What is wrong with the US economy? Part 2

[Art]

? 2007 GDP per capita numbers: UK $34,139, US $45,489, or 33% greater in the US. Certainly this gap was not closed as of January 2008. Do you mean some other metric instead?
http://stats.oecd.org/wbos/Index.aspx?datasetcode=SNA_TABLE1

UK standard of living rises above that in America for the first time in a century
Last updated at 20:00 06 January 2008

For the first time in more than 100 years, British living standards have risen above those of Americans, a report has declared.

Increasing incomes, longer holidays and "free" healthcare have all contributed to making Britons better off than our friends across the Atlantic, according to the respected Oxford Economics consultancy.

The feel-rich factor is calculated using the gross domestic product (GDP) per citizen - an indicator of average incomes - which in Britain will be £23,500 this year, compared with £23,250 in America, it predicts.

http://www.dailymail.co.uk/news/article-506442/UK-standard-living-rises-America-time-century.html

UK living standards outstrip US
Living standards outstrip those across the Atlantic for first time in over a century

David Smith, Economics Editor

LIVING standards in Britain are set to rise above those in America for the first time since the 19th century, according to a report by the respected Oxford Economics consultancy.

The calculations suggest that, measured by gross domestic product per capita, Britain can now hold its head up high in the economic stakes after more than a century of playing second fiddle to the Americans.

It says that GDP per head in Britain will be £23,500 this year, compared with £23,250 in America, reflecting not only the strength of the pound against the dollar but also the UK economy’s record run of growth and rising incomes going back to the early 1990s.

http://business.timesonline.co.uk/tol/business/economics/article3137506.ece

 

[mgb_phys]

A lot of that was the pound reaching £1=$2. It's always tricky to compare GDP across currencies.

The rest of it was a house price bubble and massive credit spending.

 

[edward]

Citigroup just announced another 53,000 layoffs in addition to the 23,000 jobs already gone.

http://www.clevelandleader.com/node/7788

 

[mheslep]

http://www.dailymail.co.uk/news/article-506442/UK-standard-living-rises-America-time-century.html

http://business.timesonline.co.uk/tol/business/economics/article3137506.ece

A lot of that was the pound reaching £1=$2. It's always tricky to compare GDP across currencies...

Which is why it is important to correct for cost of living variations. The common figure used is http://en.wikipedia.org/wiki/Purchasing_power_parity" corrected. The per capita GDP figures in the UK articles are not PPP corrected, the ones I cited above are. Thus the £23,500 [$35172] will buy you about 30% more car/house/big mac/whatever in the US than in the UK.

 

[Art]

PPP makes a couple of bold assumptions, each patently false. First it is based on the premise of the 'law of one price' which assumes a perfect market and no shipping costs, tariffs or other barriers to trade and secondly it assumes all income is spent locally.

It is also based on a basket of goods which ignores cultural differences and does not allow for quality differences between the content of one basket and the other being compared.

For developed countries GDP per capita is probably the more valid measure not least because a large percentage of the income earned will not be spent locally but will be spent abroad either on consumables or investments.

The problems with PPP are so manifold it led the economist to only half jokingly create it's own PPP big Mac index.

 

[mgb_phys]

In my previous example, does it compare the French farmer's luch with the New Yorker going to a French restaurant or to McDs? PPP also includes the taxes that pay for free health care in one country but not the employers health insurance premiums in another.
The big mac index is a lot more use to work out if your are being overcharged for say a DVD.

My main point was that GDP undervalues non-industrial output especially things like small scale farmers and so has traditionally made France and Italy look like 3rd world countries.
Italy was celebrating going ahead of the UK in per-capita GDP before discovering it was all due to an enron style fraud by one of it's biggest companies.

 

[Office_Shredder]

In my previous example, does it compare the French farmer's luch with the New Yorker going to a French restaurant or to McDs? PPP also includes the taxes that pay for free health care in one country but not the employers health insurance premiums in another.

If the employer's health insurance premiums aren't being included in how much they charge for the product, then more power to the people buying it.

 

[OmCheeto]

Citigroup just announced another 53,000 layoffs in addition to the 23,000 jobs already gone.

http://www.clevelandleader.com/node/7788

It's difficult to determine how big some of these companies are from one day to the next with all these layoffs.
But the comparison of the number of employee's between Citigroup and GM is one indicator of what might be wrong with our economy.
Citigroup: 374,000 +/- 100,000
GM: 266,000 +/- 100,000

Will a society which spends more of it's time and money pushing wheelbarrows of cash from one point to another do better economically than a society which builds things?

I suppose it's possible, for a while. But on the whole, I'd say it's a pretty poor use of manpower.

 

[Art]

It's difficult to determine how big some of these companies are from one day to the next with all these layoffs.
But the comparison of the number of employee's between Citigroup and GM is one indicator of what might be wrong with our economy.
Citigroup: 374,000 +/- 100,000
GM: 266,000 +/- 100,000

Will a society which spends more of it's time and money pushing wheelbarrows of cash from one point to another do better economically than a society which builds things?

I suppose it's possible, for a while. But on the whole, I'd say it's a pretty poor use of manpower.

I agree with your general sentiment re manufacturing vs service industry and now the mirage of wealth created by the finance houses has disappeared the neglect of domestic manufacturing is likely to haunt many western economies.

Britain founded it's empire on the back of being the manufacturing capital of the world and thus it's biggest exporter, it is hard to see how any country can achieve long term prosperity as mere importers.

BTW the employment figures you give are worldwide based. The UK is expecting to shoulder heavy cuts amongst it's 23,000 Citigroup employees as a result of this latest announcement which further highlights the global nature of the current crisis.

 

[mgb_phys]

How many people are employed by foreign car makers in the USA?
I thought the big 3 only employed about 250,00 between them.
So a bailout and special protection deals for the US companies could end up costing more jobs if the other makers are forced out of the US.

Then what happens when the German/Japanese govt. offers a 25Bn bailout to Merc/BMW/VW or Toyota to bring the jobs back home - and close their US plants?

 

[phoenixy]

Money in the hole

http://www.theonion.com/content/video/in_the_know_should_the_government

 

[mgb_phys]

http://miscellanea.wellingtongrey.net/comics/2008-10-08-behavior-modification-loop-of-fail.png

 

[Art]

How many people are employed by foreign car makers in the USA?
I thought the big 3 only employed about 250,00 between them.
So a bailout and special protection deals for the US companies could end up costing more jobs if the other makers are forced out of the US.

Then what happens when the German/Japanese govt. offers a 25Bn bailout to Merc/BMW/VW or Toyota to bring the jobs back home - and close their US plants?

As a general rule uncompetitive industries should be allowed to fail however to avoid reaching that point it is incumbent on govt's to create a climate giving companies the best possible chance of success.

This means the gov't is responsible for ensuring domestic industry and foreign companies operate on a level playing field and to pursue fiscal policies designed to help the manufacturing sector.

As an example Britain's ship building industry disappeared practically overnight when their Korean competitors could produce ships cheaper than UK companies could buy the raw materials for. This was not because the Koreans were so much better at business it was because they massively subsidized the steel which went into the ships.

Another example was how the Japanese came to dominate certain industries by using a technique which came to be known as 'dumping' whereby exports were marginally costed (only variable costs are recovered) whereas domestic sales were absorption costed (Both fixed costs and variable costs are recovered). Again no matter how well you run your business you cannot compete with this.

The other key aspect is persuading investors to put their money into industries, that even when well run, will return a nett profit of only around 7% p.a. when the financial companies were offering astronomical returns, though this latter problem has probably now corrected itself without gov't policy changes

In the case of the big 3, if they have a viable plan to use the bail out money to modernise their plants and products as the US steel industry did back when it was on it's knees then it is worth doing. If however the money is wasted allowing the companies to continue with their inefficient products and methods then they should be abandoned and allowed to fail.

 

[mheslep]

PPP makes a couple of bold assumptions, each patently false. First it is based on the premise of the 'law of one price' which assumes a perfect market and no shipping costs, tariffs or other barriers to trade and secondly it assumes all income is spent locally.

It is also based on a basket of goods which ignores cultural differences and does not allow for quality differences between the content of one basket and the other being compared.

For developed countries GDP per capita is probably the more valid measure not least because a large percentage of the income earned will not be spent locally but will be spent abroad either on consumables or investments.

The problems with PPP are so manifold it led the economist to only half jokingly create it's own PPP big Mac index.

Not at all. The Big Mac index emphasizes the need for some kind of correction to raw GDP. PPP is not perfect. GDP otherwise uncorrected is only useful for tracking in country over time. Comparisons across countries without some kind of cost of living correction don't make any sense.

 

[edward]

The big three got caught between a rock and a hard spot. Originally and up until recently the Japanese cars only appealed to a smaller well defined group of people.

The big three tried to satisfy a much wider spectrum of buyers. While Toyota was making lightweight trucks and small cars the U.S. automakers still tried to be more accommodating to the general demand.

The big three had a demand for heavy pick up trucks that the Japanese couldn't compete with. You won't see a Toyota Tundra out on a heavy construction site because they have a very low GVWR.

The big three made; SUV versions of the big trucks, heavier luxury cars along mid size SUVs and a line of mediocre small cars and everything was great until the price of oil shot up.

By the time of the big oil crunch the Japanese had perfected their smaller vehicles to where they had a near big car feel.

Then the big swing came and everyone wanted a compact high mileage vehicle. Why didn't the big three see it coming?? I would imagine because we had gone through oil price fluctuations before and the tide had always turned before.

Except for perhaps in hindsight, I don't think that there ever was a win win point in the past for The big three to retool for a massive increase in production of small vehicles.

Ironically that time has at last come and they are broke.

Of my closest three neighbors one drives; a Lincoln pick up truck, one a GMC Yukon, and the third a Toyota Prius. I drive a Honda Minivan. All of the vehicles are 04 or newer.

There was obviously still a mix in buyer demand even in recent years.

I could go along with letting the big three fail if it was just the executives who went down. The real situation goes well beyond losing 250,000 union factory jobs. Millions of jobs are auto related and the guys behind the counter at the Chevrolet dealer parts department are definitely not union.

 

[mgb_phys]

The big three made; SUV versions of the big trucks, heavier luxury cars along mid size SUVs and a line of mediocre small cars and everything was great until the price of oil shot up.

So where has all the money gone from these $14K profit per vehicle models?
Difficult to see how after years of record sales you can suddenly be broke in one quarter.

Millions of jobs are auto related and the guys behind the counter at the Chevrolet dealer parts department are definitely not union.

Maybe we can persaude the Japanese to make vehicles that need more spare parts.

The important point is what is the bailout for?
If it's to protect American jobs then give it to Toyota. They employ more Americans than Chrysler (possibly more than GM?) and are more likely to keep those jobs around rather than asking for another bailout next quarter.

If it's to protect an American industry for strategic reasons then force them to sell off their shares in overseas makers. Why prop up Ford if some of that money is going to Masda? It's like giving federal morgage assistance to someone with a new Merc in the driveway.

 

[russ_watters]

Ironically, Ford sold most of its stake in Mazda today, but you have it backwards: Money to bail out Ford does not go to Mazda. Money given to Mazda goes to Ford.

 

[mgb_phys]

Money to bail out Ford does not go to Mazda. Money given to Mazda goes to Ford.

But how can that be? A Japanese car company more profitable than Ford?
When Ford trucks are all built by 6ft tall supermen cowboys who only stop wiping the manly sweat from their brow long enough to stare into the sunset - Iv'e seen the ads!

 

[mheslep]

So where has all the money gone from these $14K profit per vehicle models?
Difficult to see how after years of record sales you can suddenly be broke in one quarter.


Maybe we can persaude the Japanese to make vehicles that need more spare parts.

The important point is what is the bailout for?
If it's to protect American jobs then give it to Toyota. They employ more Americans than Chrysler (possibly more than GM?)

Toyota doesn't need a bail out. N. American car market has fallen to 10 M cars per year. The big three need 15M cars/year to break even. Thus they will continue to lose money unless they restructure; a bail out won't help that, it simply allows them to lose money longer, or until the market changes. The transplants are all geared to handle much less.

 

[edward]

So where has all the money gone from these $14K profit per vehicle models?
Difficult to see how after years of record sales you can suddenly be broke in one quarter.

Wall Street manged to do the same

The important point is what is the bailout for?
If it's to protect American jobs then give it to Toyota. They employ more Americans than Chrysler (possibly more than GM?) and are more likely to keep those jobs around rather than asking for another bailout next quarter.

There are more auto related jobs that will be lost than auto manufacturing. Toyota and it's jobs will still be here. Auto workers won't have to try to relocate when it is impossible to sell their homes.

If it's to protect an American industry for strategic reasons then force them to sell off their shares in overseas makers. Why prop up Ford if some of that money is going to Masda? It's like giving federal morgage assistance to someone with a new Merc in the driveway.

Ford is selling their interest in Mazda.

A large part of the Big three problem is the economy. For that matter the economy is effecting Japanese car sales. Honda was down 20% in September from a year ago, then down again in October.

If Japanese automakers get in trouble the Japanese government bail them out in a flash.

Giving hundreds of billions to bankers who totally failed isn't exactly setting a good example. I can see where the big three think they should be worth 25 billion to this country is reasonable in comparison.

 

[edward]

Toyota doesn't need a bail out. N. American car market has fallen to 10 M cars per year. The big three need 15M cars/year to break even. Thus they will continue to lose money unless they restructure; a bail out won't help that, it simply allows them to lose money longer, or until the market changes. The transplants are all geared to handle much less.

I don't see where an infusion of money would interfere with a restructuring. It could be a provision of the deal. The cost of bankruptcy restructuring would put them under even greater financial pressure.

A restructuring of debt under bankruptcy can take years. Locally ASARCO is in their third year.

 

[edward]

But how can that be? A Japanese car company more profitable than Ford?
When Ford trucks are all built by 6ft tall supermen cowboys who only stop wiping the manly sweat from their brow long enough to stare into the sunset - Iv'e seen the ads!

If Toyota tried to build trucks of equivalent GVWR, they might not find it so easy. Toyota Tundra sales are down by 47% over last year.

http://www.mysanantonio.com/business/Sales_of_Toyota_Tundra_pickups_cut_in_half.html

It looks like Chey has a winner with the new Malibu.

* Key vehicles: Chevrolet Impala up 6.3 percent, Chevrolet
Malibu up 82 percent, Chevrolet Silverado down 35 percent,
Chevrolet Tahoe down 77 percent, GMC Sierra down 35 percent.

http://www.reuters.com/article/companyNewsAndPR/idUSN0332589120081103

 

[mheslep]

I don't see where an infusion of money would interfere with a restructuring. ...

My point was a bailout allows them to avoid doing the restructuring. Id go further and say they can not restructure some commitments without the enabling bankruptcy laws.

 

[edward]

My point was a bailout allows them to avoid doing the restructuring. Id go further and say they can not restructure some commitments without the enabling bankruptcy laws.

The big point right now is to keep people working.

 

[Jimmy Snyder]

A spokesperson for The United States of America (ticker symbol USA), a wholly owned subsidiary of USACorp, today announced that President and CEO George W. Bush would be receiving a bonus of options to buy 470,000 shares of USA stock at a strike price of $32.15, 5% higher than yesterday's closing price. In addition, Mr. Bush will receive 470,000 options if USA is the victim of a hostile takeover. This is widely seen as a poison pill aimed at Democratic Party, Inc. (ticker symbol GOP) which has expressed interest in buying up shares. A large number of stockholders have expressed dissatisfaction with the current board and Mr. Barack Obama, a high ranking GOP official claims to have enough votes to oust Mr. Bush and his team. There are rumors of a bidding war with Warren Buffet who had tried to take USA private last year.

 

[mgb_phys]

An indian tribe made an offer of a $20 of beads and trinkets for Manhattan.

 

[Ivan Seeking]

The Dow closed below 8000 today.

 

[Ivan Seeking]

7,552.29

Almost a 50% loss over the last year. I was hoping that we had already hit bottom.

Gosh, I sure wish my social security was tied to the market.

 

[turbo]

7,552.29

Almost a 50% loss over the last year. I was hoping that we had already hit bottom.

Gosh, I sure wish my social security was tied to the market.

My retirement IRA is largely tied to the market. Luckily, I have circled the wagons and won't have to start drawing on the market-based investments for at least a few years, hopefully after some of my portfolio has recovered. Interest on my biggest money-market account is tied to the Fed Prime, and for years it has galled me to no end that the Fed cuts lending rates whenever Wall Street whimpers, to the detriment of people who have saved all their lives. Can Bush and his cronies leave early? Please?

 

[Office_Shredder]

A spokesperson for The United States of America (ticker symbol USA), a wholly owned subsidiary of USACorp, today announced that President and CEO George W. Bush would be receiving a bonus of options to buy 470,000 shares of USA stock at a strike price of $32.15, 5% higher than yesterday's closing price. In addition, Mr. Bush will receive 470,000 options if USA is the victim of a hostile takeover. This is widely seen as a poison pill aimed at Democratic Party, Inc. (ticker symbol GOP) which has expressed interest in buying up shares. A large number of stockholders have expressed dissatisfaction with the current board and Mr. Barack Obama, a high ranking GOP official claims to have enough votes to oust Mr. Bush and his team. There are rumors of a bidding war with Warren Buffet who had tried to take USA private last year.

It was humorous until you confused who the GOP was

 

[Jimmy Snyder]

It was humorous until you confused who the GOP was

My bad. In my defense, I've been told it's a common mistake.

 

[jal]

This does not sound very good.

http://news.yahoo.com/s/afp/20081120/bs_afp/financeeconomyusgulf_081120072928
US seeks 300 billion dlrs from Gulf states: report
Thu Nov 20, 2:29 am ET

KUWAIT CITY (AFP) – The United States has asked four oil-rich Gulf states for close to 300 billion dollars to help it curb the global financial meltdown, Kuwait's daily Al-Seyassah reported Thursday.
The daily also said that the United States has asked Kuwait to forgive its Iraqi debt estimated at around 16 billion dollars.

 

[Ivan Seeking]

What role did the credit rating agencies play in the current economic crisis? This week, a former managing director at Standard & Poor's speaks out on U.S. television for the first time about how he was pressured to compromise standards in a push for profits. Frank Raiter reveals what was really going on behind closed doors at the credit rating agencies the public relies on to evaluate the safety of their investments.

"During this period, profit was primary; analytics were secondary," Raiter tells NOW Senior Correspondent Maria Hinojosa.

Who was watching the watchers? Surprising new revelations about the economic debacle, this week on NOW...

http://www.pbs.org/now/shows/446/index.html

Very interesting.

 

[Astronuc]

What I see as a future problem is the how the government plans to repay the money borrowed. Something else will have to be cut, otherwise, the government will be on permanent revolving credit.

Some have mentioned that at some point the government will have to raise taxes, but there certainly will be a lot of resistance.


Also, it's not clear that the systemic flaws in the US economy are being addressed - primarily too much bought on credit, and too many defaults (with the result that too much is received for next to nothing).

Amendment: I would add economic disparity as another major flaw in the US economy.

 

[Jimmy Snyder]

otherwise, the government will be on permanent revolving credit.

Permanent? Oh no! According to the second chart on this page http://www.cedarcomm.com/~stevelm1/usdebt.htm" , the gov't has been on temporary revolving credit since 1791.