I have started reading the book, Crashproof 2.0 by Peter Schiff, and I thought I would register some early impressions.
He is a guy who was once mocked for daring to suggest, only a few years ago, that the buildup of debt in the US and parts of the West, and its reliance on what amounts to “vendor financing” from Asia, was bound to end in tears. It did. “Vendor financing”, by the way, relates to the practice of a firm that offers temporary loans to the consumers of its own products. This, more or less, says Mr Schiff, is what happened in the past decade or so: Western consumers bought cheap products from China; Western manufacturers went bust or offshored production to Asia; China used the foreign earnings from its exports to buy up Western debt, enabling even more Western consumer spending, fuelling even more Chinese exports……until the whole process when up in smoke. (This process was aided by an artificially weak Chinese exchange rate, not to mention the recklessly loose monetary policy of the Fed.) So far, so good: Schiff makes a lot of sense in debunking all of this.
But then there is a rather rum argument. Schiff says that somehow, this process was bad because as a result of the low-cost production from China and other parts of the world, US manufacturing jobs were replaced by allegedly lower-paying, crappier service sector jobs. (It is simply assumed that non-manufacturing jobs are worse than manufacturing ones). This sounds a bit like the sort of attack on globalisation I have heard made by such economic illiterates such as Lou Dobbs of CNN. I was a bit surprised that an Austrian-leaning writer such as Schiff should be making it. If the service sector can generate wealth for those who work in it, what is the problem? If, in a proper free market without the distortions of fiat money etc, certain manufacturing jobs were to be done by low-cost nations and other jobs by us, how is this a cause for Apocalyptic treatises?
Another query I have is this: if the Chinese/whoever are earning real income by selling us stuff, and then use that real income to lend us money that is used to fund investment in things that will create wealth in the future, again, how is this a problem? Sure, if that Chinese money is simply fuelling consumer spending and encouraging feckless spending and low savings – which is what did actually happen, I can see the issue. But lending money for productive purposes is hardly an evil. In the 19th Century, for example, the UK, with its wealth generated in the Industrial Revolution, was a net investor into countries such as the US, Canada and Argentina. I guess the trick is to make sure that the money lent for productive purposes is money derived from genuine savings, not funny money.
Maybe Mr Schiff will answer these points later in the book.
Don’t put too much stock in China. While their expansionary poliices worked for a while many of their numbers are just on paper. They have a history of over reporting anything that sounds positive while downplaying all the negative aspects like the 40% bad loans or more their banks are sitting on. There will be much more hardship soon with a looming Chinese collapse bigger than the Soviet Union’s.
Schiff is right and we few remaining economic phillistines will have some comfort in knowing we are right as western civlization collapses under the ruins of a house constructed on economic voodoo by Right and Left.
Or to put it another way, everyone kept telling us we could, we really could, build a sustainable economy on cutting each other’s hair and selling each other drinks, but we haven’t and the reason we haven’t is because we can’t. You’ll see.
As for detailed retorts, yes, Schiff does answer most of your points.
I think that you granting too much equivalence between wealth generated by things like manufacturing, mining, agriculture, etc. and apparent wealth resulting from activities ranging from burger flipping to house flipping.
The second wealth generating category is largely illusory, and whilst it has kept us occupied for a relatively brief period since WW2 it can only be a matter of time before the Far East cut us out of the loop and handle most of their service, finance, technology and science requirements in-house.
If that was all that the term “service sector” applied to, you might have a point. But the classification is too vague. Consider, areas such as design, architecture, software writing – these don’t fit the rather pejorative area of services that your comment implies. (Talking of which, I need a haircut.)
To put thing the other way, as an economy gets richer, and the “creative destruction” of capitalism deposes old ways of doing things and throws up new ones, many of the newer jobs will be white collar ones, or at least not the same as the previous metal-bashing roles of the classic manufacturing model. I fail to see a problem with this.
Also, with outsourcing of old functions that used to be done in-house, the outsourcing firms often get reclassified as services, whereas before they would be subsumed within a manufacturing firm. Consider the example of a carmaker that outsources its office cleaning staff, etc.
The difference between service-sector jobs and manufacturing jobs isn’t that one creates wealth and one doesn’t. It is that service sector jobs do not create anything to trade with foreign nations. Schiff is pointing this out saying that look the status quo can’t stay forever because what are the manufacturing countries getting out of it? The answer by mainstream thinkers is they are getting to sell us their stuff, but Schiff’s answer is what good is selling stuff if you can’t buy anything or save it yourself? This leads him to conclude that eventually the Chinese (and other savers and creditors) will realize this.
Furthermore, though service sector jobs do create wealth they are not as wealth producing as manufacturing jobs – there is no doubt that anyone can do a “service sector” job while a degree of skill is required to perform manufacturing jobs. Highly skilled labor is more valuable than low skilled labor, and though manufacturing does have low skilled labor it also has a lot of high skilled labor – engineers, technical experts, mechanics, jobs of this nature.
As for your last point on China financing investment for future consumption, that just isn’t the case (as you note). But more importantly is that it can never be the case so long as Americans do not produce anything, which is why Schiff argues that China will not continue this process (he is presuming that America is going to continue on its path, which it will until the market forces the correction).
Also, you should note that Schiff doesn’t argue that there is going to be an end times reckoning, only that the United States is going to be forced to change its current living habits (and this will necessitate a lower standard of living) and that other nations will have a rise in their standard of living.
The share of manufacturing in the American economy has not changed substantially over the last few decades has not declined significantly despite the major loss in manufacturing jobs. The real culprit is not China, it is automation, just in time supply lines, inventory management, etc. This is happening in China, too.
On the other, China’s holdings in US Treasury bills is a problem in that it gives them real leverage over the US government.
That is wrong. If if a UK-based computer programmer sells his or her services to say, a business in Hong Kong (I am sure this sort of thing happens), that does earns a cross-border income for the programmer and counts, as a sort of export, surely.
“there is no doubt that anyone can do a “service sector” job while a degree of skill is required to perform manufacturing jobs”.
Sweeping statement. Depends on the service sector job you are talking about. Some menial service jobs are simple to do, but that applies elsewhere. A top-rated lawyer, accountant, banker, doctor, architect, designer – not quite the sort of things that “anyone can do”. If that were true, then presumably, without barriers to entry, these positions would not be as well paid as they now are.
I really get tired of that idiotic “burger-flipping economy” argument. Service industries exist because they fill a need. That’s true even for “house-flipping” (which I take as a proxy for all sorts of financial intermediaries). All intermediaries exist solely because they help improve the overall effeciency of the market. (That’s not the reason they go into the business, of course, which is solely to make money, but it’s the ultimate effect of their actions. It’s just one more illustration of Smith’s “Invisible Hand” at work.)
Bob Sykes is correct about the effect of automation on the US manufacturing industry, but even with respect to jobs actually exported the end result is beneficial to the economy as a whole. Labor is a “commodity”, as is everything else, so let’s return to Smith:
Still as true today as it was in the Eighteenth Century. Actually, the objection to the “exportation of good manufacturing jobs” is just another illustration of Hazlitt’s “broken window fallacy”. You can see the jobs lost; you can’t see the jobs gained from the savings resulting from cheaper purchases. They’re easy to overlook, of course, but anyone presuming to opine on economic matters shouldn’t be so superficial.
A look at the financial crisis from Peter Schiff
Peter Schiff caused the financial crisis or did you mean, Johnathan:
A look by Peter Schiff at the financial crisis
?
If people have sense they will nominate Peter Schiff for the U.S. Senate from Connecticut – now that corrupt Chris Dodd is going.
A Schiff campaign would blow the doctrine that “greedy bankers and the markets caused the economic crises” away.
As for “are services real products” – yes they are.
But we are not selling the Chinese hair cuts or other such (at least not to any big degree). And credit bubble financial products (such as government debt) are certainly NOT real products.
High wages are not behind the decline of basic American industries (and they are in decline – people who say they are not are just plain wrong). What is behind the decline is a credit bubble financial system PLUS high taxes and endless regulations.
What is wrong with the labour market is not “high wages” in a simple sense (after all American wages have always been higher than virtually anywhere else) it is the decline of relative productivity – due to the above problems.
Sorry but one can not keep high wages in an economy dominated by union rules and other such.
Oh yes – in the long run unions do not just increase unemployment, government supported “strike threat system” concepts undermine long term real wages also.
Everyone is worse off than they would otherwise have been – even members of the unions concerned.
As for other regulations and taxes.
Look at the great companies that were founded in California (and Caliifornia is the direction all of America is headed in).
How many of these companies could have been founded under present policies?
NONE OF THEM.
None of them could have withstood the level of taxatiom and regulation (Federal and State) that now exists.
James, not really. If I say, “A look at the markets from James Higham”, I think people would realise that the word “from” and “by” are the same.
Don’t put too much stock in China. While their expansionary poliices worked for a while many of their numbers are just on paper. They have a history of over reporting anything that sounds positive while downplaying all the negative aspects like the 40% bad loans or more their banks are sitting on.
In a small piece of self-promotion, I will point out that James Waterton and I did spend a significant portion of out podcast last week discussion this very question, specifically that of how real and how vulnerable is the Chinese economy.
The irony, of course, is that many of the folk who attack the supposed “handburger flipping” economy have never worked in a factory or done manual labour in their lives.
Bob: Are you sure?
China needs those T-bills to prop up their banks (which are, as far as I understand it, even worse off than the worst of the US banks a year and change ago ever were), and to keep the renminbi worth anything.
Or, to put it another way, “When you owe the bank a hundred dollars, you have a problem. When you owe the bank a million dollars, they have a problem.”
China can’t afford to not own all that US debt, is my understanding, and any attempt to take down the US economy with it would be doubly suicidal.
(Doubly because not only would a collapsed US economy not buy their goods – and the US is China’s biggest market – but a suddenly worthless set of T-bills won’t perform its function of propping up their banking sector and currency.)
(And while I’m not quite as bearish as CrisisMaven, I am bearish on China’s long-term prospects given the underlying weakness of so many of their fiscal and economic institutions.
I find it hilarious that so many “Western Economy” doomsayers prophecy that China will “take over the world economy” in the next decade; maybe that looks likely if you never investigate beyond the merest surface appearances, but otherwise? Not so much.)
I am bearish on China’s long-term prospects given the underlying weakness of so many of their fiscal and economic institutions
And these issues fall into insignificance when you look at their demographic issues. (Quick summary. The one child policy may be just about the stupidest piece of public policy in all of human history).
“Schiff’s answer is what good is selling stuff if you can’t buy anything or save it yourself? This leads him to conclude that eventually the Chinese (and other savers and creditors) will realize this.”
I haven’t seen Schiff’s argument yet but it occurs to me that the capital structure behind domestic markets in China is likely to remain distorted for some time simply because the CCP is terrified of the prospect of a middle-class growing too wide or too fast for them to effectively control. They are caught between their desire to be chasing the American dragon and their need to be managing this expansion gradually.
Otherwise, what Laird said.
“China can’t afford to not own all that US debt, is my understanding, and any attempt to take down the US economy with it would be doubly suicidal.”
Right – this is one of several reasons why the Mandarins keep putting off their scrap with us 鳳梨 é in Taiwan…
“I find it hilarious that so many “Western Economy” doomsayers prophecy that China will “take over the world economy” in the next decade.”
This calls to mind the panic in certain quarters back in the 1980’s (anyone else remember them?), when we were certain that Japan, Inc., was going to own the entire US. They bought Rockefeller Center and all sorts of other marquee properties at huge prices. Didn’t quite work out as was feared, did it?
Laird: China now is not Japan in 1988. China now is substantially more backward than Japan was then, but is also seven or eight times bigger. What that means, I don’t know, other than it will play out in a different way. I agree that China are no more likely to take over the world than the Japanese were.
America has learned how to dine and forgotten how to cook, which is going to be pretty awkward once the credit card maxes out. Especially since we threw the pots and pans out years ago.
Laird: The irony with Japan is that a demographer did predict its decline back in the 70’s because of the declining birth rate, similarly with China, the Economist stated about ten years ago that China would grow old before it grew rich. Hence the abandonment of the one child policy.
Did everybody miss the Chinese restricting the kind of American debt their funds could buy? I think we are about to find out if that’s a bluff or not and thus if Schiff is right.
A parable: Consider the iPod.
Designed in California, raw materials produced in Africa, refined in India, assembled in China and the finished product and software built and installed in Japan.
Which of these groups could you not live without?
People have picked up on the key to this issue; if labour is a commodity then it is subject to the same price pressures and Baumol’s cost disease; find a cheaper source or innovate so you need less of it; we started doing the former (the industrial revolution) then the latter (the rise of corporate cronyism).
Cheap labour whilst not a bad thing is the least best way of being innovative; it can even smother it as is the case here.
Whilst I don’t adhere to Rand’s objectivist leanings I must say there was a striking section of her opus, Atlas Shrugged: when the Comet makes it’s first trip on the Rearden metal train line and bridge proving it’s brilliance and hinting at a potential golden age with all of us having to work less, replace consumables less as they last longer and live richer lives it is the cry of the parasitical masseswho kill it off in it’s stride.
This is what has happened here since the Labour movement metastasised into a political form.
I read the book and I agree that he has many valid points. He then goes on to recommend investing in the BRICs above the US in almost all respects. He is a huge bear for the US. My complaint is that he seems to give little time to the issue of what China, or Brazil, or India’s problems are. I didn’t see evidence of a detailed analysis of the problems in those countries. His youtube broadcasts on his website aren’t bad.
Laird, give it time. Your assertion that burger and house flipping activities are equivalent to traditional wealth producing industry is an illusion maintained by the subsidy from the wealth previously built up by earlier generations. The lag effect as UK plc gradually exhausts its wealth is becoming very apparent with the plight of the next generation.
To argue that:
You can see the jobs lost; you can’t see the jobs gained from the savings resulting from cheaper purchases. They’re easy to overlook, of course, but anyone presuming to opine on economic matters shouldn’t be so superficial.
….is offensive to the millions of unemployed and underemployed in this country. We have been papering over the cracks for some time with early retirement, extended education, enforced part time employment, and an army of the permanently unemployed, but society is slowly imploding as this cancer spreads.
Yes, we can “see” the army of lost jobs, hundreds upon hundreds of thousands of manual workers in industry and agriculture, but you imply that these jobs now exist in the new economy. Where? In the City, in B&Q, or maybe, heaven forbid, in the army of government employees? I don’t think so.
The young generation today, whether graduates or unqualified are despairing of their futures, and growth of the underclass in parallel with permanent structural unemployment appears to be the norm. These trends have been a puzzle to many social commentators over the last thirty years.
They are no puzzle to me.
While it is possible to export services, most services are locally consumed. Likewise, while some manufacturing is locally consumed (printing and food processing, notably), much of it is exported.
No community can survive by internal services only. That’s called “taking in each other’s washing.”
(One should exclude small communities that function as service centers in larger de facto communities, such as Singapore.)
John East, so what is your solution to those “lost jobs” : protectionism? The tone of your comment suggests that might be how you are thinking. (Feel free to tell me I am wrong).
Johnathan, I wish I had an answer, but I don’t. Protectionism isn’t something I would advocate, although it might tide us over for a few years if we had a master plan. Which of course we don’t.
So, what would I do? Our decline is so broad based, and so entrenched it’s difficult to know where to start. I could list changes of which I’m sure many of us on Samizdata would approve such as better education, less government, less tax, less welfare state etc., but I would just be flapping my gums.
In this depression we are approaching a trough in the fortunes of UK plc, and reviewing what the current government and Her Majesty’s opposition have on offer, the tide of history does seem to be unstoppable.
I don’t want to be all doom and gloom. Things can only get better, to coin a phrase, and I hope that however uncomfortable the assimilation of several million immigrants is proving to be, the influx of new blood without a tradition of entitlement might re-invigorate our society further down the road. The standard of living won’t be anything like we have been accustomed to, and it may not be a society I’ll wish to call my own, but that’s a topic for another day.
John East, you seem to be taking it as a given that the current unemployment is the result of the shift to services-based economy, which I am not at all sure is true.
I have respect for Schiff as an investor, but right now he’s also a politician running for office, so he has to pander to voters by paying at least token tribute to the proverbial average voter’s concerns. Thus, I would put higher weight on his ideas as expressed before he decided to run, and give him some latitude for what he’s saying currently, while trying to tease his true beliefs out of the rhetoric.
As for China, I’d like to contribute this link. The money quotes: “For Beijing’s central planners, however, the size of China’s industrial base has become a cause for alarm rather than celebration… Consider cement production, where, according to the China Cement Association, 38% of capacity consists of “shaft” kilns. These have been obsolete in most of the rest of the world for over a century, and accounted for less than 3% of production even in 1957, when most of China’s cement plants were imports from Eastern Europe. Nowadays, however, shaft kilns are a favorite of local governments because they can be built cheaply and quickly and generate growth and employment. Achieving economies of scale and lessening environmental impacts simply are not priorities.”
The thing about China (and to a somewhat lesser extent India and Brazil) that many fail to account for is that it’s a “rich” country composed of poor people. In developed countries, high/growing GDP and high/growing per capita GDP tend to go hand in hand. Not so in China – there everything is extremely distorted when viewed in aggregate. China is growing the same way Russia did in the 1930s – the labor-intensive way. Looks good in aggregate – “wow, check out the spiffy skyscrapers in Shanghai!” – and yet does not bode well for the “labor”. And let’s not forget that the likes of Vietnam and Indonesia (and maybe Africa, if some semblance of sanity takes a tentative hold there) are right on their heels with even cheaper labor.
Service “industries” don’t generate wealth.
They generate income for their participants, but that’s a different thing. Wealth is stuff. Money is not. You can make money and it lets you buy stuff, but if you have not made stuff, you have not created wealth, you have merely earned a share of someone else’s wealth.
This might be fine, of course. Or not, depending.
Depends what you mean by wealth, then. It is not material stuff, either. Wealth is the ability to do more things and increase human satisfactions. Services of various kinds are a part of that. Consider the huge benefits that come from developments in retail, etc. Do the developments associated with the likes of eBay or Amazon not count?
And what about information, knowledge, skills, innovative ideas? Jonathan is absolutely right. And ‘stuff’ is no use (i.e. not wealth) if one doesn’t know what to do with it, etc. I hope Plamus is correct in that Schiff is pandering to the lower denominator of common unwisdom, although I am not sure that in itself is a good idea either.
BTW, if wealth could only be comprised of physical stuff, than markets would be a zero-sum game, as per socialists. We know it isn’t.
The point is very simple. We were told that the decline of the manufacturing/production economy and the rise of the service economy (and the attendance rise of the former outside of the West) was a consequence of natural market mechanisms based on comparative advantage. But this was always bullshit. The first was a consequence of totally deranged taxation and regulation and the latter of everyone taking out loans they couldn’t afford to pay back.
Those free-marketeers who told us “step back luddites, this is just Free Trade working it’s magic”, were sold a total pup and, in turn, they helped to sell everyone else a pup.
It might be interesting to ask whether, in normal market conditions, the decline of manufacturing/production and the rise of a service economy to replace it would be sustainable and healthy, but it’s totally irrelevant because in normal market conditions it has never actually happened and probably never will.
I don’t see how you can separate out the lower proportion of manufacturing jobs and the massive monetary expansion over the last 15 years or whatever by the Fed and China buying all that US debt.
What is cause and what is effect?
For my money, without the Fed’s pumping China would not have bought as much debt and both would have meant higher interest rates meaning less financial related jobs and less consumption (flipped burgers?) meaning more saving and less manufacturing jobs lost.
Ergo, this leads me to think that in the absence of the artificial boom the public would have been wealthier consuming manufactured widgets than flipped burgers. Just a guess though 😉
Gabriel, please, spare the usual silly barbs and grow up. The movement from mass production manufacturing of basic goods in the West towards more specialist fields has been going on for a long time, just as
the creation of surpluses in the agricultural revolution paved the way for the industrial one. There is no reason to think that the changes in manufacturing towards other forms of occupation are entirely down to some sort of regulatory/tax problem, though no doubt these have played a part. But you cannot resist making some silly sneer about us “free marketeer” types, which seems rather odd since we agree 100 per cent, I assume, on the need to remove such regulations/taxes, yes?
As countries in the so-called Third World have used their comparative advantages to earn income, so things have changed. I consider this to be a largely good thing.
Another point to remember is that “service hubs” such as London and New York, with their financial sectors, now, as in the 18th and 19th centuries, now serve a huge, global hinterland, so that London, for example, has a “disproportionately” large focus on financial services. It therefore makes little sense to complain as some do that services make up “too high” a share of UK GDP. No doubt some people might complain that Canadians devote a “disproportionate” amount of activity to growing wheat.
So we can all get rich by taking in each others’ washing!
I knew it really.
Andrew, we can all get rich by exchanging whatever it is we have a surplus of, be it time, ideas, tomatoes, shoes…Also, see Jonathan’s latest post on the front page.
Plumus – there is a place (I almost said “a market” – but I am not a Public Choice person and do not think the language is correct for politics) for a person of principle in politics. People WILL vote for such a person – in fact they will vote for them BECAUSE they do not reflect their “economic interests”.
For example, John McCain (for all his many faults) made a point of never “bringing home the bacon” for Arizonia (in this, if in nothing much else, he followed the example of Barry Goldwater) – no earmarks from him.
Now Arizonians are just as greedy as other people – and the State has got some absurd projects over the years. But when faced with someone who treates them as if they were of high moral character most voters (either because they are flattered or because they are shamed) tend to live up to it.
The classic example is the Congressman for Orange County (one of the bits that acutally grows fruit) who always made a point of voting and speaking against subsidies for fruit – even the fruit growers (in fact especially the fruit growers) respected him, and voted for him.
Treat people as people and they may let you down (I accept that), but just assume the voters are scum and you have lost the battle before you even start.
So NO it is not just a few freaks like Ron Paul – even in the House leadership (on the Republican side) both Ryan and Pence are (whatever other flaws they have) are decent people who vote against a lot of evil stuff.
You can do it – indeed it is one way to make a name for yourself in politics.
The way of Pork is not the only way.
Services – I repeat that haircuts (and other such) are indeed economic services, just as economic as steel or cars.
However, I also repeat that selling government debt (and other credit bubble stuff) is NOT an economic activity (efforts to claim it is are just double talk).
By the way trying to base an economy of hundreds of millions of people on haircuts and other such (real economic services though they are) will not work. A country the size of the United States (or Britain) must be primarily be about MAKING THINGS.
Moving away from this is not “progress” – although it is “change”. For example the Roman Empire from the second century AD onwards experienced a lot of change – but it was not progress (it was decline).
“What about banking”.
Banking (or rather honest banking) is MONEY LENDING.
One can lend money for consumption (“I want this nice stuff NOW”) – and an economy where most people are consuming more than they create is clearly on the road to Hell (the money comming from the savings of rising nations). But one can also lend money for INVESTMENT.
Real “investment” (not spending just called “investment”).
In short – mines, farms, factories abd so on ( and yes services like barbers shops).
This is the way in which banking is productive – and in no other way.
The belief that banking (and finance generally) can be productive in-its-self (without reference to creating things in the physical economy) is mistaken – it is like the bird the explorers are searching for in “Carry On Up The Jungle” – it ends up going up its own……..
Services – I repeat that haircuts (and other such) are indeed economic services, just as economic as steel or cars.
However, I also repeat that selling government debt (and other credit bubble stuff) is NOT an economic activity (efforts to claim it is are just double talk).
By the way trying to base an economy of hundreds of millions of people on haircuts and other such (real economic services though they are) will not work. A country the size of the United States (or Britain) must be primarily be about MAKING THINGS.
Moving away from this is not “progress” – although it is “change”. For example the Roman Empire from the second century AD onwards experienced a lot of change – but it was not progress (it was decline).
“What about banking”.
Banking (or rather honest banking) is MONEY LENDING.
One can lend money for consumption (“I want this nice stuff NOW”) – and an economy where most people are consuming more than they create is clearly on the road to Hell (the money comming from the savings of rising nations). But one can also lend money for INVESTMENT.
Real “investment” (not spending just called “investment”).
In short – mines, farms, factories abd so on ( and yes services like barbers shops).
This is the way in which banking is productive – and in no other way.
The belief that banking (and finance generally) can be productive in-its-self (without reference to creating things in the physical economy) is mistaken – it is like the bird the explorers are searching for in “Carry On Up The Jungle” – it ends up going up its own……..
Paul Marks, fair point, I should have said “chooses to” instead of “has to” (pander for votes). I was offering an explanation for Schiff’s statement, not looking to justify it. I am not trying to defend him, but I can see how such a seemingly un-Austrian claim can be part of a solid Austrian policy view, for example, that in order to compete, US manufacturing needs to be freed of the stranglehold of unions, or that education (not force-fed by the state, mind you) can help to make those service jobs less lower-paying and crappy. He is really stating a fact plus an opinion (that it’s bad). The question is bad for whom? It’s surely bad for those outsourced manufacturing workers – but there are many solid pro-market and pro-liberty policies that would be Pareto-efficient, helping not only the manufacturing sector, but also everyone else.
Plamus – quite so.
Although we must not be hung up about being “Pareto efficient”.
If a free market policy hurts some people by denying them their subsidies (even very large numbers of people) that should not stop us following that policy.
For example, a pay cut of 10% for all civilian employees of the Federal government – few such employees would resign if this policy was followed (i.e. their pay is not really set by the market – some people might leave, such as skillked FBI investigators, but only a tiny number of people out of the total Federal pay roll), yet I would not pretend that such a policy change would not “harm” Federal government employees.
Although national bankruptcy will evenutally “harm” them even more that is not the point – as I reject the principle (really from J.S. Mill – or an interpretation of him) that policy should not “harm” anyone.
I would cut the government wage bill whether or not the government faced bankruptcy – and I would carry on cutting it (till mass resignations, NOT strikes – which are no sign of anything, came about).
I think people would be surprised to learn just how much government wages could be cut WITHOUT their being mass resignations.