To the extent that asset bubbles create artificial stimulus on the supply side of the equation -- precisely the point with America’s IT-led capital spending binge of the late 1990s -- price destruction should hardly come as surprise.
The guy takes a mistaken notion, blows it up quaintly to fit some imagined econo-myth, and specializes down to nonsense. Specifically, there is no excess capacity in IT. If not, why is CSCO making money? CSCO's prices aren't eroding except up to technological obsolescence. He is looking at NT's and LU's and reaching the conclusion that there is system wide excess capacity. I've stated repeatedly there is only antiquated capacity whose marginal cost to use rises faster than scale. Roach can only say that the quality of capacity is low and so its profitability is weak. This creates "price destruction" only among those who create junk. That's bad? Seems right and proper to me.
Also at work are the unmistakable impacts of globalization.
Remember I challenged Stiglitz concerning the definition of "globalization"? Roach takes the same myth and tries to build another pile of nonsense. How does one define globalization? It can't be defined or it's synonymous with trade.
...Reflecting the legacy effects of the strong dollar, in conjunction with the weakened state of global demand, nonpetroleum import prices were still running 1.5% below their year-earlier level in July 2002 following a 2.4% deflation over the preceding 12 months.
Deflation? Deflation is a monetary effect. One can't use the term to refer to decline in material quantities.
Importing deflation is not that big a deal in a closed economy.
Importing deflation? I challenge anyone to define this creation. It's an enjambment of two terms of different categories. E.g. one can import goods and services, but one can't import a paucity of money. Nature abhors a vacuum.
In today’s increasingly open US economy, it’s a different matter altogether.
What does "it" refer to? A myth?
In the end, it’s always about pricing at the margin.
Oh, now we're concerned with the margin. Above he was mistakenly concerned about totals. The totals are designated in prices, so apparently it isn't always about pricing at the margin. According to him it's about pricing at the total, whatever that means. No comprendo?
How can he reach the conclusion that the totals are disbalanced except that the prices must be inappropriate. That is, what was sold was shoddy over-priced goods that people were willing to buy because the wealth effect induced indifference to prudence. Now if he wants to make an argument that FED created too much money...
Courtesy of globalization, low-cost foreign producers are playing an ever-important role in shaping the aggregate US price level. Nowhere are those impacts more evident than from China -- now America’s third-largest source of imports (behind Canada and Mexico). In the first five months of 2002, Chinese products accounted for 9.3% of total goods imports into the US, a sharp increase from the 7.7% share in the first five months of 2001. Moreover, China is now experiencing a deepening of its own deflationary pressures; with its overall CPI falling 0.9% on a year-over-year basis in July -- continuing the latest deflationary trend, which reemerged in November 2001. To the extent that ever-cheaper Chinese imports are gaining market share in an increasingly open US economy, a significant portion of America’s deflation could well be made in China.
America's deflation could be made in China? China is in labor parity proximity with both Japan and the US. When China sells goods below those of the US, the necessary consequence is that those goods are actually shoddy. "Made in China" has now achieved a low quality status. One can see this in all Chinese goods. The quality has gone out the window over the last 7 years. This means the effective cost of Chinese imports is far higher than their nominal price. If fool US corporations buy from China, they're doing so only for short run cost considerations at the price of long run quality. It is quality that is now critical because international labor price parity has been pretty much achieved.
Shocking as it may seem, I believe long rates could actually fall a good deal further from today’s rock-bottom levels if fears of outright deflation were to intensify.
The only shock he's going to get is the inflationary shock when the world's countries pick up steam in their recoveries.
It’s time to stop pretending that deflation can’t happen in America.
It’s time to stop pretending that inflation isn’t happening in America. |
