@jerryab2 you are right!
So why should a company enact a costly strategy with a long-term benefit to national security if that will cost sales NOW? Since customers would buy from lower-cost competitors.
Wendy
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Oh I think he was attempting to influence folks with power. And I am not alone in that belief.
Bankman-Fried (nicknamed SBF) is also one of the largest political donors in American politics, and has been accused of violating campaign finance laws as part of a scheme to illegally funnel millions of dollars to candidates and political action groups ahead of the 2022 midterm elections.
These contributions were disguised to look like they were coming from wealthy co-conspirators, when in fact the contributions were funded by Alameda Research with stolen customer money,” said Damian Williams, the U.S. Attorney for the Southern District of New York, at a press conference on Tuesday. “All of this dirty money was used in service of Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy in Washington.”
In his book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, Hernando De Soto used Peru as one example of the worst bureaucracies in the whole world, worse than Venezuela. Great book, I highly recommend it.
The Captain
BTW, the money in Peru is the Sol as in Sun, not soul
BTW2, Peru is famous for ceviche but shrimp ceviche from Ecuador is out of this world!
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“BTW, the money in Peru is the Sol as in Sun, not soul”
Thank you for the correction Captain
“BTW2, Peru is famous for cerviche, but shrimp cerviche from Ecuador is out of this world!”
Mi Amigo from Peru has served me cerviche & Pisco sours.
When he’s in the mood to cook again. I will suggest that he might wish to attempt shrimp cerviche done as the Ecuadorians do it.
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You’ve already pointed out one reason - government incentives/requirements. If the government offers a subsidy that is available to domestic production, but not off-shored production (like in the IRA for electric vehicles), then moving production back to the U.S. may not be a costly strategy. Obviously different producers will face different cost profiles - but for some of them, the availability of a subsidy might be sufficient to make domestic production the better option.
But “reshoring” isn’t just limited to industrial policy - some reshoring happens simply as the result of market conditions and geopolitical considerations. Long supply lines (as exist for Chinese production for the U.S. market) carry their own costs - obviously transportation, but some uncertainty/inconsistency as well. The great Supply Chain Unpleasantness of the pandemic years led some companies to rethink whether the lower nominal cost of production in Asia was worth the logistics headache. Rising labor costs in east and southeast Asia (a natural byproduct of massive investment in manufacturing there) have eroded some of the cost advantage as well, and we would expect that to continue over time. And geopolitical considerations can dramatically affect the degree to which companies find it practical or beneficial to invest in foreign production - as tensions ebb and flow between the U.S. and China, for example, companies may choose to hedge their exposure to geopolitical risk by not going all-in on a China strategy.
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I honestly don’t understand the question. For one thing, “less profitable” is an assumption, not a fact. Just because something may have penciled out as being more profitable in the past doesn’t mean it will necessarily be more profitable going forward. I also don’t understand why this would necessarily be “not attractive to shareholders.” I’m not seeing indications that shareholders of companies in the US chip industry are unhappy about such efforts, but perhaps I’ve missed the news.
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First, most large projects can only be done “at scale”, as there is no realistic way to do it any other way. Plus, costs are lowest overall when done on a large scale, so the net cost to consumers is lowest. Buying from competitors (at a lower price) requires that manufacturer to NOT be doing similar types of eco-stuff. Why would they be exempted? They wouldn’t–unless they lied and told everyone they would NOT have to pay. Of course, that just shifts the HIGHER COST onto consumers when the bill comes due. And, if it IS a “national security” thing, then NO EXEMPTION due to “national security”. And they also do it at scale in order to reduce the total cost.
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Wendy, your post has prompted me to reread Deaths of Despair and the Future of Capitalism by economists (and married couple) Anne Case and Nobel Prize winner Angus Deaton. Thank you.
Excerpt from the summary: “Deaths of Despair and the Future of Capitalism paints a troubling portrait of the American dream in decline. For the white working class, today’s America has become a land of broken families and few prospects. As the college educated become healthier and wealthier, adults without a degree are literally dying from pain and despair. In this critically important book, Case and Deaton tie the crisis to the weakening position of labor, the growing power of corporations, and, above all, to a rapacious health-care sector that redistributes working-class wages into the pockets of the wealthy. Capitalism, which over two centuries lifted countless people out of poverty, is now destroying the lives of blue-collar America. This book charts a way forward, providing solutions that can rein in capitalism’s excesses and make it work for everyone.”
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China is going to be a mess next year, and probably for a long time. I would not be surprised to see U.S. companies pull out of China because of the expected instability. I would also not be surprised to see China attempt to use our dependence on trade with them to try to keep us from intervening on the behalf of Taiwan. Investing in Chinese facilities is a waste of money, as far as I’m concerned. It might make some sense to build plants in Mexico. Frankly, I’m not sure the 21st century will have a happy ending; but, of course, I’ll be gone by then. Right now, we have to stop Russia in Ukraine to avoid a direct confrontation with NATO, and we have to stop relying on China and Russia as essential parts of the supply chain. Next year I’m buying Treasuries and dumping most of my ETFs. I don’t think 2023 will be pretty, at all.
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China is still a huge market with much growth potential. Its a tempting target for most multinational companies. Politics and international tensions add risk. Much depends on getting it right.
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By chance, did anyone here read Thurow’s “The Zero-Sum Society” when it came out forty years ago? I look at efforts now, to fracture Shiny-land society along racial and religious lines, by proposing one faction be built up, by stealing from other factions, and see zero sum thinking.
I see another book came out a few years ago: " Breaking the Zero-Sum Game: Transforming Societies Through Inclusive Leadership" Say “inclusive” in some states now, and you have the thought police after you.
Steve
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Never heard of it but I just asked Amazon to send me a free Kindle sampler.
There are two kinds politico/economic systems
• Zero sum redistribution, and
• Positive sum production
Maybe three, the so called mixed economies, of which Venezuela was one and it worked well enough until it fell apart.
The Captain
Happy New Year and May 2022 Be Forgot
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Mixed economies are working well in North America, Europe, Japan, SK, Oz, and New Zealand. Mentioning the bigger ones. VZ is nothing within any of that.
That is very true.
What was it called in the 1990s? Profits were not GAAP or anything. God I forgot the name for it on CNBC.
Corporations had stopped reporting lumpy earnings in the late 1990s. Note earnings in reality are always lumpy.
Meaning we can have lumpy earnings that are real and brutal on investors…or we call just lie a lot and watch investors fall of a cliff at a later date. The cliff being far more brutal. adding we have had a few threads on deadbeat CEOs. The lie a lot about earnings is where they came in if we all remember correctly.
Yes from here the stock market responds much more to actual data and reasonable ideas on forecasts both economic, business and financial.
Yes. Actually, Thurow wrote two books with the phrase “zero-sum” in the title. The first, which you note, focused on laying out the nature of the problem (i.e., that the politically powerful can and will capture most of the fruits of economic growth), while the second, The Zero-Sum Solution: Building a World-Class American Economy, focused on Thurow’s favored solutions, which look more or less like policies employed by the Scandinavian countries–countries with the consistently “happiest” populations, according to many studies. Some of the recent policy proposals of the current presidential administration in the US (to use the required METAR circumlocution) certainly bring Thurow to mind!
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I could not find Wendy’s post that you snipped from, so I don’t know what the context was.
I remember what bubblevision was touting, instead of GAAP earnings. “EBITDA”: earnings before interest, taxes, depreciation, and amortization, as if interest on debt, and taxes didn’t exist. For that matter, amortization is how you expense CAPEX, so ignoring amortization is like pretending the company does not need to invest in itself. But, hey. It’s bubblevision. It’s not like what they spew has anything to do with reality.
Steve
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Thanks. So, the “problem” is concentration of wealth, and the “solution” is Socialistical redistribution. Thing is, the US went “supply side” where concentration of wealth was the stated objective, and even the slightest whiff of anything socialistical makes “though leaders” like Sean Hannity have an apoplectic fit.
Steve
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The way to find it is to use the light gray up arrows in the uper right corner of the post.
The Captain
is getting to know YOU!
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Steve,
Weren’t they called “look through earnings”? Not even EBITDA.
Or Proxy Earnings? It was 24 years ago.
Steve it was in the response to Goofy. While Goof and Wendy are talking reshoring it is on a factory by factory company by company basis. The reporting at the heart of what shareholders wont like. Regardless of the earnings not being mentioned.
Predictable earnings reports are not honest earnings reports.
I must disagree with the two of them it is not less profitable to reshore industry. For instance think all the IP that wont flow to direct competitors.