Thursday, July 13, 2006

Standard Economic Theory Failure

This Author decided to do something today which would get him yelled at a lot (no masochistic tendencies, just rattling the Tree a might). He searched and searched, maybe a nanosecond or so, and decided to discuss Trade theory. Standard Economic theory states the value of the Dollar is too high, constricting the Sale potential of American Exports; potential Buyers (including Americans) opt for lower-valued Foreign Goods. Sounds Good as explanation, but leaves much unsaid.

Dollar devaluation holds many hidden horrors which no One explores. The first unspoken Fact We should examine is what the production of Exports cost. Production of such Goods increase Demand for the material resources to produce Exports in the domestic market; this Demand raising market Prices for the material resources, with complement rise in the cost of production of domestic Goods. The second element resides in the fact that Exports must be distributed (i.e., transported to the Coast and shipped Overseas). Reversion to Economic theory: Business, confronted by transitional Costs to be distributed through market prices, will transfer Costs upon Assured Markets (already established), rather than Acquisitional Markets (always open to Competitive bidding). Translation into English: Exporters will universally throw Distribution, Retail, and even Production Costs of Exports onto the domestic Consumers wherever and however possible (the Minimum being equalization of Total Costs over all Product Pricing, the Maximum being Domestic Consumers paying all Export Costs in higher Pricing.)

What does this Information mean?

Domestic Consumers are faced with a higher-Cost Supply Curve, one in which they are funding Business Export adventures. They are hit with payment of higher Production Costs, and with Business desire to expand foreign markets. The Minimum of this higher Cost will usually range from 8-12%, while the Maximum could potentially range up to 300% of Product Price. Now We come to the concept of Dollar Devaluation. Business wants the devalued Dollar to ease capture of foreign markets. The Consumer, already faced with extraordinary Product pricing, finds Wages are keyed to Production Costs, not to Consumer Prices; only Labor demands can attach Wages to Consumer Prices, inhibited by a surplus of Labor via Immigration or heavy Unemployment.

Dollar Devaluation turns into an Ogre under the above conditions, so that it evolves into direct reduction of the Standard of Living. Business, and many Economists, suggests this is good for the Country, but I would counterclaim it reminds of the hipe of the Chicago Board of Trade (enter upon the later only at your own risk). lgl

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