| Matthew Rosewarne on 27 Oct 2007 01:52:46 -0000 |
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On Friday 26 October 2007, Sonny To wrote: > maybe u should read more about economics. why do we need to > manufacture anything if someone else can do it much cheaper? Its > called comparative advantage. It is why individual/countries engage > in trade of goods and services. Strange as it may seem, that's not the case. If country A produces widgets better or cheaper than country B, the widget trade will still be bi-directional. I remember reading an article about that originally focused on the British/French wool trade and found the same pattern repeat just about everywhere. > The only reason I can see not to outsource everything is more > politically motivated. > For example if China and US were to go to war. The US would be screwed > if most of its goods are manufactured in China. China would also be > screwed cuz the US is the largest consumer of its export base economy. > A corollary of this is trading between countries makes them co > dependent and increases world peace because it is unprofitable to go > to war. Most wars are base on economics anyway. Absolutely, physical force is just another instrument of strategy. Most real strategic success is the result of clever economic tactics, not as much the use of military forces. However, whereas the US and China won't be throwing things at each other for quite some time (hopefully), China's fledgling empire is already causing or worsening several major conflicts, such as the ones in Sudan or Myanmar. They still have a ways to go to catch up to the USA, the Soviet Union, or the British Empire in terms of fuelling violent conflict. > and speaking of the US leading in the knowledge economy. its true, but > India and China would catch up quickly because all thats required are > human brains and the countries with the most of those are Indian and > China. I once heard a joke that goes something like "Silicon Valley is > built using IC. not the Integrated Circuit but Indian and Chinese". > Some people argued the reason why the US shot ahead of Europe is > mainly because it has a larger population. With more brains, more > creative ideas are generated which can create technology that has a > non linear affect on the economy. With future technology, one person > can feed the whole world (perhaps in 1000yrs :->) . Well, we shot past the Europeans for several reasons, some our own doing, and some their doing. Our problem comes from supply and demand, in the following situation: Act 1: Mid 20th century The USA manufacturing base, pumped up by the war effort and public works projects (for reference, not free market economics) has overwhelming productive capabilities. The US also has cutting-edge research and technology, yielding a pace of innovation seldom seen in history. The innovators dream up new technologies, the industry manufactures them, and the populace (now wealthy from being the source of that innovation and production) consume more than ever. Act 2: Late 20th century Seeing a way to increase proftits, US companies open manufacturing facilities in impoverished but stable countries, and subsequently start closing facilities in the US. Those consumers not initially effected by the shift encourage this behaviour, as it results in lower prices for consumer goods. Since manufacturing jobs start to dry up, much of the population must turn to fields such as services, technology, or finance in order to make a living. Fairly soon, lower-level jobs in these other fields are also relocated, causing the population to fall back more on the fields that remain, particularly the knowledge- and service-oriented fields. Act 3: Early-Mid 21st century Having gained enough wealth to develop strong educational and financial infrastructures of their own, the formerly-impoverished countries no longer require the innovation or financial management of the US. The US, having abandoned manufacturing, technology, and now inevitably most of the other trades at which it formerly excelled, slides into recession, since there is no longer much for it to export to the other countries. The only solid sources of income remaining are agriculture and raw materials, which in themselves do not provide much of a trade surplus. The lack of exports causes income to dry up, resulting in wage loss and unemployment, in turn causing our consumption to plummet. Now that the population can no longer afford them, the services market suffers. Without a strong partner to help rebuild our economy, like our Marshall plan did for Europe after WWII, it is a long time before the US sees prosperity once again. So what I'm saying is, we can't rely on our intellect as our only export to the world, since as they begin to supply "intellectual capital" themselves, there is much less demand for ours. If we still had a broad range of supply-side occupations, particularly manufacturing, it would be enough to achieve an equitable balance. I'm not saying we should let poorer countries rot, nor am I saying we should all drop out of college to make steel, but that we shouldn't sacrifice the next decades of our economy in exchange for a higher stock price next quarter. Attachment:
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