America is about to undertake "its biggest transformation in decades" | Hacker News Reader

America is about to undertake "its biggest transformation in decades"

economist.com

106 pointscwan31 comments

Having a trade deficit to a developing country is like giving them a loan. (My economics teacher)

The Relation the US had with China in the last years, reminds me a lot of the Japanese-Korean situation in the 1980s. Japan outsourced labor intensive work to South-Korea because it was cheaper there. Over time South-Korea became very wealthy and the labor costs were to high to continue to outsource. But this was great news, because the South-Korean now had demand for Japanese products.

The same story happens to US/China, once Chinese reach a certain wealth, they will be able to afford US products.

The other reason why I do believe this will happen rather quickly is this chart:http://www.businessinsider.com/scariest-jobs-chart-ever-febr... If this chart is true, all the laid off consumers will drive the domestic demand down. So clearly the only possible growth is in other countries.

The same story happens to US/China, once Chinese reach a certain wealth, they will be able to afford US products.

And which products would those be?

Ask and wikipedia answers: http://en.wikipedia.org/wiki/Economy_of_the_United_States#Ma...

And that's not counting agriculture or services. Here's a full breakdown of the economy (not all of which is applicable to exporting):

http://en.wikipedia.org/wiki/Economy_of_the_United_States_by...

As that first link notes under Manufacturing:

A total of 3.2 million -- one in six U.S. factory jobs -- have disappeared since the start of 2000.

So, I think this trend would need to reverse. This recession alone has displaced 8 million.

If Chinese income rises to the point where its middle class can afford to buy American products, I fully expect a lot of manufacturing to be coming back onto this side of the ocean.

I could see that happening, namely with cars, which is why I think it's important to have a strong car manufacturing industry (and another reason to save GM). However, one caveat I think is we need to place higher importance on quality, not just with cars but American products in general. If China has gotten good at the role of producer after these years, and the U.S. as consumer, and that suddenly flips... I'm not sure how smoothly that would play out. A lot of people could potentially eat our lunch.

Not true. Factory jobs have gone down, but production goes up. That's due to efficiency gains.

http://www.fivethirtyeight.com/2010/02/us-manufacturing-is-n...

Sorry, the word "product" was missleading.

Well, obviously the US is not specialized in producing physical goods, but it is the world-leader in the service industry. The best Software is developed in the US, the most knowledge created in the past 100 years came from the US. The service market is much bigger than the product market already.

Yes, but you can't export [many services]. So, I'm guessing we should prepare to welcome our new overlords here?

Edited: to clarify "service" since people seem intent on downvoting. I wish people would make a counter comment rather than issue a downvote, as that would seem to be more beneficial for everyone involved.

I think that you are thinking of 'service' very narrowly. Every time someone in .Germany searches google or reads HN, the US has exported a very tiny service.

It's true that I tend to take a narrow economic view of exported 'service', but that's because the kinds of people displaced by this recession, and the ones likely left out of finding work in a transformed economy would not be the ones that are highly skilled/technically inclined.

That may be true and it's why a GDP recovery is not necessarily a jobs recovery. It could very well be that the US manages to export more, import less oil, turn the current account deficit around, and still suffer from high unemployment.

I completely agree. I don't know where many jobs would come from, if not created by consumer demand. Even with a weakened dollar American workers will not be on par with Chinese workers, and there won't be enough high paying jobs to go around.

Try telling India that.

That's a good point. I suppose we could man some phone banks, and provide digital services as well (although this poses a challenge of learning the host customer's language, instead of expecting everything to be English). However, I still think the majority of services would be in the hospitality industry.

I accidentally upvoted you. So now I feel obligated to make the obvious point that, um, ever heard of consultants? Outsourcing? That whole Information Superhighway thing wasn't just a fad, you know.

One of the products they specifically listed was software. <Insert irony here.>

And US will have to go through http://en.wikipedia.org/wiki/Easter_Island phase

There is still the catharsis to go through.

What I'm referring to is a J-curve http://en.wikipedia.org/wiki/J_curve where the currency gets smacked hard -- say 2-1 -- and the trade deficit gets worse because terms of trade changed and you can't get rid of oil dependence overnight. Exports recover because the American worker is closer to par, in terms of costs, with the Latin American and Chinese workers. But it won't be pretty, and it'll really, really hurt. Just as things are darkest just before the dawn, things'll get bleaker for a while before Americans see this through.

I agree that this is a possibility. In the end how quickly America pulls through depends on how well it makes the 'transformation' to more sound consumer spending.

While this article seems pretty strong on economics(can't really judge , not an economist) , it fails to mention technology's impact , and the fact that today we have many industries being disrupted which was never the situation before the internet.

They give as an example the fact that intel is growing. but what happen if ARM wins in the processor battle in the next few years ? won't it change who is importing and who is exporting ? and at what price? The same can be said about Hollywood. they are under immense pressure from free/ad-based online video. this kinds of pressure gives an advantage to content that's cheaper to produce. this isn't very good for the u.s. industry.

So while this article is very optimistic about the exporting more, it would be a major challenge.

I don't think I'm smart enough to understand. The companies in this article are proud to have shed jobs to become leaner and focused ... on what customers that have jobs to buy their products and services?

The basic conundrum, to me, is that there is no such thing as an economic recovery with no job growth. If people can't earn money, how do they spend it? If they can't spend money, how does the profits get reentered into the company's balanced sheet so that the company can invest in new products and services to grow? If a company can't grow, how does it employ new workers to buy things?

It's not that simple, but really, is it really that difficult to comprehend?

If your mental model of the country is that it currently contains zero employed people, it should not be surprising that your mental model produces nonsense results. GIGO holds on mental models too.

The article answers that question. In one word: Exports.

If the US is going to become export-oriented, who will we be exporting to?

The world economy has been polarized between export-oriented developing countries and the import-oriented United Stated. If No country is import oriented, what then? Japan and non-China Asia are suffering as much as US through the recession and they are ultra-export oriented.

The US became THE importer over the last twenty year. Even the other export oriented nations will have a hard-time without the US.

What's the answer here?

The answer is to create some kind of a balance. Currently the US has a large trade deficit. If the US imports goods and resources, but doesn't have goods/services/whatever to export in the same range, then the US will have the trade deficit for many years to come and the numbers add up. If it isn't possible to export more, than the US might want to reduce imports and generally build a more sustainable economy.

The balance is going to be at a different point than it has been for most of the last forty or fifty years, though. Americans will likely not be as rich relative to the rest of the world as they have been.

The answer is to create some kind of a balance

I agree that if the world economy is going to attain anything like health, such a balance is going to have to be achieved.

The question is what kind of balance is it going to be?

Back when mercantilism was the prevailing system, England and France would trade but trade for things that, broadly speaking, the other actually wanted. Nowadays it's like the US is trading for all this random-ass shit it doesn't need because its poor all need to get by in a country with many cabals (medical costs, education costs, housing, necessity of having a car, etc).

Those who have the money, that is oil exporters and the Chinese, will need to import from the US. The money they have accumulated is to a large extent stored in US treasuries. They will need to use that money now to buy US exports and US assets or lose everything through inflation.

Does this mean that investments going into the US will decline?

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