http://knowledge.wharton.upenn.edu/article.cfm?articleid=3082
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"Everyone thinks of changing the world, but no one thinks of changing himself." (Leo Tolstoy)
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In an article published this week in "K@W," Hal Sirkin (senior partner and managing director of the Boston Consulting Group) is quoted as saying that, during this decade, two to 3 million manufacturing jobs will come back to the U.S. "because of the fundamental shift in economics between China and the United States." Sirkin sees this as adding "100 billion" in economic growth to the U.S. by 2020.
And what is the "fuel" for that process? Answer: "...the rapidly declining divide between Chinese manufacturing wages and those in the U.S." In 2000, U.S. wages were 22 times higher than those in China "but by 2015, wages in the U.S. will only be 4 times higher."
K@W and Sirkin note further: "Adjusted for productivity, the differential shrinks even more...In the Yangtze River Delta, the epicenter of China's skilled manufacturing workforce, the effective wage rate will be 61% of U.S. wages by 2015. At those levels, it makes sense to return manufacturing of a wide range of goods, with moderate levels of labor content and high logistics costs to the U.S. Sirkin argues that, because Chinese wages are rising so rapidly, the U.S. will not only win back those jobs, but it will also be able to retain a lot of the jobs even after U.S. wage rates rise in the future."
Overall, re-shoring has a tendency to make sense for "bulky goods" which naturally incur higher transportation costs: "As manufacturers extend their supply chains ever deeper into remote areas - such as inland China and more remote parts of Southeast Asia - they struggle to overcome the inefficiencies and gaps that raise the cost and uncertainty of importing finished goods to the United States in a timely manner."
What I like are the numbers. GE has put the concept together so it works for them and this K@W article highlights what they've done.
Thursday, September 27, 2012
Wednesday, September 19, 2012
The Kalamazoo Promise
http://www.nytimes.com/2012/09/16/magazine/kalamazoo-mich-the-city-that-pays-for-college.html?nl=todaysheadlines&emc=edit_th_20120916&moc.semityn.www
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"When the crunch comes, people cling to those they know they can trust - those who are not detached, but involved." (James Stockdale)
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If you're a baseball fan, you know that Derek Jeter is from Kalamazoo, Michigan. He has been the New York Yankee shortstop for 17 years. He is, by all accounts, a class act.
There is a (true) story about the Yankees scouting Jeter when he was at Kalamazoo Central High: the Yankee general manager asked the the head scout evaluating Jeter if the rumors were true that Jeter would be headed for the University of Michigan in the fall (after graduation). The head scout's response: the only place Jeter is headed is Cooperstown (The Baseball Hall of Fame).
Now Kalamazoo has come up with a Hall of Fame - level program for their kids: "The Kalamazoo Promise." The program stipulates that unnamed donors were pledging to pay the tuition at Michigan's public colleges, universities and community colleges for every student that graduated from the district's high schools. The program is blind to family income levels, to pupil's grades and even to disciplinary and criminal records.
Every one of those kids gets to have a life!
According to the census data, 39% of Kalamazoo's students are white and 44% are African-American. One of every three students in the Kalamazoo district falls below the national poverty level. One in 12 is homeless. Many of them are the first in their families to finish high school; many come from single parent homes.
From the very beginning of this program (November, 2005), Janice Brown, who was at that time the superintendent of schools, has suggested that the program is supposed to do more than just pay college bills: it is primarily meant to boost Kalamazoo's economy. This wonderful social experiment is, indeed, supposed to boost the "economy" of the town these kids grew up in. To use educational and economic theory, "The program tests how placed-based development might work when education is the first investment."
Janice Brown is now the Promise Executive Director and the grand experiment appears to be working. Janice Brown is the only person that communicates with the unnamed donors and all are satisfied with that arrangement.
Not only are the educational policy makers looking at this but some are adding to the concept by advocating that "...their is an emerging consensus in economics that the biggest bang for the economic-development buck comes from investing in quality pre-school education rather than higher education." This thinking draws heavily on the thoughts of James Heckman, a Nobel Prize winning economist at the University of Chicago.
Whatever the advanced thought, something wonderful happened in Kalamazoo and it continues to work.
***************
"When the crunch comes, people cling to those they know they can trust - those who are not detached, but involved." (James Stockdale)
***************
If you're a baseball fan, you know that Derek Jeter is from Kalamazoo, Michigan. He has been the New York Yankee shortstop for 17 years. He is, by all accounts, a class act.
There is a (true) story about the Yankees scouting Jeter when he was at Kalamazoo Central High: the Yankee general manager asked the the head scout evaluating Jeter if the rumors were true that Jeter would be headed for the University of Michigan in the fall (after graduation). The head scout's response: the only place Jeter is headed is Cooperstown (The Baseball Hall of Fame).
Now Kalamazoo has come up with a Hall of Fame - level program for their kids: "The Kalamazoo Promise." The program stipulates that unnamed donors were pledging to pay the tuition at Michigan's public colleges, universities and community colleges for every student that graduated from the district's high schools. The program is blind to family income levels, to pupil's grades and even to disciplinary and criminal records.
Every one of those kids gets to have a life!
According to the census data, 39% of Kalamazoo's students are white and 44% are African-American. One of every three students in the Kalamazoo district falls below the national poverty level. One in 12 is homeless. Many of them are the first in their families to finish high school; many come from single parent homes.
From the very beginning of this program (November, 2005), Janice Brown, who was at that time the superintendent of schools, has suggested that the program is supposed to do more than just pay college bills: it is primarily meant to boost Kalamazoo's economy. This wonderful social experiment is, indeed, supposed to boost the "economy" of the town these kids grew up in. To use educational and economic theory, "The program tests how placed-based development might work when education is the first investment."
Janice Brown is now the Promise Executive Director and the grand experiment appears to be working. Janice Brown is the only person that communicates with the unnamed donors and all are satisfied with that arrangement.
Not only are the educational policy makers looking at this but some are adding to the concept by advocating that "...their is an emerging consensus in economics that the biggest bang for the economic-development buck comes from investing in quality pre-school education rather than higher education." This thinking draws heavily on the thoughts of James Heckman, a Nobel Prize winning economist at the University of Chicago.
Whatever the advanced thought, something wonderful happened in Kalamazoo and it continues to work.
Thursday, September 6, 2012
U.S. Decline In Global Competitiveness
http://economix.blogs.nytimes.com/2012/09/06/a-look-behind-the-u-s-decline-in-global-competitiveness/?ref=business
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"Concentration is the secret of strength in politics, in war, in trade, in short in all management of human affairs." (Ralph Waldo Emerson)
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The World Economic Forum (WEF) which sponsors the annual week-long cocktail party in Davos, Switzerland - a cocktail party which has come to be known simply as "Davos," has published its annual study of country "competitiveness." So, if you're one of the 144 countries evaluated, you can plug into the study and actually click on a worldwide map to see where you rank.
Actually, I wouldn't want to try to figure out how to rank the various countries and their economies. But Catherine Rampell has been kind enough to sort thru the study and supply us with the study "click-on" so we can understand with her what's going on.
It would appear that the U.S. has "fallen" in the rankings to 7th in the world. According to Rampell, this is because of "...worsening criticism of the American government." The WEF defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country" and thereby lead to sustainable growth. Again, according Rampell, "The report graded economies based on an index of categories like over-regulation, property rights, tax burdens, transparency and trustworthiness of both the government and the financial sector, infrastructure, inflation conditions, the health and education attainment of the population, access to technology, and research and development."
(Further) "The main reasons the United States has been slipping in the rankings appear related to distrust of and lack of confidence in government leadership."
Rampell goes on to discuss where the U.S. ranks in various categories but I found myself most impressed, or rather "unimpressed," with the the U.S. ranking of 111th in "macroeconomic stability." It would seem that we have learned nothing from what we teach or "preach" at the great institutions where the best economists reside.
So, who's ahead of the U.S.? Well, "Switzerland" comes in 1st! Should we be "shocked?" This report is, after all, produced by an organization headquartered in "Switzerland." So, who else is ahead of "us?" Well, Singapore is #2. My perspective on them is that they are a highly controlled "city-state" where they've created an economic miracle that can only be admired. #3 thru #5 are Finland, Sweden and the Netherlands. Hard to argue there. And, last ahead of us: Germany at #6. Again, hard to argue.
The problem with all of this is "size." How many oceans do their (the six countries ahead of us) navies control? When you have a big economy and a worldwide "footprint," it's difficult to compare. Incidentally, the answer to the "navies" question is that the U.S. controls them all. That's expensive.
For those economies that play ball in our (the U.S.) league, Japan (which used to be the second largest economy in the world) ranks 10th. And, China, which now is the second largest economy in the world, ranks 29th.
How about if we "weight" everything by size of economy? I'm guessing the U.S. would still have no idea what it was doing "macro economically" but so what? I'm guessing China doesn't either - China has its own rules. And, sadly, Japan is descending rapidly for demographic and deflationary reasons. So, there you go.
I applaud what the WEF is doing each year for its sophistication and the care with which it is put together. But, it's probably a better "scorecard" for countries that are trying to improve and grow. Russia, for example, should probably pay attention. They've just been accepted into the World Trade Organization (WTO). Russia ranks 67th in the WEF overall competitiveness index. I'm surprised they're that high. Let's see if membership in the WTO helps Russia be more "competitive."
***************
"Concentration is the secret of strength in politics, in war, in trade, in short in all management of human affairs." (Ralph Waldo Emerson)
***************
The World Economic Forum (WEF) which sponsors the annual week-long cocktail party in Davos, Switzerland - a cocktail party which has come to be known simply as "Davos," has published its annual study of country "competitiveness." So, if you're one of the 144 countries evaluated, you can plug into the study and actually click on a worldwide map to see where you rank.
Actually, I wouldn't want to try to figure out how to rank the various countries and their economies. But Catherine Rampell has been kind enough to sort thru the study and supply us with the study "click-on" so we can understand with her what's going on.
It would appear that the U.S. has "fallen" in the rankings to 7th in the world. According to Rampell, this is because of "...worsening criticism of the American government." The WEF defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country" and thereby lead to sustainable growth. Again, according Rampell, "The report graded economies based on an index of categories like over-regulation, property rights, tax burdens, transparency and trustworthiness of both the government and the financial sector, infrastructure, inflation conditions, the health and education attainment of the population, access to technology, and research and development."
(Further) "The main reasons the United States has been slipping in the rankings appear related to distrust of and lack of confidence in government leadership."
Rampell goes on to discuss where the U.S. ranks in various categories but I found myself most impressed, or rather "unimpressed," with the the U.S. ranking of 111th in "macroeconomic stability." It would seem that we have learned nothing from what we teach or "preach" at the great institutions where the best economists reside.
So, who's ahead of the U.S.? Well, "Switzerland" comes in 1st! Should we be "shocked?" This report is, after all, produced by an organization headquartered in "Switzerland." So, who else is ahead of "us?" Well, Singapore is #2. My perspective on them is that they are a highly controlled "city-state" where they've created an economic miracle that can only be admired. #3 thru #5 are Finland, Sweden and the Netherlands. Hard to argue there. And, last ahead of us: Germany at #6. Again, hard to argue.
The problem with all of this is "size." How many oceans do their (the six countries ahead of us) navies control? When you have a big economy and a worldwide "footprint," it's difficult to compare. Incidentally, the answer to the "navies" question is that the U.S. controls them all. That's expensive.
For those economies that play ball in our (the U.S.) league, Japan (which used to be the second largest economy in the world) ranks 10th. And, China, which now is the second largest economy in the world, ranks 29th.
How about if we "weight" everything by size of economy? I'm guessing the U.S. would still have no idea what it was doing "macro economically" but so what? I'm guessing China doesn't either - China has its own rules. And, sadly, Japan is descending rapidly for demographic and deflationary reasons. So, there you go.
I applaud what the WEF is doing each year for its sophistication and the care with which it is put together. But, it's probably a better "scorecard" for countries that are trying to improve and grow. Russia, for example, should probably pay attention. They've just been accepted into the World Trade Organization (WTO). Russia ranks 67th in the WEF overall competitiveness index. I'm surprised they're that high. Let's see if membership in the WTO helps Russia be more "competitive."
Tuesday, September 4, 2012
U.S. Factory Activity Shrinks
http://www.nytimes.com/2012/09/05/business/economy/us-factory-output-shrinks.html?_r=1&ref=business
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"The optimist looks at a glass and says the glass is half full. A pessimist looks at a glass and says it's half empty. An engineer looks at a glass and says that the glass is twice as big as it needs to be." (John C. Maxwell)
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So, factory activity in the U.S. shrank for the third consecutive month in August as new orders, production and employment all fell.
The Institute for Supply Management (ISM) said its index of manufacturing activity ticked down to 49.6 points. That's down from July and the lowest reading in three years. A reading below 50 indicates contraction.
The ISM index is very closely watched in manufacturing (it's a trade group of purchasing managers) as an indicator of where the economy is going. China's version of this indicator is doing the same thing. The ISM survey showed that factories kept hiring in July but at a slower pace.
This would probably be consistent with a 1.7% GDP growth rate for the most recent U.S. quarter and totally inconsistent with anything one might call a "recovery."
I am reminded of Alan Greenspan's now famous statement in the face of the impending worldwide financial crisis: "The financial markets are self-policing." Certainly Greenspan is the most famous central banker of the last 50 years but Paul Volcker has been the most influential. Right up to today, as Congress fills in the blanks of Dodd-Frank with important language to "clarify" the "Volcker Rule," Paul Volcker has the distinction of being appointed as Federal Reserve Chairman by both Jimmy Carter and Ronald Reagan - two people who, at that time, couldn't agree on what time it was!
Volcker's biography, just published, is reviewed in the current "Economist" ("The Triumph of Persistence" - William Silber). The review itself is worthy of note.
What we do about GDP growth at "stall speed" involves priming the pump to get demand going again. Volcker knows that but he probably understands that U.S. companies are reluctant to invest in this economy not knowing what the tax and regulatory environment will be. This is something that politicians don't get.
***************
"The optimist looks at a glass and says the glass is half full. A pessimist looks at a glass and says it's half empty. An engineer looks at a glass and says that the glass is twice as big as it needs to be." (John C. Maxwell)
***************
So, factory activity in the U.S. shrank for the third consecutive month in August as new orders, production and employment all fell.
The Institute for Supply Management (ISM) said its index of manufacturing activity ticked down to 49.6 points. That's down from July and the lowest reading in three years. A reading below 50 indicates contraction.
The ISM index is very closely watched in manufacturing (it's a trade group of purchasing managers) as an indicator of where the economy is going. China's version of this indicator is doing the same thing. The ISM survey showed that factories kept hiring in July but at a slower pace.
This would probably be consistent with a 1.7% GDP growth rate for the most recent U.S. quarter and totally inconsistent with anything one might call a "recovery."
I am reminded of Alan Greenspan's now famous statement in the face of the impending worldwide financial crisis: "The financial markets are self-policing." Certainly Greenspan is the most famous central banker of the last 50 years but Paul Volcker has been the most influential. Right up to today, as Congress fills in the blanks of Dodd-Frank with important language to "clarify" the "Volcker Rule," Paul Volcker has the distinction of being appointed as Federal Reserve Chairman by both Jimmy Carter and Ronald Reagan - two people who, at that time, couldn't agree on what time it was!
Volcker's biography, just published, is reviewed in the current "Economist" ("The Triumph of Persistence" - William Silber). The review itself is worthy of note.
What we do about GDP growth at "stall speed" involves priming the pump to get demand going again. Volcker knows that but he probably understands that U.S. companies are reluctant to invest in this economy not knowing what the tax and regulatory environment will be. This is something that politicians don't get.
Saturday, September 1, 2012
It's the Economy Stupid
http://www.nytimes.com/2012/09/01/business/economy/fed-chairman-pushes-hard-for-new-steps-to-spur-growth.html?_r=1&nl=todaysheadlines&emc=edit_th_20120901
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"We tend to think of great thinkers and innovators as soloists, but the truth is that the greatest innovative thinking doesn't occur in a vacuum." (John C. Maxwell)
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The NY Times reports today: "The Federal Reserve chairman ... delivered a detailed and forceful argument on Friday for new steps to stimulate the economy, reinforcing earlier indications that the Fed is on the verge of action." They go on to say that Mr. Bernanke's use of the term "grave concern" about the current rate of U.S. unemployment is "unusually strong."
Well, he's right. The pace of U.S. GDP growth (second quarter 1.7%) isn't enough for job growth. The generally accepted figure for the U.S. economy just to stay even with new people becoming available to get jobs (high school, college graduates, etc.) is 2.5%. And, that says nothing about the 13 million people who are currently unemployed.
I'm all for whatever the Fed wants to do to help (more) but I don't think they can do it alone (because whatever they've done hasn't helped enough). The Fed has "tools." But that hasn't been enough.
There wasn't enough real "stimulus" back when the recession hit. As I've pointed out before here, both Paul Krugman and Warren Buffet said then that the "stimulus" would not be enough. Here's a quote from Krugman's new book ("End This Depression Now"/ W.W. Norton and Company/ 2012): "So what did (President) Obama do? The American Recovery and Reinvestment Act (ARRA), the official name of the stimulus plan, had a headline price tag of $787 billion, although some of that was tax cuts that would have taken place anyway. Indeed, almost 40% of the total consisted of tax cuts, which were probably only half or less as effective in stimulating demand as actual increases in government spending."
(Krugman continued) "Of the rest, a large chunk consisted of funds to extend unemployment benefits, another chunk consisted of aid to help extend Medicaid, and a further chunk was aid to state and local governments to help them avoid spending cuts as their revenues fell. Only a fairly small piece was for the kind of spending - building and fixing roads, and so on - that we normally think of when we talk of stimulus. There was nothing resembling an FDR-style Works progress Administration. (At its peak, the WPA employed three million Americans, or about 10% of the workforce. An equivalent-sized program today would employ 13 million workers.)"
So, Krugman, in talking about why we're where we are now (GDP growth at 1.7%), goes back to the inadequate stimulus that was passed years back. Inadequate demand, inadequate investment, growth at "stall speed" (to use a term from Roubini) all prove that we never spent enough to get the economy going again. Obviously, inadequate job creation follows that.
While I applaud the attitude of the Fed, I'm not sure what it's going to do to help. Evidently, Mitt Romney plans to fire Bernanke if he's elected. Of course, that's a big "if."
***************
"We tend to think of great thinkers and innovators as soloists, but the truth is that the greatest innovative thinking doesn't occur in a vacuum." (John C. Maxwell)
***************
The NY Times reports today: "The Federal Reserve chairman ... delivered a detailed and forceful argument on Friday for new steps to stimulate the economy, reinforcing earlier indications that the Fed is on the verge of action." They go on to say that Mr. Bernanke's use of the term "grave concern" about the current rate of U.S. unemployment is "unusually strong."
Well, he's right. The pace of U.S. GDP growth (second quarter 1.7%) isn't enough for job growth. The generally accepted figure for the U.S. economy just to stay even with new people becoming available to get jobs (high school, college graduates, etc.) is 2.5%. And, that says nothing about the 13 million people who are currently unemployed.
I'm all for whatever the Fed wants to do to help (more) but I don't think they can do it alone (because whatever they've done hasn't helped enough). The Fed has "tools." But that hasn't been enough.
There wasn't enough real "stimulus" back when the recession hit. As I've pointed out before here, both Paul Krugman and Warren Buffet said then that the "stimulus" would not be enough. Here's a quote from Krugman's new book ("End This Depression Now"/ W.W. Norton and Company/ 2012): "So what did (President) Obama do? The American Recovery and Reinvestment Act (ARRA), the official name of the stimulus plan, had a headline price tag of $787 billion, although some of that was tax cuts that would have taken place anyway. Indeed, almost 40% of the total consisted of tax cuts, which were probably only half or less as effective in stimulating demand as actual increases in government spending."
(Krugman continued) "Of the rest, a large chunk consisted of funds to extend unemployment benefits, another chunk consisted of aid to help extend Medicaid, and a further chunk was aid to state and local governments to help them avoid spending cuts as their revenues fell. Only a fairly small piece was for the kind of spending - building and fixing roads, and so on - that we normally think of when we talk of stimulus. There was nothing resembling an FDR-style Works progress Administration. (At its peak, the WPA employed three million Americans, or about 10% of the workforce. An equivalent-sized program today would employ 13 million workers.)"
So, Krugman, in talking about why we're where we are now (GDP growth at 1.7%), goes back to the inadequate stimulus that was passed years back. Inadequate demand, inadequate investment, growth at "stall speed" (to use a term from Roubini) all prove that we never spent enough to get the economy going again. Obviously, inadequate job creation follows that.
While I applaud the attitude of the Fed, I'm not sure what it's going to do to help. Evidently, Mitt Romney plans to fire Bernanke if he's elected. Of course, that's a big "if."
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