When protection against terrorism costs thousands of times more than a terrorist act costs. Can bankruptcy be far behind?

When all goods and services are purchased from China or India with their unlimited supply of cheap labour. Can bankruptcy be far behind?

Just like the arms race that bankrupted the USSR. Where the USSR could fabricate nuclear submarines equiped with nuclear SLBMs but could not fabricate toothbrushes, cars nor telephones.

Just like the British, French, Ottoman or Roman empires. Bankruptcy,instability and collapse.

Inevitable?

Quebedmike:

....your insite and knowledge of Ricardian economics,international comparative advantage, and international geo-political dynamics is astounding..., they need your brain power at the U.N.....

You speak of "Imperial Overstretch". Paul Kennedy wrote a book, "The Rise and Fall of Great Powers", back in 1987 with this very theme. He said the US was in inevitable decline and had stretched its committments beyond its limits to pay for them. Japan would pick up all the pieces. He, of course, was very wrong as the Warsaw Pact fell two years later and the USSR fell four years later. US had a decade of tremendous growth while Europe was middling and Japan anemic.

Perhaps he will be proven right and what you are saying comes to pass. It is possible and something to watch out for. I believe the only way it would happen is if the US and the West fail to remain dynamic and engaged in the woild. Isolationism and protectionism is what will bankrupt the West. But I'll be damned if I let that happen. That's why I'm a Republican!

Raoul
Ricardian economics?
I only took two courses in economics. I know nothing.

Oman,
How can voting one way or another change anything. The choices offered seem astoundlingly similar everwhere.

QM, perhaps you don't realized the power of being able to choose your gov. I can tell you that the psychological effect (being able to vote) is far more than just a vote.

Economic is an interesting "science", you will never get an absolute answer. But the fact is, every country or region will walk the same path. Cheap labor in PR China is facing some challenge. Factories in many region are having difficult time hiring. Competing for skilled labor are tough and the labor cost is rising. More and more manufecturings in PRC are requiring labor with higher skills and workers with higher educations, which are harder to find, so cost a lot more (not comparing with US).

QM, you sounds like you are one of those who oppose to WTO? Thinking it will steal jobs in US (or canada)?

QM...I think the reference to David Ricardo was sarcasm. Ricardo says countries should focus on their compariative advantages, i.e. exclusively produce what they do best, even if another country can do it and something else better. Let the French make wine and English make linens I believe was his example, as opposed to both doing both.

You have a point that many political parties offer few differences, but I tend to favor the side that lets free trade/labor/capital happen and is engaging of the world, not one that wants to freeze the status quo in place for ever and ever. That is a sure way to stagnation and bankruptcy for any society/corporation.

Comparative advantage is not necessarily the cheapest labor force, but the highest rate of total factor productivty, i.e. the sum of labor and capital productivity. Because of better training and infrastructure, if it takes one worker in Canada, making $150 per day, to operate a machine that costs $150 to operate per day to produce $1000 of output ($700 profit), that is better than 5 workers in China at $20 per day on a machine that takes $100 to operate that produces output worth $600 ($400 profit). We talk how the Chinese are paid a small fraction of what the Canadian makes, but reality is the Canadian is more productive (I made up the numbers, but the principle is accurate).

You are right the US does risk too many committments and goes bankrupt fighting terror. However, defense sepending is around 3% of GDP (if that), much less of a burden than the 80's (8% for Reagan buildup) and 40% in WWII (a relatively short time that had a boom effect on the economy after the Depression). I believe the Soviets were spending about 25% of their GDP for around 50 years without any boom effect as there was no civillian economic side effects. The English lost their competitive edge through Imperial preferences and when they lost the Empire, they were sunk (two world wars didn't help, but bankruptcy is preferable to enslavement). The Ottomans were highly corrupt and had been stagnating for centuries when they fell. Only European rivalries kept them afloat becasue of the arguments over who would take what.

Yeah, and we get to protect Canada also....and intercept Terro punks at the border.

As long as we control space... we control the planet. It will take decades to displace us from up there once we "lock it down" so-to-speak. Make no mistake... all the action is going to be up there for the next 20 years.

space war

space 2

space 3

This message has been edited. Last edited by: JohnH,

This is an interesting and very important subject. Very true that protectionism and isolationism simply do not work. Another thing that does not work is to continue to spend while not bringing in tax revenues to pay for the spending. This is the first time that the United States has waged a war and lowered taxes at the samd time. While lowering taxes is good policy to get out of a recession, the fact remains that spending must be vastly reduced or taxes raised if we are to avoid the escalation budget deficit from causing real problems. Or, that's what Greenspan tells us. Every Professor I had while doing a Masters and Ph.D programs in Political Science & Intl. Relations argue that the top dog nation inevitably takes on more and more. And then when it cannot pay for the increased commitments / expenditures, that top economic / political power begins to just spend and not worry about balancing expenditures with revenues. The bond market of the U.S. is mostly funded by foreigners. At the current time, the US$ is at a 9 month low to the Euro, a 16 month low to the Yen, and a 15 year low to the Canadian$, etc. So is it inevitable that the top dog eventually escalates itself into higher and higher spending, leading to insolvency? Well...that is the way it has always been throughout history.

My above comments & opinins are not arguing pro or con towards any political party.

quote:

---

Originally posted by O Man:Comparative advantage is not necessarily the cheapest labor force, but the highest rate of total factor productivty, .

---

Good point.
Can we factor in the costs of "maintaining social order" in that.

How peaceful can any area of the world remain when the conditions of life are deteriorating.
At what point does this skew comparative advantage one way or the other.

Are there barometers to watch?

quote:

---

Originally posted by verboy:QM, you sounds like you are one of those who oppose to WTO? Thinking it will steal jobs in US (or canada)?

---

I think something is broken.

O Man nice post.
Help me out on the EU decline. Do you think the EU is going to fall apart, economically speaking?
Germany, The Netherlands and France(the major economic base) are over their EU mandated budgets and growth is declining or flat. Is a economic breakup inevitable?

Yes, something is broken there. Partly due to contries don't complied with it. The main reason is politic. My take on it is that comparative advantage, competitive advantage, or the WTO thing, are long term. Before anyone benefit, some have to suffer at first. Say US is shipping work to cheap labor work to China. But US are buying cheap product from China and [start] selling expensive products to China. Politician will only focus on shipping work oversea, because this is immediate concern. They don't want to mention the cheap product available here or the money company will save, and the profit company will make selling to China because it is long term and most people won't see the result in election year.

QM...you are correct, social costs are part of total factor productivity, but they are quantified as taxes, education expenses, turnover/training costs, legal expenses...wages/benefits are a proxy for happiness, but we all know money can't buy me love...

Sheik...EU will remain a trading bloc with a high degree of economic integration and policy coordination even as it becomes more and more apparent the political integration agenda was premature. The common currency (Euro) may go, or some countries opt out as the costs become too high. Problem with a highly centralized EU (Franco/German model) is that in very few cases was it subjected to voter referendum; its a typical Continental top-down model. Germany appears its being strangled by a strong Euro, but its really a economic/social model that is unresponsive and out of date in the global economy. At the least, the decentralized Anglo-Saxon (UK/Eastern Europe) model of limited political integration and flexibility will survive. EU can reform its economics easily if there was political will. Reforming its political culture is more difficult.

Lessons for the US in all of this is to not vote in Kerry as he admires the EU social model. A Democrat regime run amok (not that Kerry could implement this) would saddle US with onerous labor market restrictions (as if competing on price is attractive) and keep investment out (investment drives capital productivity). We end up lowering both labor and capital productivity and hence TFP. Our non-inflationary growth rate becomes lower.

Fighting wars and lowering taxes don;t matter. Its defense spending that matters. At 3% of GDP, defense spending is not large. Iraq is more of a nasty headline and political problem than an economic or military problem. Obviously, the Baathist want to win the media war like the Viet Cong did after Tet in '68. The antiwar left is only too happy to oblige.

Nice O Man. I believe you're right on the Euro currency. That was more of what I was trying to say. The Netherlands is having HUGE problems with their social welfare society. It's very difficult to remove entitlements. http://news.bbc.co.uk/2/hi/business/3743526.stm
I've already voted for Bush.

What I am talking about is nation wide strikes and protests.

At present the boogie men are extraterroritial threats.

Intraterritorial threats such as govenment corruption, crooked stock markets, corporate misconduct are quickly forgotten.

"When protection against terrorism costs thousands of times more than a terrorist act costs. Can bankruptcy be far behind?"

-- This makes no sense. There's no such thing as complete security, and no nation can guarantee their citizens won't get the flu, get shot, or blown up by a weirdo. But there is such a thing as upgrading your defenses and reallocating resources. This includes temporary spending increases in wartime.

"When all goods and services are purchased from China or India with their unlimited supply of cheap labour. Can bankruptcy be far behind?"

-- Also impossible. Try to get someone from China to come over and fix your car. Not everything can be "outsourced" or made cheaper/better in foreign countries. And even if it can, it is often done by foreign-based subsidiaries based in that nation. Labor is a commodity that some have and others don't, just like oil, steel, diamonds, lumber, whatever... The last time you bought a Honda it was probably built in Ohio.

"Just like the arms race that bankrupted the USSR. Where the USSR could fabricate nuclear submarines equiped with nuclear SLBMs but could not fabricate toothbrushes, cars nor telephones".


-- Meaning that you're equating the US/USSR arms race with the war in Iraq? Not even close to the same scale. Furthermore, the US economy proved more than resilient enough to win that war, while the USSR's system proved incapable.

As Greenspan and others have stated, we are constantly underestimating the resiliency and dynamism of the US economy -- even the experts who know it best.

quote:

---

Originally posted by masher:-- Also impossible. Try to get someone from China to come over and fix your car. Not everything can be "outsourced" or made cheaper/better in foreign countries.

---

Interesting point. However who are all those people working in agriculture, the garment industry and yes garages?
Cheap labor seems to gravitate into higher wage countries.

Almost anything can be outsourced to foreign workers in foreign lands or to foreign workers newly legally or illegally arrived.