Wanted: Leading Edge Technologies to Drive Investment

The U.S. has not yet recovered from the collapse of the IT and Internet driven investment boom. While the housing bubble was able to mask weakness in non-structural investment for a period of years during the aughties, that time is over with.



Innovation at the moment is evolutionary, not revolutionary, and businesses are finding increased investments in equipment and technology unwarranted given the benefits they bring in productivity.



On a personal consumption level this also makes sense. Everyone 'had' to have Windows 95 when it came out. Windows 7 might be a good thing to have, but there's no need rush in buying it unless it comes with a new computer.

These type of graphs are synonymous with flat private sector employment, such as existed in the aughties. Capitalism is very much dependent on private investment to lead growth, and non-structures investment is probably the most dynamic within an economy.

As a high wage capitalist country, the U.S. continually needs to find new technologies which increase productivity and encourage private investment. I suspect this is going to eventually require massive government support in research and development. I'm not sure the culture is ready for that and the political system surely isn't.

Incidentally, sections of the clean energy industry, such as solar panels or wind turbines, seem to be on the verge of market glut now that China has entered the game full bore. In general, that is the problem for private companies investing in R&D now. The information age makes copycatting much easier, which decreases the time in which a company can benefit from any technology innovations they may achieve. Their monopoly power quickly becomes a supply glut as other firms rush in.

The U.S. military does have such cutting edge technologies, particularly within equipment designed for their satellite systems. But those will not be brought into the marketplace anytime soon. National security, and all.

'Volcanic Specks in the Pacific'

From the CSM:

A handful of volcanic specks in the Pacific Ocean are sparking fresh diplomatic ruckus, as China and its neighbors tussle over the resource-rich and militarily strategic seas that lie off their coasts.

China is building a resort on the Paracel Islands, Vietnam is buying submarines from Russia, and Japan is turning rocks into permanent islands, in the middle of the ocean.

---
1'Who cares about volcanic specks in Pacific? China, Vietnam, Japan.' - CSM; Ford
---

U.S Oil Production

Even after domestic peak oil, the United States is the world's third largest oil producer. It's just the U.S. consumes so much it still needs to import, so people often don't remember how much it produces.

Extend Unemployment Benefits

Both the Congressional Budget Office and Mark Zandi agree that one of the best ways to improve the jobs picture is to increase and extend unemployment benefits. The question is whether capitalists are smart enough to support the system that supports them. A knee jerk reaction towards austerity will create a shock to private consumption levels and undermine demand within the economy. And the idea that people would rather stay on unemployment, when it pays 60 % of their previous wage without benefits and without retirement , is ludicrous. In many cases , it just serves to pay health benefits. Zandi is no radical, he was John Mc Cain's economic adviser during the presidential campaign.


From the CBO, via Econbrowser
---
1Mark Zandi - 'More Stimulus Needed'
2'Policies for Increasing Economic Growth and Employment' - Econbrowser

Europe to Launch Space Solar Power Station

While harvesting solar energy in space has been discussed by scientists for more than 30 years, engineers at EADS Astrium, Europe's largest space company, now believe the technology is available to allow them to start building a working prototype.

They hope to have a small demonstrator of a full sized space-based power station, capable of beaming back 10-20kW of power, ready for launch in the next five years.

1'Lasers to beam energy to Earth from space' - UK Telegraph
---
There is no doubt that there will be a full court press by developed nations into this technology. Future energy needs are going to be too great to be accommodated by the resources on earth.

China Moves Against Bank Lending

Apparently markets are shocked, just shocked, that China is trying to rein in its banks. It's a smart move on their part. China does not currently have the ability to replace OECD countries as a consumer market, and their 2008-09 expansion of bank lending was done for domestic reasons, not to save (or dominate) the rest of the world. It was deep credit and treasury markets that allowed the US to support the world economy on the consumption side, without massive inflation, for one. That model is now broken. China has a very small bond market; new money dumped into their system much more quickly becomes inflationary and speculative. Their private consumers basically do not take on debt.

1"Bank of China, Construction Bank Start Curbing Credit"; Bloomberg

The One Term Presidency of Obama

If the Republicans can field a marginally coherent candidate, that is.

Obama was put forth as an antidote to the Bush years. He was containment. With the Bush years fading and the financial crisis in Wall Street's rear view mirror, Obama probably senses in some raw political way that he has to turn right. If not, his masters will be done with him.

Forgetting About Mexico

When talking about the rise of the BRIC consumer, and forecasting power changes in the world economy, it's curious why Mexico is basically forgotten. It's a large country next to the world's biggest economy. Its per capita standard of living is far ahead of China and India, and surpasses Brazil. Its GDP is close to cracking the Top 10, and will probably creep into in it during the next generation. It has a proud history of both pre-Columbian civilization and revolution.

I suspect this forgetfulness has to do with American 'prejudices' about Mexicans, that are formed based upon immigration patterns. I will discuss this more at another date.

Resource Disputes Flare in East Asia

East Asia remains a region dominated by xenophobia and nationalist rivalries that will ultimately undercut its current economic dynamism.

The running disputes over various 'islands' in the East and South China Seas are one signpost of these rivalries. At their root are turf battles over oil and natural gas in a region where both are in scarce supply. UN law gives sovereign rights to the resources around any island that a nation stakes legitimate claim to.

Japan's government plans new legislation that will bolster its claim to an island disputed with China by allowing it to build ports or other structures there, the Nikkei business daily reported ...



If the new bill is enacted, the government would be able to build and maintain ports and other infrastructure in remote islands such as Okinotori, which lies about halfway between Guam and Taiwan, 1,700 km (1,050 miles) from Tokyo, the Nikkei said.

1'Japan eyes bill to boost disputed island claim - media' - Reuters
2'Japan's plans for atoll not to change its legal status' - China Daily

-----
Deep seated national pride, mixed with xenophobia, will also cause problems for countries like South Korea and Japan as their populations age. South Korea's birth rate is among the lowest in the world. Japan's working age population is in decline. And even China's will begin falling within a decade, ending their 'reserve army' of surplus labor. Immigrants are going to be necessary for countries that continue with the growth-based capitalist model; countries that are set up to welcome them are in much better shape in this regard. This is not the case for any country in East Asia.

Recent Happenings

It looks like the recent Senate race was about budget deficits as much as anything else. It's something people can latch onto quite easily, even if it's not the same relationship that an individual has with their credit card. And I've heard the deficit often conflated with the idea that 'China owns us', even if it that too has no semblance in reality.

Fiscal or monetary austerity at this point and time would be depressionary in its effect. I don't even think it's where most of big business wants to go yet.

Volcker apparently has regained influence within the administration; how far that extends remains to be see. Volcker is no stranger to austerity, and as Fed chairman oversaw a strong dollar rally after jacking up interest rates. This also led to the Latin American debt crisis in the 1980's. There has been a lot of borrowing in dollars recently, and any type of unforeseen rally would leave a lot hedge funds (and possibly countries) broke. While Bernanke is obviously fond of the printing press, with his re-nomination in doubt, he might have to shift policy in this regard.

China has been forced to tighten credit expansion in recent days. The bubble arguments are well documented, but I think the overall point is that China does not currently have the ability to drive the world economy. They need to export; even just soaking up internal capacity requires massive loan expansion. They also don't have the ability to absorb capital inflows; after all, there isn't much of a Yuan bond market. This means inflation can blow up quite easily.

The World Needs More Consumption

The vast majority of people in the world need more money to buy more stuff. The posters at Starbucks of humble farmers making organic coffee - well, most of those farmers want their kids to go to college and own big houses with heat and air conditioning. They don't want their kids to work so damn hard for so little. Most of the world's population does not want to be a favored servant smiled on by a kind overlord. Their greatest dreams in life do not include working in a factory, though it may be a means to an end. The thing about humans is once they get a toe on the ladder, they want to keep climbing.

'Lazy Haitians and Muslims, Hard Working Asians'

Apparently the rather ignorant New York Times columnist David Brooks had a column recently on Haiti where he blamed the country for not having an 'achievement culture', and said it was their fault they were poor. The achievement metaphor is basically the new way of saying an ethnic group or person is lazy. In a weird way, it does represent an improvement from maybe 50 years ago. At that time, reactionaries would just have said that a person was poor because of genetics or that they were an inferior 'race'. Now, it's not genetics, but choice. This is a small improvement , but still an important one.

This leads into Thomas Frideman's recent harangue against Muslims . He contrasts the Middle East with Taiwan, and asserts that the Taiwanese are working hard while the lazy Muslims are relying on oil.

Of course, East Asia was as poor, or poorer than Africa after World War 2. Its development mainly has to do with compromises the U.S. made in the Cold War. The US was forced to bolster certain key areas against Communist influence, and this took the form of market favoritism and technology transfer through military hardware export/import. The US more or less gave Japan its electronics industry during the LBJ era in exchange for military bases. Likewise, both South Korea and Taiwan received large amounts of US technology through the import of high tech military hardware. And for all of East Asia, US markets were opened unconditionally. One can find this type of analysis not just in Left organs, but in rightist publications such as Stratfor. It's not a mystery. At the same time, these economies managed to not fall under the sway of mainstream US economic thought, more or less ignoring free market dogmatism as they protected nascent industries.

The basic problem with Friedman and Brooks is not that they are racist per se, they are just completely ignorant of history. Their anti-intellectualism is the hallmark of a ruling class drunk and reckless with its power.