TIMF E-Op No: 4 – Trade & Comparative Advantage

To look at the current state of the U.S. Economic Infrastructure is to witness the consequential effect of a theoretical flaw in action; whether it be a convenient cover for various other abuses or simply ignorance-on- command the march to the unachievable is now moving in to its 30th year; the homogenous global economy. The theoretical nuance upon which the global mantra predominantly relies is a conceptual paradigm proffered by David Ricardo, a British Economist, and more formally known as the theory of Comparative Advantage 

Comparative Advantage, in its simplest form, revolves around a conceptual model whereby an individual, business or country transacts or trades a product or service where they possess an economic efficiency over another individual, business or country and likewise your trading partner transacts/trades (back) in areas where they possess an advantage.  

The problem with most theoretical doctrines, particularly when globalizing monetary and economic policy through the lens of an abstract premise, is that they are asymmetrical to the dynamics of practical (real-world) applications and the Comparative Advantage theory suffers from the very same causal force and specifically for the following reason: The internal demands and resources of economic partners, beyond those where their alleged efficiency may prevail, are rarely if ever met solely by trade and it is to this single point one discovers the great flaw of Globalism and the reason for why this ambition fails in both in monetary and economic routines.  Let’s explore the theoretical flaw of Globalism a bit further with a few specific points for the sake of clarity: 

  • Exporting the U.S. Economic Infrastructure, from the Globalist point of view, is itself an exhibition of the Competitive Advantage theory however strictly from the vantage point of the Multi-National Corporate Board Room and their ability to acquire the political influence (the U.S. Senate and President Clinton) to affect the transition by way of U.S. submission to the World Trading Organization (WTO) who, as designed, is the final arbiter of advantage. It should be very difficult for one to expect that an external body, with no domestic allegiance (U.S.), would be the least bit concerned about the economic interests of the American Household.
  • The consequence of submission to WTO/Global Trade Agreements appears in the creation of a facility whereby the U.S. is heavily penalized for possessing economic efficiencies. The net effect of these punitive measures is to further incentivize the offshoring of our domestic economic infrastructure as companies morph into multi-national status by taking advantage of economic advantages made available by relocating to Nation’s who possess economic inefficiencies. The most common example of this is the cheap labor argument however labor is merely a component of an economic process and not a tradable/exportable component and as such not a strict measure of economic advantage. One can surely place 200,000 tenant farmers in the Alaskan Tundra however the climate is not conducive to farming and no amount of wage slashing will alter the climate profile.
  • Services, Technological and Design Capacities are critical to a vibrant economy however they are not a stand-alone commodity/resource on par with that of a tradable (fungible) commodity particularly in the case of a finished product; the perfect example of this is any of the products created by Apple, Inc. This Company designs and owns the intellectual property of its product however the conversion of their intellectual property into finished product occurs entirely offshore. This is quite good for Apple, Inc. however for the U.S. economy the problem is that, as tradable economic event, the economic value (to the U.S.) of their design and intellectual property creates no nominal ($) value as a tradable advantage. More damaging (to the U.S.) is the loss of domestic technical know-how and the collateral economic benefit of resident economic advantage (vitality) which would otherwise occurs across the spectrum of support industries that further seeds/support the industrial economic food chain. Remember, the only “trade”, in enterprises similar to Apple, Inc., occurring is the exporting component (by the U.S.) of disposable income/wealth (domestic) disbursed by American Consumers for these imported products. In our own studies we’ve calculated that, on average, for every $1.00 spent by U.S. Consumers for imported products/components we accumulate approximately $2.65 in lost economic opportunity costs. Think of it this way: The cost of unemployment is not just the lost wages, it is also the lost revenues to Federal, State and Local Governments, the increased burden of unfunded mandates as governments attempt to replace individual’s lost economic resources, the cost of lost productive capacity, the increased debt servicing costs, the multiplicity of costs associated with infrastructure decay and missed application of technological advancement due to lack of funding/demand to name but a few.
  • The presumption that the U.S. can economically persist purely as a consumer and/or service based economy in service to a government regime of military related enterprises and healthcare subsidies assumes an inexhaustible supply of currency and with no means to support the creation of currency from/by/through productive output. Think of it this way: A U.S. Farmer trading grain to China that he acquires from a farm in Australia financed by a line-of-credit provided by JP Morgan-Chase (who gets there money from the printing presses at the Federal Reserve) in New York. This may seem an acceptable economic event until one discovers that the bread you purchase from your local grocery store is made from flour imported from China (more on this in the following comment).  One more example: Bob, who owns and operates a Pool Servicing Company, and Lisa, an Insurance Broker. Bob insures his home from coverage he purchases from Lisa, the Insurance Broker (Ins. Premium/Brokerage Commission: $950 per year/$190) who in-turn has her pool serviced by Bob (annual service fee: $1,800). All Bob has to trade is his time and Lisa frankly, she’s no better off however the real question is this: With no productive economic output one must ask a very critical question; what then is the underlying value supporting the “service” transaction particularly when no commodity (but time) exists and  where no tangible exchange occurs but the consumption of currency/disposable income? If you follow the food chain in reverse you will discover the flaw in the service/consumer economy; money/value flows out or is consumed (and this is a very important point) at a rate faster than it can be replaced unless of course you just happen to own a printing press or a Central Bank. All of which leaves one to conclude that the service/consumption (type) economies have only one possible outcome: hyper-inflation and reduced standards of living. And lastly, at least for the current effort,
  • What no economist, globalist, politician or banker will admit to is the most pertinent fact of all: That despite their great success at deactivating the Nation’s economic-infrastructure no single or cumulative economic model has moved in to replace (forget equal) the economic capacity that has been lost and no amount of Government Spending, Taxation and/or Debt Accumulation will prove a viable substitute; these synthetic antidotes only serve as accelerants for the pace of degradation.    

Now for those who believe that China is assured global economic dominance I suggest they reconsider their assumptions. After all, China is at risk as well and to the reflex-consequence of the Globalist flaw and this is due to their economic capacity being heavily tethered to and reliant upon both external demand and resources far in excess of their own demand and resource (domestic) capacity; this too is neither an advantage nor a form of competition after all how can economic efficiencies develop or evolve where there is no equivalency in Trade? How does one quantify this Nations ability to consume as a fungible/exportable equivalent upon which a Trading Event is based? The entire notion is pure lunacy and precisely why this Nation finds itself, on several fronts, in a diminishing state of economic return.  

What to do: 

  1. It is critical for the American People to understand that in every dying paradigm the architects will feverishly attempt to reconstruct/redefine the paradigm in order to save it. The abject poverty of reason and the super-abundance of hubris will not allow a reversal of miss-fortune; restorative inducements will only come from outside the regime and I am suggesting that unless the People wise-up it is you who will be induced and not the other way around.
  2. With regard to November 2012 I will simply say that President Obama must not win a second term; his executive sabbatical is best characterized by one simple word: Destructive.  As for Mr. Romney I will only say that he is extraordinarily unimpressive. I urge the electorate to get involved in the Governorships and Congressional races as they are far more important.
  3. The U.S. must return to an economy based on productive-capacity however I favor what I refer to as DDMA (disbursed, diverse, modular & adaptable) model where no single enterprise commands an entire economic cycle/process but instead fuels both vertical and lateral economic development across the national spectrum.
  4. The U.S. MUST abandon collective bargaining and the stranglehold this process has on the economic process. This divesting of a government function (precisely the intended purpose of the Commerce Clause) to private interests can only be described as legislated whoresmenship and the fact that it continues as the vice that it is proves yet another flaw of a dead or dying paradigm.
  5. Cancel all WTO/GATT Trade Agreements; they are nothing short of a structured mayhem and a most indiscreet form of punitive economic policy.
  6. Restore the Glass-Steagall Act. Require suspension/cancellation/voiding of all forms of Derivative Trading. For Banks: Double minimum reserve requirements. Disallow all “off-book” liabilities. Set maximum capital limits (break-up top 10 Banks).
  7. Revise residential lending requirements. Target areas include: (1.) Institute a FICO Score Driven (only) system. (2.) Maximum term of 10 years. (3.) Minimum Down Payment of 20%. (4.) Revise interest accrual format. (5.) Prohibit Secondary Market and Mortgage Backed Security Trading. (6.) Create separate Residential Mortgage Bond/Security Fund (Market) paired to “term”.
  8. Write-down, to current market levels, all pre-2008 originated mortgages for owner-occupied dwellings (primary or secondary) originated with no less than 10% (“hard”) down payments. (More on the housing market in an upcoming TIMF E-Op.)
  9. Get the Government out of Health Care, Retirement and Benefits program management (an upcoming TIMF E-Op topic). And,
  10. Refer to earlier TIMF E-Op’s and the Book, “Valor in Prosperity”. 

Within the limited space of these “E-Op’s” it’s clearly not possible for me to cover every possible detail however suffice it to say that the effort is a fine tool for teasing a much needed conversation. The future of this Nation is unresolved and there is plenty of opportunity unfortunately the political avarice of the day seems bent on preserving and perpetuating the myth that government is the answer and I believe the Public is finally coming around to the fact that this is most definitely not the case. What is needed is a form of practical fundamentalism; a reversal of the processes that have waged an unchallenged war against the freedoms and liberties of the Sovereign American People. 

What becomes our collective future is a function of what we are willing to do each day and the journey is in progress and I urge you to join in and become an activist in defining what is to come. 

Your Influence Matters so Express It by Taking a Stand4 a Cause Worth Perfecting!  

Yes indeed, you matter; you matter immensely! 

Curtis Greco, Founder 

TIMF E-Op is a bi-weekly series the purpose of which is to hi-lite what we believe to be strategic components integral to a national economic reformation. We hope that you will find them of interest and give one great cause for expressing your influence by passing them along.

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