The Johnstown Flood

Pennsylvania borrowed more money to build infrastructure supporting canals than any other state to take advantage of the trade opportunities of the Erie Canal. Construction started on the South Fork Dam in 1838 with scheduled completion within a year, but by the time it was finished in 1852 the railroads had made it obsolete. The state wrote it off and it eventually provided a fishing lake for Pittsburgh’s elite. When it burst in 1889, causing the Johnstown flood, the total loss in life and property was probably 100 times the initial construction cost. Pennsylvania, having long since declared bankruptcy in 1841, blamed the rich.

Most every year the Congress metaphorically dances on top of the earthen South Fork Dam looming over Johnstown with the water lapping at their feet. Their solution is always the same: Let’s throw some more dirt on top this year. We’ll drain it when we drain the swamp, after we eliminate the air pollution in Johnstown, the price paid for the industrial revolution raising American living standards in the late 1800s.

The primary issue facing America during the post WW II era was whether its consumerist economy could continue to produce rising living standards for all, the cornerstone of political legitimacy. The leader of America’s competitor Nikita Khrushchev in the Soviet Union put the issue crudely six decades ago: “we will bury you” with a savings and investment rate several multiples of yours. America’s intelligence community and economic elite were shocked by the sudden collapse of the Soviet economy – like a dam bursting – less than three decades later.

Khrushchev, like most of America’s development economists, understood the role of saving and investment but not how important the private capital markets were to the allocation of capital to its highest and best use, politically directed credit being the main cause of their collapse. In Johnstown everyone knew that the valves to lower the water level in the lake had been removed during the last amateurish reconstruction, but fixing or removing it was opposed by rich land owners. The debt ceiling has similarly proven an ineffective mechanism to control America’s flood of debt, with the central bank standing ready to buy it all to the benefit of the wealthy. American politicians, feeling unbound by constitutional constraints, are addicted to issuing debt, the birthing person’s milk of politics. The Biden Build Back Better Plan promises to strengthen the dam, but like the amateurish repairs to the South Fork will weaken the dam’s foundation while causing water levels to rise, possibly to a critical level.

The Debt Level is Reaching a Crisis Stage

Keynes may be dead, but savings still equals investment and productive investment remains the only source of all real economic growth and rising living standards. America’s comparatively low national savings rate of the 1950s and 1960s has been declining further for the last half century, with net investment following in lockstep, dipping close to zero in the last recession.

The US is a “mixed” economy with federal credit allocation implemented through taxes, regulations and more recently Soviet style central-bank directed credit. Households compete in the capital markets for savings with business and government primarily to finance housing which improves living standards directly. Business investment historically improved real wages but they have been stagnant for the last half century, implying that worker productivity no longer rises in lockstep with business investment. Real income has kept pace with GDP growth due to transfers financed primarily by directly or indirectly taxing the returns on capital that undermine private investment incentives and government borrowing that crowds it out, leaving future generations to pay the principal and interest out of reduced real wages.

This has lead to accelerating federal debt, now at over $27 trillion, to finance welfare and entitlements, the primary cause of low national savings. Financing the additional unfunded liability for Social Security and Medicare is estimated to cost about one hundred trillion dollars. CBO’s current baseline forecast has the debt growing by only 50% by the end of this decade, so that water levels never reach the crest of the dam, but based on their historical optimism, the actual debt will likely grow by almost 250% of that amount. The only question at these debt levels is whether America goes out with a bang or a whimper, the dam bursting being the primary historical precedent.

Politicians and their research arm the CBO use the per capita growth rate of real GDP as the measure of return on investment and improved living standards. This works for the competitive private sector, but bureaucratic incentives at all levels of government in the US aren’t much different than in planned economies. Real increases in teachers salary and administrative expenses, for example, don’t generally result in improvements in primary education, resulting instead in political enforcement of a government monopoly. Parenthetically, some libertarians have suggested government expenditures be subtracted from GDP as counterproductive.

Starting from a recessionary low, per capita GDP growth remained negative for the first several years of the Obama Administration, which ended with a 1.5% average, the lowest in 70 years in spite of a trillion dollar infrastructure program. The Trump business tax reform provided a small temporary boost to business investment and hence GDP growth, but ignoring COVID gyrations business investment is only about 2.2% of nominal GDP and trending down. Obviously, these trends need to be reversed soon to prevent the dam from collapsing.

Biden’s Build Back Better – the Soviet Way

The first step to avoid this fate is to change the direction of savings by incenting savings over consumption for households, businesses and particularly government, and most importantly the federal government. The second step is to restore capital allocation of this limited pool of savings to its highest and best use. That’s been obvious for the past half century.

But the current Biden Plan proposes more of the same: roughly $1 trillion physical infrastructure and an additional $3.5 trillion (more likely $5 trillion) for human infrastructure to “grow” out of the debt problem. The environmental agenda, which I previously described as national suicide, is mostly held back for phase two. Taxes fund little of the physical infrastructure bill and the potential tax increases for human infrastructure are mostly imposed on capital, which reduces private investment as much as public debt, so the total package can be evaluated as substituting federal spending for state and local and mostly private investment. What are the expected returns?

The Physical Infrastructure

There is nothing unusual or urgent about the bipartisan infrastructure bill. Calculating returns for federal investment requires an unbiased assessment of indirect cash and non cash returns and the distribution of possible outcomes. Such investments will add to GDP growth if the appropriately measured returns, direct and indirect, exceed the average return on private fixed business (for simplicity as home ownership services aren’t included in GDP) investments they are replacing and subtract from GDP growth if they are below. Put differently, federal investments will be written up to reflect excess returns and down to reflect shortfalls, i.e., deficit financed expenditures. This is essentially the CBO approach, which based on past experience assumes that the return on federal investment is only half that of the private sector.

The first striking thing about the now bipartisan infrastructure proposal, e.g., $110 billion for roads and bridges, $200 billion utilities, $135 billion other transportation, $35 billion environmental, is that all of this could have been funded by the states: it is estimated that 99% of the Obama federal stimulus substituted for state expenditures. The second thing is that almost all of these expenses have at one time and or place been financed privately or by independent corporate utilities or instrumentalities. Much of what was historically considered public infrastructure, e.g., roads, reflected the inefficiency and expense of user fees, now obsolete with built in transponders and GPS. Even basic research mostly substitutes for private investment.

Because the plan eschews all control mechanisms of private or corporatized entities such as user fees, bypasses local control and gives federal politicians direct control over who gets funds, I assume the CBO discount of 50% for long lived assets. The CBO writes it down about half this much, mostly reflecting funds diverted from already budgeted sources that would not otherwise be spent.

The “Human” Infrastructure Spending

With the death of Fidel Castro, Budget Chairman Bernie Sanders at 80 years old may be the oldest living socialist leader. His “human infrastructure” budget is the most extreme progressive budget yet. I’ll comment on the two biggest parts, education and welfare, the difference being that the former has not obviously improved human productivity, while that latter has reduced it.

In the wake of the federal sub-prime lending debacle, the Obama Administration took over student lending in 2010 to “use” the $58 billion in projected taxpayer saving to finance and pass Obamacare. Instead, the final write-downs, write-offs and loan forgiveness could easily exceed a trillion dollars. Started in the early 1960s to accommodate the first of the baby boomers, e.g., President Biden, the public university expansion continued on for about a half century beyond the peak of the baby-boom bubble, crowding out all but the more elite private institutions. The purported rationale was that the investment in human capital would pay off in higher productivity and living standards as the “A & E” (agriculture and technical [engineering]) land-grant public institutions founded in the second half of the 19th Century had. Costs have continually skyrocketed with the federal demand stimulus, with much of the expense going to layer upon layer of administration and such amenities as luxury dorms.

College graduates have historically earned substantially more than high school students. But the marginal students induced into college that do not graduate with science, technology, engineering or math (STEM) degrees remain unemployed longer and many ultimately accept jobs not requiring a college degree, catching up to their high school peers only after years of on the job training. Low/no initial entry requirements and grade inflation have reduced the college graduate signaling effect, and almost half haven’t graduated after six years.

Until the early 1970s real wages in the US increased in lockstep with business productivity, implying that labor and capital were complementary, requiring on the job training. One can think of numerous industries where formal education has increased subsequent worker productivity, e.g., computer science. But it is hard to find the payoff for the population as a whole for either non-STEM higher education or the plethora of government training programs. Similarly, since the creation of the federal Department of Education in 1979, the total cost of primary and secondary education has steadily risen while the quality has steadily fallen.

Societies always find a way to help those who need it, but socialist economies enforced work requirements with a credible threat of the Gulag, leading to the Soviet worker’s quip, “We pretend to work and they pretend to pay us.” Parenthetically, the same incentives apply to the US public sector and quasi-public government-dependent institutions, many of whose workers now earn much more than their private sector counterparts. The Great Society’s subsidy programs had no work requirements, hence reducing labor force participation and precautionary savings. The effort to add work requirements during the Clinton Administration didn’t last. Whatever else may justify the Sanders/Biden expansion of the welfare state, this remains a substantial contributor to the national debt.

Conclusion

As $6 trillion is about the current annual rate of business investment, the loss, spread over 5 years, would further reduce the growth rate of GDP annually by about 20%. As then Vice President Biden said to President Obama (and the world) “it’s a big f—ing deal,” not because it alone filled the lake, but because it could be the last flood. Millionaires Bernie Sanders at 80 and President Biden at 78 – ten to fifty times wealthier and twice the age of the average American – are in a rush and don’t seem too worried about potential consequences. But unlike the South Fork, it won’t take the perfect storm. To paraphrase their contemporary, Bob Dylan, it doesn’t take the CBO to know which way the wind blows. and it’s a hard rain that’s gonna fall.

—-

Kevin Villani, Chief Economist at Freddie Mac from 1982 to 1985, has held senior government positions, has been affiliated with ten universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

60 thoughts on “The Johnstown Flood”

  1. Forget Johnstown, Jonestown is probably the better analogy.
    Very little of this “infrastructure” money is going to actually build anything–it never does normally, and there are no workers to be found.
    Nothing matters. All I want now is to vote for people who will crush my enemies, not limp wrists who will whine about the deficit and civility while selling us out and retiring rich.

  2. Good summary from Mr. Villani. No country can run up debts forever. It will come to an end somehow sometime.

    But this time really is different. The difference is that the US Political Class has transformed the US from the workshop of the world into a charity case — issuing IOUs to foreigners for imports we are no longer able to make for ourselves. When the exploding level of debt causes those foreign exporters to wonder about the wisdom of continuing to accept freshly-printed Bidenbucks in exchange for their real goods, it will be Game Over. And in the short term, there will be nothing that anyone in the DC Swamp can do about it.

    Longer term, the way forward is obvious. Debts will be written off — remembering that those debts were someone else’s now-vanished assets. Government employees will be laid off. Pensions will be cut. Lawyers will learn the benefits of honest manual toil. Whatever emerges after the 40 Years in the Wilderness will be nothing like today’s US run by our despicable traitorous Political Class. Most likely separate countries with armed borders between them; or possibly some federation under a charter with distinct similarities to the Articles of Confederation. But I am an incurable optimist.

  3. I always thought borrowing money involved a promise to pay it back someday. I think it’s fairly obvious by now that our Federal government has no intention of doing so. Borrowing fresh to pay the old debt or inflating the debt away don’t qualify as honestly paying back a loan. Neither does trusting in fairy dust to turn grievances into desirable goods and services.

  4. Many programs that are advertised as ‘investment’ will turn out to actually have no benefit, or to have *negative* benefit. See for example this piece about the cognitive effects of preschool:

    https://marginalrevolution.com/marginalrevolution/2021/09/why-i-am-reluctant-to-endorse-preschool.html

    …and if these results are correct, now extrapolate to universal government-funded preschool for the entire country.

    I remember a guy, years ago, who was put in charge of an important new-product venture. I was chatting with him one day, and he was complaining that his budget was too small (surprise!)…His view was that since the expenses he was incurring would have a long-term revenue benefit, they should be treated as Investment rather than as Expense, hence would have a smaller current P&L hit for the same amount of money, hence he would likely be able to spend more.

    The project failed to meet its goals, and was eventually terminated. If the expenses had been capitalized, then there would have been a substantial writeoff in the year when the termination occurred.

  5. Most all of the above, including the comments, isn’t wrong or even subject to real controversy outside the fantasy land of the Fed.

    What’s missing is the context. At this time some huge proportion of the worlds wealth is held in Dollars. At the same time, some majority of world trade is denominated and settled in those same Dollars.

    I’m willing to bet that the river of raw materials flowing from Australia to China is reckoned in dollars. The Australia-China trade balance is presently considerably in the favor of Australia. Some portion of those dollars flow back to Caterpillar in the U.S. to buy the monsters that actually wrest those materials from the ground. Some others will flow into Japan for other colored monsters and even unto Europe.

    My point is that the dollars circulating in the domestic economy is a fraction of the dollars circulating in the world. It’s not that we haven’t shimmied far out on a slender limb and fired up the world’s biggest chain saw, it’s that the rest of the world, especially China, is even further out on the same limb.

    The only thing I can think of that would have been comparable to the collapse of the dollar bubble was if an alchemist had actually found a way to produce limitless gold back when the world’s wealth was held in gold.

    I can’t see how it will end, nor do I believe it will end happily. I do think even Xi is bright enough to realize that precipitating some sort of dollar panic would make detonating a hydrogen bomb in Tienanmen Square preferable

  6. “if an alchemist had actually found a way to produce limitless gold back when the world’s wealth was held in gold”…something like that sort of happened, when Spanish treasure ships started bringing back gold & silver that was mined/stolen in South America.

    Results were as one might expect: inflation…though apparently only about 1-1.5% annually, which was still a significant change from the previous stability. I’m pretty sure that if the amounts of gold & silver had been higher, the inflationary impact would have followed accordingly.

  7. You might suspect that all that gold was more of a burden to the Spanish Crown than a triumph. All the cost and bother of enlarging treasure houses and hiring guards. The only thing they did that resembled investment was their colonization expeditions to the New World with the only object, yet more gold and silver and the Armada. Spain stayed a country of poor peasants with a rich King.

    If you had a mountain of gold in 1400, what could you have bought with it? A somewhat similar quandary surrounds speculation on asteroid mining. What happens if you have a 10,000 years supply of platinum next door?

  8. MCS: “At this time some huge proportion of the worlds wealth is held in Dollars.”

    That is a misunderstanding of “wealth”. Certainly, a lot of the world’s debt is denominated in Dollars — and some people count that debt as their “wealth”. But that debt is “wealth” only if it is going to be repaid in currency which will buy more than the original investment. If the herd starts to recognize that those debts are not going to be repaid, or are only going to be repaid in worthless Bidenbucks, that nominal “wealth” disappears.

    Real wealth is the capacity to produce — a farm, an orchard, an oil well, a coal mine, a steel mill, a cell phone factory. In the long term, money is just a measure of the trading value of real assets. Money simply makes barter easier — so it behooves us to keep an eye on what is being bartered.

    There was a time when the main currency used in international trade was the Pound Sterling. Earlier, it had been the Dutch Florin. Until recently, it was almost universally the US Dollar — but that is changing. Some reports suggest that close to half of China’s international trade is now denominated in Yuan. The world is moving on! And that change will accelerate as the Biden* crew mismanage what is left of the US economy.

  9. I’d be surprised if the Davos crowd owns many Yuan and that’s the sort of wealth I’m talking about.

    I’m not going to waste pixels arguing about the fiscal rectitude of the dollar because I don’t believe in it any more than you do. I will point out that the Euro is, if anything, worse. In fact, I’m hard pressed to think of any major currency that’s better. Maybe Swiss Franks, but there aren’t enough of them to make a difference. So, how may cell phones will it take to buy a bushel of soy beans? ‘Cause it sure isn’t the Yuan.

  10. “… how many cell phones will it take to buy a bushel of soy beans?”

    You triggered my curiosity there, MCS. Actually, the question is how many bushels of soy beans would it take to buy a cell phone. Depending on various assumptions, the answer ranges around 35 bushels per cell phone.

    You are right that most world currencies are circling the same drain as the US Dollar. We all just need to be aware of a painful reality — for all of our lives, the Dollar has been Almighty, or at least respectable. History tells us that no currency keeps that Reserve status for ever. Tomorrow may be different from today, and that is difficult for us to accept — or to recognize what the consequences will be.

    The US economic situation is clearly very unstable. My current guess is that declining international acceptance of Bidenbucks as payments for US imports will be the push that brings the whole structure down. And there will be nothing effective that the Fed or the Biden* crew can do to re-establish control when foreigners lose confidence in the Dollar.

  11. It just struck me that 18 September was the birthdate of Harold Courlander.

    In this era of controversy over 1619 and the role of Africans in America’s growth and wealth, we ought not overlook this researcher.

  12. The farmer with a bin of soy beans probably doesn’t need a cell phone, and certainly not a truck load. Not that China would have any to trade in a barter economy. As has been pointed out tiresomely often, they don’t actually make them, they just assemble them from parts produced elsewhere. As a country, they have virtually no natural resources, no metals, no oil or coal, more mouths than they can feed. They have one thing that is disappearing as we speak and that’s cheap and abundant labor.

    What the farmer needs is what it takes to grow more soy beans. Seed, fuel, fertilizer, parts. For these things he can trade at somewhere near market price, a bushel for a couple of gallons of diesel or 20 pounds of fertilizer. For cell phones, he’ll have to take the risk and absorb the costs of turning them into what he really needs. Then there’s the issue of just how hungry the guy with the cell phones is, he can’t eat them either.

    Of course the producers of fuel, fertilizer and so on face the same problem to an extent but soy beans are infinitely more fungible than cell phones. As it turns out, an agreed medium of exchange is actually a pretty good thing. The farmer gets a cell phone and the cell phone maker gets to eat.

  13. MCS: “As it turns out, an agreed medium of exchange is actually a pretty good thing.”

    With you all the way on that point, MCS. The problem is that we have put the medium of exchange on a pedestal.

    Units of currency have value only to the extent they can be exchanged for real goods & services. And when people begin to doubt that those units of currency can be exchanged for real items in the future, money as a store of value is gone.

    All of this has happened before, many times. But every time it happens, we humans are surprised!

  14. }}} America’s intelligence community and economic elite were shocked by the sudden collapse of the Soviet economy – like a dam bursting – less than three decades later.

    I actually doubt the intel community, and many of the actually wiser “economic elite”, were at all surprised by the collapse. They had been going along with the claims for over 60-odd years by that point. The real fact was, we kept having to make tech transfers, as well as provide food, to them, repeatedly in this timeframe.

    A nation-state which has to buy excess food from another nation because their people will starve, despite CLEARLY having adequate arable land for growing food crops (as opposed to, say, Japan, which lacks sufficient food-land, but can create enough industrially that food isn’t quite the same level of issue it might otherwise be) is not having that much success at anything tougher to do… like creating secondary goods. Moreover, everyone knew Soviet tech was second-rate. Even as an early teen I recall a story about how the classic “coffee machine” worked. Insert coin, drop cup, fill cup, take cup away — repeat. Stories were, the Japanese bought one, took it apart, copied it, and made them for themselves. The USSR bought one, took it apart, copied it, could not make the cup-dropping mechanism work properly… so they put a cup in it, you drank your coffee, and put it back for the next user :-/

    True? Dunno, but it seemed about right.

    I also recall in the mid-70s, the Apollo-Soyuz mission, the NYT had, among other things, an infographic showing the Apollo control panel and the Soyuz control panel side by side. I do not exaggerate when I say, it was like a comparison of the cockpit of a 747 with that of a Piper Cub. The Soyuz identified where it was and where it was going by using a periscope, taking star sightings, and then doing the mathematics.

    So, I dunno. I don’t see how people who were REALLY “in the know” would have NOT realized the issues with the Soviet economy going into the 80s, regardless of the party line by the (even then) lying merdia.

  15. “I don’t see how people who were REALLY “in the know” would have NOT realized the issues with the Soviet economy going into the 80s, regardless of the party line by the (even then) lying merdia.”
    Um, because the “intelligence community and economic elite” are all complete morons, maybe? Group-thinking, over-credentialed morons.

  16. }}} The Fed Is Bailing Out the Wealthy as Everyone Else Pays the Price

    }}} In fact, from 2001 to 2016, the median wealth of Americans in the bottom 80 percent of income earners has fallen.

    Mrrr.. while don’t dispute the premise, the above assertion is defective, in the sense of it being causative.

    Much of the “lower 80% of income earners” today are foolish young people with no history of comprehending investment or its purposes.

    Many people, but especially the young, live an obviously “spend it when you make it” lifestyle (note the massive increase of leasing over ownership, for example). They also tend to buy the maximum house they can buy, not what is practical within their budget while still allowing them to save or invest with the rest.

    The end-effect of this, assuming I am correct, and I do think it moderately self-evident if you’re paying attention, is yes, I am, is that the actual wealth of those not wise enough to invest properly are, indeed, going to go down in comparison with previous decades.

    Add to that the overall issue of near-zero returns on “staging areas” for wealth, such as CDs — a 3m CD will get you a return of (gasp gasp gasp!) about .2% right now. Yesss… *point* two. That’s barely worth the commitment.

  17. “those not wise enough to invest properly”
    What does that even mean right now? Seems to me that if I was in my 20s, I’d do whatever “fun” stuff I wanted to–vacations, etc.–and hold absolutely nothing in cash or “low risk” investments. Put it all into the market and/or buy a house in a decent suburb. The system is doing everything it can to pump up the value in those 2 places. Use that fact to build your own wealth. When the system fails, and either the market or housing crashes for the long term, we’re all hosed anyway.

  18. While the Fed and its policies have played a role, much of the problem with incomes and standards of living can be traced to three sources:

    –the great expansion in offshore sourcing–especially from China–starting circa early 2000s. See my post here. Also some role played by illegal immigration.

    –the dishonest overselling of the value of a College Degree, combined with educational policies that actually have lowered the the true value of many of these degrees. Many college administrators making out like bandits, at the expense of a lot of debt-holders.

    –land-use policies that have restricted the supply of housing and hence made it difficult to acquire a first house.

  19. the actual wealth of those not wise enough to invest properly are, indeed, going to go down in comparison with previous decades.

    I agree that “investing,” aside from houses, is a mug’s game right now. CDs and bonds are paying essentially zero. Houses are getting quickly out of reach and student debt, incurred for worthless degrees, is a huge burden on the young. My younger son, the only one of my kids without a Bachelor’s Degree, has done very well and is the only one who owns his own home in California. I gave him the down payment for a condo 25 years ago. I paid for the bachelors degrees for the others and thought it only fair. He is getting close to retirement and will sell his house for close to a $ million and move out of state. California is just too crazy now. Three of my kids have been paying off graduate degrees for years.

  20. “I agree that “investing,” aside from houses, is a mug’s game right now.”
    I don’t understand this at all–look at the stock market since the 2008 “financial crisis”–it’s up about 6x in 13 years! (About 3x from the pre-crash peak, which is still amazing.)
    “CDs and bonds are paying essentially zero.”
    Who cares? Just buy an index fund and let the Fed work its magic!

    If you’re young, it’s all going to fall apart before you die, but you might as well ride the wave now. You’ll be better off than if you try to get cute and figure out the appropriate stock/bond allocation. When it all comes crashing down you’ll be ahead of the poor slobs who tried it that way…

    I’m still mad at myself for not figuring out how to get that bitcoin program installed on my laptop in 2011. Stupid thing wouldn’t work. Oh well.

  21. Like I said, and have said for a decade or more now, I am not an expert, but it seems clear to me that the Fed wants to pump up stocks. If they’re able to do that, then going along for the ride seems to be the obvious play. If they’re not, then it doesn’t matter what you do, because we’re all in deep trouble.

  22. }}} issuing IOUs to foreigners for imports we are no longer able to make for ourselves. When the exploding level of debt causes those foreign exporters to wonder about the wisdom of continuing to accept freshly-printed Bidenbucks in exchange for their real goods, it will be Game Over.

    1 — we can easily make them for ourselves. Why should we bother when they will take IOUs?
    2 — there is not a thing made that doesn’t require specific resources (i.e., China does have some important supplies such as Lithium and some of the “rare earths” which cannot currently be matched in the USA) which we could not build a robotic factory to make inside of a year. We pretty much have decided not to pay the expense — yet — because they continue to take IOUs.
    3 — there are plenty who assert — possibly correctly — that China is building its economy based on shortsheeting its own citizens to enrich us and keep up our standard of living.
    4 — the economy being what it is, it is not yet practical to allow the USA to fall into bankruptcy for any major world power, including Japan, China, and Germany. They will fall even before we do, as we will stop buying their stuff, which means their economy collapses first.

    Finally, it still comes down to the fact, which everyone seems to try their damnedest to ignore, that the USA is the only country which has fully moved on from an Industrial economy to an IP & Services economy. There is no money for us in making things, and, unlike food, the transport costs of buying it elsewhere is less than the cost of making it.

    Equally importantly, we are a small number of years away from defacto first gen star trek “replicators”, using various printing technologies. It may well be that, within 20 years, nothing smaller than a 1m cube will NEED to be made in a factory, unless is has some unusual components. So why build a factory we may not need?

    And finally, we are exceptionally good at IP & Services. EXCEPTIONALLY.

    I thought there were some economists around here familiar with comparative and absolute advantage? Might it not apply when it comes to making THINGS vs. IP?

    Jus’ sayin’… perhaps China SHOULD be making shit while we continue to devote our human efforts to creating IP?

  23. }}} What happens if you have a 10,000 years supply of platinum next door?

    I forget who it was, noted that this would not be a problem (E.E. “Doc” Smith comes to mind, offhand). Because platinum, like certain other metals, is so damned useful that we would find purposes for it no mater how much of it we had access to. Platinum, as an example, is more ductile than gold. You need superfine wire? You get lots of superfine wire! Would your wife like a platinum dress? No problem. That’s a mundane usage, of course. (and no, if it was fine enough, weight would not be all that much of an issue, any more than it being metal would be) :-P

    }}} As a country, they have virtually no natural resources, no metals.

    Ummm… Not that I’ve done an extensive research on this, but pretty certain they have notable quantities of both Lithium and Iridium, both of which are nontrivial in this day and time, for reasons that should be obvious…

  24. }}} Um, because the “intelligence community and economic elite” are all complete morons, maybe? Group-thinking, over-credentialed morons.

    Some of them, yes, but you’ve been watching too many cheap spy movies.

    They have as many idiots as any government agency, yes, but, depending on the group, perhaps less.

    I will point out that the NSA was literally UNKNOWN from its inception ca. 1948 to about 1988 — no one in the USA had ever even heard of the organization, even though it was one of the bigger spy agencies, budget-wise, that there was. Even then, the only reason it became known was the idiot son of the then-director got caught hacking things, which got the media looking at the father closer than they otherwise had any reason to.

    Even today, few hear about anything they do, except for occasional brushes with exposure when someone like Snowden pops up.

  25. }}} “those not wise enough to invest properly”
    What does that even mean right now?

    Right now is when it is IMPORTANT for the young to figure out how to invest properly, because their wealth is going to get burned to the ground if they don’t.

    You should — always — have started investing when you were in your 20s — not a lot, but small, consistent amounts, because of the way that compound interest works, so that by the time you’re in your 40s or 50s it will be on a curve with a slope >1.

    Historically, you could just stick it in a bank and average 5-odd percent. Right now, you’d be lucky if you could get 1% out of a bank, and you can bet QE is going to rape that account.

    So you need to find good inflation-proof bets to make right now so you can keep your small pocket of wealth growing steadily to take advantage of later on.

    }}} When the system fails, and either the market or housing crashes for the long term, we’re all hosed anyway.

    If you own your house by that time, the crash won’t mean shit to you, all you have to worry about is the taxes at that point (yeah that may not be trivial, either, but that is a different issue). And it’s quite possible, if you buy correctly, to have it paid off inside of about 6-7 years.

  26. }}} If you’re young, it’s all going to fall apart before you die,

    And yet there are still ways to invest which will not only weather that chaos, but build through it. Gold was a great buy at one point, and may still be. Gold Mining stocks are also debatably worthwhile. Bitcoin may become the reserve currency after the dollar, it’s quite possible….

  27. OBloodyHell: “we can easily make them for ourselves.”

    If it helps you sleep at night, then carry on telling yourself that. There is no doubt that we could make lots of things in the US — but not easily, not starting from where we are. Building mines, factories, power generation, distribution systems takes years — double or triple that if we continue to allow regulatory insanity. It could be done, but it would take a massive effort over many years. Not easy!

    As for Intellectual Property — if it is worth so much, why is the US running an unsustainable Trade Deficit? And if a country really believes that Intellectual Property is the future, should not that country be educating massive numbers of engineers & mathematicians instead of students with credentials in Grievance Studies and Lesbian Dance? If Intellectual Property is so valuable, why was Bell Labs thrown away? Where are today’s invention machines?
    Intellectual Property is a wasting asset which continually has to be renewed — which may be why China is graduating many times the number of STEM graduates as the US, and apparently investing much more on R&D than the US.

    Summary — even if you were right about Intellectual Property, you would still have to admit that the US is falling behind. But keep believing that everything is OK if that helps you get through the day.

  28. “Intellectual property” isn’t worth spit if you let everyone have it for free… Which is precisely what our elites have been doing for the last thirty years, ‘cos they don’t like paying labor here in America what its worth–They’d rather have the Chinese be the slavemasters, which they’re really good at.

    Our “elites” did nothing to create that wealth of IP, or the economic power that they pissed away. They have no idea how it is created, no idea how it is maintained, and no idea how to solve the loss of it all. We’re all going to suffer because of their incompetence and ignorance, and with any justice, they will pay a price for their fecklessness and folly.

    Or, not. They’ll likely just take over as Quisling managers for their new Chinese overlords, just like they’ve been doing behind closed doors.

  29. Rare earths aren’t particularly rare. In fact, their habit of occurring naturally together is the main problem. The reason they have their own line in the periodic table is because their chemistry is so undifferentiated that they all would otherwise inhabit the same square. This makes the chemistry of separating them from each other very difficult and requires a lot of really noxious things like hydrofluoric acid if I remember correctly. Lithium is much the same. If prices rise, other supplies will become economic.

    What China does is environmental arbitrage. Being able to dump the waste in the nearest river or ravine is a lot cheaper than what is required in the rest of the world. As long as they keep the price below the cost in the prissier parts of the world that object to having their water with that hydrofluoric tang, they’re golden.

    Here’s someone that’s been writing on the subject for years, he was a metals trader.
    https://www.expunct.com/business/rare-earths-an-example-of-why-government-is-so-terrible-at-solving-problems/

  30. Our “elites” did nothing to create that wealth of IP, or the economic power that they pissed away. They have no idea how it is created, no idea how it is maintained, and no idea how to solve the loss of it all. We’re all going to suffer because of their incompetence and ignorance, and with any justice, they will pay a price for their fecklessness and folly.

    I agree with this. The great fortunes made in the past 20 years are mostly in money manipulation. Bezos did what Sears should have done with internet commerce but not many built anything.

    Bill Hewlett and Dave Packard built something. Bill Gates and Paul Allen did something similar but those days are gone. Most tech now is derivative. Google built a better search engine but that does not excuse their predatory behaivor since.

    Bill Clinton began the sale to China of US tech IP. It has accelerated since Boeing sold out to build airplanes in China. Now Disney is more a Chinese company than a US.

  31. “Even today, few hear about anything (NSA) do, except for occasional brushes with exposure when someone like Snowden pops up.”
    The story of the last five years can’t be complete unless Admiral Rogers steps forward. By accounts he stopped the bad guys from pawing through NSA archives to dig up dirt on Trump, forcing them to go the FISA route…

    “Right now, you’d be lucky if you could get 1% out of a bank,”
    Um, interest rates have been more like 0.01% for years now…

    “If you own your house by that time, the crash won’t mean shit to you”
    I’m not talking about a housing crash, or market crash. I’m talking about, if the Fed becomes unable to prop those things up, the entire system coming crashing down. Having a paid-off house, to quote you, won’t mean shit at that point.

  32. The things that have really pissed me off, over the last thirty years, have mostly been things that “went on in the background”, that nobody talked about.

    During the Clinton admin, it was Loral. Billions of taxpayer-financed strategic IP first made available through “strategic bankrupting” via lost government contracts, the IP being swallowed up by “investors” of both parties, and then Clinton swooping in to move oversight of technology transfer from the Pentagon over to Commerce, where Ron Brown immediately approved the formerly blocked sale to China, making a lot of people a lot of money.

    None of that was ever “highlighted” in the media; the questions should have been asked “Why this company was deliberately bankrupted by line-item budget deletions in Congress…” and “Why were these specific investors allowed to buy up the IP, given that it was actually developed using taxpayer dollars…?”, followed by “Why were these investors allowed to monetize their vulture capitalism by selling it to China, an avowed enemy of the US?”.

    The day you have Chinese missiles take out an American carrier or city, that’s the day you’re going to get your investment in Loral back, right up the ass. Thank your congressman of that era, along with Bill Clinton.

    I used to work for a bird Colonel who’d done a tour in the technology transfer office at the Pentagon–Happened to be right in the middle of all this with Loral, and he had the grace to explain to me why he was in the office reading the Early Bird in his email, and throwing shit at the walls. After Clinton was elected, he’d been watching all that crap go on, and he knew what was in the cards–And, he was pissed. Frothing at the mouth pissed. Knowing what he knew, after he explained himself to me, I understood.

    Never saw shit about that whole deal in the “mainstream media”, and it should have been as big as Watergate, being as it was actual treason done in broad daylight. However, the media only considers it treason when its the Democratic Party that’s the victim, not the nation, soooo… Nary a word to be said.

    Similar shit went on with the OPM breach. That should have resulted in impeachment and mass trials of all parties involved and implicated, with public execution for all concerned. It’s that big a deal–The crown jewels of US security, pissed away by an incompetent political hack who directed vitally important work to Democratic Party-affiliated front companies that outsourced the actual work to people who never should have had access, and who were actually not even American citizens. Want to know why we’re having our asses handed to us, in HUMINT? Right there; OPM breach.

    Nobody knows, though, because nobody wants to do the work and explain it to the public. Because it would look bad for the Democrats involved, and protecting them is more important than national security.

    This is why I’ve reached a state of utter bemusement. I can’t even get pissed-off about it, because it is so bad, and so surreally disregarded by everyone else. The people I talk to about this? The normies, who don’t know any better? They just shrug their shoulders, and say they don’t think it could possibly be as big a deal as I make it out to be, because they’ve never heard of either event.

    I mean, what the fsck do you do about that? How do you convince these dolts that they’re being led by feckless fools whose only concern is the grift they can squeeze out of public office, and who could care less about tomorrow, let alone the day after?

    Hell, even telling them “I told you so…” is going to lose any pleasure, because I’m first going to have to explain what I told them, when I told them, and what the significance of it was before they’ll even begin to comprehend that they were warned about voting for Clinton, Obama, and now Biden. The whole thing is such an utterly clownish shitshow that I can’t even get upset any more. It’s like waking up on the Titanic, after spending every day out of Southampton warning the crew and passengers about icebergs, and discovering that yes, the dumbfscks did sail the ship at full speed into the very iceberg I warned them about. I mean, what do you do, at that point? Laugh? Cry? Start beating the responsible parties about the head and upper body with dimensional lumber?

  33. IP is just a name for an idea. Once it is disclosed, it’s out there and anyone interested will use it as a springboard for themselves. At best, things like patents will give a head start to the inventor but won’t protect him from someone with more resources engineering around it and leaving him by the side of the road or licensing his patent at figurative gun point. How many years of litigation could you finance against a Fortune 500 company?

    Remember, the essence of a patent is public disclosure of everything to make a working invention. Some things, like CPU’s, have so many layers of complexity, with the really good parts kept secret that reverse engineering is practically a recapitulation of the decades long development process that also depended on some just plain luck. I guaranty that this process is ongoing in China right now, they’re probably the only country with the resources to make it even imaginable. Public evidence is that they’re about 20 years behind.

  34. @MCS,

    There’s a huge qualitative and quantitative difference between “the idea being out there”, as in China witnessing American rocket launches, and the reality of what they did with Loral, which was sell them everything we’d learned about launching satellites and missiles. The difference it made? Before the Loral IP hit China, they were managing (if I remember right…) roughly a 30-40% success rate with their launches.

    After? They suddenly jumped to around 90% successful launches. They wouldn’t have a space program without Loral; the Russians were extremely pissed about the whole thing because it rendered their strategic rocket forces exponentially more vulnerable than they had been.

    There’s “IP” and then there’s what they sold the Chinese. That was more like “everything related to satellite launch technology” and whatever else Loral had in their books. It was a big deal; it allowed them to shortcut to the head of the line for space operations.

  35. A lot of valuable knowledge is not patent-protected or patent-protectable….in particular, a lot of process knowledge (‘how to make it’ rather than ‘what to make’) exists in the form of tacit knowledge, and much of its is protected via trade secrets rather than patents.

    A couple of years ago, there were indictments involving Chinese industrial espionage involving GE steam turbine technology.

    https://www.powermag.com/ge-power-engineer-implicated-in-turbine-technology-theft-for-chinas-benefit/

    …I don’t know how much of this info was patent-protectable vs not so protectable, but in either case, there were apparently people in the government that thought it was worth stealing rather than developing independently, even though steam turbines are a technology that is more than a century old.

  36. There are reasons why the Chinese are so eager to buy entire companies and manufacturing plants…

    Friend of mine was an industrial engineer, specializing in production line design/maintenance. Her contention was that there were huge amounts of undocumented knowledge to be had just in observing how a working factory functioned, and that people foolishly discounted how much “process” knowledge was important, and how it was embodied in the way that plants were built and laid out. She had anecdotes from her various internships where she was the only person there who “saw” what the physical layout and processes of the plant could tell someone who knew what to look for. She’d come over to engineering from biology, interestingly enough, and approached a lot of what she did from the standpoint of treating the industrial plant as though it were an organism… I forget why she got out of biology, but I vaguely remember her saying she got to the point where she simply couldn’t continue the dissections and killing required. Bit of a blood phobia, and she loved animals too much to treat ’em as experiments, even the parameciums. Had no issues treating factory employees as experimental test subjects, though… :)

  37. A senior engineer once told us young’uns that there were two ways to learn something:
    (1) Discover it for yourself.
    (2) Get told by someone who already knows — either face-to-face or through reading a publication.
    For a developing nation which is (was) behind in technology, it makes sense to go with option (2) instead of spending a huge effort on re-inventing the wheel.

    And if the guys with the advanced technology want to loan you the money so that you can buy from them the rope you will use to hang them — go for it!

    The question as always is — Why are the guys in charge in the “advanced” countries so foolish, arrogant, and naive that the smarter guys in the “developing” countries can rob them blind?

  38. Patents don’t protect knowledge. The requirement is the they must include everything so that a person skilled in the art can reproduce it. Leaving anything out is grounds to invalidate the patent. The patent only confers the exclusive right to to exploit the invention for a time to the holder. The filer also has to be the inventor who may assign the patent, as often happens, to their employer, assuming they invented as part of their job.

    In all cases, enforcement is dependent on the courts. Chinese courts seem to take little notice of foreign decisions. The only time this would be an issue is if a Chinese manufacturer was exporting to a country with a conflicting patent . As far as Chinese domestic consumption and most especially military technology, I would expect a foreign patent to be worthless.

    If I had a trade secret, I’d not allow it within a thousand miles of China no matter how it was protected with NDA’s but others may think differently.

    Here’s some people with actual experience that count for a lot more than mine:
    https://www.chinalawblog.com/

    There’s a lot there about NDA’s as they apply in China.

  39. @David Foster,

    Lost track of her years ago, but last I heard she was happily married, staying at home, and having kids. It was weird as hell, because both she and the guy she wound up married to were both people I’d thought would never do anything at all along those lines.

    Shows how well I know people, that…

  40. }}} Building mines, factories, power generation, distribution systems takes years — double or triple that if we continue to allow regulatory insanity.

    Gavin, you act as though that was actually a valid assertion. It’s not just “feel good”, it’s rational analysis, and you’re throwing handwaves at it rather than actually disputing it.

    1 — clearly, if someone in government — say, Ron DeSantis — who isn’t a fan of Big Government, AFAICT, decides to clear the regulatory horse pucky, just as Trump did for the vaccine — that isn’t necessarily an issue. Certainly FL and TX would happily thumb their noses at DC if the regulations get too onerous, and they decide it’s time to buck them.

    2 — IF we are going to be making things here, THEN it’s going to be in robotic factories. While we don’t make a lot of robots, here, either, we DESIGN the robots, so it’s a lot less of a difficulty than you suggest to go from creating/simplifying designs to make them fast-tracked to functionality. For one thing, you can start with small bots that can do the smaller scut work and build from that.

    3 — As I also note, in many cases, we may fully bypass the classic factory design in favor of small shops which 3d print a lot, and use CAD/CAM small-scale techniques for making things that require more metal (given that metal 3d printing is still on the expensive side), or even wood and certain types of shaped plastic parts that aren’t suitable for printing.

    This country could go onto a “war footing” with regards to making shit in a lot less time than you think, if it suddenly became necessary.

    And, as to mines, we stockpile a hell of a lot of stuff, and make little effort to truly recycle a lot of metals, which might be cheaper/quicker than mining for the fast startup issues, after which the mining can take over…

    Finally, give us about 5-10 more years and our space industry will probably be capable of delivering an asteroid to earth orbit within a couple years on demand, we’d just have to decide to do it. And if we do THAT, it will kill steel mining and refining dead, across the whole planet, along with certain other metals such as nickel. Plop a simple automated robotic aluminum refinery, with solar power, along with mass drivers, down on the moon, and you now have a huge mass of aluminum and oxygen in orbit, too.

    We live in a very very chaotic time. We have to be careful about making long-term decisions which commit us to what is not a good long-term strategy. Manufacturing is very very much in flux. The main reason it’s done overseas is that the labor there makes it still marginally cheaper than doing it via robotic factories, akin to that in Minority Report’s “second chase scene”. That, plus other issues (aka, shipping via the Suez, etc.) will likely change things on their own pretty soon, as the labor costs (plus resistance to being dependent on China) has those benefits rapidly eroding.

  41. }}} As for Intellectual Property — if it is worth so much, why is the US running an unsustainable Trade Deficit? And if a country really believes that Intellectual Property is the future, should not that country be educating massive numbers of engineers & mathematicians instead of students with credentials in Grievance Studies and Lesbian Dance?

    1 — You assume the Dems/PostModern Left actually WANT America to succeed? What in GOD’s name leads you to that absurd notion?

    2 — you might want to note that conservatives/libertarians/Republicans all push for STEM education.

    3 — People steal so much of our IP it’s almost hilarious. I assert that the entire reason that “unsustainable trade deficit” can exist — the Miseans have been complaining about its “unsustainability” for more than 20 YEARS now — is that there IS a tremendous mass of wealth being quietly injected into the system directly by IP, as well as indirectly, by “pirated” IP (not the same as stolen. If someone with an income of 10k per year pirates a $5000 piece of software, or a $50 movie, there is no real loss to the IP owner, because no sale would have happened — and yet society gains a nominal, perhaps very real, benefit by the IP empowering — or entertaining — the pirate, regardless)
    NOTE: this is not to suggest I don’t consider it a distinct problem, just that there is a reason things haven’t collapsed even though people think they long since should have by various economic models. My primary point — for both Miseans and Monetarists — is that the amount of money in the system should reflect the total wealth in the system at any given time. We keep creating all this money, but things don’t collapse… Part of that is because the IP creates a hell of a lot of “invisible” wealth which is not accounted for by the models being used. Every pirated copy of a movie, worldwide, every piece of pirated software which is actually used, every stolen patent usage by China or Russia, is a hidden injection of wealth — of value — into the system.

  42. }}} The great fortunes made in the past 20 years are mostly in money manipulation. Bezos did what Sears should have done with internet commerce but not many built anything.

    Yes, and yet he did it. And it represents a huge increase in both productivity and efficiency in product distribution and sales.

    Guess what? That’s “added value”.

    }}} Bill Hewlett and Dave Packard built something. Bill Gates and Paul Allen did something similar but those days are gone. Most tech now is derivative. Google built a better search engine but that does not excuse their predatory behavior since.

    What? The fact that someone with wealth can misuse that wealth, in morally objectionable ways, somehow makes it less wealth?

    That’s an amusing take on it.

    The collection of both the data, the search functionality, and the hardware — all useful to anyone else at the literal drop of a hat (Ditto for what Amazon does. Double ditto for what M$ does) — adds tremendously to the created wealth in the system.

    With just a little skill and effort you can spend a few hundred dollars and have a webstore up and running and selling goods… and it will take you hours, not months. So yeah, you’re vastly undergrasping the value-add for Google, Amazon, and Azure web services alone. Yes, you are able to be “Parlerized” at the drop of a hat, but that is not going to interfere with most activities.

    As to IP, also, if I want to produce content, there is Amazon for books, Youtube and several other options for video and music. And again, you can be out there getting exposure which was not even close to possible 20 years ago.

    I am in no way happy with these companies’ political behaviors, even with respect to business, but there is no reason someone can’t get the wealth together on the “Right” side of thing and make a competing alternative. And for most applications, that political BS is still largely irrelevant.

  43. P.S.,
    }}} Every pirated copy of a movie, worldwide, every piece of pirated software which is actually used, every stolen patent usage by China or Russia, is a hidden injection of wealth — of value — into the system.

    Yeah, that wealth is part of the reason why we have those “unsustainable” debts — the Chinese are getting paid in a lot of ways that are under the table.

    The real question you should ask is, “Why aren’t we demanding a better accounting of it?”… because it would likely slash that deficit in half or more.

    And one or more of you think of IP as only patentable ideas. IP includes both the Sciences AND the Arts.

    There is a REASON Disney’s current valuation is about 400 BILLION dollars. And, I assert, it’s *actual* value is probably not less than 3x that.

  44. Also of interest:

    The Bono Bill is set to expire. Mickey, Donald, Goofy, and Pluto, et al, are set to go into the PD again, just as they were in the 00’s.

    Disney hasn’t sought to extend it again. This is very odd. I’m curious what is up, there…

  45. OBH…” IF we are going to be making things here, THEN it’s going to be in robotic factories”

    I don’t think there is a sharp distinction between robotic factories and non-robotic factories. For example, CNC machine tools (CNC=computer numerical control) are certainly a form of robot; they perform actions that would previously have required a human machinist turning knobs. Yet CNC tools, together with their predecessor NC tools, have been in use in some plants since the 1960s, and in very common use at least since the 1980s. Automation is a continuum, not a binary distinction.

  46. America is full of factories and mines and farms that produce considerably more food and fiber than we consume and chemical plants and refineries and oil wells and gas wells and those are just the places where I’ve worked.

    Something that is never mentioned in connection to the new “service” economy that’s been described two people selling each other insurance, is how much of it is devoted to dealing with government in all its myriad aspects.

  47. OBloodyHell: “Manufacturing is very very much in flux. The main reason it’s done overseas is that the labor there makes it still marginally cheaper than doing it via robotic factories.”

    Consider the possibility that you may be a victim of false doctrine. Yes, labor costs overseas can be much less. (“can be” — because it is pointless to talk about hourly rates without also considering productivity). But you know what really costs less? That’s right! Regulatory costs.

    If a factory here has to pay at least a minimum wage, meet strict OSHA workplace safety standards, eliminate pollution, reduce its carbon footprint, etc — while a factory there can hire child labor with no safety standards and dump its waste into the river … which is going to provide the cheaper product?

    And this is not even touching the costs associated with ambulance chasing lawyers, convoluted taxation, or idiotic government policies. (It is cheaper to mail a package from China to the US than within the US … because we are so generous).

    You are right, OBH, that we could turn things around relatively quickly (i.e., within years) if we had smart leadership and a united population. Reality is we have neither of those things. Maybe after the collapse …

  48. This country could go onto a “war footing” with regards to making shit in a lot less time than you think, if it suddenly became necessary.

    I suspect not.

    For one thing, I have to wonder just what signal would suddenly cause the people making decisions for the United States to decide this was “necessary,” when the present supply chain chaos has not. For another, I doubt the people who’ve just spent a year living off free money deposited into their bank accounts are suddenly going to discover a desire to do physical labor of any sort, even to the extent of watching the magical robot factories make things. For yet another, the magical robot factories don’t actually exist, except in the sense noted by David Foster above.

    What made the US wealthy and powerful was that we made things others could not, and had a population that became rich enough to make that all viable. If labor is relatively expensive, then you have a great incentive to invent new things to enable automation, obviously to reduce labor costs. If labor is plentiful, then you don’t.

    Our globalist political class has been working very hard to make labor plentiful, both via the de facto open border and via the endless supply of special visas to allow foreigners to come here and work. They’ve outsourced and offshored just about every factory they can, resulting in almost every spare part and consumer product being produced somewhere else, very often in the country that has apparently been teaching its people for generations that “white” people are their mortal enemies. China, that is. And yet worse many people who manage to obtain a university education are taught wrong and stupid things, often rendering them incapable of any sort of useful employment.

    So no, I don’t think the US could quickly resume making things, period. Absent collapse, it won’t happen. And with collapse, it will be even worse.

  49. Anyone who cares to see knows that China is responsible for coronavirus, either intentionally or “accidentally”, and no one who matters is willing to say so, so the notion that “we” will ever go onto a “war footing” economically against them is delusional. We’ve been sold out.

    Which relates to the Disney conversation above–they own ABC, so do you think any movie they produce, TV show they make, or “news” product they put out, will be even slightly critical of China? Of course not.

  50. Our globalist political class has been working very hard to make labor plentiful, both via the de facto open border and via the endless supply of special visas to allow foreigners to come here and work.

    I agree that this is a significant issue. This country has always had a labor shortage which raised wages and was an attraction for Europe, which had excess labor. Mexican illegal immigration was often for short term work and the immigrants returned to their villages since the distance was not great. Even Italian immigrants returned to Italy in the Depression. I have read that as much as 25% did so. Now, we have massive immigration from far distances. Who is paying for this ? The Haitians have not been in Haiti for years. The welfare state seems to be much of the attraction. How is this organized ?

  51. Who is paying for this?

    I bet we are, via those multi-thousand page bills that no one reads. Some leftist congressional staffer writes a one-sentence provision and the Feds spent billions bringing foreigners into the country.

    I recall reading somewhere on the internet that even as the pandemic began the US government was flying in 747-loads of “refugees” from Africa. On another occasion, someone showed me part of video that was supposedly a brand new development being constructed in West Virginia for yet more “refugees.”

    The Gee Ohhh Peeee gets cheap labor, the left gets cheap votes and/or easy vote fraud.

    Thus, no objections are raised by the people who presently have the political power to do something to stop it.

  52. Factors that are often in favor of offshore production:
    –lower labor costs
    –lower taxes
    –less regulation
    –in many industries, a supply chain that is already largely in Asia

    …and, a more intangible factor….someone at Seeking Alpha pointed out that if you want to build a new pharma plant in NJ (or even expand an existing one), then various unpleasant local bureaucrats will show up with problems, requirements, and fee demands. Whereas if you want to put the same plant in China, the Mayor will take you out for a wonderful dinner, show you the local sights, and promise to help you in every way possible. (Well, that’s changing with Xi, but there are surely other countries in the world where it remains true) The psychological difference is surely important.

    Factors that can be in favor of US production:

    –transportation costs and associated inventory issues….now coming home to a lot of people at a very tangible level
    –less theft of intellectual property
    –energy costs, in some cases (though Biden will remove this advantage if he can)
    –better access to the 5 or 10% of the market for which ‘Made in the USA’ is an important factor meriting some degree of premium price

    20-30 years ago, one might have listed ‘a better educated and trained workforce’ as an advantage on the US side, but that doesn’t seem to be true anymore.

  53. To David F’s list of factors in favor of offshore production, we should add absence of frivolous (but expensive) law suits, and the ability to hire & promote on the basis of competence rather than gender, sexual orientation, or skin color. Maybe also the ability to fire the inevitable poor choices without major problems.

    I have never seen a thorough analysis, but it seems likely that much lower hourly rates are actually only a small part of the cost advantages of offshore production. If we really wanted to re-shore manufacturing, there are a lot of self-imposed legal/regulatory/taxation disadvantages we could remove. But that would smash the iron rice bowls of so many bureaucrats & lawyers.

  54. …and, a more intangible factor….someone at Seeking Alpha pointed out that if you want to build a new pharma plant in NJ (or even expand an existing one), then various unpleasant local bureaucrats will show up with problems, requirements, and fee demands.

    There was a recent example of this in Pennsylvania, where a billion-dollar steel plant was cancelled because the company couldn’t get an air permit to operate. If I recall, it wasn’t that they were denied, it was that the local bureaucrat simply didn’t act upon the application. That is, some local minion of the regime somehow has obtained the power to exercise a pocket veto against economic development.

    That this happens is yet another of the endless failures of the Gee Ohh Peeeee, demonstrating the sheer and utter uselessness of that putative political party, which despite supposedly being pro-business never shows up to actually accomplish something pro-business. Any real pro-business political party would- as a high priority- strive to remove the ability some local functionary to stop economic activity in this manner.

    I note that shall-issue permits for concealed carry of a firearm are now common. It seems to me that shall-issue environmental permits should also be a goal, simply to remove one obvious hindrance to economic development inside the US. And since the non-left was able to successfully make a case for shall-issue permits for guns, they certainly should be able to make a case for shall-issue environmental permits to allow the economy to exist and for people to have jobs.

    But no, instead the gop spent its time when it last controlled the government fighting against Donald Trump.

    Worthless.

  55. @Xennady,

    That’s the tell for anyone to see that the GOP is, at best, a “captured opposition”. I think it actually goes further, and that most of the upper levels are in on the whole deal, providing a safe stalking-horse opposition-in-name-only for the kakistocracy we live under.

    Even if they aren’t, are they effectively any different? At what point does ineffectiveness differ from actively supporting the Democratic Party’s various agendas?

    This whole thing is going to come to a head, within range of our lifetimes. The idiot class is bumbling their way into disaster, and when that comes, they’re not going to be able to cope with it all. Wouldn’t surprise me if they managed to kill off billions through sheer incompetence, discrediting their programs and ideas for generations.

    Some have likened our period to the pre-WWI period, and I think I see some parallels in the hubris and incompetence of the elites. They think they know how the world works, and what their decisions will result in, but just like the feckless “genius” class that wandered into the charnel house of WWI, they’re unable to actually grasp the reality of what they’re doing, the conditions they’re creating, and the fact that the underlying ground conditions that they’ve assumed are no longer accurate.

    Not being clairvoyant, I can’t project what the hell is going to happen, or how it will eventuate, but I can safely and confidently point out the similarities. Just like the over-confident types that thought it would all be over by Christmas of 1914, these dimwits think they know what they’re doing. History doesn’t repeat itself exactly, but it does have themes and will rhyme…

  56. … if you want to build a new pharma plant in NJ (or even expand an existing one), then various unpleasant local bureaucrats will show up with problems, requirements, and fee demands…

    Sort of like the Sriracha folks after Irwindale lured them in.

  57. When local government is indiscernibly different than a shakedown by organized crime…? You have a problem. It’s also endemic to those regions that have been under unchallenged Democratic Party control for generations.

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