The Written Peace: Open Forum of May 31, 2005

The Dark Wraith Forums will have a regular post up tomorrow morning. It's one of those times when a bit of sport can be had at the expense of the economic statistics reporting industry. Two sources, four days apart, report opposite results for the direction of consumer confidence. One of the reporting services is essentially a business lobby, the other is affiliated with a university. Would anyone care to take a wild guess at which one reported consumer confidence rising and which reported it falling? Conflicting accounts such as these certainly give us cause to pause.

In other matters, The Dark Wraith Forums wishes to welcome the host of Cognitive Dissonance, a thoroughly delicious blog that's part of a stellar cluster too often ignored in this part of the Blogosphere.

Some of you have read my beefs about how the giant, soufflé, graffiti blogs ignore Blogosphere Release 2.0. Well, it suddenly struck me very recently that a mainstream is building within Release 2.0, a dominant group of blogs that has some of the best and brightest you'd ever want to find. In some ways, Big Brass Blog is the embodiment of that excellent thing that is happening here in the Second Wave.

But The Dark Wraith Forums does not want to exclude the many extensions of the strong, radical soul at the heart of any meaningful antithesis. In no small part, I must thank Gretchen at The Green Lantern for pointing me, quite unintentionally, to paths that were right there in front of me had I spent even an ounce of energy looking.

A re-post link of the Dark Wraith's Analysis: Seven Principles of Macroeconomics appears in the current issue, hosted at the Fruits of Our Labour blog, of the Carnival of the Un-Capitalists.

And before I leave this entire subject, I must also welcome the several quiet visitors who have recently stopped by from Bella Ciao, a solid alternative source of all kinds of news.


On to minding other matters, the ever interesting Phoenician in a time of Romans tells me that this blog is coming up with nothing but unintelligible code in Firefox. I am doing everything I can to find a combination of settings that causes this to happen, but I have yet to encounter a structure that does the hurtful deed. In fact, I am now under the self-imposed rule that about a quarter of all my work here on this blog in terms of publishing new articles, responding to comments, and doing minor backroom editing is to be carried out in Firefox. This very post is being prepared in Firefox.

I need to hear from people using Firefox. Are you here? Are any of you having a Firefox loading problem with this blog? Have you had any occasion when the Website load took a bad turn that caused you to get a total or partial mess of code?

I swear, this whole Internet thing has been nothing but a headache ever since it started showing up on computers. Life was so much easier during the Ice Age: see mammoth, kill mammoth, eat mammoth. None of this download mammoth, test mammoth for malicious tusk code, ensure mammoth is cross-browser compatible, promote mammoth on search engine Websites, et cetera. Lordie!


Say something here on this Open Thread. Your comments don't have to be particularly witty or even on-topic, especially since there's not really any specific topic. Just hang out and share your wisdom here at The Dark Wraith Forums hotel lounge on this Tuesday night.


The Dark Wraith sweeps off the WELCOME mat.

Analysis: If the Truth Be Told

Among the misconceptions set forth by the new Right in this country is that American labor, largely through union activity, priced itself out of competition in a globalized economy. The argument goes that, in a market economy such as that of the United States, it is only rational for employers to seek the lowest cost factors of production, be they raw materials or labor; and if labor is cheaper elsewhere, then that is where profit maximizing companies will go to secure it.

Economics for Dummies: The Neo-Con Reader's Edition
The proposition that American labor is "too expensive" is simplistic, and here's why. Throughout the 1980s, the United States federal government ran ever larger budget deficits, due in no small part to the Reagan Administration's tax cuts in the early years of the Gipper's first term. Federal budget deficits put upward pressure on interest rates. This is because the United States Treasury is entering global capital markets to compete for lendable funds; and because a sovereign nation will pay whatever rate it must to induce lenders to provide the needed money, the result is higher interest rates for all debt, both public and private.

The price of an American dollar is the interest rate it can earn. So, as domestic interest rates rise, the value of the American dollar increases relative to the values of other currencies whose interest rates are not under the same pricing circumstance. Stronger American dollars means American exports, which are obviously denominated in those dollars, become more expensive in overseas markets. And relatively speaking, because foreign currencies are becoming less valuable as the American dollar becomes more valuable, imports to the United States become cheaper.

In fact, though, everything foreign becomes cheaper, including factors of production!

No, American labor didn't price itself out of global competition; the federal government, through its budget deficits, did that. Factors of production don't willfully commit suicide, particularly when irresponsible Republican Presidents are happy to do the deed as an old-fashioned execution of the labor movement.

Something for Everyone
When U.S. interest rates are higher than those of foreign trading partners, American dollars become very attractive overseas. In fact, they become so desirable that foreign producers will lower their prices just so they can sell stuff to Americans and thereby get their hands on some of those dollars. But don't worry about those greenbacks getting homesick. They'll come back as capital investment since this is where the dollars earn the good interest rates. That's the whole point of what exchange rates and interest rates do to maintain asset flow balance: the short-term asset called dollars flows outward, creating a negative trade balance; then it flows back this way, creating a pretty much equal, positive capital account surplus.

That means foreigners get to own lots of long-term, American assets, like corporations and real estate and piles of government Treasury debt, while Americans get to own lots of short-term, foreign assets, like Toyotas and blenders and computers and Walmart junk. It works out as an equation, and prevailing exchange rates set the stage for this circulation of capital to always stay in rough balance.

A Primer on Factors of Production
When any good or service is created, the production process utilizes a mix of five broad categories of inputs. These so-called "factors of production" are land, physical capital, labor, human capital, and entrepreneurial skill, this last one being peculiar to production in capitalist economies.

Land is the physical platform upon which production takes place. In some cases, lots of land is required; in other cases, very little.

Physical capital—machines, trucks, buildings, etc.—is to some extent and in some industries a substitute for land: for example, service companies can render production in a skyscraper, whereas manufacturing companies usually have to spread out because of the need for horizontal assembly lines. That's why the downtown areas of big cities are dominated by tall buildings housing things like banks, law firms, and insurance companies, whereas the peripheries of those same cities are ringed by manufacturing plants.

Labor is nothing but raw muscle power, brute mechanical energy ready to be set upon tasks put before it. Human capital is knowledge, skill, understanding, and perhaps even wisdom set upon tasks before a person. Labor and human capital are unusual in that labor is always becoming human capital, either through formal training, as in education, or through learning that comes naturally to any beast (with the exception of neo-conservatives, who seem never to learn one tom-fool thing, despite the cornucopia of their past mistakes).

Entrepreneurial skill is the risk-taking, human organization of the other four factors in a combination that will create some output at a profit that compensates the organizer for his or her risk borne. As noted above, this one is unique to capitalist (or so-called "market") economies, although all shades of it show up even in communist economies as underground and otherwise illicit activities.

A Moveable Beast
Many industries locate with factor costs in mind. If it saves enough money, a plant will operate as close as possible to the source of its primary production factor. That means, if a manufacturing process is labor intensive, then companies in that industry will tend to locate, or re-locate as the case may be, where the labor is cheapest.

Now, most people are going to say, "Ah-hah! That's why America has lost all of those jobs to Third World countries. It's just tragic. It's terrible."

Well, yes, but blaming laborers in India and China or blaming greedy American companies misses the whole point. Remember what has been happening for more than several decades: American dollars—and therefore all things priced or denominated natively in those American dollars—have been very expensive. No, it wasn't the unions or escalating minimum wages or skyrocketing benefits in and of themselves that propelled companies to seek cheaper labor overseas: it was the regime of exchange rates that did much of the dirty deed; and those exchange rates were driven by the manner in which the United States chose to manage its fiscal house.

The chain of causality is not that difficult to track, but it certainly doesn't serve the purposes of neo-conservative politicians or the management of corporations to see it that way. Instead, the pro-business forces within this country would rather howl about getting wage and benefits concessions so America can remain, or maybe once again become, "competitive." But if the reason jobs flow overseas is relative currency valuations, wage and benefits concessions have no effect other than to produce a domestic labor force that would be entirely under-compensated were the United States government to have behaved in a financially responsible manner.

Yeah, But What About Illegal Aliens Taking "Our" Jobs
Go back to the value of the dollar. In a world where dollars are more valuable, factors of production will receive their best compensation if it is denominated in those dollars. Now, a machine can't get up and say, "Oh, I'm heading for Topeka because I can rent myself out in dollars, whereas if I stay here Mexico City, I get lousy pesos." Neither can a plot of land say, "I'm pullin' up my sod from here in Haiti and headin' to Miami where people pay for land in greenbacks."

But a person—that really unusual labor/human capital combo factor of production—can do precisely that: it can flow toward the place where its compensation is the best, even if "best" is nothing more than a technical feature of the currency's strength caused by exchange rates. And just as it does nothing to solve the problem of "expensive American workers" by demanding that they accept lower pay and fewer benefits, it does nothing to solve the problem of low wages and good jobs by turning into a bunch of kick-them-foreigners-out xenophobes. The immigrants—legal and illegal, both—are here not because America is the greatest land with the best television shows and the most wonderfully fulfilling jobs on Earth; it's because the American dollar is so valuable that they, like every other foreign importer, are willing to trade what they have at low prices just to have some of those greenbacks.

It's exactly the same dynamic, and it's caused by an America that has for years used the steroid of deficits to live so far beyond its public means that its currency is a magnet for every manner of foreign good that can flow this way.

Slapping tariffs on foreign imports, putting machine gun turrets at the borders, and pasting "Buy American" bumper stickers on Ford trucks doesn't fix the underlying problem. Fiscal discipline does that, and it's not just a matter of cutting every social welfare program that Right-wingers have been just dying to eliminate. It has as much, if not more, to do with constructing a tax system that isn't a candy store for Republicans to smash open for the electorate every time they want some votes.

What Won't Happen That Should
Somewhere along the way, some politician—be it a Republican; an Independent; or God forbid, a real Democrat—needs to lay it out for the American people:

No, I'm not giving you a tax cut. You've had too many. In fact, I'm going to raise taxes, most particularly on the wealthy, not just because they can afford it, but also because it's when they screw up that the most damage gets done that the government has to clean up. And if the rich people say anything, I'm going to rip into them for the bunch of perpetual crybabies they are.

Oh, yes, and about cutting federal spending: we need to chop down a lot of pork-barrel projects. That's always on the agenda. And we'll probably get rid of some social services spending, too, but that's sure as Hell not a priority when we've got so many people doing without in this country. Before we do much cutting of domestic programs, we're going save a whole lot of money by knocking it off with starting wars against stupid little dictatorships halfway around the world. That's too expensive, especially when they get so bitchy about the part where we try to take their oil.

And finally, if any of you stand up and start whining about 'immigration reform', 'fair trade', or 'wage concessions', you're going to get kicked right in the ass, even if you can't pull your head out before my boot hits paydirt.

Saying such things would require the intelligence to grasp what is right and then the bravery to lead righteously.

That means it won't happen. Not in this era, anyway.




The Dark Wraith has spoken.

Special Blog Post: Economics Marginalia

Economics has been called many things: The Dismal Science; Common Sense Made Obtuse; The Incomprehensible Explaining the Inpenetrable; The Insubstantive Incontinence of Dolts in White Shirts...

Okay, enough of that. The point is made: economics is generally boring material handled by boring people. But sometimes, economics has interesting, if somewhat offbeat, information to offer, or it has a funny joke about its practitioners, or it has something important to say should anyone care to listen.

Jokes
Question: How many Harvard economists does it take to screw in a light bulb?
Answer: Just one; he holds it up to the light socket and waits for the world to revolve around him.

Question: ...And does it?
Answer: Yes, of course. We're talking Harvard faculty. Duh!
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Two economists were walking down the sidewalk when they came upon two neighbors arguing violently over their common fence. The one economist says to the other, "They'll never come to an agreement, you know."

The other economist says, "How can you be so certain?"

The first economist replies, "Well, it's obvious: they're arguing from different premises!"
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The master economist is training his two young apprentice economists in archery. He brings them to an audience and directs the first young economist to fire an arrow at a target. The young archer misses by 20 feet to the left, killing a wealthy bystander.

The master economist then directs his second young economist to fire an arrow at the target, and this time, the arrow misses 20 feet to the right, killing a peasant bystander.

The master economist exclaims, "Perfect!" upon which shout of praise the crowd hollers, "Whaddaya mean, 'Perfect'?"

The master economist responds, "One of the economists missed by 20 feet to the left, and the other missed by 20 feet to the right. That means, on average, their results were exactly on target!"
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It seems that an economist was walking along an Arabian beach when he stumbled upon an ancient lamp. He kicked it a little, then he picked it up. First looking around to make sure no one would see him doing something totally stupid, he rubbed the lamp vigorously. Much to his shock, a billowing cloud issued forth from the lamp, and out came a giant genie.

"Sahib!" bellowed the enormous being of legend and lore. "You have freed me from my prison, so I shall grant you one wish!"

The economist looked a little perturbed and mumbled, "Whatever happened to the traditional three wishes?"

The genie replied, "The central genie wishing bank recently restricted the supply of wishes because of wish inflation, so be happy with the one you're getting; and make it now, before I get upset."

The economist thought for just a brief moment, and then he said, "I wish for an end to all scarcity: an end to scarcity of food and water, an end to scarcity of adequate medical treatment, an end to scarcity of jobs, an end to scarcity of factors of production... an end to all scarcity."

The genie roared, "Are you NUTS?! You're an economist! You should know that scarcity is the entire point of economic reality. It is scarcity that creates prices, and the prices then allocate the goods and services to their most efficient end uses. Scarcity is what causes creatures and societies to try different ways of organizing themselves in their efforts to deal with the relative scarcities of material and emotional wants and needs. Without scarcity, the entire biology of life would be fundamentally altered, perhaps even catastrophically!" The genie folded his arms defiantly and concluded, "No. No, no, no. I have the right to deny the first proposed wish of any master; and since I am duty bound to deny any such wish that would so fundamentally change the order of the universe, I hereby refuse you."

The economist looked a little taken aback at the adamance of his wish granter. He said, "I am truly sorry. I think I understand now that wishes should be for small and personal matters that don't disrupt the wider cosmos." So he thought for another moment, then he said, "I know what I want. Since I'm an economist, I want to make an economic forecast just once in my life that turns out to be exactly right. Yes! That's what I want."

The genie didn't say a word; he merely turned away from his master and walked down to the edge of the beach and stared out at the sun that was setting over the ocean. There in silence he stood for what seemed like an eternity before he let out an almost mournful sigh, turned to the economist, and said, "Okay. End all scarcity it is, then."
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It seems that, when Albert Einstein passed away, he was take