China Beats out Canada as top Exporter to US

[Toro]

Perhaps the statistics are measuring different things. Household income in Canada in 2002 was $54,300, about a $2000 increase over 1977 or 3.8%. They reachedd 1977 levels in 1996 and increased to 2001 but have benn static for the last 4 years.

I really do not think the US has outperformed that by much.

<{POST_SNAPBACK}>

Link?

[Yaro]

You miss the point. Wages have, and probably always will, be determined by productivity. As the difference in productivity closes between the first and the third world - which is what we want, right?

This is patently false; wages are determined by a market bare system. People are paid the lowest wages they are willing to accept.

I mean we don't want large swaths of people living in abject poverty, do we? - The wage differential will close.

No it won't, there is absolutely no evidence of this. Wages have fallen in virtually every country that has opened itself to full free trade, often dramatically. Wages in the Mexican economic zone have fallen by almost 50% since the introduction of free trade.

Ilo analysis of Mexican wages

From 1980 to 2000, real wages in China rose 440% compared to 60% in the United States.

Real wages didn't rise in the US, Family income did, but that wasn't do to rising wages it was do to a rise in the number of dual income families. Real wages have been falling for a very long time, in fact right now at the height of both the short and long term cycles we have seen the smallest wage growth ever.

Bloomberg Article

Its simply a false notion that economic growth is a zero sum game. Also, jobs do not move to where they are done cheapest. Rather, capital goes to where returns are highest. And the biggest capital flows over the past decade have been into, first information technology in the United States, then into biotechnology in the United States, where the highest wages in the world are paid.

Economic growth is not a zero sum game, however it is only peripherally related to growth in social wealth. It is true that capital flows where the return is the highest, which is to a massive extent where labour is the cheapest, and environmental and worker regulations are at there lowest which is of course what leads to the many abuses which you hear about in places like China. The capital flow into the US over the last decade has been largely from Europe and Asia and holds the form of low return bonds but like any party where the last one out is stuck with the bill/cheque even this has slowed and any mention of a large scale move in either the holding of USD as reserves or the movement of oil producers to the euro are met with great tension among the big houses that run the game of chicken that is the modern US economy. The US does not pay the highest wages in the world, they rank 6th substantially behind a couple of nations.

They used to say the same thing about Japan.

I don't know why you would bring up Japan, they have been one of the most protected markets on earth for the last 30 years and are maybe the worlds most tightly controlled economy hardly a bastion of capitalism.

Of course they can. Virtually all industries are not cartels.

This is such an odd argument. I have to believe the people who make this argument do not have actual experience in business.

While I don't know if you would describe them as cartels, there are many modern industries that are virtual monopolies. The way this is accomplished isn't by the old method of outright ownership and brood squading competition its through the use of industry lobby groups such as the The American Petroleum Institute. Which is used as a way around claims of collusion.

If there isn't high level collusion ask yourself this, why have prices been sky rocketing? Profits are reaching record levels, this is the point at which competition should be kicking in for market share and drive the prices down. That is the essential mechanism of capitalism but in virtually every large industry no real competition exists.

Well, I'm fairly well educated on the subject of trade as well and I will make the standard classical argument for trade. But since you already know that, why don't you make the argument that a common social and taxation structure is the only way that leads to efficiency. That should be interesting considering A.) such a structure has never existed, and B.) essentially establishes a monopoly across different jurisdictions - and we all know how efficient monopolies are! Essentially, what you are saying is that trade is only efficient within a common political structure. That is almost certainly wrong.

Yes we all do know how efficient monopolies are, Fascism (the universally accepted most efficient eco-political system) is essentially a combination of corporations and governments. In the words of the modern father of Fascism (Mussolini) "Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power".

All of the most efficient governments in the history of humanity have been fascist in nature.

I think I understand why you don't realize this though, efficiency is not productivity, it is not ROI, and it is not cost effectiveness. Efficiency is the accomplishment of a task with the consumption of a minimum of resources.

It would have been nice if he started his encouragement with his own family and set the example close to home.

Why? It is no single individual’s job to go against his own self interest for a nation of people who are unwilling to fight in its own interest.

Sparhawk, this idea you express is so common, and so false, it makes me want to cry or scream. It demonstrates a fundamental misunderstanding of economics, markets and how the world works.

And what exactly is that misunderstanding? The fact of the matter is that he is absolutely right, we will run out of resources LONG before the entire population of the planet is brought up to first world standards (if that was even the case supported by the evidence).

Imagine that Indian workers were so cheap they would work for pennies, or even nothing! They send us goods and we send them nothing in return! Would that impoverish us? Would our wages fall to nothing too?

Wages? what wages, why would any of us have jobs? The fact of the matter is that there is nothing that we can do here that they can't do there. They will stop sending goods because we won't have money to buy, and when that happens we will have to start producing for ourselves again and will suffer through those transition pains.

Yaro, Finland and the Soviet Union traded for many decades, both to their mutual benefit, without having anything like similar social structures or taxation. I have no idea how my local dépanneur manager is at home. Maybe he's a miser who never takes his wife out to dinner. But that doesn't prevent he and I from both benefitting from trades.

You still haven't explained to me the mechanism by which international trade is a benefit beyond those which I have outlined which may very well be the case in the Finland/USSR relationship. Also try to keep in mind that the USSR was in a production war against a population nearly twice the size and with far more wealthy allies.

It was called the Union of Soviet Socialist Republics. To characterize the US or Canada as socialist is a bit of a stretch. I, for one, am not opposed to the existence of government.

Umm so? Because it was called that, then that’s what it was? Canada and the US both have mixed markets which are the definition of socialist states. I mean Nazi Germany called itself the third Reich, does that mean that it was?

By protecting jobs, economies fail to adapt. This raises the cost of labour, which stunts the labour market, which is part of the problem with Europe IMO. Certainly there has been a disparity in the US over the past few decades as wages of the poor have not kept up with the middle class and wealthy, but they have still risen. As for the middle class, there is no guarantee that they will be better off in the future - as there never is. But climbing into a shell and trying to protect ourself from the outside world is almost certainly a recipe for failure.

Labour markets only become stunted when competition from jurisdictions with lesser standards are allowed to compete. All of the most productive jurisdictions in human history have been places and times with very flat ROIs, there simply isn't any evidence of what you suggest.

It’s also funny that everyone keeps saying that there is no return, that international competition is a necessity in the modern world but nobody will say why exactly. Chile, Malaysia, and Ethiopia three of the world’s best success stories from the third world in the last 4 decades all became successes after raising significant barriers to outside trade.

This is only relevant of course if you have no interest in sovereignty which completely invalidates the notion of international free trade without a common social balance.

eureka

I believe this is World Bank data. I referenced it from a book by Martin Wolf, who has worked for the World Bank and is the chief economics commentator for the Financial Times. The data is on page 149.

Why Globalization Works

and this

John Perkins: Confessions of an Economic Hitman

Will explain why and how the World Bank and IMF is the main weapon that the US has used to maintain an impoverished third world. One of the most important books ever written. And if you don't believe me, read the names on the back.

How does the capitalist cartel work? (What enforces the cartel?) "Class", and "class membership". I think that is the essence of Marxist analysis.

As I said above through industry groups, these groups are the method of the modern monopoly and there primary weapon is the lobby.

That is false. I can quote and/or link document after document from various institutions staffed with incredibly intelligent Ph.Ds, all of whom are extremely well-trained in statistics and economics, that supports my view.

Understand that I do not believe that markets are a cure all for everything. There are times when markets fail. But markets are the single best mechanism for creating wealth. Markets are not perfect, but they create the most wealth for the most people most of the time.

Markets do not create wealth, they create the illusion of wealth. When the government prints money they are not creating wealth they are increasing the rate of exchange between wealth and its representative; i.e. money. The US government has been using the lag time that it takes for the markets to correct for this change to help to reaffirm the strength of the US economy.

[August1991]

Yaro, it would help if you would post properly. No more than ten quotes in a single post.

Imagine that Indian workers were so cheap they would work for pennies, or even nothing! They send us goods and we send them nothing in return! Would that impoverish us? Would our wages fall to nothing too?

Wages? what wages, why would any of us have jobs? The fact of the matter is that there is nothing that we can do here that they can't do there. They will stop sending goods because we won't have money to buy, and when that happens we will have to start producing for ourselves again and will suffer through those transition pains.

Yaro, you fail to realize that the Sun does exactly that. It exports to us light and heat and we pay nothing in return. That's a good deal for us and makes us richer. (Don't you agree, Yaro?)

By the same logic, if China and India were willing to do the same as the Sun, it would make us richer too.

Yaro, if you are going to argue that trading with China and India is bad for our economy because the Chinese and Indians can produce goods much more cheaply than we can, you'll have to explain why sunlight - which is free after all - is bad for our economy too.

[Toro]

That's great August.

You miss the point. Wages have, and probably always will, be determined by productivity. As the difference in productivity closes between the first and the third world - which is what we want, right?

This is patently false; wages are determined by a market bare system. People are paid the lowest wages they are willing to accept.

The wages paid in a "bare market system" is a function of productivity. There is a clear relationship. A janitor and an aeronautical engineer are not paid the same wage. If an aerospace company wants to build a new airplane, it hires the guy who has the technical skills to do so and bids up his wages above the janitor's. That is because of "productivity", and is a function of the "bare market system". Surely someone with a training in economics understands this concept.

I mean we don't want large swaths of people living in abject poverty, do we? - The wage differential will close.

No it won't, there is absolutely no evidence of this. Wages have fallen in virtually every country that has opened itself to full free trade, often dramatically. Wages in the Mexican economic zone have fallen by almost 50% since the introduction of free trade.

Ilo analysis of Mexican wages

This is what you quote as evidence that of "wages falling in virtually every country that has opened itself to free trade?" An article about the minimum wage structure in Mexico? It doesn't prove a thing other than Mexico's economy collapsed because of the peso crisis and Mexico has a minimum wage that didn't adjust accordingly.

From 1980 to 2000, real wages in China rose 440% compared to 60% in the United States.

Real wages didn't rise in the US, Family income did, but that wasn't do to rising wages it was do to a rise in the number of dual income families. Real wages have been falling for a very long time, in fact right now at the height of both the short and long term cycles we have seen the smallest wage growth ever.

Bloomberg Article

Back it up. All you do is link an article about wage growth from 2001 to 2003. What does that prove?

Here are two links that show evidence of productivity and wage growth. The first is the World Development Indicators 2002 published by the World Bank. Sorry, you'll have to buy it. But in it, it demonstrates the link between wages and productivity for a cross-section of 20 countries. In the study, the R-squared between the cost per worker and the value per worker is 92%.

The second is a study by Stephen Golub, which you can read about it here. He analyzed 49 countries and found that productivity growth explained most of the variation in wage growth over time.

So the idea that wage growth is linked to productivity growth as being patently false is, well, false. This is hardly revolutionary in the field of economics. I didn't think anyone with an economics background questioned this particularly vociferously.

The capital flow into the US over the last decade has been largely from Europe and Asia and holds the form of low return bonds but like any party where the last one out is stuck with the bill/cheque even this has slowed and any mention of a large scale move in either the holding of USD as reserves or the movement of oil producers to the euro are met with great tension among the big houses that run the game of chicken that is the modern US economy.

This is silly. And misleading. A little history lesson. First, capital flows from 1980 to 2000 into the United States were driven mainly by private inflows. There were times when central banks were the main drivers, in particular from 1985 to 1987 (if I recall correctly) due to the weakening of the dollar after the Plaza Accord. But for the most part, over the previous two decades, it wasn't governments driving flows. Second, though it is true that the central banks of Japan and China have been big buyers of US bonds, you have to understand that in the context of what has happened over the past four years. In an effort to avoid a sharp recession, the federal reserve lowered interest rates to 1% to flood the financial system with liquidity. To avoid their currencies from appreciating too much, and thus jeapordizing their growth since so much of it is dependent on exports to the US, the central banks of Japan and China heavily purchased dollars. That has created imbalances in the economy no doubt, but the policy has worked. (So far.) This year, there has been very little buying by the two central banks and the largest sector of capital inflows have been purchases of corporate bonds by private investors as long-term US bond yields are a full point above many European bonds, and 2 points above Japanese bonds.

If there isn't high level collusion ask yourself this, why have prices been sky rocketing? Profits are reaching record levels, this is the point at which competition should be kicking in for market share and drive the prices down. That is the essential mechanism of capitalism but in virtually every large industry no real competition exists.

People who follow the energy business know there is a simply answer to this. I'll let quote Andy Xie, an economist with Morgan Stanley, and let him explain it.

Economic overheating, primarily in China, has exaggerated energy demand over the past three years. BP estimates that total demand for energy grew by 4.3% in 2004, 3.3% in 2003, and 3.4% in 2002, compared to annual growth of 1.2% between 1991 and 2001, and 2.1% between 1981 and 1991. China accounted for 52% of growth between 2001 and 2004. Global energy demand ex-China grew by 1.9% between 2001 and 2004, versus annual growth of 1.1% between 1991 and 2001, and 1.7% between 1981 and 1991. The booming demand for oil tells a similar story. According to BP, global oil demand grew by 1.9% per annum between 2001 and 2004, compared to 1.4% between 1991 and 2001, and 1% between 1981 and 1991. China accounted for 37% of global demand growth between 2001 and 2004, compared to 26% between 1991 and 2001. As regards to the sustainability of global energy prices, the key question is whether China's increased demand reflects a secular change or just cyclical overheating. China's oil demand grew by 15.8% in 2004, versus 7.7% in 2003, 6.9% in 2002, and 7.6% per annum between 1991 and 2001.

Not only that, but competition is picking up. Capital spending is growing 15% this year in the exploration and development while OPEC is producing flat out. You don't push a button and PRESTO!, suddenly there is oil. It takes time to bring new fossil fuels out of the ground, refine it, and get it to the end user.

I think I understand why you don't realize this though, efficiency is not productivity, it is not ROI, and it is not cost effectiveness. Efficiency is the accomplishment of a task with the consumption of a minimum of resources.

Markets do not create wealth, they create the illusion of wealth. When the government prints money they are not creating wealth they are increasing the rate of exchange between wealth and its representative; i.e. money. The US government has been using the lag time that it takes for the markets to correct for this change to help to reaffirm the strength of the US economy.

You have just given a broad definition of efficiency AND productivity AND return on investment AND cost effectiveness.

The bolded part is a very odd statement.

Real GDP has been rising by 3-4% annually the past few years. It has risen by at least 3% per year on average for the last 35 and 70 years in the United States. Printing money creates inflation. But we are not talking about nominal growth. I am talking about real growth. So the idea that the US government is creating this "illusion" does not make any sense.

[Toro]

You miss the point. Wages have, and probably always will, be determined by productivity. As the difference in productivity closes between the first and the third world - which is what we want, right?

This is patently false; wages are determined by a market bare system. People are paid the lowest wages they are willing to accept.

From the outset, the fundamental importance of productivity to living standards should be clear. Indeed, the relationship between the two is one of the few upon which all economists agree!

http://www.bmo.com/economic/regular/canprod.htm

[Guest eureka]

I don't think that necessarily contradicts Yaro's point. Productivity obviously has a fundamental link to economically justifiably wage growth but it is not the sole determinant. One reason for inflation is wage gains that are greater than productivity. That could produce higher living standards for the wage earning class at the expense of a slight reduction for the more exalted.

[Toro]

Eureka.

I don't think that necessarily contradicts Yaro's point. Productivity obviously has a fundamental link to economically justifiably wage growth but it is not the sole determinant. One reason for inflation is wage gains that are greater than productivity. That could produce higher living standards for the wage earning class at the expense of a slight reduction for the more exalted.

<{POST_SNAPBACK}>

My original post was about real wages growing. I'm talking about real wages.

I'll re-post what Yaro wrote.

You miss the point. Wages have, and probably always will, be determined by productivity. As the difference in productivity closes between the first and the third world - which is what we want, right?

This is patently false; wages are determined by a market bare system. People are paid the lowest wages they are willing to accept.

I mean we don't want large swaths of people living in abject poverty, do we? - The wage differential will close.

No it won't, there is absolutely no evidence of this.

There is evidence of this. As the economist in the article you linked stated,

From the outset, the fundamental importance of productivity to living standards should be clear. Indeed, the relationship between the two is one of the few upon which all economists agree!

http://www.bmo.com/economic/regular/canprod.htm

So rising productivity means rising wages. Closing the productivity gap will close the wage gap. To say "there is absolutely no evidence of this" is false.

[Yaro]

Yaro, you fail to realize that the Sun does exactly that. It exports to us light and heat and we pay nothing in return. That's a good deal for us and makes us richer. (Don't you agree, Yaro?)

Do you belie that China exports to us without wanting anything in return? This is the most asinine statement I have ever seen (and I mean that quite literally). Trade is just that an exchange of goods.

Yaro, if you are going to argue that trading with China and India is bad for our economy because the Chinese and Indians can produce goods much more cheaply than we can, you'll have to explain why sunlight - which is free after all - is bad for our economy too.

Are you actively misinterpreting me? The Chinese and Indians produce goods more cheaply, not more efficiently this doesn't just make us poorer in the long run it makes everyone poorer by the margin of efficiency lost. In this case it is the efficiency lost due to logistical considerations which are increasingly significant.

The wages paid in a "bare market system" is a function of productivity. There is a clear relationship. A janitor and an aeronautical engineer are not paid the same wage. If an aerospace company wants to build a new airplane, it hires the guy who has the technical skills to do so and bids up his wages above the janitor's. That is because of "productivity", and is a function of the "bare market system". Surely someone with a training in economics understands this concept.

Bullshit, there are two primary groups which divide social wealth there is the investor and the worker. When the return on investment rises the return on labour falls, this is extremely well understood and accepted. The bare market system provides more for an aeronautical engineer then a janitor not because of productivity but because of demand, under your theory there would be no significant difference between the wage earned regardless of country and that is simply not the case. You clearly have no actual understanding of the labour market as productivity has as much relevance on wages earned as landed cost has on retail price, in other words they are completely unrelated unless we come down to a point where either drops in efficiency below the point of reasonable return.

This is what you quote as evidence that of "wages falling in virtually every country that has opened itself to free trade?" An article about the minimum wage structure in Mexico? It doesn't prove a thing other than Mexico's economy collapsed because of the peso crisis and Mexico has a minimum wage that didn't adjust accordingly.

Heh, it’s funny but I have yet to see you post about rising wages from anywhere. The FACT of the matter is that wages over the past 25 years have fallen everywhere, the only way to make it appear that wages have risen is to include front line managers in the wage calculations and/or calculate family income. The article I posted had clear information that showed the dramatic fall of wages in Mexico a country that should have seen a very very clear rise in wages under your theory and you have yet to explain why the economies of Ethiopia, Chili, and Malaysia all skyrocketed in virtually every category when they largely closed there markets.

Back it up. All you do is link an article about wage growth from 2001 to 2003. What does that prove?

Here are two links that show evidence of productivity and wage growth. The first is the World Development Indicators 2002 published by the World Bank. Sorry, you'll have to buy it. But in it, it demonstrates the link between wages and productivity for a cross-section of 20 countries. In the study, the R-squared between the cost per worker and the value per worker is 92%.

The article I linked was not to backup the statement that wages have been falling, As for the world bank, read the book I listed and you will understand why I can't take anything they say seriously.

The second is a study by Stephen Golub, which you can read about it here. He analyzed 49 countries and found that productivity growth explained most of the variation in wage growth over time.

And I never denied there was a link between social wealth and productivity, of course if you make the labour market work twice as hard you’re going to produce more wealth. What does that have to do with wages? If everyone contributed directly to wealth creation then wages would by definition rise but since the vast majority of the wealth falls to the investors then wages don't have to rise past the point which the labour market demands.

So the idea that wage growth is linked to productivity growth as being patently false is, well, false. This is hardly revolutionary in the field of economics. I didn't think anyone with an economics background questioned this particularly vociferously.

Actually your wrong, I have an economics background and about 80% of economists (IMO) would say that wage growth is peripherally linked to productivity growth it is a very lose connection. Total social wealth is linked to productivity, as in exactly what I have been saying all along the more goods that are produced the wealthier society as a whole gets, this is however increased proportionally by efficiency gains not directly to productivity gains which are again...not the same thing.

This is silly. And misleading. A little history lesson. First, capital flows from 1980 to 2000 into the United States were driven mainly by private inflows. There were times when central banks were the main drivers, in particular from 1985 to 1987 (if I recall correctly) due to the weakening of the dollar after the Plaza Accord. But for the most part, over the previous two decades, it wasn't governments driving flows. Second, though it is true that the central banks of Japan and China have been big buyers of US bonds, you have to understand that in the context of what has happened over the past four years. In an effort to avoid a sharp recession, the federal reserve lowered interest rates to 1% to flood the financial system with liquidity. To avoid their currencies from appreciating too much, and thus jeapordizing their growth since so much of it is dependent on exports to the US, the central banks of Japan and China heavily purchased dollars. That has created imbalances in the economy no doubt, but the policy has worked. (So far.) This year, there has been very little buying by the two central banks and the largest sector of capital inflows have been purchases of corporate bonds by private investors as long-term US bond yields are a full point above many European bonds, and 2 points above Japanese bonds.

There is nothing that you have said there that invalidates anything I have said, your analysis is from the view of an investor. Mine is from the view of an economist.

Not only that, but competition is picking up. Capital spending is growing 15% this year in the exploration and development while OPEC is producing flat out. You don't push a button and PRESTO!, suddenly there is oil. It takes time to bring new fossil fuels out of the ground, refine it, and get it to the end user.

First off, the oil industry has been closing refineries for years in order to drive up prices. Secondly what you and he said in no way explain the lack of competitive priceing. The fact that there is competition in the area of exploration is neither new nor significant.

Oil Industry in collusion for decades

You have just given a broad definition of efficiency AND productivity AND return on investment AND cost effectiveness.

No I haven't, I have given the exact definitions of those terms, you as an investor probably understand both there meaning and there importance differently but that doesn't change the fact that free trade has had a tendency to increase productivity (through longer work hours) and cost effectiveness (through low foreign wages) while simultaneously lowering efficiency from losses in logistical efficiency and population distribution.

The bolded part is a very odd statement.

It’s not an odd statement at all, as an investor you see money as wealth. This is obvious, money is not wealth it is the representation of wealth. Wealth is what you trade for goods and or services that are consumed in the transaction.

For instance, when you go out to dinner and purchase the food and service you receive and consume wealth, in exchange for that you trade the representation of wealth that society agrees your money represents. Money has no intrinsic value, it is not valuable in any way other then what we all agree it’s valued at by social contract. When you create money without creating goods or providing services in proportion to that growth in capital you lower the relative value of that money. No it doesn't happen right away and no for all intents and purposes you buying a dinner or creating some capital that didn't exist before doesn't effect the larger economy in isolation.

Real GDP has been rising by 3-4% annually the past few years. It has risen by at least 3% per year on average for the last 35 and 70 years in the United States. Printing money creates inflation. But we are not talking about nominal growth. I am talking about real growth. So the idea that the US government is creating this "illusion" does not make any sense.

Actually it makes perfect sense, first off the US government has been printing money at a record pace over the last 5 years, 2ndly changes to the nature of IP law have been artificially boosting GDP on a truly massive scale (over the last 30 years), reductions in the requirements for corporations to properly fund pension plans and a dozen other actions taken by the US government have all resulted in a massive availability of capital which has pushed short term GDP. Over the time period before 1975 there was a great deal of real growth since then it has been to an overwhelming extent statistical manipulation.

In the end the fact of the matter is that what is pushed as economics by think tanks like the heritage foundation and by corporately controlled entities such as the IMF really aren't indicative of what the vast majority of economists say. There just the only ones you ever hear from.

From the outset, the fundamental importance of productivity to living standards should be clear. Indeed, the relationship between the two is one of the few upon which all economists agree!

You are misinterpreting once again, I am talking about ROL you are talking about social wealth. As productivity goes up social wealth tends to follow but that has no relation to wages. In order for the relationship you are describing to be true labour would have to be the primary beneficiary of rising productivity, they are not investors are.

PS, don't take my tone to mean a lack of respect, if anything I tend to become more aggressive with people I respect.

[Toro]

First

PS, don't take my tone to mean a lack of respect, if anything I tend to become more aggressive with people I respect.

Ditto. PLEASE don't take anything personally. I'm sure you'd be a good guy to sit down and have a beer with.

Second, Yaro, don't have too many quotes in your posts. This board appears to only allow a certain amount then the formatting makes it difficult to read. Splitting your response in two posts will make it easier to read.

Trade is just that an exchange of goods.

Trade is an exchange of goods and services between entities and individuals that have a competitive advantage in one thing and seek to exchange that good for another good in which the other has a competitive advantage. That competitive advantage is heavily influenced by productivity. It is through specialization which drives up productivity and thus wages. This is a simple concept. Individually, if we all tried to do everything for ourselves, we would all be poorer. But because we specialize, we are more productive and are paid higher wages.

Bullshit, there are two primary groups which divide social wealth there is the investor and the worker. When the return on investment rises the return on labour falls, this is extremely well understood and accepted. The bare market system provides more for an aeronautical engineer then a janitor not because of productivity but because of demand, under your theory there would be no significant difference between the wage earned regardless of country and that is simply not the case. You clearly have no actual understanding of the labour market as productivity has as much relevance on wages earned as landed cost has on retail price, in other words they are completely unrelated unless we come down to a point where either drops in efficiency below the point of reasonable return.

Wrong. Economics is not a zero-sum game. Unless you are talking about rising equilibrium returns in the short-run, higher returns to capital does not mean falling returns to labour. Even in the Bloomberg Article you site as evidence of "falling" wages, the article says that wages rose 4.5%. Of course corporate profits outstripped wage gains coming out of a recession, they always do. There's a difference between lower returns and falling returns.

Of course the market pays a higher return for the aeronautical engineer than the janitor because he's more productive. "The bare market system" pays him such because he's more productive. But that productivity is also a function of supply and demand. If you have too many aeronautical engineers, then the productivity of the marginal engineer falls and he will be paid less.

My "theory" does not mean that the wages will be the same everywhere in the world. First, I'm arguing that higher productivity leads to higher wages, which, as the BMO economist I quoted earlier says, is pretty clear. Second, I'm discussing equilibrium wages, not individual wages. There are many, many reasons why wage structures will be different between different parts of the world. But to boil it down to "cheap labour" is wrong. I've posted two studies, both of which used rigorous econometric methods, that shows productivity and wages are related. I could post more, but am lazy.

Heh, it’s funny but I have yet to see you post about rising wages from anywhere. The FACT of the matter is that wages over the past 25 years have fallen everywhere, the only way to make it appear that wages have risen is to include front line managers in the wage calculations and/or calculate family income. The article I posted had clear information that showed the dramatic fall of wages in Mexico a country that should have seen a very very clear rise in wages under your theory and you have yet to explain why the economies of Ethiopia, Chili, and Malaysia all skyrocketed in virtually every category when they largely closed there markets.

Rising wage costs;

OECD, Table EO77.

http://www.oecd.org/statisticsChannelList/...6_1_1_1,00.html

Globalization, Growth and Poverty by the World Bank - sorry, you'll have to buy it - looked at 24 countries which were defined as "more" globalized versus 49 countries that were defined as "less" globalized. From 1980 to 1997, real CAGR GDP per capita rose 3.1% for the "more" globalized nations versus 0.5% for the "less" globalized nations. Wages rose by similar amounts.

But you say its a "FACT" that wages have fallen everywhere for the past 25 years. Show me the data or an economics study proving this. You haven't so far and I'd be interested.

Also, we look at these things in aggregate. Wages can rise in different countries for many reasons, especially when you start at a low base. Funny that you site Chile since its the most open economy in South America.

As for the world bank, read the book I listed and you will understand why I can't take anything they say seriously.

That's convenient, isn't it? With a wave of your hand, you can outright dismiss pretty much everything the World Bank publishes because you, er, read a book. The World Bank has its faults, no doubt, but gathering statistical data isn't one of them. I know people who work or have worked at the World Bank. Technical statistical inability is not the first thing that jumps to mind when you meet these people.

Actually your wrong, I have an economics background and about 80% of economists (IMO) would say that wage growth is peripherally linked to productivity growth it is a very lose connection. Total social wealth is linked to productivity, as in exactly what I have been saying all along the more goods that are produced the wealthier society as a whole gets, this is however increased proportionally by efficiency gains not directly to productivity gains which are again...not the same thing.

Well, I didn't say you did not have a background in economics. I said it was hard to believe that someone with an economics background would so vociferously argue against the link between wages as productivity - as the BMO economist noted it wasn't much of an issue in the economics profession. I too have a background in economics. The organization I work for has a fair sized economics department, and I have regular contact with the economics community outside of my organization. Whenever this topic is an issue, there is no doubt amongst that group that there is a strong link between wage growth and productivity.

First off, the oil industry has been closing refineries for years in order to drive up prices. Secondly what you and he said in no way explain the lack of competitive priceing. The fact that there is competition in the area of exploration is neither new nor significant.

Oil Industry in collusion for decades

You dismiss what the World Bank says out of hand, but you believe this group? C'mon! I read those three memos and they didn't say anything. Now, occassionally collusion occurs in business. But this is a far cry from saying that the oil industry has been setting the price of oil systematically. Until recently, the returns on refiners the past 2 decades has been below its cost of capital. That's why companies would consider shutting down capacity. Too much supply, as one of the memos said - or at least there was too much supply. That's perfectly rational.

The bolded part is a very odd statement.

It’s not an odd statement at all, as an investor you see money as wealth. This is obvious, money is not wealth it is the representation of wealth. Wealth is what you trade for goods and or services that are consumed in the transaction.

I am fully, fully aware of this. I do not see printed money as wealth. There is a big, big difference. Anyone who has ever read the Austrians knows this.

Actually it makes perfect sense, first off the US government has been printing money at a record pace over the last 5 years, 2ndly changes to the nature of IP law have been artificially boosting GDP on a truly massive scale (over the last 30 years), reductions in the requirements for corporations to properly fund pension plans and a dozen other actions taken by the US government have all resulted in a massive availability of capital which has pushed short term GDP. Over the time period before 1975 there was a great deal of real growth since then it has been to an overwhelming extent statistical manipulation.

In the end the fact of the matter is that what is pushed as economics by think tanks like the heritage foundation and by corporately controlled entities such as the IMF really aren't indicative of what the vast majority of economists say. There just the only ones you ever hear from.

Don't be silly.

I have posted US growth rates here.

http://www.mapleleafweb.com/forums/index.p...topic=3710&st=0

[August1991]

Yaro, you fail to realize that the Sun does exactly that. It exports to us light and heat and we pay nothing in return. That's a good deal for us and makes us richer. (Don't you agree, Yaro?)

Do you belie that China exports to us without wanting anything in return? This is the most asinine statement I have ever seen (and I mean that quite literally). Trade is just that an exchange of goods.

<{POST_SNAPBACK}>

At great expense, we could employ many, many people to produce light and heat artificially. The Sun however produces and sends light and heat to us for free. Yaro, do you mean that the Sun drives down wages and causes unemployment? Because that is the exact same argument you are making with respect to China and India.

Yaro, I think you are mistaken because you are focussing entirely on what we must give in the transaction and not on what we receive.

BTW, there are good arguments against free trade but they take an entirely different approach from the one you have chosen.

Yaro, if you are going to argue that trading with China and India is bad for our economy because the Chinese and Indians can produce goods much more cheaply than we can, you'll have to explain why sunlight - which is free after all - is bad for our economy too.

Are you actively misinterpreting me? The Chinese and Indians produce goods more cheaply, not more efficiently this doesn't just make us poorer in the long run it makes everyone poorer by the margin of efficiency lost. In this case it is the efficiency lost due to logistical considerations which are increasingly significant.

<{POST_SNAPBACK}>

I have read your response several times and for the life of me, it is pure gibberish. "...logistical considerations..."? "...produce goods more cheaply, not more efficiently... " WTF?

I have no idea whether the Sun is efficient or not, and I have no idea what logistical considerations are involved in delivering sunlight to us. I do know that it would be much more costly for us to produce artificial light and heat than to accept this good deal the Sun offers us.

[Guest eureka]

The BMO article did indeed link wages to productivity: improvement in real wages, that is. It also, however, viewed productivity as a very different thing than is usually thought by those who make the link a dogma.

You are ignoring, also, the many factors that go into wage levels other than productivity. The most important is economic power since it decides whether the labourer will receive his "hire." As the quote I posted said, almost all gains in the US have gone to the top 20%. Iow (I learned something from you, August) increasing productivity has not led to wage gains.

The problen with you economists seems to be that you can only think in figures. The meaning of the figures escapes you!

[Toro]

The BMO article did indeed link wages to productivity: improvement in real wages, that is. It also, however, viewed productivity as a very different thing than is usually thought by those who make the link a dogma.

No kidding! That's what I 've been trying to say! Improved productivity means improved real wages! How, pray tell, do "us economists" usually view productivity?

You are ignoring, also, the many factors that go into wage levels other than productivity. The most important is economic power since it decides whether the labourer will receive his "hire." As the quote I posted said, almost all gains in the US have gone to the top 20%. Iow (I learned something from you, August) increasing productivity has not led to wage gains.

You mean Golub's multi-year, multi-nation study linking wages to productivity? Or the World Bank's study where the R-squared between the cost and value of labour was 92%? Of course other factors will influence wages. But neither you, nor Yaro, have shown any proof that productivity and wages are not highly correlated. In fact, you've linked a study saying they were. Thanks!

The problen with you economists seems to be that you can only think in figures. The meaning of the figures escapes you!

Be serious.

[Guest eureka]

I have never made such a claim. I have repeatedly said that any gains are not going to the working population and you have said nothing to refute that. I am serious: serious that you are so lost in the wonders of percentages that you do not see this truth.

[Toro]

Well then I mis-interpreted what you are arguing.

It is true that wage gains have benefitted the higher wage earners disproportionately. (It is not true, however, that there have been no gains for lower income-stratas.) Gains will flow to the areas that are marginally more productive. Those areas, as of late, have been been in higher-end industries, i.e. engineering. It speaks to the article you posted from BMO, that Canada's lagging productivity is due to a heavier concentration in lower-productivity industries. That is similar for education. The greater gains have gone to more educated workers. This will continue in the foreseeable future.

[Toro]

I've calculated wage and total income growth, both nominal and real here

http://www.mapleleafweb.com/forums/index.p...st=0#entry71078

Real wages per capita from 1945 to 1974 rose on average by 1.4%. Since 1975, they have risen 1.6%. Since 1980, they have risen 1.7%.

[August1991]

I have repeatedly said that any gains are not going to the working population and you have said nothing to refute that. I am serious: serious that you are so lost in the wonders of percentages that you do not see this truth.

eureka, if I understand properly, you are not disputing that opening to trade raises incomes. Instead, you are saying that any gains go to the rich and not the poor. I'm not certain that is bad but in any case, it is not proven by evidence.

The following NYT article resumes a detailed study about the Canada US FTA:

"Employment losses of 5 percent translate into 100,000 lost jobs and strike me as large," he wrote, "not least because only a relatively small number of industries experienced deep tariff concessions."

No wonder free trade agreements touch off so much opposition.

As painful as those layoffs were, however, the job losses were a short-term effect. Over the long run, employment in Canada did not drop, and manufacturing employment remains more robust than in other industrialized countries.

"Within 10 years, the lost employment was made up by employment gains in other parts of manufacturing," Professor Trefler found.

--

In addition, he said, "there is absolutely no evidence" that the trade agreement worsened income inequality.

The big story is that lowering tariffs set off a productivity boom.

In essence, opening to trade and introducing new technology are similar to the point of being conceptually identical. Both lead to productivity gains and a higher standard of living. But both also require that people change the way they do things.

Telephone operators and typewriter repairmen have lost their jobs in the past decade, just as horseshoe makers and wheelwrights lost theirs in the past century. On the balance of historical evidence, new technology (and trade) does not lead to a greater difference between rich and poor.

If I look around the world, I see the greatest difference between rich and poor not within countries but between countries. That suggests to me that something else is causing disparities in incomes.

One thing is absolutely certain: No one would want to return to a world where we lived in caves and had no means to start a fire. New technology is at the root of our sophistication. This should not be an issue at all, certainly not among people using the Internet for a conversation.

[Guest eureka]

I fail to see how dropping tariffs could have led to a productivity boom when more than 90% of croos borfer trade was tariff free before the agreements.

I also doubt that what passes for Free Trade now has any historic support for the idea of benefit to the employed in any country.

What we have now is more like the Iron Law of the Market that governed in earlier times. That led to, as I have posted, such horrors as the Irish depopulation and the tens of million deaths from starvation in India. It has also led to the growing disparity of wealth and income both between countries and within countries.

Globalization as it is practised now is a misnomer that has benefited no one except the holders of wealth who are increasing their wealth at the expense of whole populations.

I do strongly favour free trade: I favour it though in the context of fairness and of trade that is not artificially subsidized. A level playing field is a bad analogy since it actually connotes a battlefied where the big battalions will necessarily win. But a level playing field in the sense of equal opportunites and benefits for all participants would be nice.

[Guest eureka]

It might also be interesting to calculate how much of the growth in the US was due to government spending; particularly its military spending, and the negative effects that will have on future growth. The US is less consumer driven than one might suppose.

I recall from somewhere, that US government spending accounted for approx. 24% of the economy during the 1990's against about 18% for France. I don't remember whether I read other country comparisons.

[Toro]

It might also be interesting to calculate how much of the growth in the US was due to government spending; particularly its military spending, and the negative effects that will have on future growth. The US is less consumer driven than one might suppose.

I recall from somewhere, that US government spending accounted for approx. 24% of the economy during the 1990's against about 18% for France. I don't remember whether I read other country comparisons.

<{POST_SNAPBACK}>

From 1975 to 2004, government spending in total rose 2.3% per year. That's lower than the roughly 3% the economy grew. I've already posted this information here

http://www.mapleleafweb.com/forums/index.p...topic=3970&st=0

You can find the gross government wages paid here.

http://www.bea.doc.gov/bea/dn/nipaweb/TableView.asp#Mid

Doing the same adjustments for inflation and population growth, real government per capita wages grew 1.0% per year from 1975-2004, below the average wage growth of 1.6%

If anything, the US economy is too consumer oriented. Consumer spending is over 71% of total GDP spend, and has averaged 67% over the past 4 decades.

France's government spending is much greater, not 18%. Its more like 48%. Of course, its all easy to check. I'm sure the OECD website has that, which I'll check later.

[Guest eureka]

That information came from a chart tracking the two - wherever it was. Something to do with social spending vs whatever it was called.

[Toro]

That information came from a chart tracking the two - wherever it was. Something to do with social spending vs whatever it was called.

<{POST_SNAPBACK}>

Well, that narrows it down, eh?

[Yaro]

Clearly I need to define some economic terms here that might clear up this picture:

Productivity

Measured in output value vs. cost, this value is used by companies to determine pretty much everything. It is not directly related to efficiency but does determine real world profitability.

Efficiency

Measured in output value vs. a(man hours) + b(resource depletion), this number is used by economists to determine the creation of social wealth vs. the depletion of resources (including labour). From a social economics point of view when efficiency rises productivity has a tendency to rise to a point.

GDP(and why its a completely crap statistic)

GDP is measured in two ways, but by far the most common way is the GDP = private + government + investment + net exports. Now there are many many problems with this but I will focus on two major ones.

Government vs. Private consumption

Private consumption is measured from the consumer, the only transactions which are to be counted in private consumption are the actual final purchase by the consumer. Private consumption is just that a consumption statistic, however in the private sector an estimated (20-30% estimates vary widely) of all transactions in the private sector is purchased under a consumptionary mechanism and resold again under a consumptionary mechanism. Essentially being double counted.

On the other hand government spending is calculated using total government expenditure, thus no double counting is even possible. Why do this? Well some people might say its simply another method of manipulating the numbers for political gain but the truth in this case is probably just the availability of number. There is no way to actually track private consumption in as easy a way as the governments. However it does skew GDP towards highly privatized economies.

The NEW Issue

NEW (Net Economic Wealth) is a very difficult thing to pin down, however the spirit of the statistic is to measure the growth in wealth of a society as a whole. NEW is a modified GDP, although there are a number of different ways in which NEW is modified to account for social wealth the primary function is simply to deduct the factors which create a higher socialized cost in high GDP societies.

For example, in a country with a lower pollution standard there will be costs associated with this lower standard. These costs however are often counted TOWARDS GDP, a company pouring effluence into a river will create damage to local populations that will require medical care expenditures, and it will create environmental damage that will have a clean up cost. In both these cases GDP has risen when social wealth has actually fallen (often dramatically).

There are MANY other factors that contribute to making the GDP statistic utterly useless a few off the top of my head are...

Black and Grey economies (uncounted consumptive activities in some countries)

IP Issues (some countries rarely respect the IP rights of the largest producers)

The relationship between these two values tends to follow closely the relationship between NEW (net economic wealth) and GDP. Like the NEW/GDP relationship the higher productivity is pushed the wider the gap becomes.

To a large extent it is the rising discrepancy between these numbers that is responsible for the fall in efficiency and world wide social wealth.

Social Wealth

The measurement of a societies total wealth, the combined wealth of every person in it withholding the socialized cost. The total result of the NEW statistic.

The Whys,

Why do so many people use GDP to represent wealth?

Pretty simple really, almost without exception anyone using GDP to represent wealth is either simply ignorant of its issues or has an ideological agenda.

Why isn't NEW or a similar statistic used more often?

Pretty simple as well, NEW is a VERY difficult statistic to work with and determine, there are however general agreement as to the nature the trends of NEW, specifically in relation to GDP. Also the majority of discussion of economics is in relation to the investment market rather then the economy as a whole. NEW isn't useful for investors as it primary deals with the downloaded social costs of encouraging GDP growth.

<<I will write more when I have time>>