The Great Doubling

Discussion in 'Politics, Religion, Social Issues' started by Ugg, Mar 17, 2010.

  1. Ugg macrumors 68000

    Ugg

    Joined:
    Apr 7, 2003
    Location:
    Penryn
    #1
    I came across this article and found it utterly fascinating. Much has been made about all the good jobs that have disappeared OECD countries, but little has been said about why, other than knee jerk reactions.

    The author, Richard B. Freeman, is a professor of economics at Harvard.

    Article Link pdf

    In other words, giving tax breaks to the rich was a total failure. What should have happened was investment in education and technology.
     
  2. mcrain macrumors 68000

    mcrain

    Joined:
    Feb 8, 2002
    Location:
    Illinois
    #2
    I continue to think that if we are in competition for labor, and we are a large consumer country, then in order to encourage businesses to remain in this country, and to make our labor market competitive, then we should consider a tax or tariff equal to the difference between the labor cost in the country of origin and the country that is importing.

    That would put everyone on an even footing.

    If you pay $3 per hour, and I pay $15 per hour, then you pay a $12 per item manufacture hour tax or tariff if you import your goods into my country. If I export to you, then there should be a $12 per item manufacture tax/tariff credit that can be used to offset other taxes.

    A unionized industry in which workers are protected and earn wages sufficient to live a nice life in an industrialized nation can't compete withe labor costs in a third world country where people are happy to earn $2 per day.

    (That being said, a client submitted to bids to a big 3 car manufacturer for parts. One at the suggested site of a new plant in Mexico, and a second bid for a new union plant in Michigan. The Michigan plant was less expensive, and turns out less expensive parts.)
     
  3. Ugg thread starter macrumors 68000

    Ugg

    Joined:
    Apr 7, 2003
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    Penryn
    #3
    That doesn't really work in the long run does it?
     
  4. mcrain macrumors 68000

    mcrain

    Joined:
    Feb 8, 2002
    Location:
    Illinois
    #4
    Tariffs exist now and are used effectively, I can't imagine why something like this wouldn't work.

    And, yes, I'm aware of the historical context, but this is a new world we live in, and a vastly unequal labor pool.
     
  5. R.Perez macrumors 6502

    R.Perez

    Joined:
    Feb 16, 2010
    Location:
    Philadelphia, PA
    #5
    it absolutely would.

    It has long been a myth that tarrif's somehow hurt the economy.

    Every attempt at trade deregulation has had startling effects, read the article on the IMF I posted a couple days ago.
     
  6. mcrain macrumors 68000

    mcrain

    Joined:
    Feb 8, 2002
    Location:
    Illinois
    #6
    Start watching the news and look for stories on sugar. There are sugar tariffs that are in place right now that are performing exactly as they were designed to do. They are set to expire, and when they do, watch what happens.
     
  7. Raid macrumors 68020

    Raid

    Joined:
    Feb 18, 2003
    Location:
    Toronto
    #7
    It's all about balance, in that it will all even out in the end. ...Eventually.

    Arguably this has been going on for quite some time now, economic cycles of nations are/were getting more in sync with each other as international trade and investment increases.

    While I haven't worked on something like this in a while, I don't think it's as simple as developing domestic policy. The rapid influx of cheap labour internationally is a threat to more expensive domestic labour in that the shift in labour demand to international sources will put pressure on domestic wages to decline.
    Domestic policies to increase worker education has wonderful benefits to a population as a whole, but in terms of a improving the labour force the impact would be minimal... I guess unless we are shifting the work force away from manufacturing.

    Worker rights should be in place everywhere, the problem is that while you can enforce this domestically, it's more difficult to encourage foreign trade partners to adapt to a similar standard. The primary resistance to this is cost. Typically cheaper labour markets have a poor track record of worker rights/safety; improvements to worker rights can also bring long and short term costs to the labour market, which erodes some of the competitive advantage of the foreign labour market.

    Taxation especially like the example in mcrain's post (#2) really is an attempt to maintain the domestic status quo, and slows the progress of the foreign market towards labour pricing parity.
    If you add a tariff equal to the difference in labour costs, yes there will be a shift in demand to more domestic made products, but at the expense of consumers who now must pay an artificially higher price for the good (considering that a 'free market' price would be cheaper). The domestic market does benefit of course, but in maintaining the status quo, you also maintain the distribution of the benefit to workers and executives.
    The foreign market is impacted as the drop in demand for their good decreases the demand for labour and puts downward pressure on wages if the foreign market does nothing. If the foreign market decides to raise wages, the shock on the foreign market could cause rapid inflationary pressures, or businesses there could struggle to maintain a profitable level with the sudden rise in costs. If you expand that to a nation-wide perspective that's a pretty shaky economy at the whim of demand for their exports.
     

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