Published On: Wed, Jan 1st, 2014

Why buying cheap imported products is more expensive for individuals and not just society

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Why do so many Western politicians and economists promote a trading system that increases Western unemployment levels and results in a gigantic transfer of wealth to the East every year?

Since 2000 many jobs have moved from Europe and America to Asia.  China, Taiwan, South Korea, Malaysia, and the Philippines have seen a huge rise in manufacturing jobs and India has taken a chunk out of back office service sector jobs.  A large number of the products and services produced in Asia have been exported back to Europe and America.

For many this is clearly a good thing.  Asia is becoming more affluent and millions of people have been pulled out of poverty.  For others this is a bad thing.   It caused a huge trade imbalance for the West, which helped to fuel the debt crisis, and has created more global pollution as cleaner Western factories were closed down and replaced by dirtier Asian factories and coal power stations to energise the economy.

From a Western perspective the main rationale for this outsourcing drive has been lower cost products.  Once a few companies had set up operations in places like China, where they had access to cheap land, cheap construction, cheap labour and new factory designs, it became very difficult for other Western companies to compete.  So they had to move as well.

But are these lower cost products really cheaper or is the low cost merely an illusion?  We frequently think that something is cheaper than it really is:  printer companies routinely sell customers good quality laser printers for £100.  An amazing price.  But not so cheap when you discover that new ink cartridges can cost almost the same amount.  Consumers are offered “free” mobile phones and then are tied in to 24-36 month contracts worth hundreds of dollars.

In this article History Future Now looks at the cost of an imported product from a place like China and then the cost of higher levels of unemployment on Western societies.  By some simple maths it becomes clear that the consumer may pay a low price for the imported product but is paying a higher price to fund fellow citizens who have no jobs and are not contributing to taxes.  We need to look at the life cycle cost of products, not just the up front cost.

Lets have a closer look

To start with, lets admit it up front: many products that are built in China have a lower retail sales price than a competing product that is made somewhere in Europe.

If you add up the cost of cheaper land, cheaper buildings and cheaper labour, a £100 laser printer imported from China may cost £115 if it were built in the European Union or in the US.  For people on a budget, this 15-20% in cost is a big deal.  And when comparing nearly identical products, spending 15-20% more on a product just because it is made in your home country is not something that most people are willing to do.

But if most of the growth in manufacturing and service sector jobs to provide goods and services for people in the West is mainly taking place in Asia, rather than in the West, it means that there are fewer jobs in the West.  Despite the efforts of economists to play down this issue by talking about comparative advantage the reality is that unemployment and under employment, where people are doing jobs for which they are over-qualified for, is a major problem in the West.

According to Eurostat, which provides statistics for the European Commission, the European Union 17 (those in the Euro-zone) had an average unemployment rate of 12.1% for all people of working population in October 2013.  Given the fact that Germany is the largest country in the EU17 and has an exceptionally low level of 5.2% the average for the EU17 excluding Germany is much higher.  Greece and Spain, for example, have an unemployment rate of 27.3% and 26.7% respectively.




Ricardian comparative advantage does not seem to be working any longer and, as described in an earlier article, never probably worked in the past.   If it had worked, you should see significantly lower levels of unemployment across the European Union as everybody does what they are best suited to do.

So lets get back on track.

What is the cost of this unemployment on society?  There are lots of ways of looking at it.  We will take the most simplistic way, as it is should be less controversial, although it is likely to understate the true cost quite considerably.

Lets make a series of assumptions, based on the UK’s economy.  The average income is £26,600 per annum, or £2,217 per month.  Of that 24% is taxed, resulting in a take home salary of £20,216 per annum or £1,685 per month.  The critical part here is the amount which is taken in taxes: £6,384.  The actual amount taken in taxes is actually higher as companies pay Employer’s National Insurance on top of that, but we will ignore it.

If you are unemployed in the UK the maximum amount you can get in benefits (from 2014) including housing and income support, is £26,000.  Curiously some of that is taxed.  Thus if you do not work and you get full benefits it costs the government (i.e. taxpayers) £27,184 to support you in terms taxes not paid by the citizen to the government and benefits paid by the government to the citizen.

In the UK there are 64m people, of which 33m people are of working age and 2.5m of those are unemployed (7.6%).  That results in a theoretical unemployment cost of £67 billion per annum (2.5m x £27k per annum).  That means that for the 30m people in Britain who are working £2,236 of the £6,384 they pay in taxes (35%) goes to paying for those that are unemployed.  That is a lot.

If, miraculously, there was no unemployment and the money was returned to them, they could, theoretically, have an additional £2,236 per year to spend on whatever they wanted. That is the equivalent of 1.3 months of additional salary per year.  Looking back to the laser printer example earlier, it costs £115 to build in the EU but £100 to import from China.  A £15 difference.  If the reason for EU unemployment is solely put on cheaper labour in China (which is an exaggeration) and if there was zero EU unemployment you could buy the equivalent of 149 laser printers per year (149 x £15 = £2,236) from the EU rather than China and be no worse off economically. That is a lot of manufactured goods.

Using the same assumptions, but switching the unemployment rate to 12.1%, which is the number for the EU17, it would cost the UK £107bn (vs £67bn) to pay for all of these unemployed people. Thus 59% of all the personal income tax that they pay (£3,742 of £6,384) would be used for nothing other than paying for other people that are unemployed.  That is equivalent to 2.2 months of additional income per year.

It gets worse if you use Greece’s unemployment rate of 27.3%.  If the UK had this level of unemployment, 8.9 million out of the 32.6m working age population would have no job.  It would cost taxpayers £10,208 per year (£242 billion) to pay for all of these unemployed – which is higher than the £6,384 in tax they actually pay.  It is the equivalent to 6 months additional income per year.  That is the equivalent of a huge number of low cost goods from China.

The UK’s total budget for 2012-2013 was £683bn so the cost of supporting this number of unemployed would devastate the UK’s budget.  At £242 billion this is only a little less than all the money spent on defence (£39 billion), education (£91 billion) and health (£130 billion).

What is alarming is that youth unemployment in the European Union is significantly higher than the national average.  The chart below shows the average youth unemployment rate for the EU as a whole end the EU17 (with the Euro) in particular.



If you are young it is very hard to find a job.  And if you can’t find a job now you are less likely to find a well paying job in the future. This means that over time unemployment rates are likely to go up, not down, and average salaries are likely to go down as well.

This means that the cost to society for unemployed people is likely to go up over time, resulting in permanently stressed budgets.  Or unemployment benefits will be slashed, which is likely to merely result in an increased budget requirement for law and order as increasingly desperate people move to a life of crime to help make ends meet and more prisons are required to house all of those “undesirable” people.

So sure,  a consumable product or service may be 10-15% cheaper using outsourced labour.  But focusing on the low cost of the product and ignoring the actual cost to you as an individual taxpayer is exactly the same behaviour that tricks people into buying cheap laser jet printers with absurdly expensive cartridges or buying a product on your credit card and paying 27% interest per annum to your credit card company.

By looking at the life-cycle cost it is clear that the cost of high levels of unemployment is more expensive to a citizen than the benefit of importing lower priced products from countries with lower incomes.

A final note

This article only focuses on the cost of imported goods from the perspective of an individual buying a product vs the cost of paying for large numbers of unemployed.

In a previous article, Why do we need the military? History Future Now looked at the cost of securing energy supplies and trade.  The US spends $137 billion per year on its military in the Pacific, mainly on its navy so that it can ensure open access of the Pacific and Indian Ocean to help promote commerce.  But the US loses a huge amount every year in trade to Asian countries: $295 billion per year to China, $63 billion to Japan, $13 billion to South Korea, $15 billion to Taiwan and $14 billion to India, a total of $400 billion per year.  This annual transfer of wealth, plus the military cost of transferring this wealth, amounts to a staggering $537 billion per year for the US and is the equivalent of $1,700 per US man, woman and child.  This money accumulates to become part of the US’s private, commercial and government debt, all of which needs to be paid for at some point.

It is easy to understand why multinational companies are more than happy with this system.  They need to compete with each other for market share and customers.  Getting your products to market cheaper than your competitor is likely to result in more sales.  They don’t want to worry about external costs to society – such as unemployment, pollution, workers rights and paying taxes – especially when they actively see themselves as transcending the nationality of their original home country.

It is also easy to understand why individuals in the West are happy with this system.  They can buy cheaper imported goods and services and it is hard to make an explicit connection with the higher taxes and higher unemployment levels that result from it.

However, it is a real mystery as to why so many Western politicians and economists promote a trading system that increases Western unemployment levels and results in a gigantic transfer of wealth to the East every year.

They ought to know better.





History Future Now, ebook edition, is now available from the Apple iBookstore!  So if you have a iPad or iPhone click on this link to download it.  It is currently on at a special offer of 99c.   The Kindle version has been submitted to Amazon and should be available shortly.
  • Scott M. Webb


    It’s short sightedness. Almost everyone looks at the short term benefits, perpetually cheaper goods, and thinks “this is all good”. There are hidden costs down the road to everything. We in the West have been exporting wealth for the better part of the last thirty years.

    Goods have been getting cheaper and cheaper there is no doubt, but energy and food (the highest cost component for food is energy) have continued to rise. Last I checked you can’t eat a flat screen.

    By exporting jobs and decent wages for simply cheaper goods western Companies are killing their customer base. You can not blame these Companies though. If one Company decides they are going to stop exporting wealth they won’t be able to compete. Everyone has to do it together.

    The problem is as demand for those ‘cheap products’ increases so too should the demand for their currency, which it did (you need it to purchase their goods). But almost all Asian currencies are pegged. The Supply and Demand equation has been rigged. The rising demand for their currencies is kept perpetually cheap through intervention. If their currencies truly reflected their ‘value’ we would not have nearly as much of a problem as we do…and will.

  • Jim Freeman

    Because they are well paid to do so.

  • Muhamad Akramin Yusof

    A vicious cycle that every nation’s companies must be working together to stop “it”.

  • Bernie Fudim

    Isn’t possible that more American jobs have been lost because of automation than because of foreign competition?

  • Warren Huang, Ph.D

    US and Europe should go to high end high tehcniolgy innovation to improvement its market competitiona.
    Lower Asian product price import help US middle class with low priced comsumer goods and cut inflation

  • Richard (Ric) Shorten

    Rapidly increase the Worlds minimum wages to remove comparative advantage and produce for the local market…it was called tariffs BEFORE FREE TRADE DEALS like NAFTA…we were all suckered in!

  • Mary Mares-Awe

    Excellent analysis and examples, Tristian. Great article.

  • William Scotti

    Agreed, What can we do about this ?

  • Benjamin A. Roberts

    Tristan, Whilst the analysis is almost convincing, it fails to take into account other parameters of the global trading system….shipping, for example. Who controls that? The East or the West? And how does that cost impact on the analysis vis-a-vis employment creation and wealth generation? Who accounts for the bulk of that value…the East or the West?
    There is a simple reality in economics or should I say business and that is the concept of Factor Mobility, that is, factors of production going where they obtain the most value. The phenomenon you explained will continue to unfold; there is nothing we can do about it….in fact, that is what spurs economic development and the global integration that has improved livelihoods around the world. What the West needs to do or should have done, is to move on the Economic development trajectory and except for a few, most have failed to do that since that is achieved through R&D; an area that has gone under funded in the West and very well funded in the East. Basic Economics dictates that nations graduate over time from being an agrarian economy, to a manufacturing, and ultimately Service oriented economy. Simple as it may be and at times impossible, Singapore being a case in point, the notion is quite grounded and the progression has been tested overtime and unfortunately a great number of Western countries are stuck in the middle stages of the Service sector because they no longer invest in R&D for them not to be worried about basic Factor Mobility Theory.

  • Jim Freeman

    There’s much truth in what you say, Benjamin, but not an ‘absolute truth,’ as in ‘nothing we can do about it.’ This is why there’s so much push-back developing in America against its takeover, domination and absolute secrecy in which the current TPP negotiations are held.

    We have a unique and disastrous trend in the West to strip value from our corporations (R&D and manufacturing jobs primarily among them) in the destructive quest for quarterly earnings. That’s short-sighted in the extreme, but CEOs have become overpaid rock-stars by pursuing that self-serving policy–pumping stock prices by ‘burning down the house to stay warm.’

    R&D primarily exists in the technology sector, where we ignorantly offshore manufacturing and you are correct in that we have neglected that in most cases in other industries for quick profit. But I would argue with your premise that ” Basic Economics dictates that nations graduate over time from being an agrarian economy, to a manufacturing, and ultimately Service oriented economy.” That may well have been our recent trajectory in the US, but only since Reagan destroyed our unions and the Congress turned our banking industry loose on the world by revoking the Glass-Steagall Act. Germany is the proof that a developed Western economy need not gravitate downward to a service economy.

    You say a ‘service oriented economy’ is the ultimate endpoint and yet rebut that by claiming the West is stuck in the ‘middle stages’ of service economies. Which is it, endpoint or middle stages?

  • Benjamin A. Roberts

    Jim, I’m one of those that believe that everything is possible BUT providing there is the WILL. That is what seems to be lacking in the West at the moment…not because the West lacks what it takes but because materialism and over consumption have become dominant economic phenomenon for the world to contend with. The adage ‘a penny saved is a penny earned’ seem to have gone with the forefathers.

    I maintain middle point, and here I would want to borrow from Schumpeter’s theory of innovation – creative destruction – That is what is not happening as much as it should and the reasons why were fittingly captured in your points. ‘Greed’ is what is stifling the global economy and fortunately for the West they control most of the value of the global economy but unfortunately they also would bear the brunt of the ills of that stifling. We are no where close to the ‘end point’ of Service economies….I doubt if we would ever be; perhaps until the human being stops thinking and innovating.

  • Derek Bates

    Tristan, very interesting article. We have the anomoly discussed in the article because our political systems are complicit in it. A major motivation of politicians is to be re-elected which means they must comply with the demands of the power sources and also must not adopt policies which could make them unpopular with the electorate. We thus have a system of government which cannot meet the needs of the nation.
    We are a science based comsultancy, I would like also to make contact with you in connection with your renewable energy business

  • Scott M. Webb


    The U.S. and Europe do produce and develop high end technology, we are by far the most technologically developed Economies in the world. Granted, the development is predominantly done on our shores and production…in Asia.

    As I intimated in my earlier post. Perpetually lower priced products have a point of diminishing marginal returns. We are now at the point where those cheap goods are cannibalizing our standard of living.

    Part of the cost of a product is a fair wage, we all know the vast majority of the Countries in Asia do not pay a fair wage. That policy is now being exported here…in the name of ever cheaper goods for the ever dwindling Middle Class.

  • Mark Borowski

    From Daniel J. Mitchell :
    “States like California…can’t afford to be hospitable to business while also funding massive public employee “entitlements”. Job-creating businesses flee big-government Blue States for limited-government Red States.

    In short order, Blue States find themselves in financial straits. …between 2000 and 2010, the big Blue States of New York, California, and Illinois chased off hundreds of thousands of residents taking billions in income with them ($45.6 billion, $29.4 billion, and $20.4 billion respectively). Each of these states have highly progressive, high-marginal rate tax codes. California, for example, has 10 income tax brackets and a top rate of 13.3 percent. New York has eight brackets and an 8.82 percent top rate.

    Where did all those formerly in Blue States go with their income ? To low-tax, Red State jurisdictions, including Florida (no income tax), Texas (no income tax), and Arizona (4.54 percent top rate). Those three alone raked in $67.3 billion, $17.7 billion, and $17.6 billion, respectively.”

  • Mark Borowski

    reposted: People who take Law’s position or even Hegel’s, won’t have credibility until they actually start living according to the standards they preach. Until all the redistributionists are living a lifestyle of of redistribution, then anything they have to say about economics is highly suspect, and really, more evidence of fraud or for a dictatorial slave state than anything else..

    Common elements seen with the anti-capitalists/closet commies/leftist regressive “progressives” are:
    1) Business owners are evil and seek to enslave their workers and do not care if they are killed in the process.
    2) Profit is bad, (except when it is “them” and their cronies doing the profiting,

    3) There needs to be some authority to control things to make things “fair”.

    We all ,of course, know that leftist-leaning governments never abuse their authority or power and bring prosperity wherever they go..RIGHT???- NOT.

    Capitalism creates wealth, prosperity and opportunity. For the leftists, it created something they could both hate and loot at the same time.

  • Jonathan Ferry


    According to Daniel Luria & Joel Rogers, authors of the article: “Manufacturing, Regional Prosperity, and Public Policy” (which was published in the book “Retooling For Growth), they argue that the reduction in manufacturing employment as the result of increased productivity (via automation, etc.) is mistaken.

    They say, “It is true that aggregate productivity growth in manufacturing has outpaced that of non-farm business generally, by about 60 percent. but most of that overall growth in productivity is attributable to spectacular productivity growth in a critical but relatively small subsector of manufacturing, namely, computer and electronic product manufacturing (NAICS code 334). Measured either on an output-per-hour or multifactor basis, overall manufacturing productivity increased about 50 percent from 1990 to 2004, for a crisp annual rate of growth of 4.4 percent. But NAICS 334, which accounts for under 9 percent of total manufacturing employment, posted gains roughly ten times as great (426 percent on an output-per-hour basis from 1990 to 2000 alone), and was responsible for about 80 percent of the total increase. Productivity growth in the rest of the sector, accounting for more than 90 percent of its employment, was anemic at best, averaging only about 1 percent annually. So, job loss couldn’t be attributable to great productivity gains, since there simply was little where most of the jobs were.” (cited from Retooling for Growth, p. 252)

    This would include the productivity gains that are realized from automation.

    They site another article, which makes very good points called “Outsourcing, Offshoring and Productivity Measurement in United States Manufacturing” by Susan Houseman.

    You can find that article online at .

  • Bernie Fudim

    n the 19th century the USA didn’t have an income tax. Our federal government met all its expenses by the revenues derived from import tariffs. However we were not then as now, primarily an industrial nation, and we did not depend upon revenue from our industrial exports. Our export was primarily cotton produced by black slave labor. Therefore tariff barriers did not really affect us. Our economy was mostly agricultural, and we had cheap labor due to the influx of penniless immigrants from Europe. When the railroads were being built, European labor was augmented by cheap labor provided by Chinese immigration.
    By the turn of the century and throughout the 20th century, we became an urban society, and an industrial and services economy. In 1930 we erected the Smoot Hawley protective tariffs in reaction to the onset of the Great Depression. We believed the tariff would restore our production and employment, but it did not. Even the WPA and easing of interest rates failed to take us out of the depression, until the onset of WW2, and the need for building a military arsenal, and the conscription of men, which reduced the number of unemployed.
    After WW2 we built the world’s leading economy, because the rest of world was completely devastated, and through use of the “Marshall Plan”, we were able to achieve a remarkable export economy to a world that didn’t have money to pay for it.
    Throughout the world people are increasingly leaving the farms and joining the urban intellectual and labor work force. We wanted to protect our export economy and began mutual negotiations, reducing the Smoot Hawley tariff barriers to our friends, but not to our communist adversaries. Later on we expanded the negotiations to include those nations who had previously been our enemies.
    In exchange we are able to maintain some export advantages in services and chemicals and military equipment, while placing a lid on the rate of inflation upon disposable personal income used for consumer purchases such as garments, appliances, etc. Despite the trade gap we do export quite a lot of goods which employ quite a lot Americans. Incidentally this trade imbalance is made possible by the adoption of the US dollar as the standard for all of the world’s currencies.
    In summary we must be careful of what we wish for, and realize the problem is greater than the disparity of incomes amongst nations and will not be easily corrected by a renewal of high import tariff barriers.

  • Warren Huang, Ph.D

    Our shrinking middel class, with top 5 % controlling 39 % wealth and record jobless ratea, wth half of couuntry in poor need those cheap Asia cheap products for daily bread
    Just imagine what will be US CPI inflation if those Cheap cosumer goods missing for the market jusst like 20 years ago, we suffered 16 % inflation in 1980

  • Jim Freeman

    Derek, your comment that “A major motivation of politicians is to be re-elected which means they must comply with the demands of the power sources and also must not adopt policies which could make them unpopular with the electorate” is the observed truth by most people, but that is about to break wide open.

    Bill de Blasio’s win in the NYC mayorality and Elizabeth Warren’s star power are the cracks in the system. As Leonard Cohen so artfully put it, “There is a crack, a crack in everything. That’s how the light gets in.”

  • W A Wijewardena

    An important cost which the author has not taken into account is the Bazaar Effect that has been created by outsourcing manufacturing and services to the East, as propounded by German economist Hans Werner Sinn in his pathbreaking publication in 2007 titled ‘Pathological Export Boom’. Western countries are today becoming huge bazaars of trading instead of being manufacturers. Hence the cost is much more in the future than today.

  • Edward Ingram

    A very well written piece. THANK YOU Tristan.


    The first point I would make is that exchange rates are there to keep a balance of employment at both ends. Our end and their end.

    But we do not have that way of costing a currency. Why?

    First Question: What is getting in the way? How can we remove it?

    If we managed to remove that then their currency would be more highly priced and ours would be lower against theirs.

    Second Question: How would that have changed things? What would the remaining problems be?

  • Derek Bates

    Jim, Thanks for your comment, other signs of change are the Arab Spring, Ukraine, Turkey etc. The quandary with these revolutions is that there is no better alternative in place and the nations revert to the same political structures. I propose in a novel ‘Shadows in the Wall’ an alternative democracy. We might discuss putting this on your website.

  • Scott M. Webb


    Core CPI topped out at 14.8% in 1980, not 16.0%. The headline CPI didn’t even get to 16.0%. The Fed would love to see Inflation higher today, Deflation is a much larger concern of theirs than is Inflation. So these cheap goods you think so highly of would go a long way in alleviating their Deflation concerns if they cost more.

    We do not need cheaper goods, we need jobs that pay a living wage. Not Part time jobs, not Food Service jobs which are the two largest categories of jobs we’ve created in the last ten years. We here in the U.S. are now known for our conspicuous consumption.

    Our shrinking Middle Class is a function of shipping wealth to Asia, which I have no problem with if Market forces are controlling that. They are not, if a Country wants to export a given amount of cheap goods here they have to have a floating Currency otherwise we have to tax the hell out of their goods. Unfortunately the U.S. is not in a dictating trade position at present. We must get our Financial house in order so that we can start dictating fair trade terms.

    The top 5.0% control 90.0% of the wealth in this Country, 39.0% would be a much better number.

  • Warren Huang, Ph.D

    It is Western Manufacturing moving into Asia take advantage of big consumer market demand and low manufactruing cost for sustainabel profit, market share grwoth , let Asian becaom the major manufcturing center, freom China t ASEAN.
    Now Mexico will take some of China roles by moving some of auto, slectronis, appiance into Mexicao low cost center shiping back to US

  • Scott M. Webb


    No…we need jobs that provide for our population. We have the Technological know how, but that does not provide nearly enough jobs. We have 310 million people, a large percentage of them need jobs that pay a living wage. I know Western Manufacturers are moving to Asia…who doesn’t!?!…Hello McFly!?!

    A Ph.D should know that Manufacturing is a bastion of Middle Class job creation. The U.S. had a vibrant Middle Class in the 50’s, 60’s, and early 70’s because we had a Manufacturing base…not anymore. We are dependent on a Service Economy that provide no value for 50% of the population at present. Quite frankly I am sick of the perpetual selling I have to live with. Every time I turn my phone on, every time my land line rings, everywhere I go I have some minimum wage employee trying to sell me something…we didn’t used to be like this.

    I know populations and Economies evolve, but there is so much noise out there know one’s message is really heard. We are evolving to Circus Barkers!

  • Warren Huang, Ph.D

    You are faing macro financial econmic problem, which Beneake face QE bottlenck due to asset bubble resulted soring bond yield, interest rate,
    rising inflation push bond yield, interstrate cuttinginto housng recovery, consumer, business dmeand, and more job cuts.
    Yo never achive 3 % infaltion without asset bubble burst, and recession.
    That are what Beneake afraid of to put infaltion target at 2 %
    Japan tried to raise inflation to 2 % in 2005, led to housng bubble soared 50 %, forect BOJ credit tighteinng,led to mini bubble burst, deflation
    You need to learn mor e about macro financal econimc interaction
    It is easy to rasie inflation, but rising infaltion resulte interest will kill the economy resulted inflation recession, even higher jobless rate
    That was how 1980 recession casues

  • Scott M. Webb


    Inflation is not a concern in the least, Deflation is a much larger concern at present. I am, and the Fed is as well, aware of what the unintended consequences of QE’s are. The Fed never wanted in the QE business, they would prefer to be the invisible hand. Unfortunately the structural and political problems we have as a Country make it so they are the only one’s who are able to do anything because they are not running for Office perpetually.

    Anyone with half a brain knows the Equity Markets are indeed an Asset Bubble at present. The only thing we don’t know is when it will pop. That is an “unintended consequence” of QE. We are dis-incentiving savers so they go out the risk curve. They are way out over there ski’s at present.

    It is not easy to raise Inflation, the Fed has had the Funds Rate at 0.00% for five years, with three rounds of QE and Inflation has been falling. Why? A worldwide glut of cheap labor and a massive worldwide debt service in developed Economies that hinders final demand.

    Perhaps I do need to learn more about Macro-Economic Interaction, but I do not have a knee jerk text book response to what is going on in the world.

  • Mark Borowski

    Tristan.. re: your response : ” @Mark, you talk about how good Red states are vs Blue states in terms of taxes etc. Companies and individuals are fleeing to lower tax states. That makes sense for them. But it is worth highlighting that Red states are large net federal tax recipients. They receive far more than the Blue states who are effectively not just providing benefits to their own state residents but subsidising all the Red states too.”
    is myopic, and nothing more than leftist hooey.

    The “BLUE” “altered” (altered meaning neutered/spayed/transgendered) State of CA
    (aka D-minus Peoples’ Socialist Republik of KalifornyYa ) is “home” to THIRTY-THREE % of ALL the welfare recipients in the entire Nation.

    Not only that, the “public emplyees” unfunded grossly overbloated “pension plans” are draining the life out of the productive taxPAYING citizens, some counties in D-minus, CA only receive back 80 cents for every dollar “we” send to the Capitol, while ILLEGALS suck up “free” resources like medical services …so how is that “providing” for the actual taxPAYING residents?

    reposted: People who take Law’s position or even Hegel’s, won’t have credibility until they actually start living according to the standards they preach. Until all the redistributionists are living a lifestyle of of redistribution, then anything they have to say about economics is highly suspect, and really, more evidence of fraud or for a dictatorial slave state than anything else..

    Common elements seen with the anti-capitalists/closet commies/leftist regressive “progressives” are:
    1) Business owners are evil and seek to enslave their workers and do not care if they are killed in the process.
    2) Profit is bad, (except when it is “them” and their cronies doing the profiting)

    3) There needs to be some authority to control things to make things “fair”.

    We all ,of course, know that leftist-leaning governments never abuse their authority or power and bring prosperity wherever they go..RIGHT???- NOT.

    Capitalism creates wealth, prosperity and opportunity. For the leftists, it created something they could both hate and loot at the same time.

  • Warren Huang, Ph.D

    Just go back to Japan two decade of deflation, they try to breakout the zero interest liquidity trap in 200 3- 2005raise the inflation by more liquidity redulted housing bubble burst mini burst,
    You wanted real economy grwoth supported normal inflation, You donw not want asset bubble grwoth supported asset price inflation
    You really need to read more about macro financial industrial asset bubble relatiohsi which all happen insince 1986 I waern on Tokyo World Congress that Fed, BOJ excessive money supply resulted stock crash 1987 , 1990 Tokyo, Nikkei, housig prices plunged 80 %
    Japan 1988 inflation was at only 0.87 with Nikkei tripled to 25000, and soubled to 38000 in 1990, with inflatio soared to 3.2 %, hosung pricen, Nikkei bubble burst in 1990 , nothing can stop it, even BOJ cut m2 to -3.5 %.
    Benanke was very awared on the situation, suggest cut money supply in 19888 inflation was only 1.6 %,tha is where we are now.
    You would not be able to undesand it is not you can make higer infaltion easily, it is the consequence, the cost you will pay the inflationary recession created by higher infaltion ( even at 2 %

  • William Scotti

    Address these other factors first, then tackle, US Production and Competetive Posture.
    As Follows:
    America desperately needs an anti- establishment conservative candidate who presents charisma, sincerity and a message of reform.
    The US economy is stranded, by high fuel costs, there is little in the way of easily gained surplus money to be had. At this point, we are robbing from Peter now to repay Peter later. Obamacare, the waste in our medical system needs to be flushed out, this offers the best chance to reduce the deficit without harming our living standards.
    We are victims of our own cleverness. The operation of the economy burns up, its capital base, like burning the furniture in your house to keep warm. Now, the furniture gone, it’s time to start burning the house!
    Along with reality based politics, the world desperately needs reality based economics, that sees things as they are. One hardy economic weed that needs to be pulled: that consumption, is really production. We cannot expand welfare and unemployment compensation without a Federal Works Programs, hiring these unemployed people, young and old and putting them to work as we did successfully under WPA.
    What must exit is the West’s Waste-based Economy, replaced with a conservation-based version. No more Wars, unless we own it and occupy it for treasure, coming back into the US economy. China, Russia all do this. We invest in War and then We leave. What a waste.
    China claims the rolling activity as GDP growth, the same way the US does. It’s all just more,something for nothing: fusion in a bottle. The difference in fake GDPs, indicates the Chinese are better liars than the Americans. Their politicians have had thousands of years more practice.

    • Morgan Freeman

      Spending money on a war isn’t really a waste and there is no real need to bring back treasures from wars.
      Defense spending is buying airplanes from Boeing, rifles from Colt, funding West Point, etc etc. This money is put back in the US economy. When you hear, “The US spent $xxBillion on defense,” it also means that the US bought $xxbillion from the US economy. Obvious, I know, but so many folks continue to call it a waste. Perhaps a waste of taxing citizens in the first place but not a waste of govt spending.

  • Bo Sørensen

    Interesting article !! eventhough i guess free trade and by then import of cheap products is in general well fare improving 8o).

  • Bill James

    The position of Western politicians isn’t a mystery at all. Underneath all of your comparisons is the Chinese currency peg which holds the Yuan low against the USD. This is the principal mechanism for sustaining the trade imbalance with China and other Asian nations who peg against the Yuan or the USD. The US Fed and Treasury were very happy to see low CPI over two decades…due to the flood of cheap Chinese consumer products into the US. Low CPI allowed the Fed to keep the cash rate low and this fueled the explosion in speculative lending which caused the financial crisis. Let’s not forget that the largest US Commercial banks own the Regional Feds. Growth in debt is synonymous with good economic ‘management’ for the banks and promotes growth in GDP. American households splurged on the back of the increase in the value of their homes. Consumer goods were cheap and capital gains were amazing. Little wonder Western politicians sat silently amid Chinese currency manipulation. But the Capital Account surplus won’t be denied and so the Fed was forced to grow the balance sheet and devalue the USD (see the fall of the USD index since 2002). Now work returns from China to US shores. The behavior of US politicians was perfectly rational in a self serving sense. But everything tends towards equilibrium…time is the only variable. Europe will take longer because it has no real central bank (it cannot create money ex nihilo…so devaluation is a much more painful path).

    • Morgan Freeman

      speculative lending = speculative borrowing

      Everyone faults the banks for the financial crisis and forgets that borrowers signed the mortgage agreement too. Capitalism requires a willing buyer and a willing seller. Let’s not fault one over the other.

  • William Scotti

    This says it all in a Nutshell:

    End of Story

  • Elaine Haver

    William, the prosperious societies require a new approach to public policies. – See more at:

  • Bernie Fudim

    The following was reported in a document online at
    “A 2007 study by University of California, Irvine, sociologist Rubén G. Rumbaut, found that for every ethnic group, without exception, incarceration rates among young men are lowest for immigrants, even those who are the least educated. This holds true especially for the Mexicans, Salvadorans, and Guatemalans who make up the bulk of the undocumented population.”
    I suggest that the statistics cited by Mark Borowski are more anecdotal than reflective of genuine official measurements. I would however be interested in the source of his statistics.

  • Robert Frost

    Importing cheap goods reduces unemployment because something is always exported in return, whether they consume our goods & services or invest in our capital. Both traders enjoy the benefit of a comparative advantage. Virtually any nation that restricts trade becomes poor. Just look how sanctions reduce nations like Iran and North Korea to poverty.

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