"The World is Flat" (3.0)

[jackellis]

Has anyone read Thomas Friedman's book?

I've almost finished, and its a little scary. Not so much because I think we'll be starving, because that's not very likely. More so because the generations that follow ours may find their standard of living stagnant or perhaps even in decline (broadly speaking, of course).

[cgallery]

Has anyone read Thomas Friedman's book?

I've almost finished, and its a little scary. Not so much because I think we'll be starving, because that's not very likely. More so because the generations that follow ours may find their standard of living stagnant or perhaps even in decline (broadly speaking, of course).

Are we going to continue on a path where emerging labor markets will just continue to eat-away at ours?

Or, will external influences rock the boat first?

What if China runs out of the means to finance our consumption (and I'm not talking about a choice, I'm talking about an inability)?

What if oil runs back up to $100+ a barrel?

[jackellis]

If you're under the age of 50 or you have young kids, you should read this book. It's written in a style that's very easy to digest. Let me see if I can answer the questions:

Are we going to continue on a path where emerging labor markets will just continue to eat-away at ours?

Yes, unless you do something they can't. Public service workers like police and fire, most health workers, trades like plumbing and electrical, some machinists, and many government servants will be less affected, though to the extent the rest of us have less money to spend so will they. Friedman thinks (and I agree) that people who possess and can harness their creativity and imagination will do well. He stresses the need for education and points out that the majority of graduate degrees being awarded in this country are to foreign students. American kids aspire to be lawyers and investment bankers. Foreign kids, especially in places like Asia, aspire to be engineers and scientists.

What this really means is that as a nation we need to figure out how to run faster than the other countries, and as individuals, we have to assume that many other people in the world are now competing for our jobs. It's no comforting, but then again we didn't become the world's largest economy and the world's richest nation by sitting on our butts and whining. Jobs are moving offshore (even as lots of new ones other than flipping burgers are being created onshore) because the rest of the world finally figured out that we have a winning formula that they're trying to copy and improve upon at the same time.

Or, will external influences rock the boat first?

Unlikely. If there is a worldwide economic collapse, my guess is the US will come out of it first, followed closely by China, Europe, Japan, Singapore. A lot depends on how our elected readers attempt to deal with the problem (any more specificity and I'd be in trouble!).

What if China runs out of the means to finance our consumption (and I'm not talking about a choice, I'm talking about an inability)?

Good question. This edition of the book is a couple of years old so he doesn't talk about the current recession. My opinion is that we might be eating beans for a while but we will pull out of it faster than anyone else.

What if oil runs back up to $100+ a barrel?

High-priced oil will drive manufacturing back on shore but it's not going to slow down the competition from abroad. Routine service work can still be shipped outside without having to get on an airplane. In fact, high-priced oil would probably be good for a company like Cisco, which makes video conferencing products that greatly reduce the need for travel.

One theme that runs throughout the book is that higher living standards require change but change is painful and scary. Another observation is how badly the rest of the world wants a better life and how hard they're willing to work in order to get it. What your kids need to worry about is China's aspiration to reclaim its place and power in the world. 100 years ago it was the world's largest economy.

[jziegler]

I haven't read the book, but I heard a large part of his interview on the NPR show "Fresh Air". I was impressed by what he said on the interview. (http://www.npr.org/templates/story/s...oryId=94385403) He was specifically talking about his new book (within the last year) Hot, Flat, and Crowded.

Jim

[jackellis]

He was specifically talking about his new book (within the last year) Hot, Flat, and Crowded.

Next on my reading list.

[cgallery]

It wasn't too long ago that everyone thought Japan Inc. would soon produce everything the world consumes. Believe it or not, the Europeans had the same concern about the U.S., and not just once.

I'm not saying the book is wrong. But it looks at the birth of production in China and extrapolates the future without regard to important considerations such as the fact that China will eventually have to float the yuan, and that their ability to finance our debt will slowly run out.

Trends are easily identifiable but the question is always whether they will hold up in a chaotic world.

I'm not saying disregard them. I'm just saying that putting too much stock in a trend like the effect of emerging labor markets on our own may be a waste of, well, stock.

I think it is more interesting to question what types of events may derail a trend, and even theorize about probabilities.

What happens if growth in China slows and leads to new demonstrations/uprisings? What happens if Iran is found to be building a bomb and China delays world action?

[jackellis]

You're talking about high impact/low (or perhaps middling) probability events. They add a whole other dimension to thinking about what the future holds that's probably more than most people can deal with when they're already having trouble coping with the likely trend.

Let's say China does float the yuan. They still have an enormous amount of low cost labor - it just means moving more of their manfuacturing away from the cities. Moreover, there's the rest of Asia (India and Pakistan), parts of South America and Africa that have large numbers of people living in poverty. A combination of floating the yuan and higher fuel prices is going to change the balance of onshore vs. offshore manufacturing, but it's not going to lead to a massive shift. Lots of low wage, low skill manufacturing jobs are gone from this country forever. The ones that remain are going to require a higher level of skill and education, and they will pay somewhat higher wages, but probably not like they used to.

Political upheaval in China is another story. It could easily be precipitated by a strong yuan or by widespread economic impacts in China from the current global recession. As we've seen with Pakistan, a weak or unstable government that has nuclear weapons is problematic at best. If we're successful getting China to float the yuan, we could be sorry. But since you raised the issue, I'm wondering if anyone in Washington is looking at the whole picture instead of just the narrow slice that includes jobs?

Iran is a wild card right now. The most effective deterrent we have against the government of Iran is oil. To the extent we can reduce our dependence (and possibly the world's dependence) on oil, we reduce the ability of the government there to interfere elsewhere and we put a lot of pressure on them to reform their political and economic systems. Oil at $147/barrel allowed them to buy votes and buy political dominance. Oil at $40 changes the equation. If we don't have to depend on Middle Eastern (or Venezuelan or Bolivian) oil, then the fact that Iran has a nuclear weapon is a lot less threatening because their only leverage with a nuclear weapon is oil and its safe passage through the Strait of Hormuz. Or at least that's how I think about it.

I recommend you read Friedman's book if you have not, because it's not only about the US and China. Not by a long shot.

[cgallery]

I recommend you read Friedman's book if you have not, because it's not only about the US and China. Not by a long shot.

I read it, but it has been a while. I've forgotten more than I remember, I'm afraid.

Let me ask another question: If manufacturing will chase cheap labor, how will producing more graduates with degrees in engineering/the sciences help us? Even if we could produce twice as many graduates with degrees in engineering/the sciences, how does that help the average Joe that turns a wrench?

If there are 10 or 20 Joe's for every Loring (LCHIEN), what hope is there for changing that ratio in any meaningful way?

[jackellis]

Let me ask another question: If manufacturing will chase cheap labor, how will producing more graduates with degrees in engineering/the sciences help us? Even if we could produce twice as many graduates with degrees in engineering/the sciences, how does that help the average Joe that turns a wrench?

You raise a good point. I'd bet if we looked at the statistics, manufacturing employment has been falling steadily since after WWII and other jobs have taken their place. IT, for example. Nursing and medical techs for another. People who can design computer chips and people who can design gadgets made with computer chips and people who put everything together. Some of them require advanced degrees and some of them require a high school education and a healthy dose of smarts and a willingness to learn.

In the last 10-15 years or so, average Joes and Janes have borne the brunt of the impacts of change, and they're not happy about it. On the other hand, those Joes and Janes have also benefited from cheaper stuff and things that did not exist 20 years ago. Family incomes have been stagnant but until recently, the proportion of family income that went for food and energy had been dropping for 20 years.

I confess that none of this helps families that have lost their jobs and are about to lose their homes. Our safety net is better than many (China, for example, has none) and not as good as others (France, for example, has a very generous one). Too stingy and people die, too generous and no one will want to work. Getting it just right is tough, especially when just right means something different for everyone.

We should be willing to spend money on education and parent's should make sure their kids take school seriously. One thing the Europeans and Asians do right that we have just screwed up on is making school about things other than learning what you need to survive in this world. Music, sure. Intermural sports, no. Uh oh, where's my flak jacket?

[shoottx]

In all of the discussion of cheap labor there are several issues Thomas Freidman tends to overlook. He is blind to the impacts of governmental regulation in the US and how that impacts the competitiveness of American Manufacturing.

The second issue that will impact the whole global economy is natural resources. Those that can control the supply and production of natural resources necessary for production can impact the whole future. China currently has control of over 95% of the rare earth elements necessary for production of all electronic screens. With that control they can control price and access to the elements required for all of our advanced weapon systems, all cell phone screens etc.

While I find some of his work interesting, most of the solutions for both the US and the rest of the world are much more complex than we can resolve in a forum like this.

[BobSch]

Maybe Neal Stephenson isn't that far off the mark.

[Kristofor]

I don't know about that, but I do have all of my retirement savings in Kongbucks....

[BobSch]

I don't know about that, but I do have all of my retirement savings in Kongbucks....

Smart man.