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The Financial Times‘s Washington bureau chief Edward Luce—who if you ask me, is one of the sharpest Washington observers around these days—discussing Larry Summers departure:
Put simply, they see him as the face of a paradigm that has outlived its usefulness – the view that globalisation is an unmixed blessing for the US economy, and that America’s disappearing manufacturing jobs will be replaced by high-value jobs in the service sector. Things do not appear to be working out that way.
Take Applied Materials, a big US manufacturing company, which earlier this year shifted its chief technology officer and research and development operations to China. The company said it needed its R&D to be close to the source of its manufacturing operations and to its biggest future market. This is the opposite of what is supposed to happen. America was meant to keep the high-end jobs at home, while China would get all the low-value added production.
But in practice researchers benefit from proximity to the production processes, which require constant trial and error. A cursory look at the US’s trade deficit illustrates the trend. Far from importing low cost manufactured goods, the US is buying high-tech stuff from such countries as China and Brazil, including aircraft engines, computers, turbines and heavy duty trucks. And it is exporting growing volumes of low-tech stuff, including pulp and paper, oil seeds and other commodities. People who lose their jobs in the US are on average moving to jobs that pay roughly a fifth less than their previous jobs. Others are having difficulty finding any jobs at all.
— Speaking of China, the administration is finally trying to get tough—or at least it’s talking that way—on its currency manipulation, which makes our exports more expensive there and its imports more expensive here (by some 40 percent). This is a big-time important story. As Marketwatch puts it in a headline, “U.S. workers pay for undervalued Chinese currency.”
The New York Times, appropriately, sticks this as its second story on page one:
Mr. Obama’s aides said he was embracing the threat of tariffs and new trade actions against China at the World Trade Organization to gain some leverage over the Chinese, but was also trying to head off any action that would lead to a destructive trade war.
The Wall Street Journal stuffs the news on A19 and doesn’t mention Obama’s embrace of the tariffs threat.
— Warren Buffett biographer Alice Schroeder takes on Buffett sidekick Charlie Munger, the billionaire bailout beneficiary caught telling hurting Americans to “suck it up and cope.”
She spells out nicely what I was getting at the other day:
Apart from what some might consider his tasteless hyperbole, the problem is the false dichotomy it presents. The choice wasn’t between the bailout or no bailout. It was between the bailout we financed, which didn’t resemble capitalism in any known form, and a bailout more intelligently executed.
No one made us bail out shareholders along with the banks’ bondholders. We didn’t have to preserve institutions that are still too big to fail in any meaningful sense of the term. We could have propped them up temporarily, then recapitalized them as smaller, more manageable entities, with former equity holders assuming the cost of the risk they assumed.
We missed the chance to reduce systemic risk by comprehensively rewriting regulation for the financial-services industry. Instead of withdrawing government guarantees, we increased them. So there are plenty of reasons to complain about the bailouts.
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