The general issues raised by Paul Farrell in the "Myth of Perpetual Growth is killing America" thread has crystallized another question which has had me wondering as of late. It seems as if every other day we see a headline to the effect that "Germany tells Country___ that 'Increase in Productivity and Competitiveness' is Required". Fill in your choice of country for this headline.
Taken in isolation, and comparing the German economy with "Country X", the advice may in fact be arguably valid. Perhaps if "Country X were to follow this path, eventually they too would be as economically robust as Germany is at the moment.
But what about Countries Y and Z, and even A, B and C while we're at it? What if ALL of these countries, not to mention a whole bunch of other non-EU countries, all were magically raised to this pinnacle of economic perfection? Great. Now we have, what, ten times as much "stuff" being produced, very efficiently, to be sure? OK... just one little question here... WHO is going to be buying this vast cornucopia of "stuff"? Well, maybe just two little questions: WHAT HAPPENS TO THE GERMAN ECONOMY when each and every member of the EU is churning out tons of equally competitively priced "stuff"?
Once again, it seems to me, we have the absurd concept that ever-increasing production and expansion is the answer to all of our economic problems. Now, as most of you know, I've never had the advantage of a university education, so perhaps my perspective is questionable. So maybe someone can explain how this is all supposed to work?
Comments
So is the question - Can everyone be simultaneously successful? It seems to me that any way I picture a positive answer involves perpetual growth. So it is not real success; it is an illusion of success.
Quite honestly, I am much more stupid than this. I have devolved into wondering why any member of a species needs more than they can use. I have a ways to go to wonder about price of stuff, especially when someone needs it and someone else has it but doesn't need it.
With respect to your latter questions, I'm afraid that the human race needs another 10,000 years (minimum) before we can expect a reasonable answer. And the odds are, I think, that we won't last anywhere near that long.
The answer is, according to many, that the answer to a debt crisis is more debt and more spending. Is there, however, a saturation point for more debt in a society?
Pull forward more demand from the future and somehow - and this is what really baffles me - put any manner of trust in governments to effectively spend more money in a productive manner. We have a government who can't even agree on anything and a political system that's broken.
You can't fix much of the problems in Europe or here, really; but that doesn't mean that politicians will not keep throwing money at the problem and adding to the tab (which will never be paid - lets be honest.) There will be more bailouts and more debt, because kicking the can is the only answer politicians will come up with. No one knows how this will play out over months and years, because I think what we're going to deal with over the next several months and years is unlike anything that modern society has probably had to deal with. It will take leadership, which there isn't.
So, hope for the best and plan for the worst. I still say invest in hard/real assets and basic needs. Do not take outsized risk and invest to a point where you can sleep at night. Dividends are important because I don't think interest rates are going higher for a long time unless things get disorderly.
It wouldn't surprise me if money goes digital in the next 5-10 years (or maybe sooner.)
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"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
-Von Mises.
Nope, don't need noth'in more than common sense for this, eh?
I am most assured that if the/an economic model was based upon our spending habits over the years, that GDP would not be a primary consideration of an economist. There likely would be some growth, but there wouldn't be any major spikes.
Our monetary house has never lived beyond its supportive abilities.
What you note remains a constant consideration for our house and makes for some most difficult decisions.
While I fully believe that some consumerism (outside of the needs area) is healthy; we know that much of this is way out of control. I periodically view the various home shopping channels, as these sometimes provide clues from watching what is and how hard the marketers are "pushing".
The problem today for we investors is to attempt to determine for how long and how many of the old habits will remain in place; and have the adults began to change their spending habits enough to affect local and/or national economies, as well as the children they may have with them noticing and learning what is taking place.
'Course, many of the haves will continue their spending sprees; but this group can not support what has come to be known as a nominal growth economy.
It appears, from my periodic peeks via Michigan real estate sites and in particular, Zillow.com; that there are now more vacation homes listed this past spring (gotta try to sell in the warm months in MI), than there were 1 or 2 years ago. I also use this as an economic guage, at least for MI. My best guess is that....several reasons: Some of the older one's, as we are; have decided to sell, as the no one in the family can afford the realty taxes or no longer live in MI and the seller will take whatever they may get for a price. I am aware of this in one resort community that has had the presence of a family connection to the real estate/house for more than 100 years. Many of these homes are now going to move outside of the family.....well, if they can sell them. This is a major shift that I find taking place in this state. The newer generations of owners are those who are the parents of the baby boomers, the boomers themselves and some of their grown children who got a bit too happy with their money. These 3 groups are many times competing against one another in the same vacation communities to sell. The parent group, as mentioned; because there isn't anyone in the family who is interested, the boomers who may just want the money, don't want the extra realty taxes or the upkeep and may keep their first home and continue to be snowbirds to AZ or FL for 5 months of the year. Lastly, the 40 somethings who thought they could handle the monies involved with an "up north" vacation house just like mom and dad, or grandpa and grandma. Nope. I do believe some of them have come to realize that the rope is pulled pretty tight and any more will cause an unravel.
Added note at 3:30pm........I maintain that an unwind, will and is still working its way through the various levels ( which is probably an obvious thought ) of income production of American households and several more years will be required to find what may become "normal". Societal changes move slowly and even then, may not be recognized as a change until several years after the fact; not unlike a 3 or 5 year trailing return of a fund.
I don't know that you and I will be around to find a greater unwind of consumerism; but I do believe it has started and will arrive.
Hang in there on the Left Coast,
Catch
And if you and I can see the problem, then who exactly is Mrs. Merkel talking to? And why does she think that her suggestions should be followed? These are not stupid people... can they really be that cynical? That is what really baffles me.
Germany is in this position because cheaper Euro enabled their export driven economy to grow and country to enrich itself. Normally, under DM the market forces would make DM more expensive so that exports would become more expensive and it would be a limiting factor. Germany owes its competitiveness to Greece, Italy, Spain, Portugal. For competitiveness to restore Greece needs cheaper currency but it can't. The only way competitiveness is to be restored under current EU scheme is that Greece to devaluate its labor so they can make their products cheaper. I don't know how long this is going to work in this age of more automation and less labor.
Another example of artificial competitiveness is the case of China. Their cheap labor + artificially forced cheaper currency caused exports to grow abnormally destroying production in other countries.
Not every country can be Germany and China at the same time.
For each borrower, there has to be a lender.
For each seller, there has to be a buyer.
Some seem to feel that "productivity growth", which of course is a direct result of being "more competitive", is the answer to all of this. It must be very comforting to always have all of these answers, in stock at all times, ready to pull off the shelf. Me, I have a lot more questions than answers.
As a young person subjected to a fairly rigorous religious educational environment, I found that the frequent answer to my questions was "we must take these things on faith". Sorry, didn't work then, doesn't work now. Fresh out of "faith".
This may be a bit of a tangent note about the "what is competitive".
I must note that I do not have fact or data evidence to support anything.
Greece and/or other Euro countries have certain skill and engineering sets. I recall that Spain does piece work for Boeing, and Italy has a decent industrial base. France has been building autos for years; let alone nuclear units and safe high speed trains.
Obviously, the list is probably very long if one were to dig into a formal study.
However, as the $Euro is the common money of that region (countries/states); not unlike the $U.S. here (states), I will make an observation, that to me; has some linkage.
For Europe and the auto industry. Germany, France, Spain and Italy all have unions for various auto industry functions. I don't know (no facts), but will presume the wage scales are the highest in Germany; and add the blends of benefits, the total work cost/wage package suits the prevailing wage of a given country.
The same now applies to the U.S. U.A.W. union jobs in some states for the auto industry and not in other states. The exodus of auto manufacturing started many years ago with some U.S. work moving into southern states. European auto companies also made the same moves. Michigan and other union auto manufacturing states did not obtain this new work. So, the work; although not all union as perhaps in Europe did seek a wage scale deemed suitable by a company.
A big hmmmmm....eh?
The cost of labor is the easiest to measure.
A final nail in the shift of the cost of labor, at least in North America; was the passage of NAFTA, then GATT and tie into this the formation of the WTO. The time frames of these massive global trade acts began the end of the end of manufacturing as it had been known in this country for 100 years.
Relative to auto production; many component and final build centers went to Mexico. Throw in the technology and cheap labor from other countries and wham-o.
And don't ask about WTO, cause it is all a secret court system.
These battles exist today in MI, as well as in this country; let alone the Euro areas, too. I will presume the existing infrastructure that was available could have suited an auto company moving to MI, but I must consider the cost of labor was the biggest part of the equation to not locate in this state.
Technology places another final nail into the cost of a product, too.
The U.A.W. finally came around to a two tier wage scale, and I suspect this saved some work in MI.
Lastly, a few weeks ago I noted that I may purchase a Chrysler or Dodge mini-van built not too far away, in Canada. The name plate and world headquarters is located away and outside of Detroit, the company is owned by Fiat of Italy and many components for final assembly may come from 20 different other companies around the globe.
This is about as competitive as it becomes, eh?
I suppose the true measure is always going to be to the bottom line of a given company; and the workers are to some of the money counters, just a needed and measured piece of the total money pie.
I don't know that I really said much related to your original post; as I am a bit on the sleepy side of life tonight. Perhaps a few pieces were worthy.
Away to the pillow I must be.
Take care,
Catch
As you well know, here in the US we also frequently hear the "___ Must be More Competitive to Attract Jobs!". In this case, fill in your preferred state rather than EU country. My point is actually pretty simple: This "Competitive" mantra is just another empty slogan similar to the "talking points" mindlessly repeated by our congressmen.
It's just a bit more complex, isn't it? We can't be building cars in all 50 states, no matter how "competitive" each state may become. The truth is that there is only so much demand for any given product, and once competition has lowered the product cost to a certain point anything beyond that equals bankruptcy, no matter how efficient and competitive you are.
In the US we have a fairly high level of common history and values between the states. Sure, the south is more competitive in some areas because of the anti-union bias there, but there are always offsetting factors for other states, such as education, climate, population density, growing conditions, whatever.
The European situation is much more complex, because you have languages, customs, variables in work ethics/attitudes, variables in governmental structures to a much greater extent than we do here, and an environment fraught with historical landmines.
The oft-heard "Productivity Mantra" is just that- a simplistic, often nationalistic jingoism, actually pretty meaningless when you start taking a hard look at it.
Talk to you later-
OJ
For further discussion of these economic actions, see: http://en.wikipedia.org/wiki/Beggar_thy_neighbour