MARRIAGES OF CONVENIENCE
Bill Bonner
"The rich rule over the poor and the borrower is slave to the lender."
- Proverbs 22:7
It began at the dinner table.
"You're not telling me that our economy is going down the tubes because we no longer make shoes in New England?"
Some couples argue about the family budget. Others are set off by jealousy or disappointment. But the conversation last night was sharpened neither on the wheel of love nor the stone of money...but trade policy.
In the battle of wits at the dinner table last night, your editor was surprised to find a well-armed woman who sounded like a disciple of Alan Greenspan.
"Let China make all the shoes and radios and cell phones it wants. Who wants manufacturing, anyway? It's a low-wage, low margin business. We're much better off evolving to a service economy. What's wrong with that?"
"Is it important for an economy to have manufacturing?" the Fed chairman asked aloud, just last week. "There is a big dispute on this issue. What is important is that economies create value, and whether value is created by taking raw materials and fabricating them into something consumers want, or value is created by various different services which consumers want, it presumably should not make any significant difference, so far as standards of living are concerned, because the income, the capability to purchase goods is there. If there is no concern about access to foreign producers of manufactured goods, then I think you can argue it does not really matter whether or not you produce them or not."
Somehow, the dispute had entered our dining room like an addled chef with a blade in his hand.
Marriages have their ups and downs...their rough patches and smooth highways. When a man who must win every argument marries a woman who cannot bear to lose a single one, he is asking for trouble. He gets it, of course. And if he has God's light upon him, he enjoys every minute of it.
If you have been suffering through the Daily Reckoning for a while, you may have already guessed our hidden prejudice...our secret Major Premise...dear reader:
It is simple enough: we don't think people get what they want or intend...but what they deserve. Usually, they get it good and hard.
We do not pretend to know God's Own Plan for the world...but we think a smart man conducts himself as if He had one. Not for nothing does it say to 'love thy neighbour (or spouse) as thyself,' even if he or she is wrong on macro-economic issues. A man loves his wife whether she has read his Daily Reckonings or not. It is simply a part of the Way Things Ought To Be.
It would be more convenient for your editor to be married to a different woman - one with no macro-economic opinions; he could enjoy his evening meals in peace.
But convenient, calculated marriages have their drawbacks; when they become inconvenient, they fall apart.
These are the thoughts that lurked in your editor's head as he listened to his wife elaborate Alan Greenspan's case:
"Economies are always evolving...but not everyone has to make shoes. Look at the Swiss, they don't have to manufacture shoes either. But they are still very wealthy. They offer services, like banking, to the rest of the world."
Your editor had to win the argument. His children, his mother and his mother-in-law were looking on; if he could not put his wife in her place they would lose all respect for him. Still, even when he coated his words in olive oil, he could not seem to squeeze into the conversation.
"Trade anger grows," said a headline from Reuters earlier in the week. And there it was...growing in our own household:
"And you know something else," Elizabeth continued, "you are always saying that things are going to hell in a handcart, but they never do. America has a very dynamic, innovative economy. It will find a way to make money...
"Besides, you believe in the division of labor...not every country has to make shoes. Some can provide services. Americans can perfectly well specialize in high, value-added services...and movies...music...software..."
If America could produce enough hit songs or software programs to pay its way in the world, your editor countered, the nation wouldn't have a trade deficit. What's more, it's all very well for, say, Singapore or Zurich to specialize in financial services...but not for a nation of 280 million people.
He also pointed out that even in the service industries, Americans have no natural monopoly nor ready advantages. Indians can write software programs as well as Americans. And cheaper. The same globalization trends that have 'hollowed out' U.S. manufacturing over the last 30 years might very well do the same to the service industries in the next 30. We read in today's news, for example, that health care is so good and so cheap in India that Americans are beginning to take advantage of it. Apparently, $300 million is already spent each year by Americans on health care services in India.
"The ranks of American knowledge workers are being systematically thinned by American corporations anxious to outsource offshore, or to temporary visa holders, knowledge work such as information technology and engineering," writes Paul Mendelsohn in a letter to Barron's. "These jobs are going the way of the blue-collar work of the past 20 years."
Meanwhile, whatever it is that Americans are using to trade for foreign goods and services - they are not making enough of it. About half a trillion is the annual gap...and it's getting bigger.
"Don't worry about it," says the distaff half of the Bonner couple, "we'll find something we can sell."
'Don't worry about it,' comes a curious echo from across the Atlantic. Our very own analyst in London described the relationship between America and China in symbiotic terms. It is 'like a marriage,' he said, in which the husband works and the wife spends. In other words, we Americans don't even have to worry about having something to trade; our job is to consume! We are the world's mouth; that is our role in the world economy. As long as the relationship works for everyone, he concluded, why should we worry about it?
Of course, we do not worry about it. We merely make a prediction: this marriage of convenience will not last, at least not on the same terms.
It is not as if the U.S. gives nothing in return for Chinese support. It bestows its favors on its trading partner at a fixed rate against the yuan...and a floating rate against gold. Two years ago, each dollar the Chinese received in exchange for their labors would buy them 1/260th of an ounce of gold. Today, it buys only about 1/360th. All of a sudden, the marriage of convenience has become 40% less convenient.
America has spread her favors so promiscuously...her dollars are everywhere. Almost anywhere you look, you will find a man who has had his hands on them. How much longer will her lovers stand for it?
We wait to find out.
Bill Bonner
Editor's Note: Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies, and the author of the free daily e-mail The Daily Reckoning (www.dailyreckoning.com). He is also the author, with Addison Wiggin, of "Financial Reckoning Day: Surviving The Soft Depression of The 21st Century" (John Wiley & Sons) due out in September. This essay was originally published in the Daily Reckoning.
8 August 2003
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