Export Economies as Labor Exploitation

I cross post to Open Salon, but haven't gone the other way. I was asked the following over there:

>> can an economy survive with such minimal manufacturing in the portfolio?

And responded with what follows. I have had export economies as labor exploitation on the coming attractions list for far too long. This piece will do as an hor d'oeuvre.

Not in the manner of the middle class revolution, post World War II. I am a Keynesian, and the reason boils down to: the level of income inequality from previous types led to violence. The result of the Bushies (and Gingrich, and the rest) is to return to that level of inequality.

In the 1960's and 1970's, it was commonplace to read and hear from economists and their fellow travelers that the post-industrial service economy would be the land of milk and honey. The machines would do the work, and we would enjoy leisure.

The flaw in that vision is that it ignores the distribution problem of capitalism, which is that there is no distribution mechanism. The capitalist keeps it all. This is the root cause of the current recession/depression. The top 1% of US take 22% of income. It hasn't been higher since at least 1900 (data is flaky before then). There is no distribution mechanism. Capitalists refuse to acknowledge that there is a problem, since they seek to be the autocrats of the New Age. Bernie Madoff is just one symptom.

One factor is that services are cheaper, from a capital investment point of view, by far than manufacturing. This establishes a war between capitalists. Service capitalists establish a ~75% gross return on physical investment. Manufacturing capitalists then seek countries/economies which allow them to exploit labor to an extent which raises their gross return towards that level. The problem is that such economies are no longer self sufficient; labor earns so little that its production cannot be consumed. Thus, export is the solution.

But it isn't really. The export manufacturing economies must accept service importing economies' currency in payment for the goods. The export economies are held hostage to the import economies' currency. So, the Chinese must keep piling up US dollars. To pull the plug on the dollar leads to far worse than China faces now; if they should do so, the entire Chinese economy fails, since it is not self-sufficient.

Mainstream economists are being forced to face this fact by a handful of "radicals" (humble self included). The notion that free trade benefits all is being made mockery. The answer will be that stable economies are self-sufficient except for trade in raw materials.

I have a blog post for DrKeynes in mind which explains why export economies are fundamentally exploitative of labor (I generally copy them to here). For now, note that China has been playing the export game, and is facing the distribution problem as well. They have no domestic consumption to support industrial production since capital is free to pay starvation wages to labor. When the production was shipped out of the country, this was just fine. Without the export market, capital could no longer do its exploitation game. Chinese authorities have implicitly admited the problem by structuring their "stimulus" to channel funds to labor. One result (in a NYT story within the last week or so, I don't have a link, alas) is that flat screen TVs will cost more here, since they are made in China, and are now being consumed there. Good on them, say I.

The Ides of October

The next cliff is on or about the Ides of October. The 2nd quarter "beat expectations" reports that keep being printed are based on draconian firings, not improved revenues. The reduction in first time unemployment is the canary in the coal mine. It is not a bright omen, it is Regan's head spinning spewing all that green stuff.

Here's why (you read it here first): With no consumer demand, 2nd quarter earnings were propelled by firings. Now that there's few left to fire, first time unemployment is diminishing. This is not a good thing for the "calf market" we're in. It means that this quarter will be characterized by: falling revenue (since there is still no consumer) and no one left to lay off. Thus, diminishing revenue and no more costs to cut. 3rd quarter reports will be devastating. The Great Depression II starts then.

Roubini owes me.

The HAL between you and your Doctor...Updated

There are many spewings from the Right WingNuts that are irritating. Among the most such is the claim that a Single Payer health system will "put the government between you and your doctor" or "some government accountant will decide what care you get". Neither is true, of course. What's more evil is that there is already someone between you and your doctor, and HMO/insurance bean counters already decide what care you will get.

I know. I wrote (not from the start or in its entirety) such software. There are a number of these packages; the one I worked on is called Optimed. The company's been sold a few times since I was there, and is now a part of MEDecision. These applications (others: Milliman, InterQual) seek to disallow services. Nothing more. They claim to improve health, but that's just not true.

So, the next Right WingNut who spews that nonsense; break his knee and tell him he won't qualify because he brought it on himself.

You can help by contacting your congress person and Obama. This is such a big lie that letting it continue is criminal.

Update:

A couple of days after I penned this, Krugman wrote on the subject, although there isn't a discussion of how insurance companies steal your coverage.

Dumb, Fat, Unhappy, Poor, Old .... and Sick

By now most folks should know that the Red/South states come in last in terms of education, jobs, income, and smarts by any measure. Now, we find out what that means.

It means that not only ain't they Dumb, Fat, and Happy, they are Dumb, Fat, Poor, Old..... and Sick. While being a Keynesian is orthogonal to Social Darwinism, this story inevitably leads to some pondering. How should we spend our health care dollars? If we spend like the Europeans do, we all live longer and healthier lives. If we continue the way we are, we end up funneling most of our health care dollars into the pockets of HMO's, Big Pharma, and BioTechs. I've been spending some time looking at BioTech/Pharma, and what I see is lots of money going into the pockets of Management in pursuit of multi-kilo buck life extending drugs (broadly defined).

What seems to be the norm is that some scientist or doctor does come up with a novel entity, but aimed at a really small segment of the unwell. The aim is to get as much money into the hands of management (million dollar payments are not uncommon), typically not the founders, scientists, or doctors. Then the FDA process goes on for some years. If the entity is blessed, then the kilo-buck payments begin. Whether any of that gets to the original investors...

The BioPharma traders are scared crapless of Obama. And well they should; the gravy train may well be over. What is not remembered is that, up until the 1970's (or thereabouts), most research was done on the public dime, and the compounds thus discovered were available to all. BigPharma didn't like that, so now we have massive expenditures on trivial (from a public health point of view) drugs in the hope of getting a massive payoff. From public funds, of course; MediCare and MediCaid. For-profit health insurers won't pay for this stuff.

So, we the intelligent and healthy will be stuck paying the bill to keep these self-abusing knuckleheads alive for a few more months. Is this anyway to run a railroad?

Now ya can keep them black folk out

5-4, of course, but the Supremes have just made de facto discrimination legal again.

What a country.

Lies, Damn Lies, and Statistics

That old saying, "figures don't lie, but liars figure" sound familiar?

When the news appeared that the number of people on unemployment had dropped, and that this was a sign of better things happening in the economy, I had to avoid an upchuck. Phooey, I told anybody who would listen. All that happened was that more folks got tossed off unemployment (ran out of weeks) than came on. You can expect that this will continue for years. The liars will say that things are getting better. Yeah, right. And the bankers still flit around in their taxpayer subsidized jets.

The NYT ran the story today. Yup. More folks got tossed off than came on. Green shoots my sphincter.

Tapas

A few small bites today.

Notice that China is feverishly stimulating its domestic consumption? They have admitted, albeit with loud rectitude, that export (read: labor exploitative) based economies quickly collapse. They are admitting the truth: capitalists and consumers are co-dependent. For some years now, the Chinese (and American by proxy and directly) capitalists wagered that they could take all the growth for themselves. So long as they had American chumps running the government (and I am not convinced that Geithner/Bernanke aren't), they could dump their production here. Capitalists, not being particularly forward thinking, were shocked to discover that the proceeds of this game were dollars; bits of psuedopaper embedded as bytes in various computers. There is no post-industrial (well, at least no post-physical production) economy. Surprise, surprise. So, now China is embarking on building, to a greater extent at least, a self sufficient (closed world, as the economists like to call it) economy. They have learned that the only international trade which should exist is in natural resources; these exist only in some countries and have to be traded for production (or other resources on occasion) goods.

Why trade a bird in the hand for a fart in a whirlwind? The Chinese ain't dummies.


Folks who follow Iran for more than a few seconds, and without the blinders of Right Wingnuts, have known for years that the President of Iran is kind of like the Queen of England, or governor of Texas: a ceremonial gasbag with no institutional power. For those with short memories, the Right Wingnuts chose to ignore Ahmadinejad's "moderate" predecessors with the charge that the President of Iran was merely a figurehead. Once they got a boogie man to their liking, well now the President of Iran is a really important guy who has to be taken seriously. He's a real meany. So, today the Supreme Leader of Iran (you knew there is one, yes?) says that the voting will be looked into. There is good reason to let the populace have whatever pointless, powerless figurehead they want. The pointless, powerless figurehead makes no difference to him. Right Wingnuts are just do stupid and evil. Banana Republic El Jefes.


Finally, the end of the Joe Sixpack Bull Market. I missed it, alas, being to concerned with other things, like this blog. Ironic, I suppose. It is no accident that oil, and other commodity, prices are rising. The "markets" are expressions of localized (local can be in particular places in the real world, real time, or manmade of either; stock markets are the latter) inflation and deflation. As I write, the Big Money is going back into commodities. It never made much headway into the regular stock market, which is why the Calf Market (calf, little bull?) is over. Oh well. Unearned income should be taxed at confiscatory rates, just to discourage such sloth and exploitation of power. Real work, real pay. Works for me.