By Cesar Fernando Lumba
The English Industrial Revolution commenced in late 18th century, some say earlier, and by the end of the 19th century it was well spent. America had become a muscular superpower and had taken over. But America’s reign has not been without any challengers. The Japanese threatened to overtake us at the end of the last century, and now the Chinese are being predicted to overtake us at some point in this, the 21st century. And after China, there’s India waiting in the wings.
And who knows what comes after that?
Let me introduce you to the concept of Entropy (From Google).
a thermodynamic quantity representing the unavailability of a system’s thermal energy for conversion into mechanical work, often interpreted as the degree of disorder or randomness in the system.
lack of order or predictability; gradual decline into disorder.
“a marketplace where entropy reigns supreme”
synonyms: deterioration, degeneration, crumbling, decline, degradation, decomposition, breaking down, collapse;
Entropy is a concept found in thermodynamics. Yes, I know. I was terrified of the term thermodynamics while in college. Thermodynamics, however, is a very simple concept. It is the science of heat. And this science says that energy or heat tends to dissipate into its surroundings, or environment.
Thus, if you boil water in a casserole and leave the casserole alone, the heat will dissipate into its immediate surroundings and eventually the air in the room and the casserole and the water will all have the same temperature.
The second rule in thermodynamics is that once energy or heat is lost, it is gone forever.
How does this relate to our discussion of Economics, or more appropriately, Employnomics?
It is exactly the reason why economic superpowers rise and fall.
At the beginning of its industrial revolution, a great country reaches the critical mass of energy or heat. Just as some ladies are hot, a great country becomes superhot. Its heat radiates, its economic engines are working full time and in full throttle. It is the envy of the whole world. Once the heat slows down, the heat is transferred to its surroundings and both its surroundings and the once-great country cool off.
That is what happened to England and what is happening to America, and what is happening to Japan.
There is another law in the universe, however, and that is, nothing that is lost in one area is completely lost. It shows up in another area. That’s because the universe is a closed system.
So the heat that is lost in America is enough to light a fire in China and China itself is now generating its own super heat. Japan’s lost heat, or energy has also dissipated into China, making the Chinese energy really, really super hot.
And how is this heat, this energy lost from the U.S. and transferred to China? This has been accomplished through the price mechanism.
Cheap goods. Yes, the Chinese can make goods of a quality similar to America’s and Japan’s at much cheaper prices.
It’s all about the price.
It’s the way the cookie crumbles.
Nobody has questioned this process through the centuries. Until now.
Based on the reaction of thousands of readers of this blog, there are a lot of Americans and many in foreign countries, who are rebelling against the idea that through economic entropy, economic energy must be transferred from the advanced countries such as the U.S., Europe, Japan, Canada and Australia to China and the developing world.
Why must development of the developing world be at the expense of the advanced albeit aging economies?
Why can’t economic development take place with the developing and advanced economies marching in lockstep?
It can be. And the way to accomplish this is to change the focus of economic planning.
Today, economists see cheap goods as the way to spread the wealth and the good life around. The cheaper the goods, the more people can afford to buy the things that they need to live a good, comfortable life.
This may be good in theory. But in practice, we have seen what happens when the world’s eyes are trained only on cheap prices. Countries such as China have booming economies while Europe, the United States, Australia go into recession.
The fallout from such recessions are serious drawbacks from which many in the U.S. and in Europe can never recover without dramatic intervention. And without that intervention the human cost is too steep.
Enter Employnomics, or Employment Economics. This economic theory posits that employment stability is the single most important factor in economic planning. The theory posits that countries have a right to manage their economies in a way that protects their citizens from wholesale job losses that destabilize their societies. And this right includes the right to insist that products intended for sale in their markets must be made inside their territories so that their citizens can keep their good-paying manufacturing jobs.
We have proposed a new American doctrine: 51% of all products made by major manufacturers intended for sale in the United States and its territories must be made in the United States. The other 49% can be made anywhere else for all we care; they can in fact be made in Timbuktu.
And if every advanced country adopts the same or a similar policy, the economic entropy of advanced countries in Europe, in the Americas and in Australia will be halted and eventually reversed.
China and other developing countries will still be able to grow, but their growth will be tempered and be less dislocating for the countries that they are currently driving out of business.
Would such a system not lead to a global recession, a depression even? Well it would if the proposed new American doctrine is adopted overnight. We are not recommending such a course. We feel that there must be a transition period of 5, 7 or 10 years, depending on the complexity of the manufacturing processes involved.
We will give multinational companies such as Apple, GE, etc. enough time to reopen the U.S. plants that they abandoned in America during the mass exodus of manufacturing to China and other countries. Chinese, Japanese, Korean, etc. companies will have the same amount of time to transition some of their manufacturing operations to the U.S.
Will this not lead to higher prices? Of course it will, but it is not such a bad thing. The greatest threat to the world economy, according to Nobel prize-winning economist Paul Krugman is deflation, not inflation. So some inflation is not necessarily a bad outcome.
Besides, with an anticipated more widespread use of robotics, the impact of higher U.S. labor costs will be minimized.
Finally, because of competition companies that manufacture in the U.S. will not be able to raise their prices too significantly and will likely absorb their higher costs, which means that their profits will be reduced.
And that’s not a bad thing. Currently, because of cheap products from China and other countries, the Wall Street darlings are reporting unbelievably huge profits and the CEOs and other plutocrats are getting a bonanza through high salaries and huge stock options. While the middle class ranks are thinning because they are being pile-driven below the poverty line.
This country must stop producing super-rich individuals and families and concentrate instead on bolstering the middle class by raising people out of poverty.
And the only proven way to do this is by giving Americans a chance to earn high-paying manufacturing jobs. And, may I add, construction jobs that will surely be created because of the factory building and renovation boom that will occur all over this land.
(The author may be reached at email@example.com. He occasionally tweets as @morningcall11.)