News Recession: NBER says what all Americans knew

[Eagle]

Banks are known for taking money out of economy, like a leech, and as money does not turn so fast into salaries, they reduce liquidity.

I'll mull that over a little. It may be instead that banks actually enable liquidity. They keep a certain amount of capital in reserve that is available to (almost) anyone in relatively short notice as either a loan or withdrawal.

Yes the bank takes a percentage of almost every transaction. It is their incentive for doing business. However in real life, businesses pay their shareholders their profit, its not all even Steven to their employees. For this reason (and that this model economy is self contained) the money has to go somewhere, and since there's only 10 people, I'll suppose total bank interest = total loan interest.

___

After sleeping on the problem I have a few thoughts on externalities I've been trying to justify. If our economy is completely self contained then no externalities can exist and the value of money is only a % of total production. Otherwise there are many many more factors to consider; such as fixed costs or minimum prices in production.

If there is a minimum consumption each person must use is annother factor. Are they making, trading (and then burning) decorative knicknacks, or are they turning a crank to produce oxygen in a spacecraft?

 

[ar81]

There is something else to consider.
Job market globalization.
Poor countries are more competitive.
In a time of crisis, moving to cheaper countries makes yu more competitive.
Clauses that create conditions on national employment is like immigration barriers, useless. Nature finds the way, globalization too.

 

[Urwumpe]

Poor countries are more competitive.

If all managers would think that way, we should be lucky that we only get the worst recession since 1970 - instead of a really primordial crash.

How many people do you have in Costa Rica, who are able to install a German house heating system according to all EU standards? Here, this is already expected standard of skilled HVAC specialists - even if you only attended the lowest form of school before passing the 3.5 year apprenticeship. Here you have to start at the Harry Tuttle level, and that level is also standard expectation from foreign workers in Germany - a polish worker, who is cheaper, but finally is not able to do the job right, is as much out of work as the German worker.

When my ex-girlfriend was apprentice as bakery saleswomen, it was not only expected from her to be able to know the price, but also which kind of bread is what, what are the ingredients and which health concerns are important to know. Or the various EU regulations of aromas.

So - yes, you can be cheaper. Simple. But can you do the same job? You can use an intern for fixing an multi-million computer system, especially if every day, the system is down costs you a few hundred thousand bucks.

 

[ar81]

Unless you are nationalist and like higher costs, it is a proven fact that price is a powerful drive when it is about hiring or buying.

The cost of training takes place once only, and the rest of time you will have savings. A Latin american cost less than half of an American, a chinese costs 1/15 of an American.

EU is somehow closed to outsourcing today. But globalization is a strong force. Very strong. It starts with immigration, and eventually it ends with jobs going overseas.

For example, here you have colombians with PhD degrees that work as salesmen here because they are refugees, in Cuba you have very good doctors, in Venezuela you have first world skills. Costa Rican people are very polite for Call Centers (I do not think I am good example of that BTW) and have great learning skills. Costa Ricans make software for Microsoft, and if what I heard is correct, Intel keeps a plant here while it closed one in Europe some time ago.

I also heard of a company that moved jobs from France to some country in Latin America in recent years, because of cost and legal advantages.

I am quite sure that in Latin America you could find people who will meet whatever standard after some training. Making generalizations on a nationalist basis might lead to inaccurate assessment and competitiveness loss for a company.

For sure Latin America is there, with a relatively solid economy during these times of world crisis, since previous crisis have taught economists about how to react, prepare, anticipate before crisis.

Also the high inequities of Latin America favors cheap empoyees.

 

[Urwumpe]

Unless you are nationalist and like higher costs, it is a proven fact that price is a powerful drive when it is about hiring or buying.

You can get a bike for 20 €. Do you now buy a bike instead of a car, when you need a car?

 

[simonpro]

EU is somehow closed to outsourcing today.

Wrong, plain wrong.

 

[ar81]

Wrong, plain wrong.

Excuse me, you are right. I should have to say imports. I think I was a bit asleep.

You can get a bike for 20 €. Do you now buy a bike instead of a car, when you need a car?

Do you think we wash our clothes in the river?
Do you think we are bunch of indian tribes living in cities?
You might be surprised.

 

[Eagle]

Or the various EU regulations of aromas.

How much regulation is there? I can understand putting up a sign warning of peanut dust...

The cost of training takes place once only, and the rest of time you will have savings. A Latin american cost less than half of an American, a chinese costs 1/15 of an American.

It depends on the skill of the labor. Some jobs require both a good amount of initial training and refresher courses every so often. Not to mention that worker turnover leads to large increases in the required amount of training. Training becomes very expensive.

Its true that a very high proportion of nurses in the US are immigrants, green cards or here on visas. Their medical training can be done overseas more cheaply, then they move here, get certified and work at a very good salary.

 

[Urwumpe]

Do you think we wash our clothes in the river?
Do you think we are bunch of indian tribes living in cities?
You might be surprised.

Well, you present yourself like that... a washing machine costs about 400 €, the river is sure cheaper.

 

[simonpro]

Excuse me, you are right. I should have to say imports. I think I was a bit asleep.

Also wrong. I'm typing this from a laptop designed and manufactered in Japan, the majority of drinks in my house are Russian and of the ten cars I can see out the window 6 are designed and/or manufactured outside of the EU.

(edit) And most of my food appears to come from either Asia or South America.

 

[Dickie]

Forgive my ignorance here, but I've always been under the impression that the economy is all based on confidence - hence if everyone goes on and on about how there will be a recession, and keeps going on about it, and the media does as well, then eventually there will be a recession simply because you've destroyed all confidence in the market?

Given my admitted limited knowledge of economics, what would happen, say, if all the newspapers printed a headline tomorrow saying "Recession is over: economy is bouncing back."?

:hmm:

 

[ar81]

Also wrong. I'm typing this from a laptop designed and manufactered in Japan, the majority of drinks in my house are Russian and of the ten cars I can see out the window 6 are designed and/or manufactured outside of the EU.

(edit) And most of my food appears to come from either Asia or South America.

Oh. So the import barriers appliy to us...
I know Costa Rica have had free trade issues with EU in the past due to tax barriers.

 

[Eagle]

Forgive my ignorance here, but I've always been under the impression that the economy is all based on confidence - hence if everyone goes on and on about how there will be a recession, and keeps going on about it, and the media does as well, then eventually there will be a recession simply because you've destroyed all confidence in the market?

Given my admitted limited knowledge of economics, what would happen, say, if all the newspapers printed a headline tomorrow saying "Recession is over: economy is bouncing back."?

:hmm:

There is some truth to that. That's one reason why good economists have some knowledge of psychology. Its not the only reason, and its influence varies.

 

[ar81]

Forgive my ignorance here, but I've always been under the impression that the economy is all based on confidence - hence if everyone goes on and on about how there will be a recession, and keeps going on about it, and the media does as well, then eventually there will be a recession simply because you've destroyed all confidence in the market?

Given my admitted limited knowledge of economics, what would happen, say, if all the newspapers printed a headline tomorrow saying "Recession is over: economy is bouncing back."?

:hmm:

There is no ignorance in your comments.
Consuming less and firing workers contribute to recession, to make it worse.

US media loves to make a show out of everything, for rating brings money in the short term, and in the end media is one of the most vulnerable business when a recession comes, so in the long term, a 9/11 style recession emotional trauma can only hurt them. Panic adds crisis to the crisis.

False news won't make recession to be over, for damage has been done. And the worst of all is that Bush administration has not solved the 2 root causes of crisis: Government deficit and foreign trade deficit. Solving those would be very impopular, and would show the real status of US economy. Nowadays Bush is containing the effects, which is like putting a black fabric before your eyes, and patching the holes, while avalanche comes down towards you.

With lower rates, he is refinancing consumption, procrastinating the real crisis. The longer it takes to solve it, taking impopular measures, the more painful it will be.

Want some jobs? You will have to follow the model Francisco Franco implemented in Spain to recover its economy. It was not bailout.

 

[Urwumpe]

I know Costa Rica have had free trade issues with EU in the past due to tax barriers.

No question - your country is not even associated with the EU in any way, so why should you expect any better treatment as other countries internationally?

The EU has a customs union (an extension of a free trade union, with common external tariff) , which means, that your goods have to pay a tariff depending on the type of good, for entering the EU market - but no longer afterwards.

 

[Dickie]

Hmm...think I follow you. Surely though announcing the recession is over would not so much be a case of false news, so much as a self-fulfilling prophecy?

Logic seems to be here that it's a mindset thing - if we all just decided to ignore the recession and start consuming again, thus creating demand and securing jobs this would solve most of the problems? Then cut government waste and use the dividend to pay off the national debt.

As for creating jobs, from what I remember of my history at high school, the catalyst for ending the depression in the 1930s was the start of WW2. Maybe a return to the Cold War and a subsequent re-armament programme wouldn't be such a bad thing right now.

Whilst I have always been mostly skeptical about economists and economics in general, where's a good place to start in understanding the whole trade deficit thing? This is all making me rather curious!

 

[Urwumpe]

As for creating jobs, from what I remember of my history at high school, the catalyst for ending the depression in the 1930s was the start of WW2. Maybe a return to the Cold War and a subsequent re-armament programme wouldn't be such a bad thing right now.

Just to quote a German second-hand car trader and ship owner: A war between two countries is OK, you can sell your cars somewhere else, and after the war, they need new cars. But a war between all countries is bad for the business.

 

[Dickie]

Just to quote a German second-hand car trader and ship owner: A war between two countries is OK, you can sell your cars somewhere else, and after the war, they need new cars. But a war between all countries is bad for the business.

War being a global industry, it could be said to be very good for business; you'd need to import copper for shells, steel for ships, and would have to create manufacturing jobs in large numbers along with all the associated R&D that would go on. Not to mention the jobs being created to man the ships, aircraft and everything else. Plus there would be no concern of having your jobs outsourced to foreign countries, and it would start cash to flow round the economy again. Also, the rebuilding effort afterwards (needing new cars) would keep the economy ticking over for a long time.

I've always been under the impression that the Cold War was an ideal situation; you got the benefits of a war-time economy with plenty being spent on building ships, subs, airplanes and everything else, but none of the drawbacks of actually fighting a war. Shame it had to end really.

 

[Urwumpe]

I've always been under the impression that the Cold War was an ideal situation; you got the benefits of a war-time economy with plenty being spent on building ships, subs, airplanes and everything else, but none of the drawbacks of actually fighting a war. Shame it had to end really.

Actually, the cold war was a economic nightmare - many resources bound by it, which you had not been able to use elsewhere.

If at all, you want a short conflict. Bomb the economy of the enemy, without him bombing you, gain access to new markets. No scorched earth tactics - these are bad for business.. don't bring your own food and toilet paper ( ), but instead buy or seize local.

 

[Dickie]

Actually, the cold war was a economic nightmare - many resources bound by it, which you had not been able to use elsewhere.

If at all, you want a short conflict. Bomb the economy of the enemy, without him bombing you, gain access to new markets. No scorched earth tactics - these are bad for business.. don't bring your own food and toilet paper ( ), but instead buy or seize local.

Interesting, I hadn't thought of it that way. Surely though, the amount of manufacturing and R&D that went on must have bolstered the economy in some way?