Safe from terrorists and jobs. Whew!!!

Curiously, when we refer to "the people" as sheep we do not
often pause to reflect upon the staple of the shepherd's diet:
mutton. Of course the shepherd protects his sheep from wolves.
He would himself go hungry if another predator got *into* the
flock ;0-)

And that pretty much matches the essence of the
Bush Gulag today: people trapped in one place while their
jobs and money emigrate, all the while they are "protected"
by the shepherds in Congress and the White House, and the
Department of Homeland Security (+ FBI, CIA, TSA, NIA, DIA,
DOD, FDA, HHS, DEA, ABC, XYZ...all of whom eat the "first
fruits" of the harvested sheep in exchange for total
surveillance and brutal dominance over their "detainees"...)
It is no mystery why federal government workers -- the many
millions of them -- have first class health and retirement
benefits, beyond what even the modern corporation provides,
and are protected from downsizing and even accountability.

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http://www.dailyreckoning.com/

Excerpt:

It's payback time.

The nation's huge budget deficits have become such a problem that even Alan Greenspan has noticed. In his latest public discourse, he urged Congress to cut Social Security and Medicare payments as a way to close the budget gap. The only other way would be to raise taxes. Either way, the result will be lower living standards in America. Another way to look at it...the huge credit boom, in which standards of living have been boosted by borrowing from the future, is now coming to an end.

Similarly, America's gargantuan trade and current account deficits will have to be reduced, too. How? People have to stop spending so much money or the dollar has to collapse. Probably both. Either way, living standards in the U.S. go down.

You will note, dear reader, that despite the drop in the dollar of the last 2 years, the trade deficit is wider than ever. China has kept its currency pegged to the dollar. As the dollar dropped, China's yuan dropped right along with it. Americans gained no advantage - at least not against China. And since China has become so important to worldwide exports, lower prices on Chinese-made goods tend to drag down prices everywhere.

The latest employment report was discouraging. Initial jobless claims are edging up. And layoffs rose in January. Economists are puzzled. The economy is in full recovery...how come employment is not increasing?

Low rates and tax cuts from the Feds were supposed to light a fire under the economy. And they did - under the Chinese economy! All that caught fire in America was debt, housing and speculation - all hotted up by the Fed's tinder. Americans go deeper and deeper into debt - lured by low interest rates and EZ credit terms. Speculators go wild on nanotech plays...and, thank God, the Chinese have not yet figured out how to export houses to the U.S.

But as Greenspan looks ahead to what must happen, he sees a world that looks to us like deflation, but deflation of a particularly obnoxious sort. Not only must America's 50- year credit boom implode into an epochal credit bust, but this must happen at the same time the world's economic power shifts to Asia. Imports from Asia drive down prices all over the world...as globalized labor markets push down the going rate for American workers. In Nicaragua, for example, you see grown men working all day in the hot sun for $5 a day. Benefits? Health care? Vacations? They hardly exist.

They only way to compete would be to invest massive amounts of money in capital-intensive industries and extensive worker training - similar to what has happened in Switzerland or Singapore. Instead, Americans squander their capital in a spending spree. Wal-Mart replaced General Motors as the nation's biggest employer...and GM now earns its money not by making and selling cars, but by financing activities. Meanwhile, young Americans leave the hard engineering and science courses to foreigners and concentrate on Gender Studies. The best of them set their sights on Wall Street and hope to retire rich by handling flaky IPOs or maybe starting a hedge fund to speculate in junk bonds.

That is why there has been almost no growth in real earnings of American factory workers over the last 30 years...and why American information-industry wages are now being squeezed...and why it is so hard to add jobs - even with interest rates at 50-year lows.

Greenspan & Co. cannot create jobs by stimulating the economy. The titillation ends up overseas. Nor can they bring prosperity to America by giving consumers more credit; consumers already have far too much of it. Their efforts only make things worse...drawing the nation into bad habits of spending and speculation...and making the pain of adjustment to deflation and a more competitive world much more difficult. In the coming credit deflation, Americans will likely have to pay their debts...while investing in new industries. They will likely find their standards of living falling...as their incomes fall, too. They may find their houses falling in price...while their mortgage payments rise. They should see the price of imports (such as oil) rise...as their dollars falls in value.

Deflation...with rising prices? Think about that a minute. (We would think about it ourselves...except we are still on vacation.)

Payback time will be the time when the Best of Worlds becomes the Worst of Worlds...when the economy that seems Too Good to be True becomes one that seems too bad to be true...and when things that 'Couldn't Get Any Better' can't get any worse...

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http://www.321gold.com/editorials/benson/benson022704.html

[...]

China does have some natural resources, such as unlimited, cheap, bright and hard working labor, and an artificially undervalued currency. When you combine the two, China uses this combination as a mercantilist "carrot" to attract foreign capital, and as a "big stick" to smash foreign industry. Calling this combination "Comparative Advantage" is not what David Ricardo had in mind - he'd be turning in his grave if he knew what was happening.

The United States has both a comparative and absolute advantage in "smart bombs." In reading history, it is clear that no one can bomb or invade like America. We have actually invaded more countries and islands than anyone can remember, and we currently have troops in more countries than the average American knows even exist. We are the World's Super Power and military might is our biggest Comparative Advantage. The U.S. has only a slight Comparative Advantage in political leadership. As Samuel Clemens noticed, America has the best politicians money can buy.

[...]

It honestly looks like the Venture Capital community is out to make sure that in an election year there will be more jobs sent to Asia than created in the United States. This must make the President, Secretary of Treasury, Secretary of Commerce, the Fed Chairman and Carl Rove just bust open with Patriotic Pride! There is no Comparative Advantage here. The new factory would be the same in China or America. The workers in the factory have similar skills but the only real difference is that in China, the workers are not only hungry, they're starving! The Chinese will work 7 days a week for $.50 cents to $1 an hour with no benefits for social security, health care, vacations, a pension, or worker safety. China has an estimated hundred million unemployed and under-employed workers who would love to take American and European jobs. America will run out of manufacturing jobs long before China runs out of workers. In America, the going wage would be 10 to 20 times higher including all benefits. If you are a Profit Maximizer and all you care about is short-term returns on capital, it is a "no-brainer" to fire Americans and fast track the new factory to China. What is going on here is pure and simple Labor Arbitrage facilitated by low shipping costs for high value added products.

The practice of Labor Arbitrage on the massive scale that the Bush Administration is fostering, will accomplish a number of things. First, those with massive wealth will find relatively low cost goods readily available. Second, those who rely on a wage or salary will be extraordinarily fortunate if their job is not "off-shored." Third, the wages and standard of living in countries like China will rise, but the standard of living in America and Europe will fall. For those of us who actually need to work to pay the bills and to service our massive mortgage and credit card debt, this is not a pretty picture. Indeed, it should not be a happy time for banks, auto companies, and the GSEs who really think that American workers will be able to pay back their massive debt.

Even though my formal educational training should make me a greedy amoral economist or businessman, my experience has led me to understand how "Virtue is Its Own Reward." Virtue is good business! If everyone had good jobs and could pay the rent, feed their families, and, most importantly, pay their cable bill, there is peace. When the peasants have a loaf of bread to eat, we should feel safe in our beds at night. When they don't, watch out!

Current economic teaching is focused on returns on capital, and maximizing consumption. No thought is given to labor. It is simply assumed that "jobs always happen." Unfortunately, the economic system is interdependent, like an ecosystem. Lowering consumer prices is good, but as jobs are destroyed the whole living economic system dies.

Being concerned that the members of my extended community and my country have meaningful things to do, and can earn a living and provide for their families, is perhaps of equal value as putting the consumer and corporate profits first. Running an economy that puts the consumer above the worker, inevitably fails as workers stop working. American CEOs have forgotten that a consumer without a job is not a consumer at all. A consumer without a job is likely to be bankrupt, and last year we had a record 1.6MM of those.

[...]

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