer economy was always a lie and has put us in this jam because a consumer economy is degenerate and people get a swelled brain about how wonderful each person is based on the stuff they have. Stuff that ultimately depends on credit financing. An embarrassment of financed riches without any embarrassment. We are worthy of this largess and deserve this

    I am far from a Luddite but a real nation earns it’s own way. Sharpe and Japan are at least trying though this plant may lose due to current over capacity. China always gets the tech then becomes the low cost producer

  • huracan December 3, 2009, 5:25 pm

    All good points. however….. Intel, Cisco, and others are free to build a humongous plant anywhere in the U.S., if it was important to them to keep Americans employed. That’s not in the radar screen even, regardless of government policies.

  • Rich December 3, 2009, 4:38 pm

    Selling into strength here…

  • nitedevil December 3, 2009, 7:17 am

    Rick,

    I am sure you are familiar with one of Jim Sinclair’s so called “super angel’s” for gold at 1224. Do you see this as an important pivot or is it technically insignificant in your opinion?

    Thanks,
    nitedevil

    &&&&

    I dont pay any mind to Jim’s — or anyone else’s — forecasts, nitedevil, because I am more comfortable with my own forecasts. Gold topped last night within 40 cents of a 1227.90 target to which I’d alerted my subscribers earlier, and we have therefore turned cautious on the short- to intermediate-term picture . The 1337 target of a larger degree remains my minimum upside objective for now, but because of the turndown from 1227.50, we will monitor gold’s vital signs especially closely. RA

  • Dusty December 3, 2009, 7:15 am

    Dare we even try to look 10 to 15 years out? With trillion dollar deficits for the next 4-5 years, who is going to be silly enough to loan the U.S. any money in this period of time? They will never pay it off. But it’s going to be ok because when the dollar collapses and is worthless, the banks will create a new world currency where we can trade in hundreds of worthless U.S. dollars for a new world “dollar”. Of course it too will be a fiat currency but it should last another 30+ years until it too will fail. The general public won’t catch on and will be enslaved to the banks for the next couple of generations.

    The best thing Obama could have done was to let the banks fail and the survivors would pick up the pieces. That is how capitalism and a free market works. It would have hurt for the short term but we could have recovered in 3 years. Oh, and of course it goes without saying that the Wall St bankers that fraudulently sold the worthless paper would be thrown in jail along with Bernie Madoff instead of being given billion dollar bonuses with taxpayers’ money. But since the banks are in control of the government via the Fed, that scenario is unlikely to happen, barring a revolution. But I doubt enough Americans will catch on to what is happening so I doubt any type of revolution is possible.

    The best way to avoid the catastrophe is to have your bags packed and an exit strategy in place so when the **it hits the fan, you have another country to go to that will be more economically stable than the U.S..

    BTW, Russia has decided it is going to diversify by buying Canadian dollars. Gosh, what a slap in the face is that to good old Timothy Geithner.

    Dusty

  • M.W. Hastings December 3, 2009, 5:39 am

    “We are deeper in hock to the world, deeper in hock to ourselves, and all we have to show for it is bigger homes, bigger cars, and much bigger government. If those are the fruits of capitalism, then perhaps the time is right for Mr. Obama’s brand of eurosclerotic socialism. ”

    Remember way back in the 70’s when Carter put solar panels on the White House roof, and told Americans that they had to conserve, that there were limits to what they could consume. Remember Reagan coming along and tearing off the panels, saying that America could have its cake and eat it to, after all this was America…oh and deficits, they don’t matter. Live now … pay … never.

    So instead of building an energy efficient economy, America went for an energy spendthrift economy driven by what America is really good at … convincing people to buy stuff they don’t need. How else do you explain the Hummer or the Lincoln Navigator? Oil production peaked but use went up until now about 50% of oil is imported. With 5% of the world’s population the US is still using 25% of the oil. Fine if you are producing your own oil (and maybe not even then – ask Norway), but economic suicide if you are not.

    The socialist Europeans and Japanese and Canadians priced their gas higher making Hummers a rarity, but making their economies more efficient. Instead of giving people the freedom to spend on whatever crap China was producing this week and WalMart was flogging, they put in VAT’s and took the money to provide things like health care. So the downtrodden residents of these nations had less cash to blow, but everyone got health care.

    Here is a simple example. In Canada you can’t advertise prescription medicine on TV. Americans call this restriction of free enterprise, Canadians say thank heavens. So Canada has cheaper drug prices (someone has to pay for the advertising), and is spared the never ending parade of drugs and their side effects. So the drug decision is between you and your doctor, not you, the drug company, the drug company ad agency, the doctor and the insurance company.

    In capitalism businesses exist to make a profit. In unregulated capitalism, anything goes (pollution controls, what?, labor standards, what?), that’s why regulation and governments have a place (Glass-Steagall anyone). Unfortunately in today’s world the marketers and businesses have a huge advantage over the average consumer. Without restriction, excessive consumption and debt are sure to follow.

    So four first steps to recovery:

    1. Energy self sufficiency, which means research, alternate fuels (not ethanol), and higher gas taxes.
    2. A consumption tax (VAT)
    3. Single payer health system (now 16% of gdp is spent on health; no one else spends more than 10). A trade off for #2 (which is regressive)
    4. Eliminate the personal deductability of interest (i.e. on mortgages). So lower house prices, smaller houses, less debt.

    The expected result – less debt, less consumption, more savings and behavior more akin to ants than grasshoppers. Kind of Carteresque, no?

  • Paul December 3, 2009, 5:37 am

    Rick,
    Exactly right.

    We are not mean or lean. We are a people who expect free food, subsidized housing, now free healthcare, endless unemployment / welfare checks, etc.

    There are way too many people in the world who are hungry and are willing to put in a hard day’s work for much less money than Americans would accept.

    It’s going to get very ugly for many in the USA. They are never going to be as comfortable as they are now. I wish I could envision something which would change the direction that we are going.

    Now I’ll go eat some worms followed by my bitter pill.

  • Keith December 3, 2009, 5:24 am

    Rick, what you have said in your article is spot on but not one in one hundred people understand the significance of it. The U.S. has consumed almost all capital the last 20+ years and now to rebuild and compete will be almost impossible. It’s all gone. What looked like prosperity throughout the 90’s was nothing more than a consumption of capital. We turned within and fed upon our wealth like a person fasting. It works for awhile but what is the outcome when all the fat is used up? Death.

  • Occdude December 3, 2009, 4:57 am

    No way “Eurosclerotic socialism” is going to work here and I dont think that it is going to work in Europe either. This debt fueled, seed corn eating, economy we’re involved with now is unsustainable. Once the Kimono opens via a a currency crisis what we are going to see is a very unproductive society and then nature will take its course and we will become in my opinion, a cautionary tale.

  • Chris T. December 3, 2009, 4:47 am

    Rick a suitably sobering comment, and its good to hear about real savings from someone besides Peter Schiff.

    One has to laugh when “they” talk about the savings rate being >0 again, when on balance those same households are still many trillions (how many? enough w/o real estate, scary-enough with) in debt.
    One does not have real savings until liabilities are 0, otherwise its just a mirage.

    Now, if these new “savers” were smart, they would hide their savings in gold, for no one to know, THEN, after their default (or a bailout of whatever kind), they would have something saved. Plus such a “bank run” would have nice consequences for the reduction of the “money supply”, taking it out of the loop.

    Won’t happen of course.

    Our present savings are as illusory as Clinton’s vaunted surpluses, during which the national debtdid not stop rising…


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