Email exchange about business

1) trade deficits are not bad for the us or for any other country. we are still gaining from comparative advantage (other countries make things better/cheaper/etc. and we gain from that as we give them what we are relatively better at (like human capital, which isn't included in trade balances)). remember the corn for beer example? even if china can make everything more cheaply than we can, if the cost of corn relative to beer for us is less than taht in china, it makes sense for us to make the corn (relative vs. absolute advantage). there is a LOT to be said about why trade deficits are NOT bad, although you don't actually want them to be ginormous b/c of the way we pay for them and thus end up investing more in other countries (which is ironic, b/c when other countries invest a lot in us we tend to cry about it, too, although why would that be bad? it's nice if someone else wants to give us capital).

I'm sure you know a whole lot more about trade deficits that I do, but I'm just going on what I read in the papers, which is that people are worried about trade deficits with countries like China. Isn't it at least a little troubling, just the idea that they make much more stuff that we want, and not vice versa? I buy the idea that we have intangibles and human capital that don't go on the ledgers, but there's a limit to that, and there's a limit to which the US has these magical human factors that makes it competitive. I mean, other countries have better educational systems that are improving, and we have an incredible elite tier of universities (which are the sources of so much American innovation and creativity) and many underperforming universities. And can an entire export economy really survive on human capital alone? I don't know, it sounds unsustainable. Richer countries are going to find a way to import our innovators and our best educators and then leave all the uneducated people out to dry.

If we take the cases of Germany or Japan after the Industrial Revolution, both countries hired out the English innovators in technology and eventually adopted their techniques, getting better and better while the English basked in their glory until their industries got bloated and bad. Japan, example, had to erect tariff walls to protect the new industries (this wasn't to their comparative advantage in the short term), but it developed a very strong sense of dedication and teamwork and soon enough the industries were good enough to lower the tariff walls (This is all taken straight from David Landes' "Wealth and Poverty of Nations"). I'm afraid the US is finding itself in England's former place, thinking that the free market and intangible human factors will carry the country to eternal prosperity, even as other countries start doing things better than we can. On the other hand, if we take Germany's approach to industrialization and recognize that we need help from businesses that are beating us, we'll have a chance of being competitive. Again, to avoid competition by saying that we have special comparative advantage in these magical intangibles makes me skeptical. I mean, do we think that this human capital will ever disappear or show up in other countries? I wrote about Hollywood in my blog.


2) self-interest should NOT lead to poor quality - rather it should improve quality as in the case of software, as Mickey notes. That's why the Japanese and European companies do so well, right? they fight to protect their reputation as suppliers of high quality goods (self-interest) by producing high quality goods and using advertising, and so their market share is increasing while american market share is decreasing. this is competition driven by self-interest and it is good that american market share is decreasing b/c our car companies for example are shitty. so if they want to get more market share, they need to up their quality - this is all driven by the invisible hand, driven by self-interest & competition blah blha.

Also, the governemtn of coruse has its role and should prevent some of these mega-mergers to prevent the loss of some of the comeptition within the us.

i think maybe mickey thinks self-interest leads to poor quality b/c this is of cousre what can happen if one company has significant market power, but that is why self-interest shoudl defeat this, right? consumer self-interest and the self-interest of other companies trying to make it should be able to defeat this, excep tin teh case of extremely high barriers to entry or natural monopolies (and in these cases the govt should step in).

Let's clarify what I mean by self-interest. I'm talking about the idea that for businesses, profit/growth is good, and more profit/growth is better. Maybe self-interest wasn't the right term for that. But I think we're mostly on agreement about this point -- that mega-size businesses are bad, especially mega-size business that only care about the bottom line. Not only do they stifle competition, but they force us consumers to accept bad products and lower standards. When the product gets so bad that foreign countries don't want to buy it (like cars and food), then I think it might be an economic problem, plus it's degrading to the consumer. My opinion is that our insurance, pharma, agro, car (GM), media (ClearChannel) and retail (WalMart) companies are already too big and not restricted enough by the government.

I'm not sure if saving the car industry is just a simple matter of "upping the quality" -- it's about changing work ethic, educating better engineers, negotiating better labor relations, etc. -- and I think the car makers are going to have a very hard time doing that, because it's about changing business culture. It's about creating high standards and trust to enable cooperation, and once businesses have been soiled by excessive focus on the bottom line, I'm not sure how easy it'll be to turn around (We agree that new American companies with new cultures -- especially in software -- are doing this best. But they have it easy, because they only have to employ highly-educated workers and robots).


3) that leads me to how the farming system is propped up by subsidies. this is NOT what economists want. it's stupid and fucks over developing countries who could sell us much cheaper produce. this is a restriction on free trade nad of course fucks over american consumers. it only helps farmers but they have a stron globby and therefore congress will not let go of these terrible subsidies. yes, this is driven by self-interest, and i agree that if consumers would have the "spirit of cooperation" as mickey indicates, they could probably defeat these lobbies. that said, this will probably not happen soon b/c each consumer is hurt by like a penny in comparison to the million dollar loss this would entail to the lobbies (ie each individual consumer does not feel a compelling urge to fight this whereas farmers' livelihoods are propped up by the subsidies so they do). this just sucks and makes me sad.

Agreed, our farm subsidies are ridiculous. But who's doling them out? Ignorant people in Congress supported by ignorant people in the states. How do we stop reactionary lobbying? By freeing politicians from dependency on campaign contributions. Our campaign finance situation is a true disgrace.

4) Europe and germany in particular have their own issues. ridiculous unemployment rates etc. etc. also, the US doesn't produce terrible goods - we jsut don't have the advantage in manufacturing and agriculture anymore, as our advantage tends to lie in intangible goods like human capital. look at even the entertainment industry - sure bollywood and european cinema export a lot fo films, but i would say the US is relatively dominant in the movie industry.

Germany definitely isn't perfect, and I saw that the unemployment rate has been hovering around 8 and 9 percent, with the US between 4 and 5 percent. But compared with the advantages of the generous welfare system, health coverage, vacation days, unemployment doesn't hurt nearly as much as in the US. Once more, I'm skeptical about whether we really have any long-term advantage in the intangibles.

5) money doesnt' buy happiness but a shitload of social science data does show that people are happier the richer they are in comparison to those around them. ask shanshan for her thesis.

Happiness is so hard -- SO HARD!! -- to measure. I took a psych class about measuring happiness. I take the perspective that I can only assess my own well-being, and I assume that others act like me, and I have a very hard time filling out happiness surveys. From my own experience, I've seen so many people who are relatively wealthy and insecure, and many people who are relatively less wealthy but more satisfied with life. I know happy super-rich people, miserable super-rich people, and everything inbetween. I think that the only healthy generalization is that money buys happiness, up to a point.

6) in the repeated prisoner's dilemma, cooperation can arise from self-interest naturally as in a repeated game it is in your interest to play the "good" strategy as there is possible punishment tactics.

Agreed, which is why I think the deserters -- exploitative or excessively selfish businesses -- have to fail or change eventually. I just worry that they'll bring ordinary people and good business down with them.