Time to Reboot America
nytimes.com
nytimes.com
> All I could think to myself was: If we’re so smart, why are other people living so much better than us?
he seems to have forgotten about hundreds of millions of Chinese living in poverty. how disgusting.
Compared to the shrinking middle class in America as wealth flows upwards.
Don't get me wrong - I'm far from pro-Chinese, I'm just saying, let's not let the fact that there are starving people there prevent us from seeing our own faults.
Yeah, ok, they can't march into the street in protest of their government, but are they really that much worse off in the material sense?
Before you break out the numbers - keep in mind that while they make far less than Americans, their cost of living is similarly lower. I find the Chinese urban middle class lifestyle to be comparable to the American middle class lifestyle, sans a few things like a huge backyard.
Or engage his column elsewhere: are we really losing our most promising engineers to "financial engineering"? Perhaps a less famous writer could support that argument with evidence. For instance, that writer might marry Friedman's argument with the fact that people like John Meriwether managed to nearly destroy capitalism with nothing more than an MBA.
Are there nuclear physicists on Wall Street? Of course. Are most nuclear phsyisicists on Wall Street? Prove it! Are the nuclear physicists on Wall Street the ones responsible for speculating on netted-out credit default swaps? The CDS racket was no more complicated than the MBS racket Michael Lewis wrote about in "Liar's Poker", and the BSD's on the Salomon trading desks were definitely not rocket surgeons.
And to answer your question: yes we are. I will be graduating in a few months from a fairly good engineering school, and many of my fellow engineering majors are panicking - they all went down the financial engineering route instead of traditional electrical, mechanical, and civil engineering, and now they're all jobless. Before the big collapse of '08 there was definitely a large sense floating about campus that people who did "real" engineering were suckers. This is not an uncommon phenomenon.
Same thing back in high school - everyone guns for the big money. Tons of smart high school students went into business school instead of science or engineering, simply because one pays the bills, and the other not so much. My evidence is anecdotal, but this is based on observation from entire graduating classes.
Even if you want to manufacture stuff, you have to somehow organize the manufacturing. To say only manufacturing is worthwhile seems a bit shortsighted. Suppose all the finance guys would go to GM and work in their factories assembling cars, would it help much?
Consider a scenario where you have two alternatives: you could ship shit from one pile to another for 5 hours, or you could spend 5 hours brewing beer. Suppose the worker has no idea whatsoever as to which activity is more benefitial, so the finance guy decides whether 5 hours will be spent on moving shit around, or brewing beer. Suppose the value of beer is much greater than moving shit - I think at the end of the day the finance guy will have contributed to bringing the beer into existence.
I know that there is this school of economics that tries to define value by the amount of (physical) work that went into it, but it really doesn't make much sense. You don't create value simply by doing something physical - it has to be useful, too. So I think the usefulness of the end result is a much better estimator of value.
Imagine you are made president of a 3rd world country which has not yet industrialized. You are now tasked with making this country actually rich. Where would you put the government money in?
If you say you would equally create service and manufacturing industries, then your country would collapse quickly. The correct thing to do is to create goods that can be exported, or that have some use within the country itself. The other industries always develop themselves, because they are a sort of grease for the core industries.
Allocation of time and money is not done by bankers. It's done by managers and owners, the bankers just approve or disapprove loans.
I don't want to defend all bankers, but I think it could be a service like other services.
Your 3rd world example also falls short. I wouldn't create a "planned" economy, but go for demand. Actually a lot of 3rd world countries fare reasonably well with tourism, which is maybe more service than production? India also exports services - it is possible, so I think the generalization "products over services" fails. Both are necessary.
But a waitress who moves food from the kitchen to the patrons plate does not create any value, she is simply a neccessary add-on to other value creating industries. No economy can function where 100% of the people are in these type of service industries.
Value is created by scarcity, and most of the financial industry is in a similar type of service - no real value is created there. The value of other manufacturing industries is just exchanged there.
I am not sure what you are really driving at: that too many people are in the service industry? But what if there is more demand for services than for products? Like there might be enough food being grown on the fields, but what good is it to me if nobody cooks it and brings it to my table?
Service industries that function as an add-on for a manufacturing industry needs to be specifically calibrated to the volume of the industry, otherwise the excess is wastage. The other way round does not hold.
You have to understand what fundamental value in a world economy is. A waitress is no value, a programmer is a lot of value, and a guy working in the financial industry is basically the same as a waitress. He's an add-on for other industries, and the volume has to be calibrated also.
If a country produces a car out of some metal in a mine, it created real value, irrelevant of if this car was exported or not. If a country produces a waitress who can be trained in 2 days and simply moves food from one place to another, the value it created is really minimal.
I'm not saying that the service industry in the U.S is too small or too large, I don't know enough about it to say. I'm just saying that the backbone of any stable and real economy lies in constantly creating real value.
Imagine a society with 30 million waitresses and 5 farmers. Those extra waitresses are useless, and such a society cannot work. ... A waitress is no value, a programmer is a lot of value,...
Unless you have robots to plow and harvest (which is harder than it sounds) being constructed by other robots, a society with 30 million programmers and 5 farmers can't work either; neither can you have a society with 30 million iron-ore miners or 30 million autoworkers and 5 farmers.
Producing a car does NOT create value if nobody wants or needs that car. It might even create negative value, because it might be costly to have it removed and brought to the junkyard.
That a waitress doesn't need training is rather irrelevant. What has been created is a) a place for the waitress to work (building a restaurant takes time and money) and b) her work produces doctors and other things - even cars, if the car manufacturers go to dine in the waitress' restaurant.
It is true that other services/industries could not exist without food production. But that does not imply that those other industries are worthless. In some cases, food production could not exist without the other industries/services, either (sick farmers can not produce food, they need doctors and cars to work their fields).
Real value is created only in manufacturing, industry and agriculture. Service, finance and so on are add-ons to those fields.
Then you said:
I did not say that all service industries do not create value.
Actually, you did, in the comment I just quoted, less than a day earlier. What is wrong with your brain, child?
Value is created by scarcity.
Not only is that a stupid theory of value, it also fails to justify the conclusions you're trying to justify with it: waitresses (and the services they provide) are quite a bit scarcer than, say, corn.
Maybe you should test your theory of value by trying to give up something abundant for a few days. Try oxygen. Then you can tell me if oxygen has any value.
There's a 'pyramid of necessity' with "materials production" at the bottom, and at the top things like branding and marketing. In an expanding economy, such as we've had for the last 60 years, the top adds all the value (so, for example, you can just outsource the bottom). Generic bleach is often overstock from Clorox. Same product, but you're paying more for the name, image, etc. Service and finance industries fall in toward the top of the pyramid.
In a contracting economy, as we have now, the pointer on the pyramid drops relative to the size of the downturn. If it's severe, it's really only material production / commodities / etc. that matters. Who cares if it's a Nike? I need a shoe.
So it's not about "real value" meaning no value, but rather "real" vs. "nominal" value. The bottom of the pyramid has concrete value whereas the top has merely the nominal value of what people are currently willing to pay for it.
http://www.questbridge.org/cmp/partner_schools/mit/academics...
I'm sure a large number of those graduates would still work in a non-engineering field if the finance industry didn't exist, but I think that a) a substantial fraction of them would go into engineering, and b) an even more substantial fraction would at least be doing something that creates wealth.
I guess we'll see next year; I don't imagine finance will be a major destination for several years to come.
More than likely, though, he means we need a prettier President to waste larger checks. That is certainly in the pipeline.
To go back to the postwar situation, we'll need another war. And it needs to be a real war with firebombs, tank columns and opposing armies, not a stupid "suicide bomb some orphans for the cameras" event like what we have now.
Plus Hong Kong didn't always use to be a part of China, so it is a fair comparison.
While people in china might live in poverty and suffer of malnutrition, in here people are suffering form junk food. Fat and obese, compromise more 70% of the population in the states, and fresh healthy food is too expensive.
I don't disagree that America needa a new approach. I just think Friedman chose an easily sniped-at rhetorical device to make that point.
I find your point here to be disingenuous. Because NYC has more people it is not comparable to other large cities in Asia? Because NYC serves citizens through democratic multi-tiered governments that this does not exist in Asia as well? Look at major metropolises like Taipei, Tokyo, Seoul, and the awesome number of huge cities in India. All are served by democratically elected governments. If one were to take your post as gospel you'd think the entirety of Asia was one gigantic totalitarian wasteland!
I think Friedman is onto something - as a Chinese-Canadian I've seen both sides of the fence, and it absolutely terrifies me that we are facing the very real possibility of an oppressive dictatorship becoming the new world superpower, and all because we were too busy screwing selling ourselves out.
Some would say that if China is becoming a world superpower, it's because they're behaving less like an oppressive dictatorship. In world-historic timescales, China's transformation is ludicrously fast; it seems strange to demand even more radical political change as evidence of their bona fides.
Asserting that Hong Kong is a city on par with New York or London is going against years of perception to the opposite, mostly driven by the higher wages for the financial class in Western financial centers. That said, unless someone speaks mandarin these days, they are not likely to find the sorts of opportunities that previously existed in Hong Kong. One of the great things about the island is that it's always been a working city, and it is reorienting to mainland markets quickly.
Hong Kong imposes an 18% flat tax on its citizens. New York City could never get away with that, since its citizens already pay about half their incomes to the feds. Instead New York runs on a 3% tax, and I don't think the services they get from the feds make up for lost value.
If New York city got 15% more of its citizens income, hell yeah it could build a magnetic anti-gravity bullet train run off of angel farts. But it has its share to pay of pork projects in Alaska and troop presence in 170 countries.
Perhaps NY could spend that extra 15% effectively. But it would probably just be wasted.
(1) If patrons dance or sway to music in a bar without a cabaret license, the police will ticket the bar owner. As of 3 weeks ago, the cops were actively patrolling for this.
Full openness to information is indeed a great advantage. A country where lots of people ponder what everyday people and governments in other countries are doing better has many sources of ideas for local improvement.
In a country where most people have never even set foot in a modern european or asian city, the trouble is that most people don't have any idea how far behind US infrastructure has gotten.
Your point still holds, but too many people use that factoid as some sort of slight against Americans when it's really not.
The United States has been issuing passports by the millions for quite some time.
http://travel.state.gov/passport/services/stats/stats_890.ht...
Note that unlike some other countries, there is essentially no domestic use for a United States passport. United States citizens get passports if they are traveling overseas, and until recently travel to Canada and Mexico without passports was quite routine. So there are evidently plenty of Americans who have had a chance to go look around and learn from other countries. I would be quite happy to hear of more: in many respects, I think four years spent doing almost ANYTHING overseas and living in the local economy of a country with another language is more educational than four years spent pursuing a college degree, but meanwhile plenty of Americans, for business or for pleasure, do plenty of foreign travel.
But isn't the process of technological upheaval a continual defamiliarization of sorts, with people constantly changing modes and methods of communication with every new development? We don't need to be subjected to tyranny to be continually thrown off balance and required to innovate...
I also wonder what could accomplish defamiliarization nowadays, when satire and Dadaism have become commodities and every crap sitcom breaks the fourth wall. But perhaps utter economic collapse will do the trick?
a real innovation is something that universally increases standards of living.
The US Dollar is in the early stages of collapse; it will be severely devalued, perhaps down to being worth 50 or 60 Yen or more.
This is not being political, it is not Bush's or Obama's fault, but the result of an entire generation or more of mistakes, which started back in 1913 with the creation of the Federal Reserve and accelerated in 1933 under FDR and then again in 1971 when Nixon closed the gold window.
And if you want to keep it, store it in Switzerland.
The value of gold is not intrinsic - it is assigned by people, just like fiat currency (which is also why gold-backed currency, or the lack thereof, is not our problem). In fact, gold's value also fluctuates with the economy, just like everything else - when the economy tanks, gold prices rise, etc etc. It's almost expected for people to run screaming back to gold every time the economy hiccups, and this has made it an unsafe commodity to hold.
Not to mention when you buy gold - you are not buying any actual, physical gold, you are buying gold production, which will never ever reach your hands. If you really want to hoard precious metals, at least go out and physically have it. Your gold is just as imaginary as fiat money until you have it in your hands.
I don't know where you got the idea that I was recommending a non-physical holding of gold or silver, but it is a good point to address: all COMEX contracts state that in the event of default (non-delivery) they can just give you USD, which of course is exactly what you don't want.
There are many countries, out there, young democracies (or not), that are hungry, eager. When they figure it out, watch out. You can't assume that the US will stay ahead forever.
America does need a reboot. Our future depends on it.
The One's election to office and his promise to shovel out $1 trillion in green pork doesn't change a whole lot. Friedman says:
>"Because of the financial crisis, Barack Obama has the bipartisan support to spend $1 trillion in stimulus. But we must make certain that every bailout dollar, which we’re borrowing from our kids’ future, is spent wisely."
There is not a single example from American history to give me hope of this.
The success of China, Japan, South Korea, and the myriad of other east Asian powers is not an isolated case of blind luck. Incredible dedication has been shown here to grow a nation's infrastructure, and the US would be wise to take heed and follow suit if they want to maintain their lead.
Take a look at the bureaucracy needed to manage a country of 1.3 billion people, including a wealth gap far wider than that of the US, and yet continually building out massive infrastructure projects both urban and rural. This is something America is not doing, and I'd hate to see a repressive dictatorship out-do the West in anything.
He uses this theory to explain why the American South did so well after reconstruction and after the Civil Rights movement. He would likely also argue that this explains why Japan and China have done so well, since both underwent massive disruptions in the last century. Our own society, however, has been very stable for many centuries and has had plenty of time to accumulate bureaucratic lard.
3/5 cheap rhetoric, 1/5 bragging about some "exotic" place he has been, 1/5 self evident observation equals one Thomas Friedman column.
Dear NYT. Fire this man already!
Oh, wait. NYT is the newspaper who thinks it is a good idea to employ Ben Stein too. They will not see the incompetence of Friedman if they are blind to the insanity of Ben Stein (search google for Ben Stein Watch)....
I'm curious, what G7 nation's major city have you been to that had trains as terrible as New York?
I really disliked the article, too. So Hongkong airport is impressive. Hm, maybe some dictatorship has shelled out serious money to make an impression? Somehow it reminds me of the dot com boom - the companies who spent the most were to first to go bankrupt...
Believe it or not, there are many Americans who still believe that they are the top of the world, that in Asia people are still wallowing in shantytowns and mud-brick houses. When my mother first came to Canada, someone actually asked her if we had running water and electricity.
The "USA No. 1" mentality that many people still seem to have is the main reason why the US cannot proceed to fixing itself - most people have never traveled outside of the USA, least of all to Asia, and the media doesn't cover this nearly enough - Asia is advancing rapidly, its wealth and quality of life is rapidly approaching that of the US, and unless you act now your supremacy in the world will be lost forever.
Until more people realize how advanced Asia has become, I think Thomas Friedman's message is entirely appropriate and welcome.
I think post 9/11 average American has stopped taking risks.
Instead he invested (time & money) in buying houses.
Friedman is emblematic of his generation. He likes to make blanket statements like "the world is flat!", leaving out precious details (like the fact that cultural differences mean that a guy in Mumbai cannot so easily start the next Amazon), and expects parental-like approval from all of us. Look what I did! Look at me!
Same attitude -- self-satisfied under-achievement -- created this gigantic CF we're calling an economy. Reboot? Yes. That probably means forcing all these codgers into retirement homes where they can bitch and moan about how we Xers aren't doing well enough recovering from their disaster.
Why do you think so?
Agism (either way) can be legally hazardous.
Bailing out a failed business model is wasted investment.
Given your perception of the older folks, I'd suggest pursuing a business model based on catering to and profiting from those entitled boomers you appear to despise. But trust me on this one: some of those older folks are looking to profit from the perceptions of and the views of the younger folks, too.
Whether US-based or international, looking forward at what might change - what an upgrade from Acela to service competitive with TGV might mean, for instance - would be my preference. I'm looking at where I can improve, and how I can best deal with and can profit from the changes that are inevitably coming. At what and where the target is going to be. At what products and services I can milk or can sell off or can retire, too.
Changes are underway in the world economy. And I'd prefer to profit from both the "Xers" and from the "codgers" if I can manage it, as you'd termed these two large pools of potential consumers.
Blame? There's enough of that to go around.
Profit? Positioning for that in the current chaos is far more interesting.
The fixing of all this is cross generational. If we don't fix it, every one will loose, including those who have it. Have you seen the projections for social security? The angst isn't fatal. We survived the depression of the depression, we survived the post-Vietnam crisis of confidence, and we survived the crisis that Japan was going to suck up all our mojo. (OK the auto industry didn't.)
People game systems. It's odd that you mention Newton -- the idea that some combination of regulations/deregulations will engineer a better economy is why our tax code is currently incomprehensible. Perhaps it might work if we try it again for the 50 thousandth time?
It might be better to look at the economy like a chaotic system, with billions of independent agents all working randomly yet somehow creating a greater whole. The trick is a minimalist yet-changing set of constraints to allow the chaos to continue and be productive. Once you start trying to put it in a box, or choose special parameters, or try to understand or constrain the entire thing in some fashion that you can understand, you're kidding yourself.
My opinion only. I can tell you that history is littered with really smart people, governments, and political parties who thought they could understand/control economics. Sometimes people mistake what I'm saying for laissez-faire or free-market philosophies. It's not. It's simply acknowledging that the over-engineering of things we don't understand usually ends up in stagnation and corruption, not growth and opportunity.
We're in quite a mess now in the U.S. because politicians get elected promising more things than they can deliver. If you ask me, we started heading down this track once the federal government usurped the states back in the 1860s. There's no more sharing of power -- people slowly are figuring out that they can directly vote themselves whatever the government can borrow. No kind of market or tax policy is going to be able to get us out of this larger problem. That's the meta-issue.
If I'm not mistaken, this is similar to the Warren Buffet view of the economy: yeah, get the government out of the market where it makes sense, let the market do its work, but then whoever wins needs to share some of that with the poorest in our society.
I think this all revolves around what the person means by "free market" Some people think this is a "free-for-all" while in fact a free market is usually regulated to some fashion to make it free (by guaranteeing private property rights and tort law for contract enforcement, if nothing else) So free market definitely does not mean lack of government support/definition/intervention.
Taking, for instance, the health insurance industry in the U.S.. I'm in favor of the government defining simple levels of insurance coverage, say from A to F. A would be total coverage for anything that went wrong (including preventive care). F might be catastrophic care only, with the guarantee that life-saving measures do not bankrupt the family (even is some measures might be denied).
In this case, the government can and should intervene to create the open market. Currently policies are so obfuscated by legalese that consumers effectively have no choice. In details-rich markets, like lending, insurance, airline fares, etc, the government can make the market freer by simply providing _simple_ standard categories of service.
As far as direct intervention in social systems, such as education, I think most right-leaning libertarians such as myself would support those interventions that directly related to things the government absolutely had to do. Education falls into that category because the need of a national army requires a standard of education. Health care in general is a very tricky area. We're developing life-saving cures for our elderly that cost more than the person made during their working years. I find it very hard to believe people in a democracy are going to vote for their own early deaths, so as a practical matter some kind of political appeasement needs to be made with the public at large, free market or not. I'm still thinking this one through.
The danger is taking a complex system and oversimplifying whether on the "leave it alone and everything will be fine" side or the "hey, we can engineer this thing to do whatever we want" side. It's way too complex to work like political slogans want us to believe. I think we're in agreement on this point.
If you're looking to assign blame, then do evaluate your own particular motivations. You have probably already made or you are now about to make a mistake; you've taken your eye off your particular goals of creating value for your customers.
Certainly don't repeat (unprofitable) mistakes. Do learn from your own mistakes, and do particularly learn from the mistakes of others.
Competing against an organization that seeks to place blame on others? Now that's a potential business opportunity. That individual or that organization is not competing effectively. They're dissipating their competitive efforts. They're potentially vulnerable. Do you have a wedge here? An opening? Use it.
Do continue to move toward where the target business will be, regardless. Whatever goal or profit here you might view as your motivation. Blame doesn't move you toward that goal.
I grew up just a few miles away from where Friedman grew up, just a few years later. Friedman and a lot of his neighbors in his generation were early in urging their fellow Americans to have environmental concern and to be aware that America is just part of the world. I have good evidence for this, because my fifth-grade class made a time capsule in 1969 to be opened in the year 2001, with predictions of that year.
Perhaps Friedman's elementary classmates and my elementary classmates were part of a minority in America, but maybe people who share those concerns are still part of a minority in America. Anyway, these days it's easier for more Americans to see what is going on in the rest of the world, and there is plenty to learn from.
P.S. People in Friedman's generation and mine will be retiring at substantially older ages than our parents did--that's already a settled change in the Social Security law.