Macro Economics
Be Careful What you Wish For

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By washcomp
November 12, 2009

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We are arguing over how many angels dance on the head of a pin here :-(

We live in a global economy. Wendy makes good points. The average difference between the physical cost to manufacture many goods and the end user price is about 500% (by the time you ad in advertising, distribution and other overhead items, the net profit is obviously much less). Add additional expenses at the cost level and the retail price will skyrocket accordingly.

The average cost differential on consumer products manufactured in the US vs. Asia can be 600%, so unless you are willing to pay this delta, we are stuck with offshore manufacturing.

If every American had to pay 6X for clothing and electronics, etc., obviously salaries would have to compensate (requiring far higher inflation than is acceptable) or our standard of living would drop precipitously.

In Europe, for example, most clothing, domestically produced, is extremely expensive (which is why NYC's discount stores are filled with Europeans buying Asian produced clothes and the suitcases to bring them back home). The average European has far fewer clothing items in their closets than we tend to. Gasoline is far more expensive and therefore vehicles like SUV's large cars and pickup trucks are relatively rare and vehicles like the SMART and motor scooters are far more common than here.

As has been pointed out on parallel threads there ARE alternatives (higher taxes, but higher default median standard of living), but we Americans are so spoiled that we want our cake, but to eat it too.

European bankers and traders don't make significantly less than ours. Their banks are not acting any differently than ours (and many have gotten into similar trouble over the past year).

It's easy to blame highly compensated bankers for all of our problems and start sharpening the pitchforks and lighting the torches, but it's our politicians (who both pander to special interest groups and to the "sensibilities of the American public") who we pay to be the gatekeepers. Yes, it's true that many of them acted in ways that served interests other than the taxpayers, but many of their decisions were made because of their fear of not getting reelected if they raised our taxes.

One of the posts griped about the elderly taking advantage of the young when it comes to Social Security. Actually, there was enough money paid into the fund over the years, but Congress stripped it and left IOU's behind rather than raise taxes. Similar actions have been taken with Medicare and have been further aggravated by continuing to provide health care at a level higher than the fund could afford in order to keep from alienating the retired by reducing benefits. I have paid far more into both of these funds during my working life than I care to contemplate, but frankly Social Security doesn't even enter into my retirement planning. If I get any of my "pension" back, fine, but by the time I get there, I'm guessing they will have figured out some reason to deny the benefits.

Not everyone made their money in banking. I made the few cents that I've scraped together by starting and running successful small businesses. Lots of 14 hour days (even now). It is the American way to encourage small business enterprises and to paint all "bosses" in the light of being "the opposition" is disingenuous in this "nation of shopkeepers.

America is a great country and offers each of us numerous paths throughout our life. Some are willing to take the risks and work involved to start businesses, but it is not a task that most find to their liking or aptitude. Some are interested in joining financial concerns and making big, easy bucks. That route is not as easy as it sounds either.

The same way as not all engineers build bridges, not all MBA's work for banks. When you buy stock, you are actually becoming a part owner of a firm. Choosing which shares to buy should be a function of deciding which firm you would be proud to be running the way their management is doing the task. Any other methodology is simply speculating on what others might be willing to pay for those shares over the short term and while you can make money at it, is not what I would call traditional investing (more like a casino - nothing wrong with it, but less of a long term probability of success).

To get back to the question (sorry about the rant), in our global environment, what is, well just is. We can moan about it but that won't improve matters. We can all strive to buy products made in the US (and live with the appropriate premium cost), we can either cut costs (which may mean cutting services and subsidies) or pay higher taxes. We can concentrate on innovation and incubation of fresh ideas which will eventually add value to our economy.

So it gets down to this - are you willing to trade conspicuous consumption for sustainability of standard of living? Are you willing to balance an increase in taxes against a cut of services? Are you willing to drop "entitlement" programs for a better life style for yourself - or are you willing to increase your taxation to raise the standard of living for other countrymen? Are you willing to cut the average standard of living of our country for a number of years in order to put our finances in order? Not trivial questions and none have easy answers, but be careful with the choices you make as many will have unintended consequences which could cause the cure to be worse than the disease.