During the rise of China and the “One World/Free Trade” period, one good thing which can be said for offshoring is that it helped reduce inflation.
It, indeed, drove much of the inflation reduction, with most of the rest of the inflation reduction being concerted efforts to keep wages low, with a strong assist from the Bureau of Labor Statistics to use methods like hedonics to pretend that inflation was lower than it actually was.
The new mantra is “friendzoning” — not so much bringing industry back to the US but moving it to friendly countries. Vietnam and Bangladesh are mentioned often, and Mexico will benefit as well. But friendzoning has limits, these countries don’t have the capacity to quickly take on all the production done for the US and Europe, nor do they really have the technological ability in the medium run.
This means that the determination to have a new cold war, and possibly a hot war with China will drive inflation higher for years to come.
The solution would be to, more than friendzone, re-shore: bring production back to core nations. But that would require reducing the cost structure: and I don’t mean wages so much as I do predatory finance and driving rent and housing prices down massively — about two-thirds at a minimum, along with no longer health-care predation. Do those things and wages don’t have to rise nearly as much, and the US (and Europe to a lesser extent) become much more competitive.
But to re-shore, you have to, in effect, give ordinary people a decent deal and not treat them as assets to shorn, but rather as productive assets to be cared for. (Note you don’t have to do this out of the goodness of your heart, our elites don’t have any of that.)
For the time being, this seems unlikely, so don’t expect inflation to go away. All the Federal Reserve can really do to stop it is push the economy into the dirt, but that’s not going to be a long term solution unless it stabilizes at “you’re a third world nation”, which, actually, probably won’t solve it either.
StewartM
The solution would be to, more than friendzone, re-shore: bring production back to core nations. But that would require reducing the cost structure: and I don’t mean wages so much as I do predatory finance and driving rent and housing prices down massively — about two-thirds at a minimum, along with no longer health-care predation. Do those things and wages don’t have to rise nearly as much, and the US (and Europe to a lesser extent) become much more competitive.
And indeed, in my boyhood, you didn’t have businesses aplenty for title loans, payday loans, “we buy gold”, and no reverse mortgages. Somehow, someway, we had very robust growth (with far lower inflation) than today, with 3 % unemployment, not 5 %, being considered “natural”. I still think the tax cut of 1964 on upper tiers played a role in destabilizing the US economy, for it was about 5 years after that inflation reared its head.
The more I ponder this, the more respect I gain for the creators of the New Deal. The fact we had more static tax brackets, so that inflation pushed people in a higher marginal tax bracket, was an auto-correction for inflation that we lack today with our inflation-adjusted brackets. (Less need for the Fed to stop in and try to suppress inflation with the lowest-paid of society bearing the cost, which is what rate hikes do, when you can automatically raise taxes on the wealthiest members instead). One of the reforms I’d like to see in our tax codes is not only make the standard deductions and exemptions realistic (at least TWICE the current values which are a joke) but to fix tax rates, at least for the upper tiers (and yeah, add additional tiers for incomes up to a 95 % tax rate, and also tax capital gains on the same scale as wage income).
Maybe, just maybe, if the rich start being hurt by inflation the most by being kicked up into higher tax brackets and paying higher taxes, there’d be less incentive for price-gouging? I firmly believe that most CEOs align their companies’ political stances not on what benefits their companies (because then, they’d be clamoring for Medicare-for-All to take away the burden of providing health care) but on what benefits them *individually*, so if their companies hiking prices and contributing to inflation drives up their own personal taxes, they’d show more forbearance.
Trinity
Ian, as far as I can tell they are driving 90 miles an hour down a dead end street intentionally. It’s a form of insanity where they believe the only problem to be solved is finding new ways to feed their insanity. To them, there are no other problems. (Not yet, anyway.)
Their feedback loops keep telling them to ignore the dials (readouts) on the dashboard, to keep on with “business as usual” and more bliss will follow as surely as the sun will rise tomorrow. They are addicted to their own power, and can’t conceive that anything will ever change. They are literally addicts, and act like one. They even believe their own lies.
Lex
I’m old enough to have just seen the end of the good old days. Raised in a neighborhood where almost everyone’s dad worked at an auto plant for a good, Union wage. Nobody was rich but people could live in relative comfort by doing jobs that were hardly “fulfilling”. They were just jobs. I learned about unions my friend and I (elementary school) accidentally crossed the picket line at the neighborhood grocery store.
We knew it felt weird but we didn’t know why. Until we got home with our candy and his dad saw us. First shift at the Ford plant ended at 3. We learned a lot about unions that afternoon. We were made to understand in less than eloquent terms that we threatened the dinner on the stove by crossing a picket line to buy stuff.
By the time I graduated HS it was gone. The US won’t restore because it’s too much work and delayed profit but also because workers would make too much and have too much power. The dictatorship of the bankers cannot allow that.
Ché Pasa
So we’ve entered a new Period. Right now of course is the Age of Chaos as the shifted paradigm resets toward equilibrium. That may only come after the Missiles of October destroy half the world and who knows, they might dampen some of the global warming effects that are making life miserable or impossible in more and more locations around the globe.
There is no political party or oligarchic cabal able and willing to do what is necessary to tame the chaos we’re experiencing. Doing what’s necessary, like reshoring industries and such isn’t really happening because our ruling class doesn’t see it as a priority. Immediate profits appear to be the only priority. And of course keeping the lower orders down.
Many have pointed out that the current wars and the wars to come — oh, there will be many, some fought by robots no doubt — are wars for control of resources, not over ideology or lebensraum as in previous eras, but over the needful things that keep our overlords in their positions of wealth and power. Raw materials and near-slave labor.
What should be done for a decent and caring and lasting society isn’t being done in the West, certainly not in the Anglosphere (the spectacle of Britain’s collapse is prelude, no?). And there seems no way to get off this runaway train to certain oblivion. Our rulers don’t care, or if they do, they can’t seem to do anything about it. “Let nature take its course.”
I don’t think we can turn this around or even slow it down, but we can and should take measures to protect ourselves and those we love and care about.. Beyond that, we’re little more than spectators.
capelin
Any accurate analysis of where we are or should be going as a world needs to acknowledge and incorporate the elephant(s) in the room;
a) Our leaders don’t give a flying fuck about getting things “right” for anyone but themselves, and
b) We are in the midst of them attempting to take it to the next/final level (final because it is utterly unsustainable and will fold, hard), which involves, as stated by themselves, destroying the remaining societal, economic, political, and biological checks and balances.
A “Great Reset”, as it were.
Have a nice day, y’all, and consciously do something old-school and un-tracked, in rebellion.
mago
@capelin. Right on revolutionary brother, and good luck and tough to all of us.
Ian Welsh
Phrases like “I think you’re a piece of work” and words like “ilk” used in reference to another commenter are, in fact, ad-homs and over the line.
Willy
What I’ve been told is that the reshoring shall occur only after all the robots come on line. I saw a business news bit where the reporter told us that 3D printers would help save workers. “You can even print a house!”, she said. “Strange”, I thought. “What would a 3D robot printed house managed by undocumented techs even look like?”
Well, they look pretty damned ugly for one thing. I assume they’d get all the wiring, plumbing, HVAC tunnels and all that figured out. But if one ever wanted to remodel, would they have to bring back another 3D robot printer and undocumented techs? On the plus, an outfit like Amazon could keep wages down if they held their labor semi-captive in company-provided mass-produced igloo Bezosvilles. At least until the robots came on line.
Anyhoo… there has to be a good reason why such things make the national business news instead of the more common sensey stuff.
GlassHammer
Ian,
A considerable amount of the inflation was absorbed into the stock market (and commodity market) during the same time period, it might be worth a mention in future posts.
Additionally a great deal of inflation went into consolidation of companies (the years of mergers and acquisitions) which really reduced the money multiplier effect as companies were shut down. The entire commerce of towns and small to midsized cities utterly vanished when that happened.