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Is Trump right?

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casapinos
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Is Trump right?

#12251

Postby casapinos » December 5th, 2016, 7:58 pm

Ok stop laughing!
I want to consider one single part of the Trump manifesto - his avowed intention to bring back american jobs, or at least keep the ones they've got, his response to "offshoring".
At face value it is clear that the merits of offshoring work to countries with lower wages(and perhaps lower standards of working conditions, safety, employee benefits etc,)is a no- brainer for major companies based in the developed world, and obviously this is a process which has been going on for some time. In addition governments, including the Obama administration , have argued that the benefits accrue to all citizens in the form of cheaper goods. BUT, I suggest that the real issue is , as ever, somewhat more complicated than that, among the consequences are higher rates of unemployment,lower wages at home because of the skewed balance of more workers available , less jobs, the likelihood that the states costs rise to provide for the workers rendered unemployed , food stamps in the US , unemployment benefits in the UK, funding for the health problems which arise among the unemployed.So what is an optimal solution, for many individual companies may result in a worsening GDP, a worse balance of payments, sharply rising costs to the state, both monetarily and socially.
There is , I think an argument that the overall costs of offshoring are not so clearly positive to the state as to the private enterprise and that a method of of income raising by the state to compensate is not so foolish.I accept all the points to be made about government interventions being often misguided but taken to its logical conclusion, if unchecked, almost all work would be offshored , leaving the developed world with a few highly skilled employees and millions of unemployable and deeply demoralised unemployed

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Re: Is Trump right?

#12254

Postby Lootman » December 5th, 2016, 8:07 pm

I think there is a broader problem in that the reality is that people in places like the US are the UK are overpaid, relative to the value available elsewhere. This is not a popular, palatable or convenient idea to contemplate but it is hard to deny when we see all of the following:

1) Outsourcing
2) Immigration on a large scale
3) Growth in imports
4) A declining currency

To my mind, all four are symptoms of an overpaid workforce and inflated expectations. But no politician will be elected who says that so they say the opposite and claim that currencies are manipulated, free trade is unfair and that companies are evil by moving to Mexico or wherever.

My response to all this is to try and profit from it by thinking about what it all means in investment terms. And, again personally, it is reflected in the advice I have given my children about academic and professional decisions that they are making.

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Re: Is Trump right?

#12275

Postby doug2500 » December 5th, 2016, 9:24 pm

From what I've read, and I'm sure it's over-simplified, globalisation benefits the middle and higher earners with cheaper goods and labour (think gardeners etc) while the poor just get left behind. Cheap goods don't benefit them as they have lost their low paid jobs.

The wealth inequality seems to be getting worse in most developed countries too which seems to match this theory.

Probably too simple, but it has a ring of truth to me.

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Re: Is Trump right?

#12282

Postby Lootman » December 5th, 2016, 9:41 pm

doug2500 wrote:From what I've read, and I'm sure it's over-simplified, globalisation benefits the middle and higher earners with cheaper goods and labour (think gardeners etc) while the poor just get left behind. Cheap goods don't benefit them as they have lost their low paid jobs.

The wealth inequality seems to be getting worse in most developed countries too which seems to match this theory.

Probably too simple, but it has a ring of truth to me.

Inequality may be a truth but the bigger question to me is whether it matters. To put it in very basic terms, if Warren Buffett moves into your town, it immediately becomes more unequal, but is anyone poorer as a result? I'd argue not. People might feel poorer in relative terms to this billionaire down the street, but is that a reason to change any laws, policies or taxes? I'd say not.

It's so easy to go from a knee-jerk distaste for inequality to the politics of envy, with all that that implies. In the end, I really don't care that some people are worth tens of billions. It doesn't offend me at all - good luck to them.

If anything, I see the super rich as an opportunity - to create jobs, drive investment, buy what I am selling and so on. Or putting it more bluntly - no poor person ever gave me a job.

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Re: Is Trump right?

#12288

Postby youfoolishboy » December 5th, 2016, 9:53 pm

doug2500 wrote:From what I've read, and I'm sure it's over-simplified, globalisation benefits the middle and higher earners with cheaper goods and labour (think gardeners etc) while the poor just get left behind. Cheap goods don't benefit them as they have lost their low paid jobs.

The wealth inequality seems to be getting worse in most developed countries too which seems to match this theory.

Probably too simple, but it has a ring of truth to me.


Where did you read this? I think its a left wing biased publication telling the lower classes how down trodden they are or possibly a right wing rag trying to get the racism angle. The real facts are that middle income jobs are also offshored and some higher ones as well I expect. Engineering design is offshored to India, Singapore etc back office lawyers jobs in the city are offshored to India. Two examples I personally know of and have not read about.

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Re: Is Trump right?

#12289

Postby UncleEbenezer » December 5th, 2016, 9:53 pm

There are (at least) two elements to your question. One is the Luddite fallacy, thinking of employment and the economy as a zero-sum game. The other is a mild case of Malthusian overpopulation: more people than [some finite resource they need or want].

Taking it out of Trump's agenda, you talk of the popular meme of increasing inequality. That's not something that can be generalised with ideas like "the developed world": different developed countries have very different issues. While there is an issue of inequality, most of what you hear is deeply misleading, in that it ignores all redistributive efforts by governments. Oxfam's famous inequality figures give us a threshold for the "top 1%" that ensures almost all Brits are in the top 1% simply by virtue of our entitlement to the basic state pension when we retire! People with a house in southeast England are top-1% twice over. Of course it's nonsense, because it ignores Entitlements. In the UK, the biggest issue is housing, and the ruinous efforts of successive governments to push prices ever higher and prevent a healthy correction.

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Re: Is Trump right?

#12467

Postby casapinos » December 6th, 2016, 12:36 pm

Uncle e Would you care to offer empirical evidence to refute"the luddite fallacy"?
Serious observation not meant to insult , it's just that I find an awful lot of received wisdom doesn't have a sound analytical base.In this case I suggest that the number of variables make it difficult to isolate the specific benefits , or indeed whole economy benefits, of outsourcing.Maybe , just maybe Ricardo was wrong , or that the 21st century is not like the early 19th!

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Re: Is Trump right?

#12492

Postby UncleEbenezer » December 6th, 2016, 1:09 pm

casapinos wrote:Uncle e Would you care to offer empirical evidence to refute"the luddite fallacy"?

The rise of service industries. Most obviously the consumer-facing ones: your meal out, your workout, your detox, your entertainment, your continuing education. Not to mention your posting here.

Services are most employment in the UK today. People liberated from cruelly hard labour undertaken by the vast majority at the time of the original Luddites. It's gone so far that we famously have to import workers for those bits of agricultural work that remain labour-intensive.

Someone had a good turn of phrase for it on the wireless recently (it may have been just this morning). Protect the workers, not the jobs.

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Re: Is Trump right?

#12536

Postby dspp » December 6th, 2016, 2:10 pm

1) The Luddite 'fallacy' (aka lump of labour fallacy) is only partly correct IMHO. Yes overall wealth may increase via offshoring/mechanisation/technology progress/specialisation/etc, but distribution of said wealth may be so patchy that some of the Luddites may be permanently disadvantaged, i.e. they are/were quite right to be worried. Some of said Luddites may make things worse for themselves (not relocating/reskilling/reroling/etc) but in real life that is often how it is. My personal observation is that this used to be a (predominantly) British problem, esp up north, due to reluctance to relocate trapping people in dead-end sinks. However I begin to wonder if, as USA 'fills up' their population is not becoming increasingly sticky in which case the fabled American willingness to up sticks and try again elsewhere has not run its natural course. The UK is currently trying the cure of starving them into employment by cutting benefits, socially awkward & jury still out on results.

2) Yes the R4 commentator (on Today this morning) was a bit stuck for words when prompted to describe solutions, not just the problem, but did eventually come out with "protect the workers, not the jobs". Problem is over what timescale to carry on doing this and speaker quite clearly did not know. Forever is a very long time to carry out bribery not to riot via wealth redistribution. Rome went there once.

Again, personal opinion, we are seeing reversion to the mean going back several hundred years + technological innovation essentially wiping out the pay premium that has been received by ~80% of western workers. I do not see any feasible solution to it at all. I really do not. Pikkety was right in describing the economics of the problem, wrong in proposing Tobin taxes to fund redistribution as a solution. I do not have solutions, but I do think that the populist solutions will be counterproductive in time.

regards, dspp

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Re: Is Trump right?

#12681

Postby gryffron » December 6th, 2016, 5:49 pm

So here are a few problems. Which are DIRECTLY the result of govt policy over the last 40 years.

1) It isn't "fair" that some people work huge hours, while others don't work at all, and often end up with the same money due to a benefits system which rewards idleness. A better system would be to distribute work more equally too. Clearly, that doesn't work well for highly skilled jobs, but they're always going to be higher paid. In the service sector, get everyone to work 20 hours rather than half working 40 and the other half being idle.

2) BOTH sides in the UK economic debate have been rewarding homeowners for decades. The right by raising inheritance tax thresholds. Also "right to buy" schemes and saving help schemes, which benefit the not-so-poor over the poor. The left by paying limitless housing benefit. Housing benefit ultimately just drives prices higher, making them ever more unattainable. The poor do not benefit. Only the landlords benefit.

Some ideas for solutions:

Redesign benefits so that working SOME of the time pays more than not working. And working massive hours doesn't bring huge rewards over medium hours. Spread the effort as well as the reward. Current benefit system gives very little reward for working until you can exceed the housing benefit threshold. Which may be very high, maybe even unattainable in the SE.

Benefits also need to be able to cope with flexible working patterns. Currently, massive delays in adapting to flexible hours make them unfeasible for anyone reliant on the payments. I think Universal Credit is supposed to fix this - a bit - but I'm not sure whether in practice it does.

Higher marginal rates of income tax (actually they're not much higher cos NI runs out just as high rate kicks in) are penalising hardwork and enterprise. So use a flat rate all the way up would be simpler and easier to implement. What could be more "fair". Why is my effort taxed more heavily than yours?

Redistributive taxes on property. All the way up, not just a mansion tax. So band A properties pay nowt. Larger properties pay proportionally more, and Band E/F pay a percentage of market value. Everyone has the choice to live in a small house. Want space and luxury, fine, but you pay for it. Unpopular with elderly people on low incomes in huge houses. But should they really be living alone in a huge house while families are crammed into tiny bedsits. Is that "fair"? Taxing property is MUCH easier than taxing any other assets, cos it is easy to find and can't move offshore. The whole purpose of this being to deliberately suck value out of the housing market, and if not actually reduce prices, at least halt the inexorable rise.

Proper workable inheritance tax. Which means tax on lifetime gifts too. Paid by the recipient, not the giver. Treat it as income for the recipient. IMO this is the "fair"est tax of all, as the recipient has done nothing to earn the money.

gryff

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Re: Is Trump right?

#12705

Postby youfoolishboy » December 6th, 2016, 6:47 pm

Housing costs are not the problem and landlords definitely aren't. There is a housing shortage in some parts of the UK so prices are high, London in particular, having a socialist wet dream of taxing people more is not going to reduce the number of people looking for somewhere to live and removing landlords or increasing their taxes is not going to increase the number of houses or decrease rents. The real and obvious solution is build more.

Going back to 'Is Trump Right', the title of this thread incase some missed it, there was an interview on American TV with the CEO of United Technologies, the parent company of Carrier, where it becomes obvious low skill jobs cannot exist in America read that across to the UK which has a far higher level of benefits to keep people from working. The problem is quite simply we cannot compete on cost no matter what we do, getting the bone idle to work will not help as nobody could afford or want to employ them. Read the whole article very interesting, not very long.

http://uk.businessinsider.com/united-te ... ?r=US&IR=T

Excerpts...

Greg Hayes, the CEO of United Technologies, the parent company of the heating and air-conditioner manufacturer Carrier, just let slip a consequence of a deal struck to keep jobs in Indiana.

The general theme here is something we've been writing about a lot at Business Insider. Yes, low-skilled jobs are being lost to other countries, but they're also being lost to technology.
Moderator Message:
material deleted copied straight from linked site please respect copyright material redsturgeon

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Re: Is Trump right?

#12763

Postby dspp » December 6th, 2016, 9:06 pm

Yes YFB that is also the point I am making, and which Pikkety makes backed up by gazillions of stats, and which Cramer is making by way of the Carrier interview (an interesting problem child for UTC by the way - do they view it as a hedge on global warming ?). These jobs are being lost in the West one way or another - either substituted by capital (via technology) or substituted by cheaper (often Asian) labour via offshoring. It is not an either/or, it is both. In many machine shops it is both simultaneously, i.e. offshored to Asian machine shops using the newest kit.

What cannot go on must stop. What I think will eventually stop is the wealth redistribution into the affected losers in the western system. They will be priced down to Asian levels until they become competitive again in the West (i.e. reversion to the long term mean where long term is about 500-years). Although there are path dependency problems here - getting the jobs back in a generation is not as easy as losing them in this generation. What I do not know is how much debt the West will rack up whilst it basically bribes the local losers to not riot. Nor do I know what the pathway is between here and there, though I am concerned that it is ugly. But eventually it will stop because unsustainable debts are by definition unsustainable !

If you go and look at the stats in Pikkety et al (which were quite well reported in Economist articles) then net disposable Capital of $1m puts someone into the winner category, i.e. they are once away accelerating away from the gains that Labour made in the 1940-1980 period. That was my take-away from reading several sets of graphs and stats at the time. Net as far as I could see meant ignoring housing capital as that is a one-off gain and in any case may be a local/ephemeral bubble (though I am not sure, but in any case high Capital possessors tend to be high housing Capital owners, so a moot point really). At somewhere around $250k people are holding their own. These I think correspond to somewhere around top 1% and top 10% in the UK. So basically 90% of the UK is now going backwards and has been for about two decades. Like I say those were my crude reckonings of the interesting numbers jotted in my memory so feel free to correct me.

So ........ is Trump right. Yes he is right that it is happening. No he is not right as to how to solve it. Strong arming UTC into keeping Carrier is a) not repeatable at scale and over time (though he might get 4-years with offshore capital repatriation) and b) putting up protectionist barriers to make that easier in the short term will be harder & counterproductive in the long term. But c) it will feel good for his voters to watch him try so he will probably try.

Meanwhile over here once/if we get hard Brexit (tbd) it still remains to be seen whether the Brexiteers will take the completely open route (which will accelerate this issue in the UK) or the populist/protectionist road (which the UK is I think too small to even try). Either way I think the UK will find that occasionally being a mouse around elephants can be uncomfortable.

This topic area worries me as you can probably guess :) and I have not figured out a decent answer. But I have figured out that no-one else in the West has figured out a decent answer either so I am in good company. It is certainly worth discussing for individuals here because it makes a difference to a) capital allocation decisions and b) retirement decisions in many ways, as well as c) being socially relevant.

What am I missing and do you have any ideas ?

regards, dspp

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Re: Is Trump right?

#12780

Postby LadyGagarin » December 6th, 2016, 9:48 pm

...and if you look, judging by Western standards, at the living standards of a family of full-time factory workers in Laos and imagine that was your future, you can kinda see why the UK & US populus react as they do. Trump meanwhile only has to hang in there for a few years.

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Re: Is Trump right?

#12788

Postby youfoolishboy » December 6th, 2016, 10:05 pm

I do not think we will drop to the Far East level of living I think theirs will rise a fair bit and ours will fall a bit. An example is IT workers in the U.K. you used to get 10+ Indian IT workers for the price of one U.K. one now it's nearer 3 or 4 rates in the U.K. have fallen but in Indian they have risen a lot. I think this will play out across the board, I am seeing it in my industry,O&G, just now. I too do not know off a solution but am more comfortable with the end result being manageable.

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Re: Is Trump right?

#12815

Postby Nimrod103 » December 6th, 2016, 11:08 pm

dspp wrote:What am I missing and do you have any ideas ?

regards, dspp


I have also pondered on this for a long time, and have tried to understand the fundamentals.
One strand is that it is the 'nation state' vs globalization.

Many booms in the UK since WW2 essentially ended when tight labour markets triggered wage inflation, which had to be contained with rapid rises of interest rates. Labour market tightness was due to the fact that the pool of available labour was essentially limited to the UK. However, the recent rise out of the 2008 financial collapse has been notable for muted wage inflation resulting from an abundant labour supply (immigration) and plentiful supplies of goods (global competition). Such a boom is an economists wet dream, but for people with few or no skills it has been torture. This is Carney's lost decade.

When we all lived in nation states, with borders, we had shared values, history and beliefs. A certain amount of redistributive taxation was accepted, as was the importance of stable families, available housing, in fact everything which amounted to a shared destiny.

Globalization has turned this on its head. We are now expected (by the media and political parties) to believe that the Mexican underclass or Laotian peasant has more need of money and work than our own relatively poor neighbours. Well, our own relatively poor neighbours don't like being ignored, deprived and dumped upon. But they do have a vote, and they are now using it.

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Re: Is Trump right?

#12828

Postby dspp » December 7th, 2016, 12:13 am

YFB - I know: I used to work in your patch, and I didn't employ many westerners :) Nimrod - my expectation is that just as the Japanese have now had a few lost decades, so too has the west quite a few more to come. LadyGagarin - agree, and we have only to look back to the 30s to see what damage both left and right wing populists can do, but yet it is a logical position for any irresponsible power-hungry demagogue to stake out. That is what really worries me as this evolves.

Anyway some numbers ..... :

Anecdotally - mostly by talking to other factory managers in my area of work - the average skilled Chinese factory worker is now on $7k/yr and the average skilled Chinese design engineer is now on $40k/yr and in some areas (embedded processors, good mechanical designers) is on $70k-$80k/yr. That tends to indicate to me that convergence has happened at the top end. I am told by my contemporaries that they have basically run out of fresh labour to bring in at the bottom end hence factory workers now being up to $7k = £5k, which compares with about £15k - £20k for a corresponding UK factory worker (who is on less than an average UK worker who I think is closer to the £23k/yr mark). So we only have to have a 3x increase in Chinese real wages to get factory worker parity. Given Chinese GDP growth of 7% one can envisage that wage growth in a decade or so. These numbers from my peers roughly tally with my general reading. Dare I say it but the Chinese factory worker is more highly skilled and working with better machinery in better surroundings in many cases hence my concern re path dependency locking sub-scale (ie. UK) nations out of manufacturing even post-parity.

UK government debt has grown from 40% of GDP to about 90% in the last ten years. If it does not slow down (a big if) then it would reach an unsustainable 140% in the time taken for the UK factory worker and the Chinese factory worker to approximate parity. Delaying parity without controlling the debt growth rate will cause the debt to go higher. Increasing basic/minimum/living wages in the UK makes that problem worse, not better as it delays parity at the same time as the origins of the debt growth (primarily one or other form of social/medical care or education) keep growing.

The actions to get debt growth under controlled - mis-labelled as "austerity" which is exactly what it isn't - may pay off, but in the latest Hammond statements he pleads " Lord make me chaste / but not yet" and pushes out a balanced budget indefinitely. Likewise Trumpenomics is basically spend/spend/spend as far as I can see.

So ...... yes I agree that reversion to the mean of parity west - east incomes is coming, and that it will take place in maybe 10-20 years. Add in a bit of inflation and maybe western debt loads stay sustainable, maybe not - inflation does not come when whistled. In the meantime that is a heck of a lot of cash to keep shovelling from the top 10% into the bottom 90% without the top 10% working even harder at the avoiding action. And that's before any more populist politicians start playing negative-sum games with the global economic enviroment.

I'm a real bundle of laughs tonight so time for bed.

regards, dspp

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Re: Is Trump right?

#12863

Postby Nimrod103 » December 7th, 2016, 7:41 am

dspp wrote:Anecdotally - mostly by talking to other factory managers in my area of work - the average skilled Chinese factory worker is now on $7k/yr and the average skilled Chinese design engineer is now on $40k/yr and in some areas (embedded processors, good mechanical designers) is on $70k-$80k/yr. That tends to indicate to me that convergence has happened at the top end. I am told by my contemporaries that they have basically run out of fresh labour to bring in at the bottom end hence factory workers now being up to $7k = £5k,
regards, dspp


But China (being a totally controlled economy) is countering this rise in domestic wages by a managed devaluation of its currency - it is one of Trump's main gripes. It is one of the reasons the Chinese upper and middle classes are desperate to get their money out of China and into London and Vancouver real estate. Likewise Germany has benefitted from being in the Euro. If they still had the DM, the value would be soaring, pricing their workers out of jobs.
Which is why the recent devaluation of Sterling is a good thing, not bad.

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Re: Is Trump right?

#12923

Postby Generali » December 7th, 2016, 11:04 am

Nimrod103 wrote:
dspp wrote:Anecdotally - mostly by talking to other factory managers in my area of work - the average skilled Chinese factory worker is now on $7k/yr and the average skilled Chinese design engineer is now on $40k/yr and in some areas (embedded processors, good mechanical designers) is on $70k-$80k/yr. That tends to indicate to me that convergence has happened at the top end. I am told by my contemporaries that they have basically run out of fresh labour to bring in at the bottom end hence factory workers now being up to $7k = £5k,
regards, dspp


But China (being a totally controlled economy) is countering this rise in domestic wages by a managed devaluation of its currency - it is one of Trump's main gripes. It is one of the reasons the Chinese upper and middle classes are desperate to get their money out of China and into London and Vancouver real estate. Likewise Germany has benefitted from being in the Euro. If they still had the DM, the value would be soaring, pricing their workers out of jobs.
Which is why the recent devaluation of Sterling is a good thing, not bad.


What's the difference between a cut in my wages and a cut in the value of the currency my wages are paid in?

I think you're being seduced by the idea that exports = good and imports = bad whereas the reality is that both are good: imports add to our standard of living and exports pay for imports.

China isn't a 'completely controlled economy' and hasn't been close to that for decades. That's why so many hundreds of millions of Chinese people have moved out of poverty.

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Re: Is Trump right?

#13379

Postby Nimrod103 » December 8th, 2016, 3:46 pm

Generali wrote:What's the difference between a cut in my wages and a cut in the value of the currency my wages are paid in?
In economic terms, no difference, except the second is much more easy to induce than the first. Which is why everyone agrees the way out of the Greek and Italian competitiveness problem is by leaving the Euro. Grinding austerity to encourage people to work for less money is not working in those two countries.

I think you're being seduced by the idea that exports = good and imports = bad whereas the reality is that both are good: imports add to our standard of living and exports pay for imports.
But at present, the deficit indirectly shows our exports are not sufficient to pay for our imports, so the currency has to depreciate, as it has done. It is just that everyone is blaming Brexit for the depreciation, when in reality it is the deficit and balance of trade.

China isn't a 'completely controlled economy' and hasn't been close to that for decades. That's why so many hundreds of millions of Chinese people have moved out of poverty.

China not a controlled economy? Can't agree with you there. They have always tried to hold down the value of their currency to maintain exports, and keep their truculent masses fed.

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Re: Is Trump right?

#13953

Postby zico » December 10th, 2016, 3:42 pm

The answer to the original question "Is Trump right?" is a definite maybe!

Just like Brexit, it appears that people are happy for the country (UK, USA) to be worse off if they personally are better off (or to put it another way, if they can decide exactly what does and doesn't happen in their country). Given that both USA and UK are very prosperous compared with the rest of the world, it may well be a sacrifice worth making to avoid unskilled UK and USA workers having to compete with Far East wages (a competition they can never win).

It's been a mystery to me over the past 20 years why globalisation hasn't taken off far more than it has. Maybe the simple answer is that it would have caused too much political turmoil in developed economies if virtually all unskilled workers had been replaced by Far East workers.


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