US doesn't just get political influence. It gets massive amounts of products and services enabling the US residents live well beyond their means.
China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers.
US is definitely not the victim here. There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes.
It makes sense to be worried for such an eventuality but US is definitely not being taken advantage here. The situation is more like selling your startup at young age and live a lavish lifestyle with the money without working and studying and risk becoming penniless and unemployable by the 50s.
Yes. The mass of US consumers do benefit from penny subsidies of certain foreign product.
However, for every penny of foreign subsidy benefitting US consumers buying finished iron or steel goods, a US metallurgist is losing a job somewhere.
On strictly numbers, we are better off with foreing-paid subsidies yes, but there are losers, and they take the brunt of the downside.
So id update your analogy by adding a twist: your childhood sitter living on anytown, USA was the virtual receptionist of the business. She had no RSUs in the business. She stayed in anytown and declined a career in a larger, growing city because she found virtual work and it made her happy. Now she's stuck with a mortgage, in a dying town, and with no career prospects locally. And all because you offered her a job that incentivized her to move, and then changed the relationship to her job 180 degrees .
Separately, ive only discussed the trade impact on consumers. We arent going into trade impacting producers, for example matters like producers having their inventions stolen, or their investment nationalized, to name a few examples..
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How does the life of a US metallurgist who works part time at a grocery store compare to a Chinese metallurgist who is working 70 hours a week doing metallurgy?
From working in China a bit (though could be wrong, n=1 anecdotes etc.), the majority of IT people are probably the lucky ones who mostly had a middle class upbringing, could live in a reasonable city and studied hard at school or had well connected parents. Life growing up with parents who were a rural rice farmer or metal scrapper or something would be way different. It is very hard to get a job after a certain age compared to the west, and there is pressure in some areas for women to quit once they have children.
It was common to see people working from 7 or 8 am to 8 or 10pm in my office, though with a 2 hour lunch break where most people slept.
On average, people tended to look way healthier (at least superficially) on average compared to places I have been in the US. Maybe due to diet and activity level.
That is a side effect of chinese kitchens shunning refrigeration and thus processed food. Even with the polution that makes for a healthier lifestyle .Although the younger generations catch up diabetes wise .
Are you trying to say that China doesn't fabricate and lie about their metrics and collection methodology? because I hate to be the one to break this to you, it does and there's a lot of news coverage on it going back over a decade.
They only started blaming the locals once there was concrete proof internationally where they were caught in the lie, and there is plenty of material all of which support this; not just the ones I linked.
Shame is one of the worst things for Chinese culturally.
The fact is, this is not in doubt, and it wasn't a one time thing but rather a consistent effort. Do a simple google search, look at the dates of the articles, they go back decades.
Its well established at this point that this is what one must expect with them.
The latter is getting skills in real-world productive work?
One problem with our information-and-services economy is that it enables a giant proportion of the population to live without any understanding of how anything in the physical world operates. You inhabit a universe of magic, using magic made by other people to provide services.
Eventually the entire country loses the ability to make anything in the real world.
Good question, the former will have an easier life but still struggle to support a family (and will likely not have a family). The later will have a harder life but people depending on the later will live standard middle income lives.
What happens when the part time grocery job is automated away?
The answer to that is not very pleasant for consumer economies.
> However, for every penny of foreign subsidy benefitting US consumers buying finished iron or steel goods, a US metallurgist is losing a job somewhere.
The US consumers can't bear the prices of US craftspeople anymore. Their purchasing power will drop so much that they would wish they still had the deficit and access to AliExpress. And nobody in the US will want to do factory jobs anymore. Really who wants to screw iPhones together all day every day for minimum wage? The few jobs on that category that are left are done by... immigrants. You know, the ones that Trump is kicking out. The ones that worked long hours to be able to live in the ghetto areas hoping in vain they'll one day benefit from the "American dream".
You're overall correct, but made me notice that there is actually an unusually coherent argument (by their standards) being presented by the reactionaries pushing for the things you mention. It goes roughly like:
>The reason these jobs are terrible is because immigrants are doing it for wages that would be intolerably low to anyone else.
>This is also why it's hard to find a decent job in general, our competition is basically cheating!
>But if we remove the immigrants, the employers will surely have to increase wages like they were supposed to
>Now americans will have high paying factory jobs, and if some goods increase in price that's ok, their wages will let them afford it.
>we got to have our cake and eat it too!
Obviously they're missing some key steps and consciousness here in the reasoning, but I feel it's interesting to reflect on in context of how it's almost right -- and surprisingly close to a marxist view of things until it starts assuming things like that individuals have more bargaining power than their employers or that economic agents will always try to set the lowest price they can afford for goods rather than the highest.
So for example they'd believe prices would only go up a little and manufacturing companies would just live with stagnant or reduced profits since they'd have no other choice.
Notice how they have a habit of assuming totally Good behavior from Companies but totally Bad behavior from Immigrants!
I think in context of all that, it becomes more visible both how we could actually resolve this problem other than by just accepting the loss of domestic industry, and what in specific the people falling for this narrative are being hooked on.
Well it's not just that but also the expectation that their wages will increase. The current government is only trying to drop the minimum wage (under the guise of minimum wage earners being losers/leeches which is a strange reasoning)
And very few Americans are actually unemployed. The disappearance of manufacturing is a process that started decades ago and most people have moved on to bigger and better things. So why would they be making more in a minimum wage factory job? They will be making less and without access to cheap Asian manufacturing they can do even less with it. I totally agree the idea of companies doing the right thing is wrong.
But yes the reasons we're doing better in Europe is that we're not giving free reign to companies and have good welfare systems. When people have less worries about their survival they spend more. Of course to Trump backers this is unthinkable because of 'socialism'. Yes it is socialist which is different from communism.
We do of course have similar problems (housing is a problem too and there is resentment of immigrants)
I think the problems here are less bad though because:
1) We don't have a two party system (except for the UK which is in a similar situation to the US). That means it's not a zero sum game. A loss for one isn't an automatic win for the other. So politics are more focused on the positive than kicking the other down. Also we don't have this powerful singular leader with the kind of power the US president has.
2) Right wing politics is more a religion than anything. Not in a god per se but in the narrative and leader. Its followers like being told what to believe. This works best on the poorly educated. We see the same here but because our education system is better (less difference in quality between poor and affluent areas), less people fall into that trap.
> We don't have a two party system (except for the UK which is in a similar situation to the US).
The UK does not have a two party system to anything like the same extent the US does. There are 13 parties with at least one seat in the House of Commons and 15 independents.
Smaller parties look likely to gain a lot more seats in the next election.
> But yes the reasons we're doing better in Europe is that we're not giving free reign to companies and have good welfare systems
Historically true, but it seems to be less so.
> Its followers like being told what to believe. This works best on the poorly educated.
I think it is not that simple. The poorly educated correlate strongly with the poor, who have done badly in recent decades.
> We do of course have similar problems (housing is a problem too and there is resentment of immigrants)
To a great extent in some countries. There are multiple European countries that have parties more extreme than the US right that are growing: AfD, PVV, Fidesz, Rassemblement national etc.
> Smaller parties look likely to gain a lot more seats in the next election.
That's true but that's more because the "two party system" became a one party system with labour doing the same as the tories. They started to become more different again under corbyn after the disaster of "tory-lite" but now they're right back to their old ways.
> I think it is not that simple. The poorly educated correlate strongly with the poor, who have done badly in recent decades.
Yes but voting right-wing is making them even more poor because the right only think of the poor as a natural resource. Yet they manage to convince them they care. Why would a billionaire care about the poor?? The only reason they became a billionaire was exploiting the poor. The only reason billionaires exist is the huge gap between rich and poor and those are always going to draw the short end of the stick.
> There are multiple European countries that have parties more extreme than the US right that are growing: AfD, PVV, Fidesz, Rassemblement national etc.
I don't think those are more extreme than the Republicans are now. They are the exact same. I'm from Holland myself and the reason the PVV (and also similar parties like FVD and BBB) is not getting anything done despite being the biggest party now, is that the coalition government waters everything down. The current government is constantly trying to grin to one another while trying to shoot each other in the back. Which is good, because it undermines their ability to do anything. I doubt they will make their full term.
This is the exact same as automation. We need to be sure that we take care of those who lose their jobs.
Truck Driver is one of the most popular professions in most states but the end is coming soon: https://www.cnn.com/2025/05/01/business/first-driverless-sem... you can imagine that they'll only need drivers that aren't on interstates or for inclement weather.
People who lose their job need to take care of themselves. That's the only way it works. You can only make it easier on them and enable success.
Teaching kids real fincial literacy and how to leverage derivatives is an approach to solving this problem (most adults can't even grok a check book). Save while you can and preserve and multiply your wealth.
In the typical truck driver world they have zero market participation other than selling their labor and maybe a 401k stuck in money markets or bonds, no derivative strategy and zero clue on what saving for retirement entails or how the money is leveraged in retirement. They do understand that they plan on working until they die but that isn't likely to pan out either.
We have a <100 IQ population living in a 120 IQ world and have created a meat grinder with all these tech and tax laws. You shouldn't have to work for 40 years.
> People who lose their job need to take care of themselves.
This feels incredibly simplistic. Taxpayer dollars go into funding tons of research that has led to automation improvements. Why shouldn’t taxpayers get some sort of return on that investment? When the US government negotiates trade deals, the money the country “saves” could go anywhere, to anyone. Why does almost all of it go to companies and not taxpayers? If a company wants to offshore work, why do they get to keep all of the monetary difference for themselves, instead of paying a substantial portion back to the country? Privatize the profits, socialize the costs doesn’t have to be how we allow companies to operate.
“Help themselves” assumes that all the other factors are some sort of unchangeable natural laws, and not laws and regulations chosen. We could choose different rules that more directly returned gains to taxpayers, instead of vague trickle down type benefits.
> Taxpayer dollars go into funding tons of research that has led to automation improvements. Why shouldn’t taxpayers get some sort of return on that investment?
But I am getting return on my investments: shipping costs will go down and, as a result, the toilet paper I've ordered online will be 5c cheaper and arrive 2h faster.
>Teaching kids real fincial literacy and how to leverage derivatives
That was a very specific skill you named. What are you referring to though? Literally leveraging derivatives on that market or are you being metaphorical?
Chris Arnade wrote a book, 'Dignity', traveling and talking with 'back-row' Americans about the individuals who have had the losing end of how the US economy has been run. I also think of James McMurtry's song 'Can't Make It Here Anymore.' Lastly, I'd wager anyone who's on the winning end of the US economy can drive half an hour out of town and find empty storefronts and rundown houses.
If the purpose of the country is to support the 'life, liberty, and the pursuit of happiness' of individuals, there might be a balance that needs to be re-struck.
Ricardo only says big aggregate number go up (with a bunch of caveats). Not for whom within that aggregate. It can (hypothetically) be one person seeing huge gains while every single other person loses a little bit. Or, pick any more-plausible scenario that sees a very-few benefitting greatly while the net for the rest of the population is somewhat negative.
Good point but I think these are about the choices you make.
You can choose to look after your metallurgist who become obsolete as a laborers but I'm sure they are amazing people. You might be worried for becoming communist or welfare state though.
You can choose to limit trade and other freedoms so you can artificially keep metallurgists at work so you don't have to share what you have with them without exchanging something. This can help you can feel good about not giving away freebies and pretend that this is a meritocracy but suffer from slow progress and other conflicts related in preserving these artificial limits.
You can just choose to leave them to suffer as long as their numbers are not enough to bother you. This one gives you the good life until suddenly it stops doing that if the numbers go up enough.
I guess in this case it was to ignore the "losers" in the system until they become numerous enough to tear down the whole system. A lot of people who vote for obvious frauds and outright fascists(I'm not talking about USA, but in general) are just anti-establishment who don't mean bad but just want to see the current order teared apart at any price.
> who don't mean bad but just want to see the current order teared apart at any price.
That sounds like a terribly bad intention to me. Significant destruction of social order leads to either authoritarianism or anarchy. Neither are even remotely desirable. The only sane path to deep, lasting, but also healthy change is to systematically work on each specific sector - only dismantling while building something better at the same time. Otherwise you are just an agent of suffering. This pathological egoism does not qualify, even remotely, as "don't mean bad".
Sure its bad but its worse for those who have it good. Also, people don't plan or predict every outcome, they just want change and when that change is denied that's how we have civil wars. It all starts with a peaceful protest or some petty grievances and keeps growing when ignored or dismissed.
I will accept this premise of "choice" with 1 condition.
I will personally advocate for tariffs at 0% worldwide in 2030, if in the interim, ALL permits required to have or work as :
- an accredited university
- work in national security,
- or in university professors (economists!),
- accountant
- lawyer
- pharmacist
- insurance brokers
- any other white-collar profession, etc
Are rescinded. All of them.
So, anyone from abroad can open a university tomorrow, and get student loans, grants etc money. Or, anyone from china can come and become an accountant, if E&Y wants to hire them , either remotely, or in person. Up to E&Y.
Yes, those in person workers would use temporary (seasonal visas) for those jobs. So someone from China can come and teach econometrics at Stanford if Stanford wishes to hire them for 8 months (the undergrad season).
Or someone can start a new Stanford in Bangalore, or whatever.
In other words. You don't need a license or some kind of permit to practice as a professor, or at a desk job at Raytheon.
Do you accept ?
My point. White collars are are protected by the state.
In the real world, i've come to learn that "free trade" doesnt actually mean "unrestricted free trade" .
Its just an excellent sleight of hand to say "free trade" when in the real world, the position you actually advocate is to sacrifice the have nots, while leaving the elites untouched
Indeed true - US is 4% of the global population but 25% of the global consumption, if not more. You can see this via the eyeball test - everything is bigger: cars, houses, even the people. US invented 'overproduction' to smear Chinese manufacturing, but did not consider the other side of the coin, which is US 'overconsumption'. Two to tango etc
Wouldn't it be more apt to compare consumption vs production. It looks like US is about 26% of global GDP from a quick google. But I'm also suspect of comparing GDP's across nations that have very different methodologies.
Also services are counted there, so it's likely we're exporting services in exchange for manufactured products.
US GDP is grossly inflated by 'services' many of which are non-productive, even deleterious to society. Healthcare is probably the best example of this, I believe it is 10-15% of US economy, yet health outcomes for the people can be extraordinary poor, seeing as majority of bankruptcies in the country are as a result of healthcare costs incurred. We need to find a way to separate 'good' vs 'bad' GDP because the measure is way too crude
Seems like U.S. healthcare spending is 17.5%-19.5% of its GDP: "Overall, health spending was 17.6% of GDP in 2023, similar to pre-pandemic shares (17.5% in 2019) after an uptick in 2020 (19.5%) and 2021 (18.3%)." (https://www.ama-assn.org/about/ama-research/trends-health-ca...)
I see this tossed around but no one ever seems to point out that EU has similar numbers, which are about half, but still extremely higher than global average; and much more so in the richer countries of the EU (per capita of course)
The EU complains about China Shock equally as much as the US [0][1][2][3][4][5][6]
Just becuase Trump burnt bridges with the EU doesn't mean that EU member states will gladly allow job losses across Europe's industrial heartland to a country that is supplying a direct competitor (Russia) that has conducted grey zone warfare within the EU
The EU and it's member states are all working on building domestic capacity, and pushing Chinese manufacturers to manufacture WITHIN the EU [7][8], and further diversifying by making FTAs with ASEAN [9][10], Japan [11], SK [12], India [13], etc.
In essence, nothing has materially changed in European policy with regards to China compared to under the Biden administration.
Chinese overproduction is a global issue now, and most major economies and blocs have enacted barriers and will continue to do so unless China removes it's barriers to imports, subsidizes, and technology transfers.
Why not China. China spends 1.73% of it's GDP on subsidizes compared to 0.4-0.6% for France and Germany [0].
At least Germany and France open factories across the EU. Chinese manufacturers did not until the EU began tariffs actions.
Furthermore, Chinese dumping in solar destroyed Germany's original lead in PV manufacturing, and China continues to force foreign manufacturers like VW to partner with Chinese SOEs.
European nations may as well demand the same as well then.
And Chinese dumping is something all nations are fighting - especially other developing countries like Vietnam, Indonesia, India, Brazil, Mexico, etc.
Is it accurate to say that these companies are "forced"? Shareholders make cold, unfeeling, selfish calculations all the time. The shareholders of these companies could simply elect not to do business in China and accept the consequences of diminishing their access to the Chinese market.
Using the word "force" suggests that the largest shareholders of these corporations are victims acting under duress, which they most certainly aren't.
That's laughable, countries in BRICS are so "worried" about Chinese cheap industrialized products, like cheap comfortable EV cars, that they're making more and more treats with China to keep these products coming...
Or maybe the EU should subsidize more instead of policing around?
The EU reminds me of the teacher's pet going around the playground, telling all the other children that they should follow the rules. But of course, the pet doesn't have a big stick, so nobody really bothers listening to him/her.
I don't disagree with the EU's laggardness around changing economic tides, but if just about every major economic bloc and country is initiating trade barriers against China to protect their domestic industries, at some point the common denominator is China.
And as I mentioned elsewhere, much of this overproduction would go away were Chinese consumers able to dip into their savings if China's social safety net was expanded and the CCP's Reaganesque opposition to "Welfarism" was toned down.
Of course but the EU thinks it’s a better strategy to engage with China which remains a major partner to move the needle in the right direction rather than burn bridges. There are a lot of tools which could be used to limit the impact of Chinese surproduction and push China towards shoring up its internal market.
The US used to do the same and will hopefully be sane again in three years.
Command economies hell-bent on economic dominance are not going to engage. The only way to limit Chinese super production is to either block their goods outright or to subsidize your own to out-price theirs locally.
A lot of people don't understand the CCP mentality clearly. China was once the epicenter of human production, making things the rest of the world desired, from Chinaware to silk to tea. The rest of the world fought wars and crossed oceans to obtain exclusive rights to those goods, while the Chinese dynasties simply sat on their thrones and levied tributes from every farflung nation. The CCP wants to return China to THAT level of dominance, this time with tech, electronics and an addiction to rare raw materials.
Nope. Would have been the case if the US imposed usage taxes on foreign users of its goods and services, like tech products and cloud services, but that's not what's happening.
The Chinese tributes were more like payments for the right to trade those goods (which were separate from the cost of goods itself). That's why when the European traders arrived in China, the Emperor simply thought that they were another tributary state seeking protection and trade rights.
> It's exactly what's happening: what used to be leaders in ICE cars are now the laughing stocks of the EV world.
This is really nonsense. VAG, BMW and Mercedes have been making good EVs for many years and are now progressing to making excellent ones. They only really lag Tesla on the software/hardware integration (and that isn't actually much of a selling point outside the HN crowd) while they lead on more traditional points like cabin quality.
If you previously wanted to drive a Golf (and tens of millions of people did), then you're likely to want to drive an ID.3, ID.4 or Enyaq. If you previously wanted to drive a Passat, then you're likely to want to drive an ID.7. If you liked the BMW saloons, you'll like the i4. Mercedes are a little further behind, but they're getting there with the EQE.
If I wanted to bet on the shape of the European car market in five years, I'd be betting on German, Korean and Chinese EVs dominating. I don't see much future for American brands on this side of the Atlantic.
Why stick around if you have this amount of pent-up hatred and disgust for the EU, the people who live here, and everything they believe in at a fundamental ideological level?
If you believe the grass is so much greener on the other side then why not just go for it? Judging by your nickname I'm assuming that you have the means to move just about anywhere if you really wanted to, but I think you'll be sorely disappointed no matter where you end up going.
Whats stopping you? You sound like jaded old fool who made some serious irreversible mistakes in their lives, and now just overflowing with regret and hate.
EU may be foolish in some aspects, I agree there, but life quality as in actual daily levels of stress, happiness, quality of life, quality and costs of basic services that take care of weak (which one day you will inevitably become too) is stellar and parsecs better what people in same position in life can rely on ie in US. Or crime level. Or free decent education.
But we have freedom, you don't like a place then trivially move, if your skills are worth its salt. You can spend rest of your life in society that has different priorities and thrive there, if you can.
> It gets massive amounts of products and services enabling the US residents live well beyond their means.
What does this mean really? That is their means.
For a somewhat topical example, people of Australia get access to cheap medications (in part because they pay to subsidize the cost of them but also because) their government negotiates with pharmaceutical corporations to pay lower prices. This kind of negotiation would be completely out of reach of any private Australian person, but they are not living outside their means. Their means includes the means to elect governments to run the country for the benefit of its own people including doing things like securing lower prices for medications.
> China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers.
Until 1990, Kenya had a higher GDP per capia than China. It is absolutely not "imaginary". Work produces real value, just because you can represent or trade that for allegedly "imaginary" currency does not mean that the value created was imaginary.
> US is definitely not the victim here. There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes.
US manufacturing output is double that of China's on a per-capita basis.
> It makes sense to be worried for such an eventuality but US is definitely not being taken advantage here.
Seems like that's the popular assertion but I don't see much solid reasoning behind it in this thread (not picking on you specifically), just handwaving about how USD's status as a global currency somehow makes trade deficits inevitable despite simple facts available that US had a surplus trade balance 50 years ago, when the USD has been considered the global / reserve currency for over 60 years.
For other countries USD is something they have to work for or sell something to acquire it. If they screw up they may end up in crisis being unable to obtain USD. Borrowing in their own currency will be much more limited and borrowing in USD much more costly.
USA on the other hand can just print it out of thin air and because the global USD liquidity is huge they can do it for much longer without facing the consequences of it. USA is also borrowing in currency they can just print to pay their debts. Very advantageous position for USA and they took advantage of it, imported crazy amount of products and services otherwise they wouldn't have.
Thank you for elucidating the fact that US “borrows” in its own currency and so as long as we have monetary sovereignty (which we do to a great degree due to USD being the global reserve currency) we have no deficit problems (as long as we keep inflation in check).
I implore everyone reading this thread to read up on Modern Monetary Theory (MMT). Stephanie Kelton’s “The Deficit Myth” is a good place to start. Until more people have a better understanding for how the system works, they’ll continue to be confused and easily led astray by politicians who don’t have the best interests of most people in mind, but instead wish to rob us blind in a vain attempt to eliminate trade/budget deficits.
(Note: I’m very much for restoring domestic manufacturing as much as possible, including the use of highly targeted tariffs, industrial policy, R&D, workforce development, etc. but this is not what the current administration is doing,
not even close).
That's the trick though isn't it? MMT discourse tends to gloss over or ignore the dangers of runaway inflation and act as if you can borrow all you want with no consequence. But that part that you put in parentheses above is precisely why you can't do that. What you borrow for your budget has to be payed back later. If you just print money to do it because you borrowed more than you could afford then you inflate your currency. If inflation happens too quickly you have serious problems. It's not free money.
Taxes. Letting bubbles pop without bailing out the losers.
Both of those can be targeted in such a way as to deflate an inflated economy in a controlled way. The messaging is the hard part, as you're fighting against the emotions of a prideful workforce and the teeth-gnashing of the ambitious elite who see the stars as the literal limit. It is, however, possible to make sure everyone gets what they need to survive and even modestly thrive, while bringing the insanity of our current asset valuations and consumer prices back down to Earth, for a fraction of the cost of trying to keep the charade going indefinitely. You just have to throw rich people under the bus, instead of young and middle-aged workers whose purchasing power bleeds out every time we do yet another never-done-before thing to backstop failing banks and securities.
>That's a planned economy.
Man, do I have something to tell you about the FFR, porkbarrel spending, etc....
Taxes don't remove money from the supply unless the government is refusing to spend it. In which case that is just "reduce your budget and spend less" with extra steps. If you could do one you could do the other just as easily.
And letting bubbles pop isn't an MMT thing. It's bog-standard economic theory. The fact that politicians often don't do it has nothing to do with which theory they subscribe to. It's just cowardice on their part.
> In which case that is just "reduce your budget and spend less" with extra steps.
I'm pretty sure the extra steps are the point, in that I simply don't believe the MMT folks expect them to ever take place.
It's not a coincidence it's an American theory, from a country where it's politically almost impossible to raise taxes. Otherwise it would just be a roundabout way to raise taxes and pay for stuff in reverse order. But in fact it isn't "buy now pay later". It's "buy now YOLO LOL". But hey, maybe I'm missing something.
> MMT discourse tends to gloss over or ignore the dangers of runaway inflation and act as if you can borrow all you want with no consequence.
I see people say this a lot, which is odd since as far as I have seen it's one of the main points MMT people make. I'm not sure how one of the core insights of MMT has become the main criticism of it, it's kind of funny.
I suppose this is because some people have taken MMT to mean that debt doesn't matter, however that is really not at all what it says. I think a more reasonable conclusion of the system MMT describes is that how money is spent matters greatly (productive vs unproductive spending), the primary purpose of taxes is keeping inflation in-check, and real resources are critical to the health of a currency.
Exactly. The power of MMT is that it credibly explains what taxes actually are (not a source of government funding, but control rods for inflation and a constant source of domestic demand for the currency that helps maintain monetary sovereignty) and how to make sure spending is productive and not inflationary (e.g. through the currency issuer being the employer of last resort, etc.). You might not like it, but if you want to have a vaguely capitalistic system that has long term stability, you need to employ mechanisms like this.
I have not seen an explanation that makes the case for taxes as a good tool for controlling inflation. This is sort of what I mean by the discourse ignoring inflation. We already know what how inflation happens. MMT doesn't bring anything new to the table here.
> I have not seen an explanation that makes the case for taxes ... This is sort of what I mean by the discourse ignoring inflation.
I've not seen one that is properly based in reason either, most lines of thought in this vein typically use a strawman version of Say's law as the basis, following a deeply carved fallacy in economics from an early error of Keynes.
It really is bizarre that huge portions of economics nowadays sidestep the fact that individuals, groups, and countries, have finite amounts of credibility.
That it can be depleted and take well over an average lifetime to regain.
We don't have as problematic a deficit problem so long as reasonable sane people are running tr4e system and willing to turn on the printers when required so as not to generate excess inflation.
Many countries control their currency and can print money to pay debts, and can control their fiscal and monetary policies to best gain advantage for themselves. And they do.
US can do some things more, bigger, longer, etc., for various reasons. Just like Australia can do more, bigger, longer, etc., than Tonga. I don't really see anything profound being said here.
USA might be in some advantageous position now, and it might not always be in such a position, which is a pretty bland observation, but it also does not support the idea that they are living beyond their means today.
The reserve currency status makes all the difference on how much of all this you can do and under what conditions. That's the difference and that's why US had it so good for so long and now is due for such a large correction. Also, US is blessed with huge natural reserves, didn't actually waste it all on drugs and alcohol but did in fact created some of the best institutions in many areas so maybe it wouldn't be that bad if the politics don't make it bad.
It's not a reserve currency because the US decided it is, it's a reserve currency because everybody else decided it is. They decided that because they decided it was in their own best interest to trade in and maintain reserves of USD.
But whatever difference it makes is still just a matter of degrees. Countries keep reserves of and trade in currencies other than USD. Some get more benefit than others from this, and they all work to benefit from what advantage they can take from their own positions within their means to do so.
USD became the reserve currency in the Bretton Woods, when it was pegged to gold and major currencies were pegged to USD. This was pretty much demanded by US in the Bretton Woods conference.
In 1971 US unilaterally scrapped the Bretton Woods and essentially stole the gold reserves. Other countries protested heavily but could not really do much.
US then transitioned to the petrodollar system where demand for and value of the dollar is/was ensured by dollar monopoly in oil trade. This was done with deals with oil producing countries with varying levels of coercion.
Granted it is in a country's best interest not to piss off the world's largest military. Silver or lead is a decision too.
The gold reserves wasnt stolen - it is the US's gold that was acquired as a result of WW2. The revocation of the convertability of the US dollar to gold was suspended because it became impossible to honor it due to the increase in the amount of circulating dollars (what people generally call printing - it isn't "printed", it is debt created that produced more currency). And imho, while it seemed like other countries complained, i think this system allowed the world to move off the gold standard - a system which does not allow for flexibility.
And the idea that the US somehow enforces their dollar as being the reserve is moot - it is simply not true. Countries use the US dollar for trade because both sides of the trade believes that the other side cannot "cheat" using this currency, and implicitly believes that the US gov't won't "cheat" on behalf of one side either.
Unfortunately, this trust is being undermined from various sides, including the current US administration (and i have a hard time believing that the trump administration doesnt know this - it seems deliberate).
The situation was similar to there being a gold ETF that just decides to remove the gold peg and start diluting the shares. Whether that's essentially stealing or not is a matter of terminology IMHO.
US for sure didn't do it out of goodness of their hearts even if it led to arguably better monetary system. And US did get lopsided benefits out of it. Consistently recieving more goods than you give out is a huge benefit.
Is the USD due for a correction? I would agree the current policies do not help, however I have a hard time seeing any other currency actually replacing the dollar as the world's reserve currency.
If USD stops being global currency, there probably will not be just one that replaces it, but there will be several competing ones (USD still probably being there), for foreseeable future, with countries hedging bets.
When Aus print money they devalue the currency, spreading the cost over all Aus dollar holders.
When USA do the same, the non-USA dollar holders also take on the cost, same-same, excepting that is everyone around the World who trades in dollars. Which comes back to USA's military-industrial complex to some extent. It's like having the ability to steal a gram from every gold bar in the World.
It doesn't matter how much money you print if your debts are USD denominated. If for example Tonga has double their currency in circulation with a debt of Y USD tomorrow they will still owe Y USD and their currency will probably be worth half of what it was before.
In the case of the dollar if you suddenly double the supply it's not just the US national debt that is affected, it's all the secondary financial products indexed on dollar that are affected: debt from countries and private companies across the world, commodities and all transactions between countries not involving US that are dollar denominated. So in a way the value of a single dollar is diluted but it's diluted over a much bigger pool of participants.
That's the main reason printing money is cheaper to US as is reflected on the bond market, just look at supply vs inflation around the years following the global pandemic.
Living beyond their means is very relative. When credit is virtually free for years it makes sense to run 10x leveraged, the problem is when interest rate rises and you have to deleverage without showing too much that you don't have that much money as failing to do so could result in a death trap spiral.
>For other countries USD is something they have to work for or sell something to acquire it. If they screw up they may end up in crisis being unable to obtain USD.
Right on the mark. This is happening to my country and it's an existential threat to my country's continued existence tbqh.
> US manufacturing output is double that of China's on a per-capita basis.
Only on a dollar value basis. And that's heavily skewed on how an item's value is calculated. When you use $50 of parts (all made in China) to assemble a machine that you sold at $500 , $50 of GDP value is attributed to China while $450 of GDP value is attributed to the US. But who did more "manufacturing"?
What other system of value are you using here? Bottle caps? Nostalgia?
While the dollar remains the global reserve currency, this is just a wild theory of trade. If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie?
(they clearly already do this everywhere they can)
> What other system of value are you using here? Bottle caps? Nostalgia?
A common proxy is "metric tonnes of steel produced" and "metric tonnes of sulfuric acid produced". For China, these have been going up in-line with their GDP growth, whereas for USA they have flatlined since 1980 despite the increase in manufacturing dollar-value output.
And how do you compare metric tonnes of steel produced, with metric tonnes of plastic produced? What about metric tonnes (hours?) of entertainment on films?
The metric to measure value using quantity of goods must use a common denominator unit, otherwise, comparison becomes subjective (one might want to value tangible goods more than intangibles for example).
So making comparison using a price makes a lot of sense.
You, of course, can choose these as your units of value.
I think it is telling that the rest of the world (particularly the central banks of most countries) have instead chosen USD (well, more specifically US treasuries) as their preferred store of value.
You asked a question, they answered in good faith, and now you've dismissed their answer. I would also point out that you're dismissal is actually about a related, but separate issue - you've suddenly started talking about preferred store of value, when your original question was about how to value production.
I pointed out they were providing ridiculous answers to the question of "how do you measure value" and they doubled down on the ridiculous.
You are correct, there are many ways to measure value.
However, I don't think picking various commodities as the "true" measure of what is "valuable" is a useful exercise.
You may disagree. That's fine! I suggest you put your wisdom to use on the various markets that are set up for this purpose instead of arguing with me.
EDIT: they ultimately never reached my main point anyway, which is: regardless of if you measure value in tons of steel or crushed coconut shells, if China could easily obtain that value by assembling this stuff themselves, why export all the inputs to us instead?
> I don't think picking various commodities as the "true" measure of what is "valuable" is a useful exercise.
No one said that a commodity is a "true" measure of value. A commenter simply said that it is often a useful proxy. It is something that is useful to do to understand specific trade patterns.
> I suggest you put your wisdom to use on the various markets that are set up for this purpose instead of arguing with me.
I did not claim any wisdom on the subject. And I suspect you are deflecting attention from the fact that you are not arguing in good faith
> No one said that a commodity is a "true" measure of value. A commenter simply said that it is often a useful proxy. It is something that is useful to do to understand specific trade patterns.
Ok, if it helps replace "true measure" with "useful proxy". My argument remains the same.
Continue to accuse me of whatever you want, I still do not feel you are engaging with the substance of what I'm saying.
I feel like it’s pretty clear that chabska was saying that China does more manufacturing per capita, creates more stuff, whereas the US captures more value.
If a paralegal at a fancy law firm works 9 billable hours at $200/h, and a senior partner then spends one hour adding some finishing touches for which he bills $2000, the paralegal has likely produced more work, but the partner’s output is more valuable (and sometimes it might not even be that useful, maybe the paralegal could’ve done the whole thing himself, but the oversight is part of the package and that’s what a senior partner costs).
Which metric is more useful probably depends on what you’re trying to find out.
I didn't "choose" these, they are standard metrics used by industrial analysts. You know, the people who plan port expansions and cargo ship purchases, they need to deal with the actual tonnes of goods moved, not the dollar value of those goods.
> If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie?
If you pay attention, you'll notice that's what China is doing. For decades, China's GDP growth towered over the US's. Around 2015, China's GDP PPP overtook the US's.
Growth is trivial to achieve when you are starting from zero. My footnote very much alludes to this. This is incidentally what the US did to powers like Britain a century and a half ago.
I just find it amusing that in this theory of trade China has found a way to do all the work while the US does nothing and takes all the value. Perhaps all that extra money is not as easy to claim as the OP suggests.
Maybe economies are changing and purely physical goods are becoming less valuable...
That's kind of goes against the conventional wisdom, which largely feels true in my experience, that "the rich get richer". Countries are a bit different, but China looks poised to avoid the middle income trap up to a point, and even if they don't, their "middle income" is a lot more likely to fall somewhere near the Japanese levels, which would make the Chinese economy massively bigger than the US one, by 2050.
China's GDP is the second largest in the world, and is around two thirds of US's. China's economy is growing continuously over 5% whereas the US already discussed facing a recession.
In some metrics, such as PPP GDP, China already towers over the US.
I think you're trying ver hard to diminish the second largest economy of the world at a moment where it's expected to be a few years until it's the single largest.
China’s GDP growth is great but they will face a huge pain now that they face an unsustainable population decline. They have more people aged over 52 than younger. I empathize with their youth.
You are claiming that the median age in China is 52 or did I read this wrong? That would be beyond fake news level of statement (for my reading of the meaning)
The current median age of China is about 40, which is not great for their context, but a world apart from 52.
China is automating at an impressive rate. Isn’t automation easier to face with population decline than with population increase? I’d imagine young people mind getting replaced by machines more than old people.
I mean, of course they are. If you have a population increase you have plenty of young people who will complain that automation is taking their jobs. But with a population decrease you eventually end up with just old people and not enough working people to sweep the streets or wash cars or whatever - so automation is welcome because it doesn't "steal" jobs.
I do not think that labor sentiment has a strong impact on whether or not jobs are automated away. Go watch an old movie from the 40’s or 50’s that features a hotel. The number of small, niche jobs that existed are surprisingly numerous by modern standards: porters, elevator operators, switchboard attendants, and so on. Busy places employing a lot of people. This was undoubtably true across industries, and we have automated away almost all those jobs one way or another without much fanfare. Sure - someone might have complained in the moment, but it’s death by a thousand cuts.
This sort of automation along with consolidation has been the death of small cities and towns in the US.
It's basically what's mostly killed my own small town.
My hometown, with a fairly consistent population of about 300 people, used to have a restaurant, bowling alley, full-service station, hardware store, bar, and grocery store. In my childhood, the restaurant, grocery store, and hardware store were still around. They died. And they died partially because gas got cheap and partly because goods producers increasingly jacked up their prices to small suppliers because they didn't want to deal with them. It was simply more lucrative and easier to see 1000 units to walmart than 10 to "Small town USA grocer". Near the EOL of the grocer, they'd literally buy their good from walmart because they couldn't get them anywhere else. The cheap gas led to people from my town traveling to nearby larger towns and cities to find cheaper goods.
The restaurant went out of business because it depended heavily on the prices of the local grocer. Towards the end, you'd literally call ahead the owner so they could open the doors and start cooking for you.
I can't say what the solution to all this is. The market is simply busted for small time business owners who want to move any sort of physical good. That has had knock on effects nationwide that haven't been positive, particularly for rural america.
I come from (and still leave near) a similar-sized town, and it went through the same process. And my dad remembers when it had even more businesses than I can remember, with movie theaters and the like.
It's actually gotten a little better in the last decade, I think because people got some hope again that jobs might come back, and because remote work meant fewer people were driving to the bigger town down the road every day, so there became more of a market in the small town for things like a grocery store or Dollar General-type store again. There are also more home-based businesses, started by people who work full- or part-time remotely and put their spare time into starting a local business.
But in the 90s/2000s, it was nothing more than a bedroom community for the town 20 miles away, which was sad. It's still nothing like it once was, but at least there are some signs of life now.
By population decline we mean a depopulation scenario, when the birth rate falls, the number of young people decreases, while the proportion of elderly people increases?
Automation can create a dynamically changing labor market. Today you had a job, tomorrow it is automated, you need to find another job, learn new skills required for it, and all of this.
Not a problem for the young (especially since automation increases the general standard of living, so young people will often find that their new job pays better).
But older people find it more difficult to adapt, learn new skills and find their place in a changed world.
And then there is career growth. Imagine an elderly gentleman who has spent 30 years building a career, accumulating valuable experience, and is USED to receiving a huge salary for his qualifications... And he is told that he has been replaced by a video card, his skills are now worth nothing on the market, and in the job available to him he will now be paid the same as a snotty 20-year-old yesterday's schoolboy. Do you think this won't become a point of social tension in a situation where there aren't many young workers?
There is also a solidarity pension system, which creates a greater burden on workers the smaller the proportion of young people and the greater the proportion of old people.
And in the scenario of a population decline with a simultaneous increase in living standards - this will create enormous social tension, when the shrinking working class will ask itself: why should we give more and more of the money we earned with our sweat and blood to old people who were unable to save for their old age when were younger?
Even if no one voices this as an official slogan, it will still be implied in political decisions and will boil down to at least the fact that old people will be denied an increase in their standard of living ("because we are already giving them more and more, but look at what a terrible world they left us, and now they want to live in luxury at the expense of our sweat and blood?").
But with the aging of the population, the proportion of old people will increase very much, and, if we are talking about democratic regimes, their political influence will be increased.
And the situation, when we have a confrontation between a shrinking productive minority and people who do not produce anything, but have power over them and live at their expense - can end badly. It will definitely end badly. Like, really badly
The good thing about being authoritarian is that you can easily solve the births issue. The same way there was one child policy, there could be 3 or 4 with penalties for non compliance.
Highly unlikely CCP would pursue coercive birth policy, or even could do it if it wanted. CCP is extremely powerful but it still has to rely on the consent of the governed. It has to frequently roll back policies due to public outcry.
Current birth rate increase policies in China are based mostly on rewarding for births and subsidizing parenting costs.
PPP on its own is a relatively poor metric and only covers a subset of the economy.
Then when you have semi closed economy like Russia with unclear currency rates (due to external capital inflow/outflow barriers) and convert the figures to USD you can end up with all sorts of wacky numbers
They do. If you just scroll the ubiquitous online market, that doesn't need to be named, and look for odd brand names. Intentionally odd. Like "sxrpgh" as the brand as a made up placeholder. These brands are named to quickly start a business.
Why? It's an aliexpress model. Create as many legal entities as you can and let an economic Darwinism kill the ones you do poorly at and cherry pick your successful businesses.
The actual labor is outsourced to the market itself with products produced in southeast Asia by a wholesaler, sent to the market by said contracted wholesaler, and sales handled by the market's fairly much only retailer. It's so automated you really only have to be lucky that consumers pick your product and luck can be bent to will at times.
It's a very botnet approach to business.
This does expand the approach from flooding the market with cheap goods, to making cheap goods and competing with prices from the middlemen, making less efforted profits using the same approach, but exports the profits out of the US economy. I know this is a unusual framing but that's exactly what is happening.
Before a middleman within the economy would extract the wealth from that labor in this way. Why not cut out the middleman if the formula can be followed by anyone?
And in the current belligerent state of trade it would politically expedient to do so or at the very least encourage this model if you are adversarial to the US because it works well. Our businesses already proved that.
China's GDP (PPP) is already ~22% higher than the USA's [1]. Arguably, isn't this a better measure of value? PPP measures the real value to the citizens in a nation, and more closely measures actual economic activity.
Say a bottle of wine costs $20 in the USA, and in total one bottle is produced and sold for a total of $20 GDP. France makes 10 bottles at $2 each, for a similar GDP of $20. It's cool that the USA manages to "extract more value" from its smaller wine production, but at the end of the day, France has the stronger economy.
There's more wine to go around, more resilience to the loss of a bottle, arguably this higher production means more export capacity, more employment, more generation of wine expertise, supply chains, etc.
The nominal GDPs might be the same, but the GDP (PPP) of France in this case would be $200 to the USA's $20.
> China's GDP (PPP) is already ~22% higher than the USA's [1]. Arguably, isn't this a better measure of value? PPP measures the real value to the citizens in a nation, and more closely measures actual economic activity.
Only if the only things you purchase are exclusively domestic. Turns out, the vast majority of Chinese citizens with any means are interested in foreign products (like most people in the world).
> Only if the only things you purchase are exclusively domestic. Turns out, the vast majority of Chinese citizens with any means are interested in foreign products (like most people in the world).
Are they, though? China has its own huge software stacks, cloud providers, car manufacturers, etc? Is China really starving for anything not made in China, except for luxury goods? To which, I would point at Lexus (the archetypal example from Japan, a comparable country) and say that if you're a luxury good manufacturer in the Western world, I would not rest on my laurels, it's just a matter of time: either by development or acquisition, China will be making its own luxury goods and even exporting them, soon.
If China embraces capitalism more tightly that will be a good thing for the world. The problem with China is not its wonderful people or culture, nor its prosperity, the glaring problem with China is Communism and the morality of authoritarian style central planning and the Xi/Putin axis of evil.
I’d argue. The CCP isn’t ideologically opposed to democracy but rather capitalism. Capitalism is an inherent feature of democracy. They despise capitalism (the Communist Party) even though they will play the long march and use it to subvert and destroy non-Communist ways of life.
> Turns out, the vast majority of Chinese citizens with any means are interested in foreign products (like most people in the world).
Is there data that backs up this claim? Is this broadly the case? Cause I do know that local brands have been taking over foreign brands recently. Take for example Apple— sales in China plunged 50%, and reports are pointing at Huawei [1], which amongst other things has been making some impressive high-end phones. Tesla is falling to Chinese brands too [2].
Moreover, foreign brand != foreign product. Tesla manufactures in China, as does Apple, Louis Vuitton, etc.
But regardless of specific examples, I'd imagine the vast majority of consumption in China isn't products of foreign origin given its massive trade surplus [3] and just how much of what it imports are materials, rather than finished consumer goods [4].
> Moreover, foreign brand != foreign product. Tesla manufactures in China, as does Apple, Louis Vuitton, etc.
This has nothing to do with PPP, and the fact that you are making this argument means you have no idea what it consists of at all.
If Chinese citizens purchase those products, they don't get them at an adjusted price because they are manufactured in China. They pay the same base price as worldwide, else they buy them secondhand (or, more frequently, bootleg).
Your questions reinforce, rather than dismiss, why PPP is a useless metric outside of base domestic purchase economics (primarily rent and food).
That bottle of wine is going to be at least 400 RMB in China, so I’m not sure how PPP can be argued here. You would need to focus on things that are less expensive in China than the UsA (services mostly, low end goods and food), but things get more expensive quickly if you go for something nice outside of a restaurant. PPP is oddly calculated given that services in china’s case are mostly what is driving its higher value, and that simply means people are paid less (and increasingly they aren’t, which means PPP will shrink closer to GDP unless their automation investments really pay off).
The he issue with this is the dependency direction, if the supplier learns to do the assembly then they don’t need US anymore and can sell the same thing for a fraction of the price.
Or if you go to war then all those base manufacturing can be used to manufacture for military
> If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie?
As someone else pointed out, they do, under various odd brand names.
You make what seems like an obvious point. However, The iPhone is assembled in China for the ballpark cost you mention, and sells for double the $450 price you mention... so they must have reasons to not take the whole pie.
The IP is important. Not only did you use $50 in parts, but the design, software, and marketing were done in the states. One critical flaw in MAGA thinking is that these inputs are worthless: the full value of an iPhone comes from China because that’s where it was assembled even if most of the value was actually added in the USA. China wants to be on the other side of the value chain as well and really don’t mind swapping places with the US (and it looks like that will happen long term now due to Trumpism).
The value of the American "IP" consists more in the might of the US government than in the actual value of that "IP".
A few years ago, Huawei was in a clear path of becoming the biggest producer of smartphones in the world, with smartphones that by now were based on their own IP, including CPUs and modems, even if Huawei had started 20 years ago by buying smartphone IP from companies like Siemens (which had been reckless enough to sell it). At that time, the latest Huawei designs were superior in performance to those of Qualcomm and superior in performance per dollar to those of Apple.
The result was that the US government has started a campaign of sabotage against Huawei, because they did not like the result of a "free market".
A couple of years later everything has repeated when there was the danger that Chinese manufacturers of flash memories will overcome Micron.
So the percentage that American "IP" takes in the products of other countries is only maintained by quasi-military actions of the US government, which treats any commercial rivals as enemies against which any sanctions are justified.
China is definitely getting there, no doubt. They won't be a place where assembly just happens anymore, it will be more like robots assemble things and people mostly focus on IP/software/etc...
The fairness of the competition between American and China in IP, I'm sure if you are heavy on one side or the other its obvious, but to me it seems like there is truth in China stealing secrets and there is truth in America using quasi-military actions to protect what is basically a monopoly on a segment of high-value goods. But whatever you think, what Trump is doing now ultimately benefits China and hurts America in the short and long term.
I have no doubt that China has stolen IP whenever they had a chance.
For example, Huawei was famous for draconic rules imposed to its employees in order to ensure that they could not take out any information from their computers and also that no information could be accessed by any visitor or by anyone outside working hours.
Presumably they were very careful with this because that is how they would have attempted to exploit a competitor.
Nevertheless, the many Americans who still believe that the Chinese success is based on stolen IP are completely delusional.
China has bought most of the IP with which they have started developments and not stolen it. Reckless companies from USA and EU have sold all that IP. Talking about "stealing" is just a tactic used to obscure who are the culprits, who have obtained nice financial gains from selling IP to China.
Moreover, in recent years China no longer has much to steal from USA, more the opposite becomes true.
If I look at recent research papers, even if there are also many published Chinese papers that are garbage, there also many that are very innovative, and such innovative Chinese research papers have become much more numerous than the innovative research papers coming from USA. The reason appears to be that the Chinese seem now willing to assume more risks, in searching paths that are uncertain to lead to useful results, while the research in USA seems to have become more conservative, striving to obtain immediate and guaranteed results, which however may not be able to exit a local optimal point in the space of solutions.
I assume that as research financing becomes more difficult, the research in USA will become even more conservative, diminishing its chances to compete successfully in innovations with China.
> And that's heavily skewed on how an item's value is calculated.
An item's value is calculated according to what it is bought and sold for. That's how value is determined. What would you rather it "skew" towards?
> When you use $50 of parts (all made in China) to assemble a machine that you sold at $500 , $50 of GDP value is attributed to China while $450 of GDP value is attributed to the US. But who did more "manufacturing"?
If an American company can design and develop and sell a product that requires $50 of parts and people are willing to pay $500 for it, then clearly that company created an enormous amount of value, didn't it? By definition almost. Manufacturing output or value is not a function of the number of beads of sweat or drops of blood or hours in a factory to make something. It is how much value (i.e., what others are willing to pay for) the things you create.
I suspect in many cases, the "value add" an American firm provides is an intangible.
In the pre-tariff omnishambles world, I could buy a more or less equivalent widget for $18 branded with a recognizable American brand, for $12 as a KWJIBO non-brand delivered from Amazon, or for $6 more-or-less manufacturer direct from AliExpress.
Amazon added $6 of value by saying "I can get it to you in a timely manner and offer a confidence-reinforcing return policy."
The American brand added another $6 of value for "this can probably be sourced consistently and people won't look at you weird trying to get it Shenzhen Tchang Zu Shrimp Cannery And Electrolytic Capacitor Plant #5 onto the approved vendor list."
They didn't actually improve the widget itself, just logistics around it. That means their value-add is extremely tenuous, and has a limited moat.
The fact remains that the data we have says the value of US manufacturing is about 50% of that of China. You have your own perceptions of value of course, but that's not how value is actually calculated. The same as people who perceive China's manufacturing to be worthless because they produce cheap flimsy junk is also not an indication of any reality other than their own.
> then clearly that company created an enormous amount of value
No, it is more like these companies monopolized access to the high income market and exploited this inefficiency. It is similar to buying a stock for $10 then increasing the bid ask spread to sell it for $100.
> No, it is more like these companies monopolized access to the high income market and exploited this inefficiency. It is similar to buying a stock for $10 then increasing the bid ask spread to sell it for $100.
Okay so we have this scenario you constructed where the Chinese company produced great value without engaging in any IP theft or unbalanced terms of trade or currency manipulation and the American company simply took that and gouged prices with anticompetitive practices. What exactly is your question? The hypothetical American company in your example did not create value, by definition. I don't see how that's particularly useful though.
This applies to a very specific type of constrained market, and does not generalize in this manner, making your example trivial to argue against, and then confuse readers.
If access was monopolized, then no competition would exist. Competition very much exists, and has resulted in a massive amounts of growth and improvement globally.
The main reason why the American company can do this is because we have borders that allow said company to move goods across them, but prevent the cheap Chinese labor from moving to US. If not for the latter, US would be mostly speaking Mandarin by now and things would be a lot cheaper (and salaries would be a lot lower).
> > It gets massive amounts of products and services enabling the US residents live well beyond their means.
> What does this mean really? That is their means.
The argument presented here is that economic growth (more specifically trade volume increase) outside USofA forces USD acquisition transactions with USofA. This means that there is constant surplus of goods flowing into USofA without accompanying surplus of circulating money supply, leading to artificial deflation.
In other words, the cumulative productivity, measured in USD, of USofA is lower than cumulative outside-USofA-fair-market value of goods transacted in USofA. This effect increases gross value on supply side without balancing out gross value on demand side, allowing domestic players larger transaction volumes than their total productivity, with deficit covered by the central bank.
> US manufacturing output is double that of China's on a per-capita basis.
If you're going around quoting those figures, you should be aware they're kinda sketchy.
Headline manufacturing output figures measure "real" output, rather than $ of output, as the latter would just be a graph of inflation and exchange rate. And when measuring "real" output, if a factory making 1TB SSDs switches to producing 2TB SSDs it has increased its output, despite the fact they're shipping the same number of boxes as they were yesterday.
Sure, the numbers say real output per worker has risen a lot since 1980. But most of the "rising efficiency" comes from the folks making 33MHz 1-core CPUs now making 5GHz 24-core CPUs. Cut out that sector and you'll discover why the US has an entire region known as the "rust belt".
> What does this mean really? That is their means.
It means Americans are providing mainly a financial service, by managing the dollar. The value of their currency therefore doesn’t accrue from a real economy, which, by definition, only includes consumer goods and services.
Even if we take what you wrote as fact, that does not answer how it is living beyond their means if their means includes "providing mainly a financial service, by managing the dollar".
If you're spending $1.9 trillion per year more than you're earning (projected for 2025), accumulating debt, I think it's fair to say you're living well beyond your means.
We're talking about $5600 per inhabitant per year.
I didn't say Americans aren't living beyond their means. Just that on the face of it they aren't living beyond their means due to their currency's status if that status gives them some means to buy more. OP just didn't really provide a rationale as to why it's this currency issue in particular that you can point to to say Americans are living beyond their means.
Lots of countries have a lot of debt, many are in similar boats or worse as USA when you look at various metrics like debt per capita, per gdp, etc. Politicians and their "experts" and economists etc generally insist this is perfectly fine. I also get the feeling they're probably lying about that and many other things, though I don't know enough about the subject to actually know myself.
I'm not asking what it's called, I'm asking why that's claimed to be out of their means when it quite clearly is within their means to have this exorbitant privilege, as evidenced by the fact that they have exorbitant privilege.
No, the meaning of the phrase "living beyond one's means" doesn't go to the unavoidable fact that circumstances change over time. I will one day become infirm and unable to earn money, that does not mean I'm currently living beyond my means.
US dollars might one day cease to be the global reserve currency in which case Americans will not see such benefits associated with that. This is a true statement. That doesn't mean they are currently living beyond their means either though.
> I will one day become infirm and unable to earn money, that does not mean I'm currently living beyond my means.
That is not the same thing because it's real productivity, labor is the only thing in the world that has any real value. You're exchanging your own labor for other people's labor. The US is exchanging something that has no inherent value (USD) for other people's labor.
If I take on all the debt that I can, max out my credit cards, mortgage my house, and spend everything I have on luxuries, am I living beyond my means, or am I living within my means as evidenced by the fact that I'm actually doing it?
The rest of the world was and remains very happy to play this game, because it reduces the amount of trouble people have when exchanging currencies.
It gives advantages to America, sure. But America recognized that there were consequences.
Today, 1/3rd of the American electorate is insulated from reality, and its politics are free to downplay, or ignore consequences, if not just blame them on the opposition.
No one has an answer to a broken market of information. In the end, reality will have its due.
> What does this mean really? That is their means.
Kind of, yes. Also if you take away other's people assets by force you can say you live by your means because you produce violence.
That's a matter of terminology, the real thing to be considered is the sustainability of this system.
If this setup can be sustained perpetually then yes, it's sort of within your means. If gradually deplete some reserves (gold or trust or domestic stability due to rising inequality) then it can be argued that you live beyond your means.
> just handwaving about how USD's status as a global currency somehow makes trade deficits inevitable despite simple facts available that US had a surplus trade balance 50 years ago, when the USD has been considered the global / reserve currency for over 60 years.
US has had two trade surplus years since the USD essentially replaced gold as the reserve asset: 1973 and 1975. The reserve currency status is the primary reason for the practically constant deficit. During the Bretton Woods era US ran consistent surplus.
> Seems like that's the popular assertion but I don't see much solid reasoning behind it in this thread (not picking on you specifically), just handwaving about how USD's status as a global currency somehow makes trade deficits inevitable despite simple facts available that US had a surplus trade balance 50 years ago, when the USD has been considered the global / reserve currency for over 60 years.
Prior to 1971 the Dollar was tied to Gold and exchange rates were fixed by agreement.
> What does this mean really? That is their means.
The "means" is being able to print trillions of imaginary dollars with value that magically pops into existence, merely backed by the fact that other nations do not want USD to lose value because they invest in it.
US did not care about trade deficits because they were able to just print dollars without having dollar itself devalued, which is what happens if any other nation decides to print currency without having a way to back its value. Because the US status as global hegemony is getting challenged, these trade deficits may become an issue. But trade deficits were not an issue until now (and they still are not as long as they can keep printing dollars without hyperinflation happening).
>There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes.
I think the risk is greater than that. A concern is not just a regression to the mean, but indebtedness and the future having to pay up for the spending of the past.
I think a different analogy would be a joint credit card where someone can run up the bill and then die. Like national debt, you can always default, but it will be the survivor that takes the hit, not the dead person that spent their life in luxury.
The trade deficit isn't necessarily a problem, but national debt is. It would be one thing if this money was being invested in growth, but it largely isn't. Most of it funds non-growth consumption.
This is largely a self-made internal problem around governmental prioritization and balancing revenue with expenditure. That isn't to say other countries don't also benefit.
The US is trading future prosperity for consumption today. Investing countries are trading consumption today for future prosperity.
> but indebtedness and the future having to pay up for the spending of the past
The debt is denominated USD, the US mint could hypothetically print a trillion dollar note and settle the debts. Doing so would wreck trust in the existing system - so it's not just about the debt, but people tend to gloss over how much control the US has over the debt, so the indebtedness (in USD) is a relatively small factor overall.
> Doing so would wreck trust in the existing system
It would cause immediate hyperinflation. Those notes would go to bondholders who would use it to buy things because holding billions in cash printed by a defaulter isn’t anyone’s cup of tea. So anyone willing to take even absurd amounts of dollars for non-dollar assets is offered absurd amounts. Which means those who didn’t get the helicopter drop find their currency, savings and wages worthless in real terms.
As suspected, “the Fed held an auction for US Bonds and no one showed up, so the Fed bought it all” is crap. The Treasury held an auction. It was weak but didn’t fail. The Fed, as required by law, did not participate in the auction.
While there are similarities, I think it's still very different. Default by itself doesn't make the debt disappear, you just stop serving it for a while. Then you may negotiate some cuts with creditors in exchange for a promise to repay the rest but there's no way they just forgive 100% of it, this makes no economic sense. If you want to get out of the debt completely you need not only a default but bankruptcy and dissolution which is rather painful at the state level. An example would be the Russian revolution and civil war where among other things the Bolsheviks refused to recognize tsar's debts claiming it's a new state now.
The US has done this before, more than a few times. In fact, de-globalisation can be traced directly to the GFC, where the US did indeed print billions to bail out US banks and auto, then getting Japan and China to step up and buy UST to recapitalise the economy. PBoC in 2013 said 'no more' and launched BRI
Do you understand what $100T printed overnight would cause to the economy? The price of everything starting from assets would skyrocket and in a few months we could be living in hyper inflation.
Yes, but it's a temporary turbulence that lasts for a few years, then you can rebound. The debt on the other hand can last for decades taxing the economy more and more. If the cost of servicing the debt crosses a certain threshold there can be no rebound, not without a default.
Effectively when printing money you reset both the debt and the savings. If your debt is much bigger than savings it becomes a good deal.
The US economy still hasn't "rebounded" from the effects of the 2008 recession, forget COVID, even after the bailouts and the offloading of the US debt onto Europe, Japan and China, even though that was in the order of single digit trillions. I don't know where people get the idea that adding a hundred trillion more is where you can cure the deficit. Especially when this time around, you're not going to have EU, China and Japan to baghold for you.
> when printing money you reset both the debt and the savings. If your debt is much bigger than savings it becomes a good deal.
Huh how? When printing money, you make your ability to pay further down the line even more tenuous. I don't know how people can't see the obvious parallels between money-printing and currency-debasing of the Roman times (which led to the economic downfall of that empire).
The only way to cure a deficit while retaining your trustworthiness is to pay it down one way or another.That requires intense taxation for a few years on the rich and corporations alike, and using those proceeds to pay it off. And if possible, to loot someone's gold reserves or something, although that would destroy your trustworthiness on all other fronts and equate you to Nazi Germany.
> The US economy still hasn't "rebounded" from the effects of the 2008 recession
This is a true statement lost on many people who don't remember. The chickens coming home to roost are not from the actions taken during COVID but from the 2008/9 bailout. That's when the whole ZIRP regime started and ran for over a decade. COVID added fuel to that fire but, really, the 2008/9 bailout "kick the can down the road" policy is to blame. We're back to the can and out of road to kick it down.
>.That requires intense taxation for a few years on the rich and corporations alike, and using those proceeds to pay it off.
This is your bias and preference seeping in. Simply put, you need to balance your budget.
The US already has some of the highest corporate taxes in the world. Most countries don't rely on them, and instead focus on the individual pass through profits. most European democracies tax the middle class much more heavily through value-added taxes.
There are so many loopholes in the current tax system. And I say this as someone who benefits massively from the status quo. But like I said, where else can the govt get the cash to "balance the budget"?
And again, European democracies aren't the ideal here when we're talking about balancing the books. Look to the American 1950s and the Clinton Era for better role models.
Nobody can stop the US, they just stop lending under favorable terms, like Argentina.
Nobody wants to make loans to Argentina (or within Argentina) payable in the Argentine Peso. This is the punishment.
The punishment of being credit unworthy is an inability to use credit markets.
This means businesses struggle and the government has its hands tied in dealing with economic crises.
Argentina can't use economic stimulus to correct economic recessions. There is no deep demand for the Argentine peso, so stimulus leads to more inflation rather than increased economic activity
These all seem like side effects of the global reserve currency status. You can't balance the budget until that is given up. Giving up that status would be very painful, so given the choice of pain now or pain later, the current situation seems reasonable to me.
I disagree, it is a consequence of debt outpacing growth.
The key characteristics of a reserve currency are stability and liquidity. If you have these, you don't even need to pay interest.
With properly managed that, being the reserve currency is a win on all fronts. You get to run a deficit because people are happy to trade real products for your paper. People are also willing to loan your paper back to you at more favorable rates. The only downside is if you get drunk and outspend even the inflated demand for your currency. The smart move is to rain in deficit spending if you can't get favorable lending rates.
Blowing up reserve status doesn't help this problem. Then you just have to pay higher and higher interest rates because no one wants your paper anymore
Maybe I'm missing something, but the budget deficit and trade deficit are two separate issues. We can have a budget surplus (as we had under the Clinton administration) while still having a trade deficit.
They are separate but closely connected. Something has to cross the border in the opposite direction. Could be corporate stocks or bonds, could be government bonds.
You can see export of government bonds as the last line of defense where the economy failed to produce enough of other instruments to cover the imbalance.
My understanding is that other countries who end up with those dollars from our trade deficit tend to invest those dollars in US financial institutions: treasuries being one form, but also US stocks and corporate bonds and so on. So the deficit indirectly helps anyone with a 401K, and also allows the government to keep borrowing money.
But the trade deficit is mostly a private sector thing. It doesn't stop the government from raising taxes and cutting spending to achieve a budget surplus and eventually paying down the debt.
> China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers
That's more a function of subsidizes instead of foreign preference for USD.
Chinese median household incomes (Yuan 34,000 or around $4,700) are much too low to spend on most goods at scale [0], and most of the money that could be spent on expanding the social safety net (and thus incentivizing Chinese consumers to spend instead of save) is spent on industrial subsidizes like tax holidays, a regressive income tax system comparable to the US, and subsidizing various redundant but provincially influential SOEs that can't compete with domestic private sector players (eg. traditional Chinese automotive players like SAIC and Chery versus BYD), and this is reflected in Chinese spending data as well as StatsChina's breakdown of spending by urban and rural Chinese [0].
You are going to be dependent on foreign exports if your domestic consumers can only spend around Yuan 4000/$550 a year on transportation and telecom combined. Even factoring for PPP, it is difficult as these metrics are low in comparison to peer countries from a developmental standpoint.
A lot of the "overproduction" that has made Chinese goods globally dominant is a result of that misalignment between consumers and production.
Expanding the social safety net in China would dramatically enhance Chinese competitiveness over the long term, but top level leadership remains explicitly opposed to what they call "Welfarism" [1]:
"In countries that use a welfare model, the middle class is collapsing, the rich and the poor are polarizing, society is torn apart, and populism is rising. This is a warning - Prevent yourself from falling into the trap of "welfarism" to support lazy people"
China definitely has industrial policy supporting its manufacturing, but the wages argument is begging the question. The USD, as the global reserve currency, is over-valued; if an alternative system were used (eg. the Bancor) and the Yuan allowed to float, then those 34,000 Yuan would buy a lot more and the median US wage would buy less.
Hypothetically yes, but the lack of social safety net means most of that hypothetical purchasing power expansion in China is moot.
China has a medical debt problem [0], education pricing problem [1], and private sector capital crunch [2] similar to that of the US. This makes it much more difficult for the median household to spend in China because there is an incentive to keep saving.
In isolation an $8,000 EV looks cheap to us earning a salary in the West, but that is still 1.7x the median household income (so half of all Chinese households have even less money to spend). For half of Chinese households, that's the equivalent of your median American household purchasing a Maserati. And healthcare costs can reach the $8k-15k price point in China for critical operations.
The reality is, the median Chinese household is significantly underpaid compared to their peers in Thailand [3] or Malaysia [4] - either incomes have to rise to allow Chinese consumers to consume as well as cover health+education spending, or the central and provincial governments will have to dramatically expand social services in order to cover rising costs.
The Chinese consumer cannot replace the American consumer without an expanded social safety net giving some breathing room to spend instead of saving.
What I mean is that if the CNY properly appreciates relative to the US dollar, that CNY60k ($8,000) EV becomes a CNY60k ($16,000) EV. The median Chinese wage goes from CNY 34k ($5,000) to CNY 34k ($10,000). Meanwhile imports of agricultural products and other things into China becomes cheaper, and the cost of food gets lower.
Most expenses an average Chinese worker pays might be unaffected given how self-reliant China is, but in theory at least the wage gap between Chinese and US workers would close significantly this way, even if the gap in living standards do not.
> Meanwhile imports of agricultural products and other things into China becomes cheaper, and the cost of food gets lower
Food costs are already dropping in China [0]. That is not what is dampening Chinese spending.
> if the CNY properly appreciates relative to the US dollar, that CNY60k ($8,000) EV becomes a CNY 60k ($16,000) EV. The median Chinese wage goes from CNY 34k ($5,000) to CNY 34k ($10,000).
But a critical surgery will still cost $8k-16k nominal (or $16-32k using your purchasing power multiplier) and education spending by households is rising in nominal, and that is what is dampening consumer spending in the middle and lower quartile.
> Most expenses an average Chinese worker pays might be unaffected given how self-reliant China is, but in theory at least the wage gap between Chinese and US workers would close significantly this way
But the products which a median American consumer purchases doesn't directly overlap with that which the median Chinese consumer purchases (and vice versa). So it's a moot comparison.
Because your point is that the wage gap between the US and Chinese household would close significantly - yet it does not.
Even with those multipliers, the wage gap between your median Thai and Malaysian household and your median Chinese household is significant, let alone with an American household.
The wage gap cannot be solved until there is a serious expansion in China's social safety net if China wishes to continue to use a production driven growth model.
This is what Japan, Germany, the US before Reagan, South Korea, and much of Eastern Europe did when they reached similar developmental precipices to China today.
China can see a significant jump in living standards similar to that which Poland saw over the past 15-20 years if the social safety net is expanded.
China has been one of the most significant economic growth stories in modern history, but the policies used to grow from 1980-2019 are differnet from those that China needs from 2020-2060
China is now in the same developmental band as Thailand, Malaysia, Mexico, Brazil, etc. And if China does not wish to get stuck in the middle income trap, holistic growth across all income strata is needed - not the current k-shaped economy that has developed.
And this is a fairly mainstream position in Chinese economic academia as well, but policymakers are stuck between a rock and a hard place.
That's just another strain of the doomsday economics that has been applied to China at least since 2005. Yet, the Chinese economy and its government have proven to be able to overcome all these supposed huge obstacles that would stop the Chinese growth at any moment... So I urge you to rethink your theories based on reality of what the Chinese people are capable of doing.
Thai workers are not paid in the global reserve currency, so that is irrelevant. The wage gap will shrink because USD will come down relative to CNY. I make no argument that Chinese wages will increase in CNY, nor that the gap will close all the way to zero.
My point is a reserve currency doesn't help the median Chinese in any shape or form, nor does the USD being a reserve currency help the median American.
There are benefits to being a reserve currency at the macro-scale, but they are not felt by the vast majority of households, and any attempts at making the CNY a competitive reserve currency would require dramatically reducing currency controls along with increasing the independence of the PBOC from political leadership, and leave the lower tier of Chinese workers open to job loss and outsourcing [0][1][2][3] as low-to-medium complexity industries remain the primary employment generator in Chinese manufacturing.
This is the exact same thing that happened to Thai, Malaysian, and Mexican manufacturing workers during the 2000s when they hit plateaus similar to China today.
Finally, the US's dominant position is the cause of the USD as a reserve currency, not the other way around [4]. Having a reserve currency is orthogonal to having great power status, as can be seen with the rise of China.
A rising tide lifts all ships - the China story will stagnate if a serious effort at helping the bottom half of Chinese does not develop.
None of what I said detracts from China's success in eradicating extreme poverty.
That said, the majority of Chinese households are still significantly less well off than their peers in other upper middle income countries as stats have shown multiple times.
I don't see why anyone would be so virulently opposed to moving some industrial subsidy spend to expanding healthcare, revamping the current insurance system, providing better quality schools to reduce the cost burden lower tier Chinese households have when spending on education, increasing rural retirement pensions, reforming Chinese income taxes to be less regressive, etc.
Raising household disposable incomes by $2000 a year would help increase GDP growth from 4% to 5% (back of the napkin math) - and that too in a sustainable manner. And this is something that is fairly doable by expanding social services and welfare accessibility. This would also solve much of the overproduction problem that has lead to trade wars globally.
> I don't see why anyone would be so virulently opposed to moving some industrial subsidy spend to expanding healthcare...
This is because many media outlets, whether intentionally or unintentionally, promote the 'China collapse theory,' making it difficult to draw reliable conclusions from curated information.
Take the FT article you cited earlier as an example. As someone living in China with parents who have chronic illnesses, let me describe what healthcare is actually like here:
My father and grandfather both have diabetes. They use NovoRapid insulin at about 40 RMB(6 USD) per pen, requiring 1-2 pens monthly (totaling 100 RMB, 14 USD). Domestic Chinese brands cost roughly half that price.
My mother and I have hyperlipidemia. Lipitor costs about 70 RMB(10 USD) monthly, while domestic alternatives cost around 10 RMB (2 USD).
China's healthcare system features centralized procurement policies where the government negotiates directly with pharmaceutical companies. To have your products included in the insurance formulary and reach more patients, manufacturers must reduce prices.
While this system has some issues (which we could discuss later), nearly all medications—including imported ones—are significantly cheaper in China than in the US.
Two years ago, my grandfather spent his final two weeks in ICU at a cost of 120,000 RMB (16700 USD). Insurance covered 100,000 RMB (14000 USD), leaving us with 20,000 RMB (2700 USD) out-of-pocket.
Regarding insurance coverage:
Rural and urban insurance have different reimbursement rates, but generally cover over 50%.
My parents' retirement income is about 4,000 RMB (560 USD) monthly—relatively high for urban workers. In tier-3/4 cities, most retirees receive over 1,000 RMB
(140 USD)monthly.
Now examining your cited article: Those two farmers never participated in any insurance programs. Having never contributed to:
- Pension funds (hence receiving only the minimum 150 RMB, 20USD monthly—standards vary by city, e.g., ~1,400 RMB,200USD in Shanghai)
- Medical insurance (400 RMB lowest level, 55USD annually, fixed.), making them ineligible for reimbursements. Rural insurance even allows retroactive payments-coverage begins three months after payment, regardless of preexisting conditions.
While such cases exist, they're exceptionally rare. In my entire life, I've only known two families who didn't enroll in insurance—both were wealthy enough to purchase private coverage.
> In isolation an $8,000 EV looks cheap to us earning a salary in the West, but that is still 1.7x the median household income (so half of all Chinese households have even less money to spend).
You're looking at China the wrong way. A better way to view it is as two countries - a developed urban one, tied to a developing, rural one.
The latter is currently bigger than the former, so it drives any median wealth metrics down. A lot.
But for the past 40 years, the developing part of it has been shrinking - while the developed part has been growing. On that kind of trajectory, that median divide of wealth is currently where the 60th percentile was a decade ago, and in a decade, will be where the 40th percentile is today.
Where does the median urbanite in China stand, compared to her Thai or Malaysian counterpart?
> You're looking at China the wrong way. A better way to view it is as two countries - a developed urban one, tied to a developing, rural one
This is how I am looking at China, and this is ALL THE MORE reason that development needs to be spread out much more equally.
Urban China isn't that much richer either - median urban household income is CNY 43,000/$6,000 [0] - so on par with Thailand and half that of Malaysia's.
And rural China is in a worse position - CNY 19,600/$2,700 [0]
Ignoring the bottom half of China (urban and rural) is going to set China up for failure long term.
Having well developed cities (in reality a couple megacities that are also 直辖市) but a significantly underdeveloped hinterland and urban underclass will only lead to extended instability.
Furthermore, it isn't that expensive to expand the social safety net in China. The Chinese income tax system is severely regressive and is comparable to the US system, and the provinces and municipalities that generate the majority of growth for China can easily divert portions of their total production to either expanding their own social safety nets or subsidizing those of adjacent provinces.
Just by my back of the napkin math, expanding social services such that it becomes the equivalent of $2,000 per household would automatically add 1% to China's GDP growth rate, and also alleviate the overproduction trade war issue, as that would give significant breathing room to the bottom half of Chinese consumers.
It's just pigheadedness to not divert some amount of spending into education and healthcare.
> On that kind of trajectory, that median divide of wealth is currently where the 60th percentile was a decade ago, and in a decade, will be where the 40th percentile is today
Past trajectory cannot be used to predict future trajectory. Even the IMF forecasts Chinese GDP growth to drop to 3% by the end of this decade. It is much more difficult to lift the bottom 50% of Chinese households in that kind of a macro environment.
It is just plain complacency to ignore this trend.
> Where does the median urbanite in China stand, compared to her Thai or Malaysian counterpart
On par with their Malaysian or Thai urban counterparts based on HDI [1][2], but based on household income, they are roughly at the same median household income of Thailand, and half that of the median Malaysian household, so worse off than their Malaysian or Thai urban counterparts - and let's be honest, there's a reason you bump into plenty of "Cina" migrant workers doing blue collar work in KL, Johor, Klang, or Penang like bus driving or working as the help at Malaysian Chinese owned businesses, just like how there are plenty of white collar Chinese immigrants in Malaysia.
And if we decide to use a subnational lens as you insisted on your post, we can see that the majority of Chinese provinces are much more deprived than their Malaysian or Thai counterparts, which itself highlights the need for the Central and Provincial governments to really concentrate on expanding social welfare.
I mostly agree with your points. Social inequality in China is pretty serious, and it’s gonna take a lot of smart policy moves to fix it.
But when we compare China to other countries, we do have to consider some unique factors. The cost of living in China is really low, which means that even if people have similar income levels to places like Thailand, their actual quality of life can be better in some ways. For example, China’s “vegetable basket project” keeps food prices super low across the country. There’s no property tax, firefighting services are free, and rural healthcare is cheap—even if it's not on par with what you'd get in big cities.
That said, the government still needs to do more to boost domestic consumption. The current setup is okay, but it’s still nowhere near the living standards in developed countries.
Does your analysis on the relative standards of living of China's and Malaysia's populations still stand?
It's been more than 10 years since I last visited China. I've been to Malaysia a couple of times not too long ago. From what I see from random social media clips of regular people, their urban standards of living do not differ much.
The idea that the hard goods are sold for "imaginary numbers" is popular but a bit of a misnomer.
These "imaginary numbers" are actually claims on future income generated by the United States economy. It is true that they are "imaginary", in the sense that any property ownership is imaginary in a way that a toaster is not. The most common form is Treasuries, which the government then pays interest on and which must eventually be either repaid or rolled over.
So it would be more correct to say that China is trading hard work building goods in exchange for claims on future US income.
GDP numbers can be "imaginary" but production numbers are not.
China produces more ships in a year than the US. Generates More Power from Hydro than the whole of Africa.
We could dig more -- but that's just on top of my head. Just like how the US was able to help the allies win WW2 by producing more. It will lose a war against China - because of incredible chinese production
The US spends $1T on education. It is extremely difficult to justify spending more when the US already spends far more per student than other developed countries. Same with infrastructure and healthcare. Without accountability for where that money went it would be foolish to throw even more money at it.
Also, in the US, infrastructure, education, and healthcare is primarily the responsibility of individual States, so it really needs to be measured on a per State basis. For some of these things, some States deliver high quality at low cost and other States deliver low quality with an order of magnitude higher spending for the same thing. The correlation between spending and results is surprisingly weak. Competency and focus seems to play a greater role.
Because like most US systems, the institutions are far too fragmented and therefore overly complex and inefficient. So, a lot of the money just goes towards the overhead of logistics and managing the beast - aka, administration.
It's the same problem in healthcare. We spend a lot of government dollars on healthcare. But when you have thousands of insurers and then boards per state and extremely complex billing, you're going to be putting the majority of your money into not-care.
It’s up to the local school board to carve up the budget. Usually the top items are salaries, pensions, and health insurance for teachers and staff.
If we’re looking for contributors to differences in education spending between the US and other countries, those school boards are one place to look. The overhead of administrative staff at thirteen thousand local school districts is significant.
The US also has quite high salaries by international standards, which increases per-capita spending on pretty much anything.
Its never competency and focus. Individual influence averages out, its the system that creates the result at scale.
To some extent higher per-student fees are expected in certain areas, most countries with heavily funded education aren't facing the same issues of rural population density. There's a lot of overhead costs to run so many schools.
Then state policies and regulatory capture is the other side of course, all schools need X teaching aid from Y company for some obscene markup...
Rural population density isn't a real problem for education. Some rural school districts have to run longer bus routes to service their students but those aren't particularly expensive.
It’s interesting. Whenever someone says “the US needs to do a better job of funding education” someone always comes out with this exact comment. Yes, the world knows that your country spends more per capita on education than other countries. That’s been made abundantly clear time and time again.
But, if the system is so good and utopian, why do so many children get shot at school? And why do so many American elected officials have such a poor understanding of the US constitution?
The problem here is with the assumption that the problems can be solved by throwing money at them. Typically they can't.
To a very large degree what schools turn out is based on the students that come in. It's the home and the neighborhood far more than it is the schools themselves. You get a better result if you put students with other students of like ability and motivation. This works pretty well at the university level, but historically it was used to discriminate and thus doesn't get done earlier. And, likewise, we are very focused on equality even when it comes at a detriment to the students. (Once again, legacy of it being used to discriminate.)
No one said the current system is good, just that it can’t be fixed with more money nor can it be fixed at the Federal level. None of the issues you mention have anything to do with education spending.
Sure it can. The president can declare a national emergency(IEEPA) and regulate international commerce by taxing capital inflows ie: A tariff on money. The only reason he doesn't is because the political backlash resulting in making the dollar undesirable as a reserve currency would have massive political fallout. In short he can, he just doesn't want to enough.
And how much of that money actually goes to educating children vs. In the back pockets of all the private enterprises that so many love to espouse.
It's like the majority of us were born to be peasants, so many people are quite happy to give the rich tax breaks for example, as long as their own taxes don't go up. Money's gotta come from somewhere.
The amount of dollars the US gives to school districts does not tell you how much the US spends on education, because only a portion of that money actually goes to pay for the school or teachers. The rest goes to nonsense like obscene administrator salaries, which have seen the same stupid growth as CEO salaries.
Why are Teacher salaries still so low and teacher:pupil ratios continuing to get worse if we spend so much on education? Why is it that literally the primary thing that education tax dollars should be spent on, educators, is not what it is spent on?
Consider that one of the best states in the US for education, supposedly new jersey, pays it's teachers a MEDIAN of $82k. Starting is above $50k according to teachers.
In pretty much every state, the median teacher wage is equal or within 5% of the state's "living" wage.
Most places require a college degree for teachers. If they don't, that's scary in other ways. But why the hell am I spending $40k on a college degree to make barely living wage for the rest of my life? You know who does that? People who aren't very smart. Gee, I wonder why we struggle to find good teachers.
40% of our nation's teachers have a second job. That's funny, because I assure you that damn near any teacher that actually does their job works twice as hard as most other professional jobs. You don't actually get any time in your day to grade student work most of the time, so you have spend your own personal time to do your job. Every single piece of homework your child brings home is at least an hour of grading for that teacher, and that's just a niche subject or small class size. Good teachers are also running their departments, designing lesson plans, building entire portfolios of tests and work, and none of the promises of technology have done anything to improve these parts of the job. Digitized grade books are pretty good, but now they mean teachers have to deal with the worst parents bitching about their kids getting a bad grade because they didn't study, which is not something the teacher can help.
Because the population has been tricked way too many times with the "we're allocating these taxes to education" dogwhistle.
When every fucking time they open a lottery or have a new tax, and promise it will go to the schools, but they defund what's coming out of the general fund to the schools by that exact amount, you can only cry wolf so many times before that doesn't work anymore.
To get this to work anymore you're going to have to create a constitutional amendment or something that the school gets X and there will be no fuck fuck games that they aren't just defunding the schools some other place so they can use it on the next corrupt "construction" project.
The U.S. can absolutely fund Scandinavian‑style social programs, it just chooses not to, in part because the reserve‑currency framework makes the optics of deficits uniquely skewed.
This is one of the consequences of the US's self-inflicted burden of the Triffin Dilemma.
sad that you're being downvoted here, very clear that the US investment into society is low in relative terms. In fact, doing so in considered 'socialism' and widely condemned by almost all the political establishment.
The surplus came with alot of responsibilities, like policing the world. And that had a hefty price tag... nearly $1 trillion annually. Wasn't much left over for public transit and free foot massages. I can entertain arguments that it was a bad bargain.
"Policing the world" doesn't have to cost that much. Nearly $2tn spent just on the pointless Iraq misadventure. How much public transit and education could that have funded?
Policing the world is a jobs program for all of the unionized factory workers at lockmart and Boeing that would otherwise be, at best, trades workers earning a more modest wage. We can thank the MIC’s placement of factories in strategic congressional districts for that
The entire NYC subway, the busiest system in the country, has 660 miles of track. NYC has a GDP of $1.3tn and the subway system has a big hand in making that possible. So that's actually a pretty good RoI. It'll go a lot further (haha!) in a less expensive city.
But that also goes back to the original comment about spending the surplus wisely.
That $1T isn't an expense. Part of it is operational, meaning keepiong boats and bases running around the world, which earns the US yet more influence and soft power and unearned media. Much of it is acquisition costs, meaning $ going into a US defense tech for research and procurement of the most advanced hardware and maintenance of those industrial bases to do so; that hardware then gets sold to allies, among other things. Saudi Arabie just purchased $142 billion of US hardware.
Playing "world cop" is a net win for America, not a cost it bears.
Just because there is a soft power upside does not mean that it is a net positive. I often see this stated without any form of quantification. It is essentially a matter of faith.
The net upside is maintaining the market that allows for a trade deficit in the first place.
The problem is really that the two aren't directly linked. If you operate at a trade deficit, you don't need to manufacture at home. But if you can't manufacture at home, you can't build war machines efficiently, so you can't be the world police and ensure the market needed to operate at a trade deficit.
By defunding the military you're pulling the rug out from under yourself in this sense. I would still agree that it's massively inefficient and needs to be fixed, but the working US-World system would still invest a lot of funding into the military.
Unfortunately, at some point the people who are trading products for dollar bills will catch on that there's nothing that they can buy with the dollar bills that are worth the value of the products they sent across the ocean. When that happens, people will stop accepting the dollar bills as payment... but by that point, you've hollowed out your manufacturing to such a degree that you can't ever start it back up. So you can't trade for those products (no products of your own to trade), you can't purchase them (your own currency is worthless), You can't purchase them with other nations' currencies (nothing to sell for that), and you can't make the products yourself.
But "soft power". We traded long term prosperity for the short term ability to meddle in other people's countries and lives.
You're leaving out a large part of the equation, which is that countries can trade with each other in the reserve currency, which becomes a neutral medium of exchange with respect to the parties. The value of holding US treasuries currently is that everyone will accept them. By having the world's reserve currency, the US becomes the owner of the world marketplace. It's not just about trade with the US. I export to the US, get USD which I convert to US treasuries, and now I have near frictionless trades with everyone else in the world.
One huge impact of this over the last 50 years is that the world is effectively lending the US liquidity at the lowest possible interest rate, which the US then extends as credit to American businesses, universities, etc., fueling a boom in industry, commerce and academia.
Another big impact is that holders of US treasuries are strongly incentivized to support and protect America, because as America falls, so does the value of those holdings. Before China declares war on the US, it looks at its huge pile of treasuries that will become worthless at the first shot, and says "maybe not". It also allows the US to affect other countries through its monetary policy--another incentive for others to play nice with the US.
It's kind of boggling how little this is understood, how much short and long-term prosperity the US has created for itself by doing this.
IMHO that's a false dichotomy. The US has the worlds most inefficient health system, which is an incredibly large budget post, most of the money going to middlemen. Besides, it has also benefited from open shipping lanes as much as the rest of the world, if not more.
Yeah, only that if you spend more per capita on health care than comparable national, not less. So the argument of "We can't do $A like other countries do, because of $B" doesn't really fly if you spend more to get a worse outcome.
The problem the US has in regards to healthcare, that the goal of its system isn't to supply its population with the best quality healthcare for the lowest amount of cost — the goal instead is to allow all kind of market actors and middle man to make a profit without the population revolting.
There is plenty to pay for public transit, education, and healthcare. There always has been, locked away in stock market value owned by precious few people.
On healthcare, we already pay way more than any other developed nation for far worse outcomes, we're literally WASTING money on it to make some shitheel health insurance CEOs a little richer.
FOH with this woe is us bullshit, boo hoo it's so hard to police the world (something we also overpay for). We could have been taking care of each other the entire time, there is nothing stopping us but lies and attitudes like yours the lies beget.
To be honest, I don't even think it's just the people at the top profiting. The whole system is like designed to create as many useless jobs as possible. If I want to get a blood test, I have to do like 4-5 referrals before I can just get my test done. If I want a diagnosis, I have to wait a week to talk with a doctor who is going to push sponsored medication anyways. I'm better off doing the research myself and buying drugs through telehealth service or the greymarket.
You would be better off just having a free market where consumers figure out what doctors/nurses/pharmaceuticals are safe on their own, and you strip intellectual property protections and legal requirements for prescription drugs. It shouldn't cost a million dollars to get an x-ray. It does because there are high legal barriers that allow rent-seekers to creep in.
Everyone gets something, or every country anyways. The export-led growth Asian miracles are really just a part of this. Maybe the Chinese worker gets screwed, but China maybe doesn't. Something like that.
Chinese workers got actual work vs being automated out of the farming industry and starving. China gets to import raw resources from other countries to feed both domestic production and foreign export.
It was a rational strategy that’s getting outdated as China’s economy grew enough that exports can’t ramp up any more.
The mental gymnastics here to justify the dollar's reserve status and trade deficits as some kind of genius economic strategy are incredible.
First off, this ridiculous notion that the US "gets products and services enabling residents to live beyond their means" is classic ivory tower cope. Yeah, tell that to the average American worker whose real wages have been stagnant for DECADES while housing, healthcare, and education costs have gone full rocket ship. We're not living large - we're drowning in debt while our industrial base gets hollowed out and our cities rot. But sure, keep telling yourself those cheap plastic crap from China is some kind of economic superpower move.
And this nonsense about "imaginary numbers" - spare me. Try telling the Chinese worker breaking their back in a Foxconn factory that their labor is being exchanged for "imaginary" dollars when those same dollars buy real commodities on global markets. The only thing imaginary here is your understanding of how actual wealth transfer works. The Fed's money printer goes BRRR, Wall Street gets bailouts, and the working class gets hollowed-out towns and opioid epidemics.
This whole "trade deficit is fine because we export dollars" nonsense is cope. We get to print monopoly money and trade it for real goods sounds great until you realize it's turned the US into a hollowed-out consumerist wasteland. Our manufacturing base? Gutted. Middle class wages? Stagnant for decades. But hey, at least Wall Street gets to play financialization games with all those dollars floating around overseas, right? The petrodollar cope is particularly hilarious. "Oh but the USD is backed by oil and military power!" Yeah, how's that working out now that the BRICS nations are openly trading in local currencies? Saudi Arabia taking yuan for oil? Russia and China settling trade in rubles and yuan? The entire Global South is laughing at your "reserve currency" while they quietly build alternative financial systems. But sure, keep telling yourself that 1971 was some genius move rather than the beginning of the greatest wealth transfer scheme in human history.
Spare me the "political influence" argument. You know what else gives you influence? Actually MAKING things. The US used to be the arsenal of democracy because we had real industrial capacity. Now we're the ATM of the world. Sure, everyone takes our dollars, but they're laughing at us behind our backs while they build actual industries. China takes our funny money, build world-class infrastructure and tech, while we get... what? A service economy of Uber drivers and baristas? The MMT shills in this thread claiming deficits don't matter are smoking crack. Yeah, it's all fun and games until the music stops. The dollar's dominance isn't some natural law. It's propped up by petrodollar recycling and military bases in 800 countries. But guess what? The BRICS are building alternatives as we speak, and when the world finds a way to ditch the dollar, the inflation tsunami will make the 70s look like a picnic.
And don't even get me started on the "but manufacturing doesn't pay well" cope. Oh yeah, because working at Amazon warehouses or DoorDashing is such a step up from union factory jobs that could support a family on one income? The deindustrialization of America was the greatest wealth transfer from working people to corporate elites in history, dressed up as "free trade." The 1971 Nixon Shock was the original sin that decoupled money from reality. Since then it's been one giant debt orgy where the rich get richer by financial engineering while the country's real productive capacity withers. But sure, keep telling yourself that running perpetual trade deficits while offshoring our industrial base is "sustainable" because we have the money printer.
China now owns our supply chains, controls key industries, and is busy strong arming its way to global dominance. Walmart shelves full of $2 plastic junk don’t make up for the collapse of skilled labor wages. Go tell a factory worker in Ohio that his job loss was worth it because iPhone assembly got outsourced to Foxconn. The "cheap goods" argument is cope for elites who profit from globalization while real wages stagnate for decades.
The average American gets screwed by this system with stagnant wages, unaffordable housing, and a crumbling infrastructure while the elites jet around on private planes bought with Fed-printed junk money. The dollar's reserve status isn't a privilege. It's a curse that's let us paper over our decline with debt instead of making tough choices. Confidence in the dollar is not an infinitely sustainable glitch. When the world finally gets sick of funding our deficits, the reckoning will make 2008 look like a picnic. No fiat currency survives its own abuse. When the reckoning comes, it won't be the bankers and politicians who suffer.
The reality is brutally simple. Decoupling from gold removed all discipline from the system. Politicians could spend without consequence, financiers could gamble with abandon, and the productive economy got outsourced to slave-labor nations while we became a nation of paper-pushers and baristas. Now we're staring down the barrel of $35 trillion in debt, supply chains we don't control, and a currency that's one crisis away from a Venezuela-style collapse. But yeah sure, keep telling yourself everything's fine because some Keynesian academics drew you a pretty graph. The Romans probably had similar debates while their denarius turned to trash and the barbarians gathered at the gates.
> The deindustrialization of America was the greatest wealth transfer from working people to corporate elites in history, dressed up as "free trade."
You make it sound like this was a conspiracy, and perhaps it did devolve into that eventually, but this system was introduced at the time in order to deal with the stagflationary crisis of the 70s. Only because things had gotten so bad, did Reagan and Thatcher manage to get the democratic support for making the transition.
The gold standard didn't cause stagflation. Government overreach did. Germany conquered inflation in 1923 by re-pegging to land (the Rentenmark) then gold (the Reichsmark) a few months later. The rchitects of this system KNEW what they were doing. Treasury Secretary Connally's infamous quipped to European ministers: "The dollar is our currency, but your problem." This wasn't economic theory, it was a declaration of financial imperialism. They didn't solve stagflation but instead they exported inflation globally while buying time with an explosion of debt that future taxpayers (that's us) would inherit. The 1971 decision didn't solve stagflation it just kicked the can down the road while turning America from the world's greatest creditor to its largest debtor. Now we're living in the endgame: a debt-to-GDP ratio over 120%, a hollowed-out industrial base, and a generation that can't afford homes while wall Street racks up record bonuses.
Hyperinflation in Germany was deliberate. And Germany didn't just decide on its own to return to the gold standard. European countries drifted away from gold during WWI, and then they all slowly returned to it in the early 1920s. In the case of Germany, its return to the gold standard was required by the Dawes Plan, a plan by the US to ease the effect of reparations on Germany so they'd cease the hyperinflation shenanigans.
Once Europe returned to the gold standard, it saw widespread deflation and consequent unemployment, particularly in the UK and Germany. The effects of deflation caused by a return to the gold standard, and related issues in the US and France which accumulated much of world gold reserves, is widely considered a major cause of both the Great Depression and the rise of fascism. Notably, deflation contributed to a rapid trade deficit increase in Germany.
> The 1971 decision didn't solve stagflation it just kicked the can down the road
It kicked the can down the road for half a century. It bought a lot of time. This approach, of betting on a miraculous solution in the future, is deeply ingrained in policy making; it’s not unique to the neoliberal reform. In fact, the next solution could just be figuring out how to kick the can again.
The next phase looks like it will entail gov intervention, by issuing loan guarantees, or by mandating the investment of national savings into specific industries, like manufacturing and energy. Capital misallocation and the return of stagflation will lead to another crisis, but in a few decades from now.
Pegging to gold by itself doesn’t really solve anything, if the overarching system remains based on relentless exploitation by selfish interests. Sooner or later, overdraft facilities will emerge for gold that doesn’t exist; so, the traumatic cycles of boom and crash will be repeated. Not to mention the deflationary dynamic, which will overwhelmingly favour those who already own gold. In general, you can’t de-politicise monetary policy (by fixing its supply), without inevitably amplifying the overarching system.
It seems like a bit of A and a bit of B, perhaps more A than B.
How do we maintain global reserve status—what is the cost? Is it one of the reasons why have military bases all over the world? Back in the day, people used to say the U.S. went to war in Iraq because Saddam was going to switch away from the petrodollar. Under your reserve-currency theory, that seems quite possible, no?
China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers.
US is definitely not the victim here. There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes.
It makes sense to be worried for such an eventuality but US is definitely not being taken advantage here. The situation is more like selling your startup at young age and live a lavish lifestyle with the money without working and studying and risk becoming penniless and unemployable by the 50s.