On 5/16/05, Nick Arnett <[EMAIL PROTECTED]> wrote: > > On Mon, 16 May 2005 13:09:51 -0500, Gary Denton wrote > > > Unnh, wrong lesson. Capital is not that expensive in the United > > States. Perhaps you are conflating into "capital" both capital > > investment costs, including the regulatory environment, and labor > > costs. Neither of those relate to the personal savings rate except > > in indirect ways. > > I believe you are mistaken. The savings rate directly affects the cost of > capital. It is almost as simple as classic supply-and-demand -- the more > cash > that is saved, the more money is available for investment.
I was not objecting to that. Although that is a long term effect. Foreign capital and Fed actions have a large influence. In the > semiconductor business, for example, Japan beat us repeatedly by achieving > economies of scale much faster than our companies by building larger fabs, > at > lower cost of capital, then manufacturing more product faster. In that > business, scale has has a multiplicative effect because high semiconductor > yields (the percentage of good chips on a wafer) rise rapidly with volume > because the manufacturer acquires the key resource -- experience with that > chip and process. > > For a long time, the U.S. semiconductor industry called for Washington to > just > keep out of any sort of trade regulation, but around 1985, the industry > decided to call for political action, citing the difference in the cost of > capital and its effect on their ability to compete. Our government's > response, which met with some success, was to persuade Japan to increase > consumer spending, thereby decreasing the savings rate. Ahh, you were comparing Japan and the US in the mid-eighties. At that time the cost of capital in the US was high and in Japan was very low. Today the US is in the same position as Japan in the mid-80's. The Fed.Reserve here drove down the cost of capital in response to a major stock market decline. In the 80's the same thing occurred in Japan as well as government incentives for the major exporters to expand production in Japan. A losing battle - manufacturing follows low capital investment costs, low regulation and low wages - neither of which describes Japan or the United States today. A major reason for the high personal savings rate in Japan was its lack of a > Social Security system. So one *could* conclude that we should abolish > Social > Security in order to strengthen our capital-intensive businesses. Except that the cost of capital, the interest rates, had been very low in the US for the Bush presidency despite the low savings rate. Personally, I think this was Greenspan partially saving Bush's butt, partially doing what the Fed is supposed to do, and helped by several foreign countries that don't want to stop their own export booms so they were purchasing huge amounts of dollar denominated bonds. Both of these actions are slowing and the economy weak as it is should significantly slip. I think it is easy to make moralistic argument about saving v. spending, but > in reality, both are needed. Where I think we get in trouble is focusing > too > much on one or the other. > > FYI, this is a subject I wrote about in some depth around 1984-1985 as I > reported on the chip business. One of the most memorable moments of my > career > as a business journalist was on the phone with Bob Noyce of Intel, hearing > him > take a deep breath, a long pause and say that he had changed his mind > about > government intervention. You are much more knowledgeable than I of manufacturing in the 80's.. In the 80's I was only worrying about a few mutual funds I was invested in and doing retail sales forecasts. > Constructing safety nets is hard I wouldn't trust the job to those > > who think they aren't needed. > > ;-) > > Nick -- Gary Denton Easter Lemming Blogs http://elemming.blogspot.com http://elemming2.blogspot.com _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
