The Jobs and Growth Act of 2003

[Igetp2s]

http://www.fxstreet.com/pdf/acrobat.asp?pv_plana=/images/graf/USD_policy_july_2003.pdf

"Further many prices are set for a longer term, in this case Mercedes sets a price now and lives with it for the year."

"But this is years and for that reason if Snow or anyone else tells you how much better a cheaper dollar makes things for the US, be sure to be skeptical and certainly don't expect it to matter within years, if ever. "

LMAO. Long posts doesnt mean you know what your talking about.

 

[RalphJ]

Brazil has had a terrible economy for years, yet their rates are sky high because of inflation related to currency speculation and high levels of debt.


The best interest rates today in Brazil for loans are in the neighborhood of 5% per month. And that is a GREAT rate. Normally you can expect to pay in the neighborhood of 6-7% per month. Conversly, if you have money it is the best place in the world, as far as interest is concerned. With 100,000 reais, which is around $33,000, you can earn around 1.5% interest per month. The main concern though is the out of control deficit which 10 years ago forced the gov't. to do what Argentina recently did which was to only allow access to a small, specified amount of your own money in a specified time period.

 

[lander]

Ralph,
I believe Argentina has stopped that practice since electing their newest President.

I was something ridiculous like only allowing $300 USD per week in w/d's (i think).

What was Brazil's limit?

 

[radiofreecostarica]

Enslaved by Free Trade

The West became rich by ignoring patent rules and protecting its industries. Poor countries should be allowed to do the same.

By George Monbiot. Published in New Scientist 31st May 2003


The founding myth of the dominant nations is that they achieved their industrial and technological superiority through free trade. Nations which are poor today are told that if they want to follow our path to riches, they must open their economies to foreign competition. They are being conned.

Almost every rich nation has industrialised with the help of one of two mechanisms now prohibited by the global trade rules. The first is "infant industry protection": defending new industries from foreign competition until they are big enough to compete on equal terms. The second is the theft of intellectual property. History suggests that technological development may be impossible without one or both.

Britain's industrial revolution was founded upon the textile industry. This was nurtured and promoted by means of ruthless government intervention. As the development economist Ha Joon Chang at the University of Cambridge has documented, from the 14th Century onwards, the British state systematically cut out its competitors, by taxing or banning the import of foreign manufactures and banning the export of the raw materials (wool and unfinished cloth) to countries with competing industries.1 The state extended similar protections to the new manufactures we began to develop in the early 18th Century.

Only when Britain had established technological superiority in almost every aspect of manufacturing did it suddenly discover the virtues of free trade. It was not until the 1850s and 1860s that we opened most of our markets.

The United States, which now insists that no nation can develop without free trade, defended its markets just as aggressively during its key development phase. The first man systematically to set out the case for infant industry protection was Alexander Hamilton, the first Secretary of the US Treasury. In 1816 the tax on almost all imported manufactures was 35%, rising to 40% in 1820 and, for some goods, 50% in 1832.2 Combined with the cost of transporting goods to the US, this gave domestic manufacturers a formidable advantage within their home market.

Protectionism was arguably a more immediate cause of the American civil war than the abolition of slavery. High tariffs helped the northern states, which were industrialising rapidly, but hurt the southern states, which remained heavily dependant on imports. The Republicans' victory was the victory of the protectionists over the free traders: in 1864, before the war ended, Abraham Lincoln raised import taxes to the highest level they had ever reached. The US remained the most heavily protected nation on earth until 1913. Throughout this period, it was also the fastest-growing.3

The three nations which have developed most spectacularly over the past 60 years - Japan, Taiwan and South Korea - all did so not through free trade but through land reform, the protection and funding of key industries and the active promotion of exports by the state. All these nations imposed strict controls on foreign companies seeking to establish factories.4 Their governments invested massively in infrastructure, research and education. In South Korea and Taiwan, the state owned all the major commercial banks, which permitted it to make the major decisions about investment.5 In Japan, the Ministry of International Trade and Industry exercised the same control by legal means.6 They used tariffs and a number of clever legal ruses to shut out foreign products which threatened the development of their new industries.7 They granted major subsidies for exports. They did, in other words, everything that the World Trade Organisation, the World Bank and the IMF forbid or discourage today.

There are two striking exceptions to this route to development. Neither Switzerland nor the Netherlands used infant industry protection. Instead, as the economic historian Eric Schiff showed in Industrialisation without National Patents, published in 1971, they simply stole the technologies of other nations.8 During their key development phases (1850-1907 in Switzerland; 1869-1912 in the Netherlands), neither country recognised patents in most economic sectors.

Switzerland's industrialisation took off in 1859, when a small company based in Basel pilfered the aniline dying process which had been developed and patented in Britain two years before. The company was later named Ciba; more recently, after a series of mergers, it became Novartis and then Syngenta. In the Netherlands, in the early 1870s, two enterprising firms called Jurgens and Van Den Bergh nicked a patented French recipe and started producing something called margarine. They later merged to form a company named Unilever. In the 1890s, one Gerard Philips stole Thomas Edison's design for incandesent lamps, and founded Europe's most successful electronics company.9

The nations which are poor today are forbidden by the trade rules from following either route to development. New industries are immediately exposed to full competition with established companies overseas, which have capital, experience, intellectual property rights, established marketing networks and economies of scale on their side. "Technology transfer" is encouraged in theory, but forbidden in practice by an ever fiercer patents regime. Unable to develop competitive enterprises of their own, the poor nations are locked into their position as the suppliers of cheap labour and raw materials to the rich world's companies. They are, as a result, forbidden from advancing beyond a certain level of development. While there is no sound argument for permitting rich nations to protect their economies, there is a powerful case for permitting the poor ones to follow the only routes to development which appear to work.

George Monbiot's book The Age of Consent: a manifesto for a new world order is published on June 16th by Flamingo.

References:

1. Ha-Joon Chang, 2002. Kicking Away the Ladder: Development Strategy in Historical Perspective. Anthem Press, London.

2. ibid

3. ibid

4. Mark Curtis, 2001. Trade for Life: Making Trade Work for Poor People. Christian Aid, London.

5. John Brohman, April 1996. Postwar Development in the Asian NICs: Does the Neoliberal Model Fit Reality? Economic Geography, Volume 72, Issue 2.

6. Takatoshi Ito, 1996. Japan and the Asian Economies: a “Miracle” in Transition. Brookings Papers on Economic Activity, Issue 2 (1996). The Brookings Institution, Washington DC.

7. Graham Dunkley, 2000. The Free Trade Adventure: The WTO, the Uruguay Round and Globalism. Zed Books, London. First published in 1997 by Melbourne University Press.

8. Eric Schiff, 1971. Industrialisation Without National Patents: The Netherlands, 1869-1912; Switzerland, 1850-1907. Princeton University Press.

9. ibid

 

[Igetp2s]

"While there is no sound argument for permitting rich nations to protect their economies, there is a powerful case for permitting the poor ones to follow the only routes to development which appear to work."

Obviously this is not an economist talking.

I also always was under the impression that the South were the exporters, not importers.

 

[radiofreecostarica]

You're under the wrong impression.

 

[WildBill]

I give up. I write responses on things and then often get one or two sentence responses telling me I don't know what I am talking about. So what is the point of putting any effort into trying to explain things that are poorly explained by the media if you just get people saying you are wrong with little to back it up other than some vague article by currency traders?

 

[radiofreecostarica]

I was referring to this blanket statement:
"I also always was under the impression that the South were the exporters, not importers."

Latin America imports much more North American goods than vice versa.

 

[Igetp2s]

Radio, I think we are misunderstading each other. I was talking about this part of your article:

"Protectionism was arguably a more immediate cause of the American civil war than the abolition of slavery. High tariffs helped the northern states, which were industrialising rapidly, but hurt the southern states, which remained heavily dependant on imports."

I meant that I thought the Southern US States were exporters, not importers. I wasnt referring to Latin America. Sorry for the confusion.

 

[Igetp2s]

Wild, the currency article is not exactly vague. It is actually pretty clear. Currency fluctuations have an immediate impact on international business, not as you claim three or more years later if ever.

You were pretty much arguing that there are no needs for having forwards contracts, no reason to measure inflation monthly as prices pretty much wont change for another year, no reason for business exeuctives to worry about hedging their net FC positions.

I wish you were right, my international accounting and business classes would have been a lot easier without all those headaches.

 

[lander]

Good stuff guys.

How would you assess the signifance of the HUGE deficit courtesy of George & friends? Do you think the media is over-hyping it?

I read somewhere that between the budget & trade deficits each American would have to throw in 70K to pay these debts. Sounds pretty bad to me.

 

[WildBill]

The article is vague, its all speculation. They are saying Snow says this, but if he meant this he would stay that. Its called COMMENTARY, that is why I say its vague.

The Bushies and their manufacturing supporters are mistaken. Yes currency changes have immediate hits to their bottom line, but those are profit and loss issues. To be competitive, to be stable, to be accepted in their markets they operate on a much different basis. If you go and buy simple commodities then the prices change everyday. Thing is that this economy is based on final goods for much of its inflation. The two categories that are commodities based are food and energy and guess what every time they talk about inflation they always strip those out for "core" inflation. The rest of the economy tends to price in more set terms. If the cost of currency exchange changes then the companies will either gain or lose some as well, they usually won't change prices for longer periods of time. To avoid the risks involved a lot of companies have chosen to build in the US or Mexico, where they can assure their margins are better met, yet they can't assure the level of profit that comes home. This is one of thousands of hedges a company can take. However, once again, hedges are just a function of profit and loss, they don't change the competitive landscape and pricing landscape very quickly. For this reason I scoff at all this foolish talk of how manufacturing is going up now because of the weakened Euro, that can't be but more than 10-20% of any reason for an uptick. And the stupid thing about all this is the fallacy this causes. Bushies do this because its yet another special interest group they are trying to sell out to. Now its about labor and manufacturing. "We lowered the dollar for you and your jobs, vote for me". Yeah right, and what about the 80% of the economy that will eventually pay higher prices thanks to it???

 

[Igetp2s]

"The article is vague, its all speculation. They are saying Snow says this, but if he meant this he would stay that. Its called COMMENTARY, that is why I say its vague."

The commentary is on speculation towards what the intentions of Bush and Snow are. What the impact of a weakened dollar would be, however, is not even debated because it is a given.

"Yes currency changes have immediate hits to their bottom line, but those are profit and loss issues. To be competitive, to be stable, to be accepted in their markets they operate on a much different basis."

So companies do not operate with profits and losses in mind? If they choose to operate at a loss, it is called dumping, and is definitely not used as a strategy in order to be competitive, but rather to try to undercut competition and drive them out of business so that they can later raise prices.


"If the cost of currency exchange changes then the companies will either gain or lose some as well, they usually won't change prices for longer periods of time. To avoid the risks involved a lot of companies have chosen to build in the US or Mexico, where they can assure their margins are better met, yet they can't assure the level of profit that comes home. This is one of thousands of hedges a company can take."

Building factories in Mexico has nothing to do with currency exchange, it is purely for cheaper direct labor. It is also not a hedge.


"And the stupid thing about all this is the fallacy this causes. Bushies do this because its yet another special interest group they are trying to sell out to. Now its about labor and manufacturing."

Ah, i see now what the problem is. You dont like it that a Republican goes after the Democrats' stronghhold. But I guess the AFL-CIO and all unions are not special interest groups.

"Yeah right, and what about the 80% of the economy that will eventually pay higher prices thanks to it???

Where? For what? I thought you said prices dont change?

[This message was edited by Igetp2s on August 11, 2003 at 10:03 AM.]

 

[Igetp2s]

Lander,

I am not too worried about the deficit, but their definitely are many foreign and domsestic investors who are. Bush has not done a good job in cutting spending, as he promised he would do.

On the other hand, the deficit may be a blessing in disguise. I would much rather the govt not have enough money than to have too much. Being short might force Congress to limit spending. Having too much of a surplus will almost always lead to frivoulous spending and waste, because they have more money than they know what to do this.


It is not much different than a corporation. According to the well known Modigliani-Miller Finance propostions, investors shouldnt care whether they get dividends or not, they can create their own. Plus, dividends are taxed higher than capital gains, so in theory investors should be demanding that management not pay out any dividends. So why do many corporations payout?

One answer given is because investors feel that once a company has more cash than it needs for profitable investments, it will simply waste the rest of the money or invest in non profitable ventures, including takeovers. It sort of puts a cap on the amount management can spend, and increases efficiency.

 

[radiofreecostarica]

Initially, I posted the article because I felt that Mr. Monbiot had made a valid point regarding the fledgling protectionism that occurred in the US vs. the expected opening of the trade barriers of other, smaller nations in recent years (the post-NAFTA world).

 

[WildBill]

Haha, I know the point of a posting around here gets lost when you jacked by someone that thinks they got you figured out but they don't. This time I really mean it, no more posts on this government forum. Adios to all.