Our Current Policy is to Beg

Our Current Policy is to Beg - Ralph Gomory

Gomory is referring to the United States response to the mercantile trade practices of China. In the piece, The Innovation Delusion, Gomory exposes the absurdity the United States can create intellectual property, advanced R&D and innovate it's way out of the trade deficit. Gomory also calls out Thomas Flat Brain Friedman, one of my favorite things to see. (I have yet to figure out how such nonsense even gets published never mind on the best sellers' list!)

In the United States, innovation has become almost synonymous with economic competitiveness. Even more remarkable, we often hear that our economic salvation can only be through innovation. We hear that because of low Asian wages we must innovate because we cannot really compete in anything else. Inventive Americans will do the R&D and let the rest of the world, usually China, do the dull work of actually making things. Or we'll do programming design but let the rest of the world, usually India, do low-level programming. This is a totally mistaken belief and one that, if accepted, will consign this nation to second- or third-class status.

Not only is the claim Americans can just innovate their way out of a massive deficit absurd, it is also grandiose. Americans do not have a lock on intelligence and creativity. To think America will do all of the high end jobs is flat out wrong but also prays upon some concept that Americans are superior to the rest of the world. Statistically, believing that only America can innovate is proved wrong. Advanced R&D is being offshore outsourced as fast as they can.

Gomory calls out the claim the U.S. cannot compete against low wages.

The premise that the inescapable burden of competing against low wages means failure is simply not correct.

Now this is true, offshore outsourcing is not just wages, it is the total cost of a service or good. The reality is many projects offshore outsourced (estimates range from 33% to 70%) exceed the original costs when a project was sourced domestically, the failure rate is high, project time delays are high. Just ask Boeing, which in spite of huge delays, failures and manufacturing flaws, continues to offshore outsource plane manufacture. Why, I have no idea, stuck on stupid perhaps?

The biggest fallacy in believing Research and Development can deal with the trade deficit. That's just flat out wrong and it is due to scale. Gomory shows advanced R&D simply cannot generate enough economic output by itself, you must have production, manufacturing along with it.

It is really wrong to think that you can scale up R&D to be big enough so we can trade it for the huge quantity of things we need but don't make in this country.

Gomory also calls out the dismissal of the American worker, somehow believing the U.S. can just throw away, ignore, it's entire labor force and instead just focus on those who generate patents and copyright. Patents and copyright do not just pop out of people's heads, regardless of how bright they are, such work must be in a culture of innovation, with support, that means stable, good paying jobs, education. Additionally innovation is often inspired by what one experiences around themselves. In other words production and real world manufacturing inspires innovation just as advanced R&D inspires production. The two go hand in hand.

Gomory concludes with promoting Warren Buffett's certificates idea to force balanced trade.

We must move to balanced trade. With balanced trade every dollar of imports is matched by a dollar of exports of goods or services produced here in the U.S.A. We are fortunate that there are in fact ways to balance trade. One very attractive way is to adopt some version of Warren Buffet's Import Certificates plan, which Buffet has described in a remarkably insightful Fortune article.

We should act now to balance trade. We should not continue to beg while jobs disappear and our productive ability erodes.

I suggest reading the entire piece if for nothing else, a good call out on Tom Friedman's flat brain economic fiction is always a fun read.

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