Many people have a small garden in a window box or similar. Imagine instead of a window box that you plant your garden in a sieve!
Every time you try to water the plants to encourage them, the water goes right through. The plants don't benefit.
The American economy is a sieve. The govenment often spends money to encourage development of new technology and new industries. If new jobs are the result of the effort, there is nothing to stop the jobs, once they get going, from being transferred to China. The money has gone through the sieve without benefiting the economy.
Further, it is likely that China will steal the technology. So in this further sense the money goes right though the sieve leaving no permanent benefit for our economy.
At one point in his presidency, George Bush issued a $600 check to every American (or maybe it was to every family), to improve morale and to get spending going. If you looked at a collection of political cartoons at the time, every cartoon contained the same theme. The man or woman of the house asks "Which economy are we helping? China's economy or the American economy?"
Cartoons aside, I am sure that virtually all Americans, except of course the politicians, understood that the $600 checks would not accomplish anything, because of the sieve effect.
The American sieve economy. Money spent by the government goes right through the sieve to China, leaving no benefit for the American economy.
There is only one way to save the American economy, and that is to cut ties with China and other countries that don't buy from us in approximately equal amounts.
Goods on shelves in stores should be 95% American-made, not 95% foreign-made.
We have over 15 million people unemployed. Some people say 25 million are unemployed or under-employed. Our governments at all levels are drowning in debt. How much more evidence do we need before we move ahead with forthright actions? Tear up the trade arrangements, and put a tariff or foreign sales tax on goods from countries that are exploiting us, the most vicious and aggressive example being China.
No other policy, such as more infrastructure programs, or general fiscal or monetary actions, will work. These alternate policies simply delay the inevitable, namely tariff or foreign sales tax as described above. And, during the delay period, our economy will further descend with additional millions unemployed.
Tuesday, August 16, 2011
Wednesday, August 10, 2011
Open letter to Mr. T. Boone Pickens
Dear Mr. Pickens:
I think that one respected, well-known public figure could lead America to solve its unemployment and debt problems.
Are you prepared to be that person?
You are needed because all the politicians in Washington, and the President of the United States with all his advisors and technical experts, have not been able to solve the problems.
(A few politicians understand very well what has to be done, and they are working hard, but their numbers are not enough to carry the day.)
Children's story books tell us that "All the King's horses and all the King's men could not put Humpty-Dumpty together again".
Amazingly apt description of our dilemma today!
A tremendous barrier to solving the problem is that censorship is in effect, controlling what is said in the media and what is said and done by the politicians.
How can we solve our problems if we are not allowed to mention or discuss the real issues?
Are you prepared to go around the censorship and say what has to be said?
Are you aware that our negative balance of trade in manufactured goods, with all foreign countries, is over 500 billion dollars per year?
Is it a good idea to be bleeding 500 billion dollars per year out of our country when we have huge debts and 15 million people unemployed?
Our negative balance of trade of 500 billion dollars per year is one of the issues that no one is allowed to mention, under the very real censorship that is in effect in America.
The primary cause of our unemployment and debt problems is that over the last 50 years U.S. manufacturers voluntarily and on their own initiative transferred millions of jobs to "low-wage" countries. During that 50-year period, successive presidents, senators and members of the House of Representatives passively allowed the jobs to be sent away.
This fact is the other key issue that no one mentions, because we are under censorship.
When we sent away manufacturing jobs we lost the tax revenue from American workers who had held those jobs. We lost the value-added effect of manufacturing activity. We converted productive workers who were paying taxes into unemployed people who require welfare and food stamp assistance.
The working-age man or woman who does not have employment is not a stakeholder in our society or in the economy.
This fact is the cause of the current rioting in England.
The cost to our economy of 15 million people who are not stakeholders is huge, and is not accounted for when manufacturers calculate the "savings" of doing their manufacturing in "low-wage" countries.
You have recently made some excellent and constructive statements about the problems facing America. I hope you will go further and take on the challenge of leading America to a new era of increased manufacturing activity, millions more Americans employed in manufacturing, and American-made goods, rather than foreign goods, lining store shelves.
Thank you very much for your consideration.
Yours truly,
Edward J. Farkas
I think that one respected, well-known public figure could lead America to solve its unemployment and debt problems.
Are you prepared to be that person?
You are needed because all the politicians in Washington, and the President of the United States with all his advisors and technical experts, have not been able to solve the problems.
(A few politicians understand very well what has to be done, and they are working hard, but their numbers are not enough to carry the day.)
Children's story books tell us that "All the King's horses and all the King's men could not put Humpty-Dumpty together again".
Amazingly apt description of our dilemma today!
A tremendous barrier to solving the problem is that censorship is in effect, controlling what is said in the media and what is said and done by the politicians.
How can we solve our problems if we are not allowed to mention or discuss the real issues?
Are you prepared to go around the censorship and say what has to be said?
Are you aware that our negative balance of trade in manufactured goods, with all foreign countries, is over 500 billion dollars per year?
Is it a good idea to be bleeding 500 billion dollars per year out of our country when we have huge debts and 15 million people unemployed?
Our negative balance of trade of 500 billion dollars per year is one of the issues that no one is allowed to mention, under the very real censorship that is in effect in America.
The primary cause of our unemployment and debt problems is that over the last 50 years U.S. manufacturers voluntarily and on their own initiative transferred millions of jobs to "low-wage" countries. During that 50-year period, successive presidents, senators and members of the House of Representatives passively allowed the jobs to be sent away.
This fact is the other key issue that no one mentions, because we are under censorship.
When we sent away manufacturing jobs we lost the tax revenue from American workers who had held those jobs. We lost the value-added effect of manufacturing activity. We converted productive workers who were paying taxes into unemployed people who require welfare and food stamp assistance.
The working-age man or woman who does not have employment is not a stakeholder in our society or in the economy.
This fact is the cause of the current rioting in England.
The cost to our economy of 15 million people who are not stakeholders is huge, and is not accounted for when manufacturers calculate the "savings" of doing their manufacturing in "low-wage" countries.
You have recently made some excellent and constructive statements about the problems facing America. I hope you will go further and take on the challenge of leading America to a new era of increased manufacturing activity, millions more Americans employed in manufacturing, and American-made goods, rather than foreign goods, lining store shelves.
Thank you very much for your consideration.
Yours truly,
Edward J. Farkas
Tuesday, August 9, 2011
What a nerve!
China is telling the United States of America to get its financial house in order. What a nerve!
Why is China concerned about our "financial house"? China holds 1.2 trillion dollars worth of U.S. Treasury securities. China is behaving like a nervous amateur investor in its constant concern about the value of this holding. If the U.S. dollar goes down, the value of China's holding of U.S. Treasury securities goes down.
There is a saying "Be careful what you wish for. You may get your wish but there could also be an undesired result".
China wishes that America would "get its financial house in order" so that the U.S. dollar retains its value. But the best and in fact the only way for America to get its financial house in order, and strengthen the U.S. dollar, is to greatly reduce the importation of foreign-made products!
In this wonderful and hoped-for scenario, we would instead do the manufacturing here in good old USA!
In Fall 2008, after that stock market crash (August seems to be the month for stock market crashes!), purchases of Chinese-made goods by western countries dropped off. Immediately, laid-off Chinese workers began rioting.
In the wonderful and hoped-for scenario referred to above, the same thing would happen but on a larger scale. The Government of China would not be happy with this outcome!
This is what I am referring to above: "You may get your wish but there could also be an undesired result."
China can't have it both ways. China can't be assured that the U.S. dollar will hold its value, while China sells us four times more than it buys.
The scolding that the U.S. should "get its financial house in order" is contained in a diatribe issued by China on August 6, 2011. Some other gems in this diatribe are reviewed below.
The U.S. should "tighten its belt" (probably the belt was made in China!) and confront its "addiction to debts....the good old days when (America) could just borrow its way out of messes of its own making are finally gone".
There is one kernel of truth here. We are in a mess of our own making but it did not come about through borrowing.
It came about through sending millions of our manufacturing jobs to China and other low-wage countries.
The statement from China goes on to stay that "global turbulence" will result "if the U.S. fails to live within its means".
What a nerve that China lectures us. China is on a binge of unwise borrowing. Borrowed money has been used to build millions of apartments and even new cities. The only problem is that these apartments and new cities are empty. China does not allow the trillions pouring in from western countries to trickle down to the ordinary Chinese citizen. Therefore there is no one ready to take up the new apartments and new cities.
What happens when difficulty arises in carrying the borrowed money, without income from the new facilities? Possibly or probably a crash similar to the crashes we have in the western countries!
Now we come to the bottom line:
"China has every right to demand the U.S. to address its structural debt problems and ensure the safety of China's dollar assets."
This statement is childish. Every investor would like to have assurance of absolute safety. But this little feature is not generally available! If China is worried about the safety of its investment, it should sell. Otherwise, keep quiet!
China made the investments in U.S. securities for very good reasons to benefit itself. No one held a gun to China's head, forcing China to buy U.S. securities.
But there is another factor. China is trapped "in a mess of its own making"! If China sells any of its U.S. Treasury holding, that action alone will force the U.S. dollar down, the very result that China fears.
Speaking of holding a gun to a head, a "top Chinese general" last month questioned America's military budget and suggested that "paring back defence spending" would be in the interest of U.S. taxpayers.
There is of course a huge kernel of truth here. But again, China is demonstrating hypocrisy and a lot of nerve. China is using the trillions we give them to greatly increase their already large armed forces, at a time when there is absolutely no enemy in sight.
China has announced a policy of achieving complete self-sufficiency in all manufactured goods by 2050. They know very well that the best way to have a viable and prosperous economy is to be self-sufficient in manufactured goods.
But again the hypocrisy and nerve. They don't want us to be self-sufficient in manufactured goods! They want to keep us in a situation of slavery to imported goods.
We have to get out of slavery. Otherwise, our unemployment and debt problems will continue indefinitely.
Why is China concerned about our "financial house"? China holds 1.2 trillion dollars worth of U.S. Treasury securities. China is behaving like a nervous amateur investor in its constant concern about the value of this holding. If the U.S. dollar goes down, the value of China's holding of U.S. Treasury securities goes down.
There is a saying "Be careful what you wish for. You may get your wish but there could also be an undesired result".
China wishes that America would "get its financial house in order" so that the U.S. dollar retains its value. But the best and in fact the only way for America to get its financial house in order, and strengthen the U.S. dollar, is to greatly reduce the importation of foreign-made products!
In this wonderful and hoped-for scenario, we would instead do the manufacturing here in good old USA!
In Fall 2008, after that stock market crash (August seems to be the month for stock market crashes!), purchases of Chinese-made goods by western countries dropped off. Immediately, laid-off Chinese workers began rioting.
In the wonderful and hoped-for scenario referred to above, the same thing would happen but on a larger scale. The Government of China would not be happy with this outcome!
This is what I am referring to above: "You may get your wish but there could also be an undesired result."
China can't have it both ways. China can't be assured that the U.S. dollar will hold its value, while China sells us four times more than it buys.
The scolding that the U.S. should "get its financial house in order" is contained in a diatribe issued by China on August 6, 2011. Some other gems in this diatribe are reviewed below.
The U.S. should "tighten its belt" (probably the belt was made in China!) and confront its "addiction to debts....the good old days when (America) could just borrow its way out of messes of its own making are finally gone".
There is one kernel of truth here. We are in a mess of our own making but it did not come about through borrowing.
It came about through sending millions of our manufacturing jobs to China and other low-wage countries.
The statement from China goes on to stay that "global turbulence" will result "if the U.S. fails to live within its means".
What a nerve that China lectures us. China is on a binge of unwise borrowing. Borrowed money has been used to build millions of apartments and even new cities. The only problem is that these apartments and new cities are empty. China does not allow the trillions pouring in from western countries to trickle down to the ordinary Chinese citizen. Therefore there is no one ready to take up the new apartments and new cities.
What happens when difficulty arises in carrying the borrowed money, without income from the new facilities? Possibly or probably a crash similar to the crashes we have in the western countries!
Now we come to the bottom line:
"China has every right to demand the U.S. to address its structural debt problems and ensure the safety of China's dollar assets."
This statement is childish. Every investor would like to have assurance of absolute safety. But this little feature is not generally available! If China is worried about the safety of its investment, it should sell. Otherwise, keep quiet!
China made the investments in U.S. securities for very good reasons to benefit itself. No one held a gun to China's head, forcing China to buy U.S. securities.
But there is another factor. China is trapped "in a mess of its own making"! If China sells any of its U.S. Treasury holding, that action alone will force the U.S. dollar down, the very result that China fears.
Speaking of holding a gun to a head, a "top Chinese general" last month questioned America's military budget and suggested that "paring back defence spending" would be in the interest of U.S. taxpayers.
There is of course a huge kernel of truth here. But again, China is demonstrating hypocrisy and a lot of nerve. China is using the trillions we give them to greatly increase their already large armed forces, at a time when there is absolutely no enemy in sight.
China has announced a policy of achieving complete self-sufficiency in all manufactured goods by 2050. They know very well that the best way to have a viable and prosperous economy is to be self-sufficient in manufactured goods.
But again the hypocrisy and nerve. They don't want us to be self-sufficient in manufactured goods! They want to keep us in a situation of slavery to imported goods.
We have to get out of slavery. Otherwise, our unemployment and debt problems will continue indefinitely.
Friday, August 5, 2011
Basic facts remain the same
The stock market downturn of August 2011 does not change basic facts.
In the United States, there are 15 million people unemployed. This number is being thrown around by many people. I don't think anyone knows the correct number. Take 15 million as an estimate.
President Obama often speaks about new industries creating new jobs. These ideas are good but the associated job creation rate would be microscopic in relation to an estimated 15 million people waiting for jobs.
A news reader on a major TV network recently said "no one knows how to create jobs".
This statement by the news reader is not correct. There is a way to create jobs in America on a mass scale. The only problem is that censorship is in effect and no one is allowed to mention this job creation method.
Censorship is not in effect in this blog! I freely mention the only mass job creation method available, and that is "bring our manufacturing jobs back from China and other countries that don't buy from us in approximately equal amounts".
President Obama mentioned this method himself during the election campaign. He mentioned it once and then his 300 advisors and the people behind the scenes who really control things jumped on him and told him never to say this again.
So that is where things stand today.
All the hysterics by politicians concerning the debt limit were beside the point. What all the politicians should really get hysterical about is pushing the censorship out of the way so that we can start the process of getting our manufacturing jobs back from overseas.
We need a strong president to lead this process. We need a strong president to put tariffs or foreign goods sales tax on imports from China and other countries that don't buy from us. Once this measure is put in place, manufacturing employment in America will increase.
The politicians are hysterical about debt and deficits. As the level of manufacturing activity increases, with the assistance of tariff or foreign goods sales tax, tax revenue from Americans employed in America will increase, helping to reduce the deficit problem.
Some people say that "Bring the jobs back from China" is simplistic, stupid, impractical, pie-in-the sky, childish, or whatever other names you want to apply. I say, yes, there are some challenges. But what alternate mass job creation strategies are available?
I say the alternate job creation strategies consist of nothing more than waiting and hoping that somehow something will happen to create jobs and reduce unemployment.
Here are some basic facts in support of my comments above::
+ In a 50-year spree 1961 to 2011 we very stupidly sent and allowed to be sent millions of our manufacturing jobs to foreign countries. Censorship presently in effect in America does not allow this simple factual statement to be made. But if we are not allowed to make this statement, we will not understand the cause of our economic and debt problems, and we will never be able to solve the problems.
+ The loss of millions of manufacturing jobs has severely damaged our economy and the only way to repair the damage is to get those jobs back.
+ We are in exploitive and completely UNFAIR "trade" relationships with China and some other foreign countries. We have every justification to tear up the paperwork and get out of these relationships.
+ Our negative balance of trade in manufactured goods with all foreign countries is over 500 billion dollars per year. This is real physical money pouring out of our country. When our country is heavily in debt and when 15 million people are unemployed, is it helpful to be sending a net 500 billion dollars out of our country every year? This hemorrhage of wealth out of our country is another topic that the censorship does not allow us to mention.
Suppose we put an immediate tariff of 25% on our net importing of goods (over 500 billion dollars per year). That would provide new revenue to the government of over 125 billion dollars per year.
Suppose the tariff encourages domestic manufacturing and within a couple of years 10 million people are back at work, each paying $3000 per year income tax. That would be 30 billion dollars per year in tax revenue, plus the saving in welfare costs.
The factories employing the people would also pay tax.
Add up new tax paid by workers, reduced welfare costs, revenue from tariff or foreign sales tax, revenue from new factory operations, and you have additional tax revenue on the order of 200 billion dollars per year.
Then there is the value-added effect of the increased manufacturing activity, and the increased confidence and optimism in America, and the economy really starts to take off.
The American people are forthright, go-ahead, inventive, people, and we can take action and get our manufacturing jobs back from overseas.
We can tell China and other countries exploiting us to go jump in the lake. These countries are our enemies, not our friends.
If we don't take these strong and forthright steps, we are doomed to huge permanent unemployment and resulting social unrest, continuing impossibly high deficits, and total breakdown of the American economy.
In the United States, there are 15 million people unemployed. This number is being thrown around by many people. I don't think anyone knows the correct number. Take 15 million as an estimate.
President Obama often speaks about new industries creating new jobs. These ideas are good but the associated job creation rate would be microscopic in relation to an estimated 15 million people waiting for jobs.
A news reader on a major TV network recently said "no one knows how to create jobs".
This statement by the news reader is not correct. There is a way to create jobs in America on a mass scale. The only problem is that censorship is in effect and no one is allowed to mention this job creation method.
Censorship is not in effect in this blog! I freely mention the only mass job creation method available, and that is "bring our manufacturing jobs back from China and other countries that don't buy from us in approximately equal amounts".
President Obama mentioned this method himself during the election campaign. He mentioned it once and then his 300 advisors and the people behind the scenes who really control things jumped on him and told him never to say this again.
So that is where things stand today.
All the hysterics by politicians concerning the debt limit were beside the point. What all the politicians should really get hysterical about is pushing the censorship out of the way so that we can start the process of getting our manufacturing jobs back from overseas.
We need a strong president to lead this process. We need a strong president to put tariffs or foreign goods sales tax on imports from China and other countries that don't buy from us. Once this measure is put in place, manufacturing employment in America will increase.
The politicians are hysterical about debt and deficits. As the level of manufacturing activity increases, with the assistance of tariff or foreign goods sales tax, tax revenue from Americans employed in America will increase, helping to reduce the deficit problem.
Some people say that "Bring the jobs back from China" is simplistic, stupid, impractical, pie-in-the sky, childish, or whatever other names you want to apply. I say, yes, there are some challenges. But what alternate mass job creation strategies are available?
I say the alternate job creation strategies consist of nothing more than waiting and hoping that somehow something will happen to create jobs and reduce unemployment.
Here are some basic facts in support of my comments above::
+ In a 50-year spree 1961 to 2011 we very stupidly sent and allowed to be sent millions of our manufacturing jobs to foreign countries. Censorship presently in effect in America does not allow this simple factual statement to be made. But if we are not allowed to make this statement, we will not understand the cause of our economic and debt problems, and we will never be able to solve the problems.
+ The loss of millions of manufacturing jobs has severely damaged our economy and the only way to repair the damage is to get those jobs back.
+ We are in exploitive and completely UNFAIR "trade" relationships with China and some other foreign countries. We have every justification to tear up the paperwork and get out of these relationships.
+ Our negative balance of trade in manufactured goods with all foreign countries is over 500 billion dollars per year. This is real physical money pouring out of our country. When our country is heavily in debt and when 15 million people are unemployed, is it helpful to be sending a net 500 billion dollars out of our country every year? This hemorrhage of wealth out of our country is another topic that the censorship does not allow us to mention.
Suppose we put an immediate tariff of 25% on our net importing of goods (over 500 billion dollars per year). That would provide new revenue to the government of over 125 billion dollars per year.
Suppose the tariff encourages domestic manufacturing and within a couple of years 10 million people are back at work, each paying $3000 per year income tax. That would be 30 billion dollars per year in tax revenue, plus the saving in welfare costs.
The factories employing the people would also pay tax.
Add up new tax paid by workers, reduced welfare costs, revenue from tariff or foreign sales tax, revenue from new factory operations, and you have additional tax revenue on the order of 200 billion dollars per year.
Then there is the value-added effect of the increased manufacturing activity, and the increased confidence and optimism in America, and the economy really starts to take off.
The American people are forthright, go-ahead, inventive, people, and we can take action and get our manufacturing jobs back from overseas.
We can tell China and other countries exploiting us to go jump in the lake. These countries are our enemies, not our friends.
If we don't take these strong and forthright steps, we are doomed to huge permanent unemployment and resulting social unrest, continuing impossibly high deficits, and total breakdown of the American economy.
Saturday, July 23, 2011
Why is U.S. dollar losing value?
Townhall Spotlight, July 22, 2011, states "China to 'Bury' the dollar".
Townhall Spotlight goes on to say:
"U.S. government...appears bent on spending - and printing - our currency into oblivion."
Dear American people:
Please don't accept the above statements blindly. The above statements contain some truth but also to an extent take the reader away from the truth.
Please work to understand factually and accurately what is going on.
Hundreds of thousands of college students take Economics 101 each year. How many students listen to what is taught in Economics 101, understand what is taught, and remember what is taught?
A very clear and basic principle that is presented in Economics 101 is this: If a nation buys more goods from foreign countries than it sells, the currency of that nation will go down in value.
In this situation, an immutable self-correcting force comes into play. No government or group of people can make this force smaller or larger, anymore than anyone can make the Rocky Mountains smaller or larger.
If the nation keeps on buying more goods from foreign countries than it sells, its currency goes down in value. As the process continues there is less and less ability to buy foreign goods. The nation is saved from itself! In mirror image there is increasing purchase of goods made domestically.
China is not "burying" the U. S. dollar. We are burying the U.S. dollar OURSELVES by buying FOUR TIMES more manufactured goods from China than we sell to China.
50 years ago we did all our own manufacturing and we exported our manufactured goods all over the world. Then we started sending our manufacturing employment away to foreign countries. Buying the goods produced by this manufacturing employment became a DRAIN on our economy, rather than ENRICHING our economy.
We shot ourselves in the foot in a big way. We "buried" our dollar by voluntarily and on our own initiative sending our manufacturing employment to foreign countries, turning a POSITIVE into a huge NEGATIVE.
Who is "We" in the above sentence? It is not the ordinary working men and women of America. The ordinary working men and women of America knew immediately that it was stupid to send our manufacturing employment to foreign countries. However, our government and business "leaders" didn't listen to the ordinary people of America.
Our business "leaders" voluntarily and on their own initiative sent our manufacturing employment to foreign countries. Our government "leaders" passively and obediently allowed this process to begin in the early 1960s and continue on a larger and larger scale.
Today we see the result of this 50-year process of sending our manufacturing employment away. We see an impoverished America with 14 million people unemployed. (Probably the true figure is much higher.) This result was entirely predictable from day one in the early 1960s when the first jobs were sent overseas.
What is the solution?
The only solution is to increase our domestic manufacturing. Buy goods made in USA rather than goods made in China and in other foreign countries that don't buy from us in approximately equal quantities.
In blogging and tweeting I receive all sorts of comments from many different people. People say it is too late to increase manufacturing in America, it is too expensive to manufacture in America, there is too much red tape, there is too much union involvement, etc. These comments have some validity. Nevertheless, manufacturing in America is going to increase. Practical people are going to increase manufacturing in USA because, according to the immutable forces of economics, the fall of the U.S. dollar makes it attractive. Also, there are millions of Americans unemployed and ready to work at reasonable wage levels. Low dollar and high availability of efficient American workers. An irresistible combination!
According to a recent report, Mercedes plans to invest $2 billion in new manufacturing facilities in Alabama. Mercedes and many other companies are not sitting around listening to the people who have all the reasons why manufacturing can't happen in USA. These companies see manufacturing in USA becoming more attractive and they are moving to take advantage of it.
Some people say that there is no manufacturing in the USA. This view is not correct. There are many many thousands of manufacturers operating in the USA. It is easy to demonstrate to the stores that it is win-win to seek out and carry USA-made goods. When these existing manufacturers start to receive increased orders, they will quickly ramp up production and employment.
Foreign versus Domestic
Dear American people:
Please understand the critical difference between foreign expenditures and domestic expenditures.
Foreign expenditures"bury" the U.S. dollar. Domestic expenditures, even inefficient ones, support the dollar.
Foreign expenditures send our real physical money out of the country, never to be seen again. If and when we borrow from foreign countries, the interest payments drain the economy and "bury" the dollar. This process is the cause of the problems in Greece and other European countries.
If we have to borrow, borrow from our own American people. Then the interest payments go to Americans. The money stays in America and keeps working in America.
The politicians trying to solve the debt limit problem are completely missing a huge issue, an issue that should be central to the debate. This issue is our foreign expenditures. This is where we should be cutting.
First of all there is our negative balance of trade in manufactured goods with all foreign countries. Our negative balance of trade is over 500 billion dollars per year. This is a huge and totally unnecessary net foreign expenditure, a foreign expenditure front and center in the process of "burying" the U.S. dollar.
Secondly, the government makes foreign expenditures of approximately another 500 billion dollars per year.
So there we have one trillion dollars of foreign expenditures. These are the expenditures that are truly "burying" the U.S. dollar. These are the expenditures we should be cutting, rather than cutting medical care, education, maintenance of schools.
What are the government foreign expenditures?
It is very dangerous for me to say what I have to say at this point. I don't want to take away from my central message that we have to increase domestic manufacturing employment in order to solve our unemployment and deficit problems.
But the fact is that we have to look at our war expenditures. We are involved in three wars: Libya, Iraq, and Afghanistan. These wars may be increasing our security, or they may be counterproductive, actually harming the U.S. But the real point is that these wars incur enormous foreign expenditures for fuel and other supplies for our armed forces. In addition we have armed forces stationed in over 100 other countries. Again there are foreign expenditures for fuel and other supplies.
America is in deep financial and economic trouble. We cannot afford the huge foreign expenditures associated with American soldiers in foreign countries. We have to cut these expenditures by bringing our soldiers home, where they can do really useful things such as guarding the border with Mexico to keep Mexican drugs and drug gangs out of America.
We have embassies in 200 countries. Embassies incur foreign costs for fuel and supplies, for construction and maintenance by local personnel, and foreign staff. Unfortunately, America is not able to afford unlimited embassy-related foreign expenditure. The foreign expenditures related to embassies could be cut in half, with zero adverse effect on American interests or on the American people.
There are numerous other foreign expenditures by our government that could be cut.
The important point is that, again, foreign expenditures are much more damaging to the economy than domestic expenditures. Foreign expenditures "bury" the U.S. dollar. So foreign expenditures are the expenditures that should be cut first.
I wish all politicians could understand the importance of more domestic manufacturing, to cut our negative balance of trade in manufactured goods. I wish all politicians could understand the critical issue of foreign versus domestic expenditures, and could thereby be motivated to cut needless and wasteful foreign expenditures first!
Some of our politicians do understand these issues. But many more have to come on board!
Townhall Spotlight goes on to say:
"U.S. government...appears bent on spending - and printing - our currency into oblivion."
Dear American people:
Please don't accept the above statements blindly. The above statements contain some truth but also to an extent take the reader away from the truth.
Please work to understand factually and accurately what is going on.
Hundreds of thousands of college students take Economics 101 each year. How many students listen to what is taught in Economics 101, understand what is taught, and remember what is taught?
A very clear and basic principle that is presented in Economics 101 is this: If a nation buys more goods from foreign countries than it sells, the currency of that nation will go down in value.
In this situation, an immutable self-correcting force comes into play. No government or group of people can make this force smaller or larger, anymore than anyone can make the Rocky Mountains smaller or larger.
If the nation keeps on buying more goods from foreign countries than it sells, its currency goes down in value. As the process continues there is less and less ability to buy foreign goods. The nation is saved from itself! In mirror image there is increasing purchase of goods made domestically.
China is not "burying" the U. S. dollar. We are burying the U.S. dollar OURSELVES by buying FOUR TIMES more manufactured goods from China than we sell to China.
50 years ago we did all our own manufacturing and we exported our manufactured goods all over the world. Then we started sending our manufacturing employment away to foreign countries. Buying the goods produced by this manufacturing employment became a DRAIN on our economy, rather than ENRICHING our economy.
We shot ourselves in the foot in a big way. We "buried" our dollar by voluntarily and on our own initiative sending our manufacturing employment to foreign countries, turning a POSITIVE into a huge NEGATIVE.
Who is "We" in the above sentence? It is not the ordinary working men and women of America. The ordinary working men and women of America knew immediately that it was stupid to send our manufacturing employment to foreign countries. However, our government and business "leaders" didn't listen to the ordinary people of America.
Our business "leaders" voluntarily and on their own initiative sent our manufacturing employment to foreign countries. Our government "leaders" passively and obediently allowed this process to begin in the early 1960s and continue on a larger and larger scale.
Today we see the result of this 50-year process of sending our manufacturing employment away. We see an impoverished America with 14 million people unemployed. (Probably the true figure is much higher.) This result was entirely predictable from day one in the early 1960s when the first jobs were sent overseas.
What is the solution?
The only solution is to increase our domestic manufacturing. Buy goods made in USA rather than goods made in China and in other foreign countries that don't buy from us in approximately equal quantities.
In blogging and tweeting I receive all sorts of comments from many different people. People say it is too late to increase manufacturing in America, it is too expensive to manufacture in America, there is too much red tape, there is too much union involvement, etc. These comments have some validity. Nevertheless, manufacturing in America is going to increase. Practical people are going to increase manufacturing in USA because, according to the immutable forces of economics, the fall of the U.S. dollar makes it attractive. Also, there are millions of Americans unemployed and ready to work at reasonable wage levels. Low dollar and high availability of efficient American workers. An irresistible combination!
According to a recent report, Mercedes plans to invest $2 billion in new manufacturing facilities in Alabama. Mercedes and many other companies are not sitting around listening to the people who have all the reasons why manufacturing can't happen in USA. These companies see manufacturing in USA becoming more attractive and they are moving to take advantage of it.
Some people say that there is no manufacturing in the USA. This view is not correct. There are many many thousands of manufacturers operating in the USA. It is easy to demonstrate to the stores that it is win-win to seek out and carry USA-made goods. When these existing manufacturers start to receive increased orders, they will quickly ramp up production and employment.
Foreign versus Domestic
Dear American people:
Please understand the critical difference between foreign expenditures and domestic expenditures.
Foreign expenditures"bury" the U.S. dollar. Domestic expenditures, even inefficient ones, support the dollar.
Foreign expenditures send our real physical money out of the country, never to be seen again. If and when we borrow from foreign countries, the interest payments drain the economy and "bury" the dollar. This process is the cause of the problems in Greece and other European countries.
If we have to borrow, borrow from our own American people. Then the interest payments go to Americans. The money stays in America and keeps working in America.
The politicians trying to solve the debt limit problem are completely missing a huge issue, an issue that should be central to the debate. This issue is our foreign expenditures. This is where we should be cutting.
First of all there is our negative balance of trade in manufactured goods with all foreign countries. Our negative balance of trade is over 500 billion dollars per year. This is a huge and totally unnecessary net foreign expenditure, a foreign expenditure front and center in the process of "burying" the U.S. dollar.
Secondly, the government makes foreign expenditures of approximately another 500 billion dollars per year.
So there we have one trillion dollars of foreign expenditures. These are the expenditures that are truly "burying" the U.S. dollar. These are the expenditures we should be cutting, rather than cutting medical care, education, maintenance of schools.
What are the government foreign expenditures?
It is very dangerous for me to say what I have to say at this point. I don't want to take away from my central message that we have to increase domestic manufacturing employment in order to solve our unemployment and deficit problems.
But the fact is that we have to look at our war expenditures. We are involved in three wars: Libya, Iraq, and Afghanistan. These wars may be increasing our security, or they may be counterproductive, actually harming the U.S. But the real point is that these wars incur enormous foreign expenditures for fuel and other supplies for our armed forces. In addition we have armed forces stationed in over 100 other countries. Again there are foreign expenditures for fuel and other supplies.
America is in deep financial and economic trouble. We cannot afford the huge foreign expenditures associated with American soldiers in foreign countries. We have to cut these expenditures by bringing our soldiers home, where they can do really useful things such as guarding the border with Mexico to keep Mexican drugs and drug gangs out of America.
We have embassies in 200 countries. Embassies incur foreign costs for fuel and supplies, for construction and maintenance by local personnel, and foreign staff. Unfortunately, America is not able to afford unlimited embassy-related foreign expenditure. The foreign expenditures related to embassies could be cut in half, with zero adverse effect on American interests or on the American people.
There are numerous other foreign expenditures by our government that could be cut.
The important point is that, again, foreign expenditures are much more damaging to the economy than domestic expenditures. Foreign expenditures "bury" the U.S. dollar. So foreign expenditures are the expenditures that should be cut first.
I wish all politicians could understand the importance of more domestic manufacturing, to cut our negative balance of trade in manufactured goods. I wish all politicians could understand the critical issue of foreign versus domestic expenditures, and could thereby be motivated to cut needless and wasteful foreign expenditures first!
Some of our politicians do understand these issues. But many more have to come on board!
Sunday, July 17, 2011
Same old lies and omissions
Suppose a friend comes to you and asks you to look at his car. His car is not working properly and he wants a report on what is needed to get the car going.
You look at the car and immediately see a small problem with the engine timing. A competent mechanic could fix it easily. But you also notice a hole in the gas tank. Gas is flowing out continuously.
When you make your report to your friend, are you going to mention the engine timing, but OMIT mention of gas flowing freely out of the tank?
Of course not! How could anyone discuss and analyze the car, without mentioning the leak from the gas tank, and the urgent need to repair the tank?
Yet government officials, politicians, economists, analysts, and commentators constantly talk about the U.S. economy without ever mentioning the huge leak from the gas tank.
They brightly discuss various alternatives for fixing the economy, or solving the problem of the debt limit, as if the economy was not burdened with a huge millstone around its neck.
That huge millstone, that huge leak from the gas tank, is our negative balance of trade in manufactured goods with all foreign countries.
Our negative balance of trade in manufactured goods with all foreign countries is over 500 billion dollars per year.
That is real physical money going out of our country, never to be seen again. That is $1500 for each and every American, real money going out of our pockets, every year.
500 billion dollars per year is a direct measure of the net amount of additional manufacturing that should be occurring in the USA but is not. 500 billion dollars per year is a huge hemorrhage of life's blood from our economy, a huge leak from our gas tank, a huge millstone around all our necks.
Don't let anyone tell you that the balance of trade figures are theoretical figures that we don't have to worry about. All you have to do is look at China, rolling in money, not even knowing what to do with all the money, and compare with impoverished America, unable to repair roads, bridges, schools, and shutting down portions of cities.
Larry Summers was interviewed on CNN with Fareed Zakaria Sunday morning, July 17, 2011. Larry Summers talked in an upbeat way about continuing our infrastructure work to create employment, putting money in people's pockets, thereby increasing demand and solving all our problems.
But increased demand means purchase of more foreign-made goods so that more gas leaks out of the gas tank. More hemorrhage of money out of our country. Of course this aspect is never mentioned by Larry Summers or politicians or government officials. (Some politicians do understand this issue, but still too few.)
There is one and only one way to solve our economic problems and that is to increase domestic manufacturing. Bring the manufacturing jobs back from overseas. Employed American workers and American factories pay taxes to the U.S. government, thereby reducing the deficit.
Manufacturing in America enriches America through the value-added effect of manufacturing.
Manufacturing in China or other foreign countries impoverishes America.
Remember, workers in China or other foreign countries don't pay U.S. taxes. That is the nub our problem.
Larry Summers referred to policies of various countries immediately after the financial crash in August 2008. He referred to "countries like China and Germany" who, according to Summers, put resources into keeping their economies going. Summers implied that rather than worrying about deficits we should, in some magic way he didn't specify, follow the same strategy.
The phrase "countries like China and Germany" often appears in interviews on TV and in the writings of analysts and commentators.
The phrase itself is idiotic. What other countries are "like China and Germany"? None! If a commentator wants to refer to China or Germany, he or she should simply mention China or Germany.
Look at China. China has money pouring in from every western industrialized country, because all these countries have been so stupid as to allow their manufacturing employment to be sent to China. After August 2008, the money pouring into China decreased by 30%, but there was still a huge flood of money coming in.
So of course it was easy for China to recover.
After August 2008, Americans were not able to purchase goods to the same extent as before, so the amount of money going out to foreign countries decreased. But there was still a huge flood of money going out.
So of course America has not been able to recover.
Right here it is easy to see the dishonesty, the lie, the omission, in Summers' comments and in similar comments from politicos, bureaucrats, economists, analysts, and commentators.
Here is another absolutely nonsensical lie. "China will lead the world back to prosperity." How could this ridiculous statement be correct? China is bleeding every western country dry. China has an announced policy of stealing technology from western countries. Yes, China will become more prosperous, but on the backs of the western countries becoming much less prosperous. In fact, China's policies are on track toward complete destruction of the American economy, effectively "killing the goose that lays the golden egg".
Now here is another absolute lie that is repeated over and over again.
"interest charges America owes on the money it has borrowed to live beyond its means"
This phrase is meaningless. What does it refer to? Does it refer to the U.S. government borrowing money? Or does it refer to actions by the ordinary working men and women of America?
Is this phrase an attempt to blame ordinary Americans for a situation in fact created by our government and business "leaders"?
The average American family has not lived beyond a reasonable level of consumption. The family owns reasonable amounts of goods in terms of refrigerators, cars, clothes, TV sets, computers, cell phones.
The problem is that most of these items were made in foreign factories. Therefore, through no fault of the ordinary American working man or woman, purchase of the items resulted in money pouring out of our country.
If all these items had been made in America, using supplies and components made in America, government deficits would be much less because tax revenue would be coming in from employed American workers and operating American factories. And, money spent on family purchases would stay in the USA and keep working in the USA.
Simple as that!
Why are Larry Summers, government officials and politicians generally, commentators and analysts, all hiding these simple facts?
Simple question and simple answer: because our present economic problems, including 14 million unemployed, are due to the actions of all Presidents and all administrations and all senators and all congressmen, over the last 50 years. This is the time period in which we started to send, and continued on a larger and larger scale to send, our manufacturing employment to foreign countries.
No malign external forces created our economic problems. All the problems were created by our own government and business "leaders". No one is brave enough to face this fact. So they are trying to cover up. Maybe China is also exercising influence to maintain the cover-up. (Many ordinary citizens also find it hard to accept that our "leaders" have messed up so totally.)
A few politicians do understand the importance of getting our manufacturing employment back from overseas, and they are working hard in this direction. But not enough politicians have yet reached this understanding. So we are doomed to continue the farce of a national discussion that does not include the real issues.
You look at the car and immediately see a small problem with the engine timing. A competent mechanic could fix it easily. But you also notice a hole in the gas tank. Gas is flowing out continuously.
When you make your report to your friend, are you going to mention the engine timing, but OMIT mention of gas flowing freely out of the tank?
Of course not! How could anyone discuss and analyze the car, without mentioning the leak from the gas tank, and the urgent need to repair the tank?
Yet government officials, politicians, economists, analysts, and commentators constantly talk about the U.S. economy without ever mentioning the huge leak from the gas tank.
They brightly discuss various alternatives for fixing the economy, or solving the problem of the debt limit, as if the economy was not burdened with a huge millstone around its neck.
That huge millstone, that huge leak from the gas tank, is our negative balance of trade in manufactured goods with all foreign countries.
Our negative balance of trade in manufactured goods with all foreign countries is over 500 billion dollars per year.
That is real physical money going out of our country, never to be seen again. That is $1500 for each and every American, real money going out of our pockets, every year.
500 billion dollars per year is a direct measure of the net amount of additional manufacturing that should be occurring in the USA but is not. 500 billion dollars per year is a huge hemorrhage of life's blood from our economy, a huge leak from our gas tank, a huge millstone around all our necks.
Don't let anyone tell you that the balance of trade figures are theoretical figures that we don't have to worry about. All you have to do is look at China, rolling in money, not even knowing what to do with all the money, and compare with impoverished America, unable to repair roads, bridges, schools, and shutting down portions of cities.
Larry Summers was interviewed on CNN with Fareed Zakaria Sunday morning, July 17, 2011. Larry Summers talked in an upbeat way about continuing our infrastructure work to create employment, putting money in people's pockets, thereby increasing demand and solving all our problems.
But increased demand means purchase of more foreign-made goods so that more gas leaks out of the gas tank. More hemorrhage of money out of our country. Of course this aspect is never mentioned by Larry Summers or politicians or government officials. (Some politicians do understand this issue, but still too few.)
There is one and only one way to solve our economic problems and that is to increase domestic manufacturing. Bring the manufacturing jobs back from overseas. Employed American workers and American factories pay taxes to the U.S. government, thereby reducing the deficit.
Manufacturing in America enriches America through the value-added effect of manufacturing.
Manufacturing in China or other foreign countries impoverishes America.
Remember, workers in China or other foreign countries don't pay U.S. taxes. That is the nub our problem.
Larry Summers referred to policies of various countries immediately after the financial crash in August 2008. He referred to "countries like China and Germany" who, according to Summers, put resources into keeping their economies going. Summers implied that rather than worrying about deficits we should, in some magic way he didn't specify, follow the same strategy.
The phrase "countries like China and Germany" often appears in interviews on TV and in the writings of analysts and commentators.
The phrase itself is idiotic. What other countries are "like China and Germany"? None! If a commentator wants to refer to China or Germany, he or she should simply mention China or Germany.
Look at China. China has money pouring in from every western industrialized country, because all these countries have been so stupid as to allow their manufacturing employment to be sent to China. After August 2008, the money pouring into China decreased by 30%, but there was still a huge flood of money coming in.
So of course it was easy for China to recover.
After August 2008, Americans were not able to purchase goods to the same extent as before, so the amount of money going out to foreign countries decreased. But there was still a huge flood of money going out.
So of course America has not been able to recover.
Right here it is easy to see the dishonesty, the lie, the omission, in Summers' comments and in similar comments from politicos, bureaucrats, economists, analysts, and commentators.
Here is another absolutely nonsensical lie. "China will lead the world back to prosperity." How could this ridiculous statement be correct? China is bleeding every western country dry. China has an announced policy of stealing technology from western countries. Yes, China will become more prosperous, but on the backs of the western countries becoming much less prosperous. In fact, China's policies are on track toward complete destruction of the American economy, effectively "killing the goose that lays the golden egg".
Now here is another absolute lie that is repeated over and over again.
"interest charges America owes on the money it has borrowed to live beyond its means"
This phrase is meaningless. What does it refer to? Does it refer to the U.S. government borrowing money? Or does it refer to actions by the ordinary working men and women of America?
Is this phrase an attempt to blame ordinary Americans for a situation in fact created by our government and business "leaders"?
The average American family has not lived beyond a reasonable level of consumption. The family owns reasonable amounts of goods in terms of refrigerators, cars, clothes, TV sets, computers, cell phones.
The problem is that most of these items were made in foreign factories. Therefore, through no fault of the ordinary American working man or woman, purchase of the items resulted in money pouring out of our country.
If all these items had been made in America, using supplies and components made in America, government deficits would be much less because tax revenue would be coming in from employed American workers and operating American factories. And, money spent on family purchases would stay in the USA and keep working in the USA.
Simple as that!
Why are Larry Summers, government officials and politicians generally, commentators and analysts, all hiding these simple facts?
Simple question and simple answer: because our present economic problems, including 14 million unemployed, are due to the actions of all Presidents and all administrations and all senators and all congressmen, over the last 50 years. This is the time period in which we started to send, and continued on a larger and larger scale to send, our manufacturing employment to foreign countries.
No malign external forces created our economic problems. All the problems were created by our own government and business "leaders". No one is brave enough to face this fact. So they are trying to cover up. Maybe China is also exercising influence to maintain the cover-up. (Many ordinary citizens also find it hard to accept that our "leaders" have messed up so totally.)
A few politicians do understand the importance of getting our manufacturing employment back from overseas, and they are working hard in this direction. But not enough politicians have yet reached this understanding. So we are doomed to continue the farce of a national discussion that does not include the real issues.
Monday, July 4, 2011
Why do politicians and govt bureaucrats do these things?
We have the absolutely shocking situation that our politicians and government bureaucrats are awarding major construction projects to China, rather than having the work done in America by Americans.
Apparently these politicians and bureaucrats don't watch the news on TV every evening. They apparently don't know that tens of millions of Americans are unemployed. They apparently don't know that the top issue on the mind of anyone with common sense is finding work for unemployed Americans, to give them dignity and to make it possible for them to feed their families.
These politicians and bureaucrats apparently don't know that if they give work to Americans they will receive tax revenue from American workers and American factories.
Instructional memo to politicians and bureaucrats: Here is something you are apparently not aware of:
Workers in China don't pay U.S. taxes!
Specifically what are we talking about here?
Wall Street Journal - Real Estate - U.S. Edition Home. February 16, 2011.
"The China State Construction Company has renovated the Alexander Hamilton Bridge between Manhattan and the Bronx", and has also completed "a new Metro-North train platform at Yankee Stadium".
"China State Construction in partnership with the Chinese Export-Import Bank is bidding to rebuild the Goethals Bridge connecting New Jersey to Staten Island. If they get the project, the bank would finance construction and get repaid over time by the Port Authority of New York and New Jersey."
New York Times - Global Business. June 25, 2011
"At a sprawling manufacturing complex" in China, "hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge."
"Next month, the last four of more than two dozen giant steel modules will be loaded onto a ship and transported 6500 miles to Oakland."
"The assembly work in California, and the pouring of the concrete road surface, will be done by Americans."
American officials "note that (the combination) of the full financial force of the Chinese government behind its infrastructure companies, the monumental scale of the work, and the prices bid, (make it ) hard for private industry elsewhere to beat".
"At $7.2 billion, (the bridge) will be one of the most expensive structures ever built. But California officials estimate that they will save at least $400 million by having so much of the work done in China."
"California decided not to apply for Federal funding for the project because the 'Buy America' proviso would probably have required purchasing more expensive steel and fabrication from United States manufacturers."
The newspaper article states that former Governor Schwarzenegger was in favor of having China do the work and he visited the plant in China last year.
Another American official stated that "most U.S. companies don't have the types of warehouses, equipment, or cash flow" required for this type of project.
Ed Farkas comments:
This story concerns the Self-Anchored Suspension (SAS) Bridge for the new east span of the San Francisco-Oakland Bay Bridge. The main contract for the SAS bridge was awarded to a Joint Venture of American Bridge and Fluor Enterprises in April 2006. The Fluor website states that construction began in 2006 and completion is expected in 2013. The website also states:
"Bridge components are being fabricated in the U.S., Europe, and Asia. A secondary office was established in Shanghai to oversee production of the main structural steel (components)....Bridge components will ship via eight shipments, every two months from China."
The project cost is stated as $7.2 billion. I contacted California government offices, and offices of the main contractor, but was not able to obtain information on what portion of the total cost is the cost of the work done in China.
But we can draw some conclusions from the published numbers. If the saving is $400 million then without the saving the project cost would have been $7.6 billion. Then in percentage terms the saving is 0.4 billion x 100/7.6 billion with the result of only 5.26%!
Is this modest saving enough to offset:
+ Missing a golden opportunity to put Americans back to work
+ Taking a chance with the possibility of poor quality Chinese steel
+ Taking a chance with the possibility of poor quality manufacturing or manufacturing errors
That is the big question.
There would also have been a cost saving if the work had been done in the United States, in that American workers and American factories would have paid taxes to Federal and state governments. This tax revenue would have offset part of the cost of the bridge.
Also, if everything was sourced in America there would have been Federal money available to California to help pay for the bridge.
These two aspects of the situation would have reduced California's net cost for the bridge. Did California actually save by having the work done in China?
In any case it doesn't look good that California avoided participating in the "Buy America" program, a program that was put in place for a very good reason.
The official quoted above did not say that there is no American company or consortium that could have manufactured the main structural steel components. I am sure American industry would have risen to the challenge. Placing this type of work in China is based on a self-fulfilling prophecy: Spend 50 years voluntarily giving away our world leadership in manufacturing and then of course when a big project comes along there may be some doubt as to our capability.
Understandably, very large-scale facilities are needed to build these bridge components and similar products. But we have to get free of China. Otherwise our economy is doomed. How much would it have cost to build the required facilities in California? Such a facility would be a permanent investment keeping money in the country and potentially providing a continuing new industry for California.
President Obama is constantly talking about jobs. Everyone is talking about jobs. Yet there is no supervision of state level purchasing with the result: purchase from China.
But we also have the shocking situation that the Federal government is allowing the Department of Defense to purchase from overseas sources in a misguided attempt to save money.
The former California Governor when in office constantly talked about the severe budget problems of California. But like most politicians he dealt with one issue at a time, in a vacuum, separate from all other issues. Through manufacturing the main structural steel components in California, the Governor would have reduced his budget problems.
Scroll down to my October 24, 2010, document for further comments on how sourcing in China has become "the" thing that with-it purchasing managers do, even when there is no real saving or other benefit.
Apparently these politicians and bureaucrats don't watch the news on TV every evening. They apparently don't know that tens of millions of Americans are unemployed. They apparently don't know that the top issue on the mind of anyone with common sense is finding work for unemployed Americans, to give them dignity and to make it possible for them to feed their families.
These politicians and bureaucrats apparently don't know that if they give work to Americans they will receive tax revenue from American workers and American factories.
Instructional memo to politicians and bureaucrats: Here is something you are apparently not aware of:
Workers in China don't pay U.S. taxes!
Specifically what are we talking about here?
Wall Street Journal - Real Estate - U.S. Edition Home. February 16, 2011.
"The China State Construction Company has renovated the Alexander Hamilton Bridge between Manhattan and the Bronx", and has also completed "a new Metro-North train platform at Yankee Stadium".
"China State Construction in partnership with the Chinese Export-Import Bank is bidding to rebuild the Goethals Bridge connecting New Jersey to Staten Island. If they get the project, the bank would finance construction and get repaid over time by the Port Authority of New York and New Jersey."
New York Times - Global Business. June 25, 2011
"At a sprawling manufacturing complex" in China, "hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge."
"Next month, the last four of more than two dozen giant steel modules will be loaded onto a ship and transported 6500 miles to Oakland."
"The assembly work in California, and the pouring of the concrete road surface, will be done by Americans."
American officials "note that (the combination) of the full financial force of the Chinese government behind its infrastructure companies, the monumental scale of the work, and the prices bid, (make it ) hard for private industry elsewhere to beat".
"At $7.2 billion, (the bridge) will be one of the most expensive structures ever built. But California officials estimate that they will save at least $400 million by having so much of the work done in China."
"California decided not to apply for Federal funding for the project because the 'Buy America' proviso would probably have required purchasing more expensive steel and fabrication from United States manufacturers."
The newspaper article states that former Governor Schwarzenegger was in favor of having China do the work and he visited the plant in China last year.
Another American official stated that "most U.S. companies don't have the types of warehouses, equipment, or cash flow" required for this type of project.
Ed Farkas comments:
This story concerns the Self-Anchored Suspension (SAS) Bridge for the new east span of the San Francisco-Oakland Bay Bridge. The main contract for the SAS bridge was awarded to a Joint Venture of American Bridge and Fluor Enterprises in April 2006. The Fluor website states that construction began in 2006 and completion is expected in 2013. The website also states:
"Bridge components are being fabricated in the U.S., Europe, and Asia. A secondary office was established in Shanghai to oversee production of the main structural steel (components)....Bridge components will ship via eight shipments, every two months from China."
The project cost is stated as $7.2 billion. I contacted California government offices, and offices of the main contractor, but was not able to obtain information on what portion of the total cost is the cost of the work done in China.
But we can draw some conclusions from the published numbers. If the saving is $400 million then without the saving the project cost would have been $7.6 billion. Then in percentage terms the saving is 0.4 billion x 100/7.6 billion with the result of only 5.26%!
Is this modest saving enough to offset:
+ Missing a golden opportunity to put Americans back to work
+ Taking a chance with the possibility of poor quality Chinese steel
+ Taking a chance with the possibility of poor quality manufacturing or manufacturing errors
That is the big question.
There would also have been a cost saving if the work had been done in the United States, in that American workers and American factories would have paid taxes to Federal and state governments. This tax revenue would have offset part of the cost of the bridge.
Also, if everything was sourced in America there would have been Federal money available to California to help pay for the bridge.
These two aspects of the situation would have reduced California's net cost for the bridge. Did California actually save by having the work done in China?
In any case it doesn't look good that California avoided participating in the "Buy America" program, a program that was put in place for a very good reason.
The official quoted above did not say that there is no American company or consortium that could have manufactured the main structural steel components. I am sure American industry would have risen to the challenge. Placing this type of work in China is based on a self-fulfilling prophecy: Spend 50 years voluntarily giving away our world leadership in manufacturing and then of course when a big project comes along there may be some doubt as to our capability.
Understandably, very large-scale facilities are needed to build these bridge components and similar products. But we have to get free of China. Otherwise our economy is doomed. How much would it have cost to build the required facilities in California? Such a facility would be a permanent investment keeping money in the country and potentially providing a continuing new industry for California.
President Obama is constantly talking about jobs. Everyone is talking about jobs. Yet there is no supervision of state level purchasing with the result: purchase from China.
But we also have the shocking situation that the Federal government is allowing the Department of Defense to purchase from overseas sources in a misguided attempt to save money.
The former California Governor when in office constantly talked about the severe budget problems of California. But like most politicians he dealt with one issue at a time, in a vacuum, separate from all other issues. Through manufacturing the main structural steel components in California, the Governor would have reduced his budget problems.
Scroll down to my October 24, 2010, document for further comments on how sourcing in China has become "the" thing that with-it purchasing managers do, even when there is no real saving or other benefit.
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