

Scary thought: Maybe the Rust Belt is the whole U.S. now?
 - tc
http://blogs.law.harvard.edu/philg/2008/03/15/scary-thought-maybe-the-rust-belt-is-the-whole-us-now/

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ChaitanyaSai
Articles of this kind always confuse me. Is the thesis that the US is now an
unfavorable destination for money? Putting aside currency and liquidity flows,
which also confuse me, how about talking about economic activity as a barter
system where paper monies are convenient proxies for a million linked IOUs. We
all produce a bit of something and trade with it. Now it seems like the author
is likening the US to that guy who washed ashore on an island inhabited by two
others who have already captured all sources of food, shelter, and
entertainment between them and trade in a perfect harmony. The guy who washed
ashore, having nothing to offer, will die. However, comparative advantage
suggests that even the entity that is not foremost in any activity can eke out
a living by creating/manufacturing the stuff that has the lowest opportunity
cost of production? Metaphorically speaking, the US will at the very least get
to ask the others if they want fries with their fish sandwiches. And that is
in the bleak scenario that the US slips overnight into a sweeping mediocrity
in all fields.

This is hardly true. Despite many legitimate concerns, the US is a definitive
leader in pharma, entertainment, technology, and education.

"Our college graduates are roughly equivalent in ability to other nations’
high school graduates (story) and a lot of our high school graduates could not
compete on the world market for any jobs other than manual labor." This
statement is misleading, the US happens to send a very large percentage of its
population to high schools and colleges. The median student is, of course, not
going to be as smart and able as the median student in India where only a
really really tiny percentage of the population has set foot in a classroom.

<http://blogs.ft.com/crookblog/files/2008/03/kierkegaard.jpg>

Even the percentage shown in that graph is probably over counting using a very
lax definition of college: I say this not as someone speculating on the basis
of some internet research, but as a product of the Indian schooling system.

And, this might be a stretch, so what if the average graduate is not as smart
and intellectually competent in a narrowly defined sense? We became soft and
pudgy after physical prowess stopped determining survival probability and
reproductive success in industrial and post-industrial eras, so what if we (on
average) do become thicker in the post-information era where we have cognitive
aids for almost all functions?

~~~
michaelneale
I think the college years in the US are partly similar to the senior years of
what other countries may call senior high (it is that way in Australia) -
generally that would be an exageration though to say that they are equivalent
- and its kind of just a terminology thing. College does go further then
seniour high though. End result of a university degree would be comparable I
would think (for an undergrad) - on average (of course the US has outstanding
top end universities which probably don't compare, or if they do they compare
to very very few unis around the world).

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jfornear
A scary thought is really all this is.

Yes, we have our problems, but India and China do too. We have Iraq, they have
Pakistan and Tibet. We have a falling dollar and a mortgage crisis. They have
overcrowding issues, a transportation crisis, and environmental problems (to
say the least)... I don't know about you, but the emerging middle class in
Asia and the Middle East just screams instability to me.

The US on the other hand, will continue to provide a low risk and relatively
stable environment for investing, especially if we can figure out a way to
strengthen the dollar. (Though we've heard interesting theories on how it
could rise naturally as exports become less expensive to foreigners and
imports become more expensive to us. Domestic savings would rise, economic
growth, etc.)

On a sidenote, I don't understand how Philip can truly believe universities in
the US are inferior. I thought everyone was in general agreement that we had
the best universities? I even personally hang out with a Saudi student who
comes from Middle Eastern oil money. He could afford any school in the world,
and he chose little SMU in Dallas... Would Philip consider MIT or Harvard
inferior? I wish I could go to MIT or Harvard...

Overall, the article brought an interesting idea to the table. I just have
trouble seeing growing economies in India and China as a bad thing for the US.
I don't like how some Economist's love to bring India and China into the mix
only to instill fear.

~~~
timr
He didn't say anything about US universities. Here's what he wrote:

 _"Our college graduates are roughly equivalent in ability to other nations’
high school graduates, and a lot of our high school graduates could not
compete on the world market for any jobs other than manual labor."_

You'll also note that he cites an article to support the premise. That said,
having taught a few senior-level courses at a top-tier university, I think
he's right. The quality of undergraduate education at most schools is abysmal,
especially large public schools.

Top US universities are best known for their _research programs_ , not their
teaching. (Thanks to drastic cutbacks at the NIH and NSF, even that lead is
threatened, but that's another story....)

~~~
jfornear
That makes more sense... and apparently I am living support for that
assertion. Reading comprehension FTL.

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iamelgringo
I'm calling FUD. There's a lot of press out there talking about what rough
shape the economy is in. It makes for good copy, and it sells ads. But
ultimately, I think we're just in a correction.

Iraq: We've got to stop spending money on it period. I agree. It's just silly
and artificially inflating oil prices.

Dollar devaluation: It's actually a good thing for the US economy and the US
consumer, but it's going to cause the rest of the world to suffer a bit. A
weaker dollar means that US goods will be cheaper relative to foreign imports.
This will be good for the US tourism and manufacturing sectors. Cheaper US
products, mean that more people will buy them over seas. Other countries are
going to have a harder time selling to the US, because their products just
went up 30% in price because of the exchange rate. The dollar is being
devalued on purpose in my opinion. It's the only way to correct the trade
deficit.

Expensive Oil: This is going to make us tighten our belts, and it will spur
growth in other energy sectors aside from fossil fuels, which in the long run
only makes sense from a geo-petro-political perspective and a environmental
perspective. I'd love for oil to be at $200 or $300 a barrel. There'd be a lot
more economic incentive for electric cars and nuclear power plants. Short term
pains, long term gains.

US schools: I don't see tons of US students going to Europe, China or India to
study. I still see many students trying to get in to US schools, however. And,
it's not so much the quality of education available, it's that pretty much
anyone can go to any school (aside from the 20-30 highly selective schools).
Education in other countries is heavily subsidized, and it's hard for people
to go back to school. In many countries, you're told what schools you can
attend, and what majors you are able to take. You don't have the flexibility
that we have here. It's one of the essential strengths of the US economy. I've
been an ER nurse for 14 years, and I'm going back to school for software
engineering. I've attended the University of Maryland online while moving to 2
different states and 4 different cities. I haven't heard of any other country
that has that type of educational flexibility. I work with a number of nurses
that use to be engineers, or flight attendants, or ministers. The average US
worker has 7 different careers in their lifetime. You simply don't have that
fluidity in other countries. It's that fluidity of labor markets that gives
the US a big part of it's edge in the international market.

Foreign investment: If a US company invests in a manufacturing plant in India,
and the Indian manufacturing plant succeeds, where do the profits end up? On
the balance sheet of the US company.

Foreign competition from India/China: I have a friend who's job is to ship
servers to India/China. The bureaucracy is so convoluted, it takes them 2-6
months to get a server or a SAN through customs. Many other countries aren't
used to working on Internet time. I have another friend who worked for Big
Internet Co. here in the valley, and he's planning to leave to go back to
India in the next 2-3 years. He says that salaries are pretty much at a
parity, when you compare the costs of living. In other words: outsourcing is
no longer cheap labor, it's just finding available engineers.

US as a bad place to invest: Okay, when you buy a stock, say GOOG. Do you want
to buy your shares of GOOG stock when the price is at $800 a share and hold
it, or do you want to buy those shares when it was at $87 a share? You want to
buy it at $87 a share because then the price will appreciate. The idea is to
buy low and sell high. Too many people buy when there's hubris and giddiness
in the press (e.g. buy a house in 2006 or Internet stock in 1999) and sell
when there's panic (e.g. sell a house today or tech stocks in 2001). Phil is
falling in the same mistake. He's encouraging people to sell their US stock
when it's low. This is a great time to invest in the US. It's a great time to
be here. It's a great time to buy a house, if you can afford it. Why? Because
things are going to appreciate after all this FUD dissipates.

Finally: Compare the number of posts on Hacker News and elsewhere that say:
"How do I move to India/China/Europe to start my startup" vs "How do I move to
the US to start my startup"?

~~~
kingkongrevenge
> Dollar devaluation: It's actually a good thing for the US economy and the US
> consumer

I agree with everything but this claim about the falling dollar as a benefit.
The falling dollar is a way to default on international debts. It is also
outright theft from those who have saved in dollars.

This idea that a falling currency means boosted exports is empirically
challenged. If you measure in terms of the devalued currency, then yes, more
money is received. But it's money that is worth less, so the change is
essentially meaningless. In terms of actual physical exports, with a couple
exceptions, falling currencies have not boosted manufactured exports in
industrial economies. The more obvious historical correlation is a trade
surplus and a strong currency. A falling dollar will probably boost the share
of existing commodity production that is exported more than it will stimulate
new manufacturing. That is a bad thing in that it basically means Americans
are finding themselves outbid on their own crops. It means people eating less
meat because they can't afford it anymore.

~~~
iamelgringo
* The falling dollar is a way to default on international debts. *

Isn't that what third world countries have been doing for decades? :)

I hadn't really thought of the increase in export volumes would essentially be
zero sum because of the fall in value. Good point.

I don't know. I've been of the impression that the US dollar has been
overvalued for quite some time, however. You can't keep running the trade
deficit's that we've been running for decades, and expect the dollar to stay
strong.

Essentially, what I think is happening, is that the whole world has been
running up the prices on the Dollar for decades by using the Dollar as a
benchmark and holding currency. And, now the market is correcting itself, and
buying the Euro instead. The Dollar has never really had a decent competitor
until the advent of the Euro.

While I certainly don't think that it's going to be good for us in the short
term, I do think that it's going to knock some financial sense into us. We've
been living on credit cards for far too long as a country, and now we're going
to have to pay off the credit card bills. I'm okay with that.

------
ojbyrne
Philip was more interesting before he retired. There was some optimism mixed
in with the bile.

~~~
ojbyrne
In case I was a little too indirect for you, that was not an ad-hominem
attack, it was a criticism of the article disguised as an ad-hominem attack.

And as I said in a comment on Philip's blog, all of the stuff he is talking
about is priced into the exchange rate. And since the dollar's value has
dropped drastically in the last few years, the US has been a terrible
investment for the last few years. Going forward, it might not be so bad,
because all the bad news has been priced into the exchange rate (perhaps).

I had lunch with Mr. Greenspun once upon a time. I remarked after, that it was
amazing how he managed to insult all seven nationalities at the table in an
hour long lunch. But his writings before the Ars-Digita blowup and subsequent
settlement were much more enjoyable because they had a "call to action" of
sorts. Things were crappy, but you as an individual could make a difference.

Now his writing is basically "the world is screwed, and Americans are morons
for not realizing it."

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sabat
This article presumes that the US economy is based entirely on making things
-- physical things.

