Service-based economy (US and Europe) and Factories in Asia

"We"? What did you do to build a large, modern economy? Individuals create wealth through their entrepreneurial activities. Government just gets out of the way. It wasn't a collective that created a large, modern economy.

 

You mean the ultimate beneficiary. That we've been at it for so long as allowed us to refine our techniques and become more efficient at doing the things we do. It's why as I pointed out in another thread that manufacturing out put is still up: http://www.federalreserve.gov/releases/g17/current/, totally contrary to the rhetoric that gets passed around here.

Oh? Then why aren't the largest (geographically) countries and those with the most natural resources the most wealthy?

For mercantilsim to have any value we'd have to assume that trade is a zero-sum game, that obviously not true since it's absolutely possible for us to exchange and both benefit from the transaction.

 

If he is that arrogant and ungrateful then we are better off without him.

What did I do to build a large, modern economy? I'm one of the guys who made the actual product. I make the things that are sold to make money.

 

The largest countries usually have more uninhabitable tundra or desert (or malaria-ridden jungle in the case of Brazil), and it is more difficult to access these resources. Countries can be wealthy but still be full of poverty; just look at the GNP of Equatorial Guinea.

And often the wealthier countries without natural resources are actually the ones that indirectly own the equity in natural resources from other countries. This was one of the important, but often ignored, reasons for United State's involvement in southeast Asia.

Japan's banks have vast holdings of equity in Korea, Thailand, Indonesia, and Malaysia. If all these countries suddenly nationalised their assets, most of the wealth on the Tokyo stock exchange would suddenly dissappear.

 

High taxes makes sure companies make their profits (investible cash) off shore. Less investment in the US, fewer jobs.

That is why we don't compete, we do jobs the Chinese can't do. For unskilled labor, that leaves only service jobs that can only be done locally.

 

Why does Germany not move its car factories overseas? . I mean, it is a service economy, where high-skilled people work in I+D (Investigation and Development) and such.

 

All modern countries experience deindustrialisation, but that doesn't mean zero domestic production. It means a shift in employment away from manufacturing. Given the need for skilled labour in capital-intensive industry, continued success is expected.

 

Australia might not be a very representative example. The country has a rather low population (22.6 million) compared to its area. It exports many natural resources to other Asian countries, including iron ore, copper ore, coal, gold, and beef. This only works for Australia because it has a wealth of natural resources to export relative to its small population.

And I might add that, while official unemployment is relatively low in this country, there is a higher level of underemployment. It may be that in some cases, rather than causing unemployment, free trade instead pushes down wages from what they would otherwise be. Even many people with skilled jobs have difficulty affording housing around Australia's major cities where the jobs are.

Forcing workers from a higher wage country to compete with workers from a country with much lower wages will naturally put a downward pressure on wages in the higher wage country. When a country's "comparative advantage" is its natural resources, rather than labor, the benefits of comparative advantage will mostly accrue to the owners of those resources, and the companies that extract/process/grow them. Obviously this increases inequality within the country.

 

Your story about size and natural resources falls flat on its face when we look at Hong Kong who has a massive population relative to land mass and virtually no resources. It also fails to explain the Paradox of Plenty, where nations rich in non-renewable resources fail to experience growth relative to nations with far fewer of the worlds most precious resources.

By your argument I ought to be poorer because each week I go out and purchase goods from the grocery store and that stingy bastard that owns it doesn't buy anything from me, and yet somehow we're both better off, your mercantilist argument simply can't explain that phenomena.

If we reduce this down to it's most simple form its an argument for self-sustenance and when viewed through that lens it's impossible to argue that we aren't better off and more wealthy today than we were historically when we did produce more of our own goods (huge misnomer, we produce more now than we ever have). I noticed you didn't answer the question earlier about making your own shoes, I take it you also didn't make the computer you're going to be responding to me on. Wealth is created through the division of labor and the greatest natural resource is human innovation and any ways that we can increase the number of participants and the amount of specialization is a path to prosperity.

 

That is obviously because it is a major financial center for the East Asian region. Hong Kong has a population of 7 million, not very high compared to southeast asian countries. Hong Kong is prosperous because they own so much in other countries. But financial services alone cannot be the basis of the economy for countries with larger populations.

Hong Kong also has plenty of manufacturing industry, although they had much more until recently. Interestingly, wikipedia mentions that all the manufacturing outsourcing away from Hong Kong led to persistent unemployment problems.
http://en.wikipedia.org/wiki/Manufacturing_in_Hong_Kong
All of the LED lights and equipment that I have ordered online just happen to have been shipped from Hong Kong.

A similar analogy can be drawn with the UK. Both the UK's assets and debts are several times the country's GDP, no doubt because of the international holdings of the banks in London.