Potemkin America - illusionary prosperity a la the USSR

10 posts

Broseph
The assumption is that they're retaining most of their workforce in the United states. If it's not the case, then it makes sense for them to headquarter elsewhere.

It also depends on taxes on earnings for foreign operations in the US and on the regulations tax structure of other nations.

Back to the proposed solution:

If you follow this logically, wouldn't it make sense for states to completely block trade due to risk of competitiveness? Should trade between cities be barred for the same reason?

The fact of the matter is, the world is different than it was 40 years ago. Trying to bring back the old structure of regulation and taxation won't revive America and bring back glory days.

The lack of employment opportunities is a result of a lack of productive capital within the country. (which oddly enough, took a huge hit in the 70's when we all became Keynesians and starting inflating bubbles crazier than ever)

[​IMG]

I will admit that allowing more free trade might be a contributing factor to the employment situation, but it doesn't even give half the picture. People are willing to work, and there is no way of employing them at a profitable rate. This means that there must be an inferior economic situation, which is most likely the result of the (tangible) capital makeup of the economy being inferior. Capital consumption and destruction happen during the economic boom and bust. To change regulation to employ them is to make them better off, and everyone else poorer. This is the cost of empire.
Theo
1. If they do not retain a lot of labor in the US, they will move out, taking all taxes paid with them to another country.

2. And if a company with a majority of US employees, say, Ford or any big company for that matter, really needs a significant number of outsourced labor to get a competitive edge, then it will find a solution, that would allow it when pressed, to avoid both - paying high taxes on foreign workforce AND hiring more American labor.

When pressured by taxes, a company in that case may either resort to outstaffing (outsourcing not labor, but processes, which used to be done in-house, to a renowned foreign company, which is for example a case with Apple - these guys producing nothing but 'marketing', all else, including manufacturing, is done by other companies overseas), or to "secret outsourcing" - creating another company, incorporated in, say, India (Ford Manufacturing Inc.) according to local Indian laws, owned by Ford.

Thus in essence, Ford won't have in the end any significant amount of foreign workers, no additional jobs for Americans will be created and taxes eventually will not increase, but decrease since all tax deductions on personal income, that used to be paid to the US treasury by foreign workforce, will be paid in other countries .
President Camacho
Neither of these solutions allow Ford to retain competitive pricing in the American market under a system that taxes them where value is added extra-nationally. If all value is added overseas, the cost of a Ford in America would be prohibitively high.
Theo
All valid points.

But I believe, when blaming free trade, we are shooting the messenger, since it wasn't free trade, that took away their jobs in the first place.

As I've said on several occasions, the evidently solution if Americans want jobs back, is to give them better chances at competing with foreign workforce. The best thing, that a government can do, is cut its own spending, and then lower not raise, taxes - mainly personal income tax as well as all forms of social security taxes - so that more Americans actually get a chance to compete effectively with all sorts of foreign workforce. Can't do it on a national scale? OK, do it locally - create a special economic zone, like developing countries do.
President Camacho
I certainly agree with cutting government spending and lowering personal income taxes, but how does this affect the employer who wants to move the entire engineering and quality control departments to Bangalore to cut costs?
Theo
How did you arrive to that conclusion?

I know multiple examples when it is not so. Electronics, clothes industries are the first, that come to mind.

A ford completely produced, from wheels and carcass, to final product in the US by US citizens, with all taxes paid and hired according to local labor average salaries, would most probably cost much more, than one made in China and imported into the US to be sold.

Another solution is just to let all the turks in, call them your 'citizens', let average salary expectations drop, and hire everyone at home. Like Germany did. When you have all these guys as your citizens, you really don't need outsourcing.
Theo
Lowering taxes means lowering average salary expectations. With no extra deductions to pay in forms of taxes, US residents will be able to go lower in their salary expectations against Bangalore citizens, and in the end, the employer might decide to stay at home, since the difference in costs won't be significant enough to compensate for the costs of creating a new business unit and the increased difficulty of managing a now international business itself.
President Camacho
Not if each one of those components assembled with China are taxed upon entering the United States. Of course, the absolute cost of a Ford assembled in America might never be lower than one assembled in China. But this is specifically the situation we are trying to address.

Which scenario is better for the American economy:

- Ford imported from in China with no labor excise taxes, assembled by 100 Chinamen:
Cost for American consumer: $25,000

- Ford built in America by 100 American workers:
Cost for American consumer: $27,000

Obviously, the second scenario is better for the American economy as a whole.

Consumerism is to be denounced. :thumbsdown:
Theo
I guess, you are a bit confused.

The author talked about taxes on salaries of workers located outside of the country.

While you are talking of trade tariffs, what I specifically noted, didn't fall under the review of course.

As I said, originally, unless you are also planning to set up huge tariffs against anything and everything coming from across the ocean, as well as up and down the borders (and do expect a similar courtesy from all trading partners), I see little to gain by forcing business out of the country.

As for tariffs... Its a very risky business, exactly because it ignites trade wars. Not to mention that in the long run it leads to lagging of the industry you are trying to protect, but on the global level. Hey, but if you also suggest instituting tyranny, that will force citizens to buy at the price you want them to, proclaim total autarky and work only for local, not international market, then I guess it makes sense.

Depends on how many cars are sold in the end. Consumers are rarely patriots, when its about something more expensive than 1-dollar paper flags.


Consumerism is the only reason you have jobs for millions of Americans in the first place.
Broseph
All else being equal, the former.

Why is it automatically assumed that those 100 employees in the US will be unemployed and not be able to find work and be more productive in other lines? What if something in the US can be produced by people in the US at a cost advantage (or even absolute advantage) in comparison to other nations?

You mean like before the steam engine and trains? :p