Skip to comments.(Vanity) A Bump on the Road to Globalization
Posted on 07/17/2008 8:47:32 PM PDT by grey_whiskers
It is interesting how, in the aftermath of the past years run-up in oil prices, we have been hearing less and less talk of globalization from the chattering classes. Why is this? On the surface, there are several reasons. First, the topic high oil prices presents an easy segue to bring up the annointeds favorite mantra: green technologies and the need to continue de-industrializing America. We can all get high-paying green jobs to replace the textile, manufacturing, computer programming, and bio-tech jobs which have been developed in the United States and then shipped offshore. And the high oil prices themselves make it absolutely mandatory that we do so! Why, we cant compete in anything, so we may as well give up to the masters of the New Millenium. And the sooner, the better!
That, at least, seems to be the script. But if one drills (sorry) a little deeper, the picture isnt quite how it is being presented. Remember the original mantra of people seeking to justify the high price of oil? Its the increasing demand from India and China. The talking heads have had to back off of that mantra, in case the average US consumer replies, OK, so oil is sky-high because of India and China demanding it. They didnt used to want oil before we offshored everything. :Lets onshore all the jobs again, then India and China wont have any money, and they wont be able to afford oil, and prices will drop again! It isnt likely that the consumers will be able to demand this on their own, but the business executives might consder it, for reasons to be explained later.
In the meantime, what is happening in China and India? And for that matter, the rest of the developing world? Inflation, thats whats happening. In Viet Nam, inflation has been running at over 20% (href=http://www.businessweek.com/globalbiz/content/may2008/gb20080530_004159.htm?chan=top+news_top+news+index_global+business); in India, the inflation rate is around 11%(href= http://www.businessweek.com/ap/financialnews/D91N4K101.htm); and in China, inflation has fallen all the way to a cool 7%. (href=http://www.businessweek.com/ap/ financialnews/D91VBQSG0.htm). To put this in perspective, remember that the Federal Reserve and the Treasury are all upset about an official inflation rate of about 4-5% here at home, after decades of being 2-3%. These price hikes have been the result of several factors: the offshoring of many jobs from the United States; the resultant growth of consumer classes (made more significant by the *average* income of the emerging countries), and the fall of the U.S. dollar. This last item, by the way, has resulted in speculation and bubbles in all kinds of commodities, not just oil; the price of food in particular has gone up dramatically. These two major drivers, fall of the dollar, and the cost of commodities, may have far-reaching consequences in terms of the headlong rush to globalization. First, the fall of the dollar. It is true that the fall of the dollar has been a big help to United States manufacturing, as it lowers the price of our goods overseas, helping to forestall job losses in the United States. But this actually hurts the developing world, in two ways. First, with the dollar falling, the United States will buy less of foreign goods and services. For example, the IT business in India, long a target of ire in the United States, has seen its red-hot growth trajectory slow as US corporations see less of a wage advantage. In fact, a lot of the growth in these companies has begun to come about as a result of acquisitions rather than organic growth a sign of a maturing or slowing market (href= http://www.businessweek.com/technology/content/jul2008/tc20080715_289971.htm?chan=top+news_top+news+index_technology). And in China, the fall of the dollar presents the Chinese communists with a Hobsons choice. They can continue to prop the dollar up, and see continuing inflationary pressures. Or, they can allow the yuan to rise relative to the dollar, and lose their competitive cost advantage and the source of most of the new jobs. Neither choice is politically tenable, even in a dictatorship.
Next, the price of commodities. It is ironic that the increasing price of food is a sign of prosperity: as many of the Asian nations develop larger middle classes, they also develop a demand for a higher-quality diet. (In Chinas case, we hope, one not tainted with industrial chemicals). In addition, the drive for green fuels in the United States has helped. Not by putting corn directly into the gas tank, but by market forces: farmers divert arable land from other crops and into corn for ethanol. While this is merely an inconvenience in the United States one must switch to store-brand food instead of name-brand it is profoundly unsettling for much of the rest of the world. In particular, it greatly complicates life in the developing countries where the new middle classes can afford better food, but the rural poor fall further behind than ever. (Perhaps Sen. Edwards should modify his speech to talk about Two Indias or Two Chinas.) And this does not make for political stability, nor does it make continuing globalization an automatic win at the ballot box. And as for oil, there are all kinds of consequences. Both the Chinese and the Indian governments have been subsidizing the price of fuel for their citizens; as the price continues through the roof, they have had to scale back the subsidies, increasing economic hardship and dislocation. And as the price of fuel has increased, the cost of shipping across the Pacific Ocean to the United States has gone up, too. In some cases, the cost of shipping has passed the cost of producing the products in the first place. In fact, there are now discussions (href=http://www.forbes.com/2008/07/15/mexico-oil-manufacturing-biz-cx_0716oxford.html?partner=yahootix) about moving manufacturing away from China and over to Mexico in order to save on shipping costs. Will we be seeing more of the Security and Prosperity Partnership of North America in the future, to take care of this? (On the other hand, if large-scale employment *does* come to Mexico, maybe that will reduce the pressure driving large-scale illegal immigration into the United Staes.)
In other words, while things do not look good for the United States at the moment, the path to globalization isnt running smoothly either. The difference is that the United States has had (at least on paper) a market economy for a long time, and knows that one can bounce back and be stronger than ever. Hey, we survived Jimmy (oops, make that Dhimmi Carter) and prospered under Ronald Reagan. But the governments in the developing world havent had the same experience with the economic cycle that we have had and the citizens of those countries may not have the patience to settle for bumps in the road either, after having been poor for so long. As the saying is May you live in interesting times. It looks like the rest of the world is living through them too.
I would point out that while inflation is 4-5% that our measure of “core inflation” which doesn’t include food and energy prices is misleading. I don’t know anybody who doesn’t use energy or eat food. In reality inflation is at least double that.
The consumer price index (CPI) includes energy and agricultural products and is a better indicator of what affects the average consumer. Since the energy and food sectors are so big and volatile, they may “dominate” the CPI or present a distorted picture the economy economy in general. So economists like to also look at “core inflation” which specifically excludes food and energy prices, as well as a slew of other inflation indicators. For the rest of us it’s the CPI that counts.
Good essay, now let’s put on our pointy wizard’s hats and peer into the future:
MIT just announced a breakthrough in the ability to store solar or wind power in the form of separated H2 and O, done by a much more efficient electrolysis process. That coupled with some of the new solar breakthroughs announced in recent weeks, and the sheer amount of money guys like T. Boone Pickens are dumping into alt energy, and we may have something.
The way I see it, there will be new, marketable energy sources coming online over the next 2-3 years. The genie’s out of the bottle now.
Here’s my question- is this sector enough to keep America ahead of the curve? Will we continue our dominance in global markets because of this technology alone? Or is the damage to the dollar and the banking system too much to overcome?
Just for grins, here’s a wild card question- do you see the Amero anywhere on the horizon?
Unfortunately, I do.
Have you ever read up on the "Security And Prosperity Partnership"? If the government has to deny it in black and white, ... ;-)
I would prefer that the U.S. allow Mexico and Canada to apply for Statehood.
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