San Francisco's Chinese Bridge

[OVERKILL]

Originally Posted By: Tempest
Originally Posted By: OVERK1LL

While I agree with this, the big issue I have with THIS project is that the money being moved around... is being moved out of the country to be never seen again. And it is tax-payer money. Money that should be given to American corporations and American workers to be recycled back into the economy as taxes and consumer purchases.

I understand the desire to employ American workers, but the $400 million saved, plus the money that was not extracted by the lack of Fed help, IS aiding the employment of American private sector workers.


I see what you are trying to say, however, look at it from this perspective:

If ALL of the bridge had been in-sourced, how much MORE money (in addition to the 400 million) would have been put back into the US economy instead of overseas?

You see a 400 million dollar savings. Fine.

I see a much larger sum of money exiting your country and going to China, never to be seen again.

So which "costs" Americans more?

 

[Tempest]

Nothing is being "put back". Once government takes it out of the system, it is gone as a wealth building mechanism. You can employ American steel workers at a higher rate of pay, but is any new wealth being created that way? That higher rate of pay has to come out of someone else's pocket first. This is why government can't create wealth or stimulate the economy.


I don't think California has any steel works of that size so they would have to go out of state for it. Since this is being paid for with California tax money, it wouldn't really come back to them anyway.

 

[PandaBear]

Originally Posted By: Tempest
Actually, that is exactly what happened to old bridge, under government ownership. The government is $2.2 Trillion behind on infrastructure maintenance. This clearly shows incompetence on it's part.

Roads in good condition, that move well, and are safe, are very much in the interest of a private sector road builder. They have to compete with the "free" roads all around them.


The old bridge broke because it wasn't designed up to the possible quake risk scale. Just like Fukashima nuclear plant wasn't designed to handle the tsunami of that scale.

So the answer is whether to keep using it and keep risking these kind of issues (life is cheap and repair of small section isn't that expensive), or build one that will stand up to the bigger quake. Then 911 come and it needs to be build to tolerate bigger impact, etc.

So you can say it is not due to the lack of maintenance that cause us to need a new bridge.

Private sector, if they want, can build their own ferry services to compete with the bridge, which is exactly what they did.

 

[mechanicx]

Originally Posted By: Tempest
Nothing is being "put back". Once government takes it out of the system, it is gone as a wealth building mechanism. You can employ American steel workers at a higher rate of pay, but is any new wealth being created that way? That higher rate of pay has to come out of someone else's pocket first. This is why government can't create wealth or stimulate the economy.


I don't think California has any steel works of that size so they would have to go out of state for it. Since this is being paid for with California tax money, it wouldn't really come back to them anyway.


You have an odd definition of wealth. What in the world is the difference between consumer spending money directly and doing it indirectly through the government? If an American company and workers were being paid to do the job, they would sure see it as wealth. Plus they would pay taxes including federal, and buy things, possibly from California. Heck they might even go to California or Las Vegas and spend some of that money. With the job going to China you don't have that. You have so many millions or billions of dollars going to China's government and out of the US economy. I'll say it again, by your logic if only the US could outsource everything we'd miracalously create more wealth and all will become more wealthy because everything might be "cheaper". Where would the potential consumer base get its money? Your definition of wealth seems to be limited.

 

[PandaBear]

Originally Posted By: Tempest
Nothing is being "put back". Once government takes it out of the system, it is gone as a wealth building mechanism. You can employ American steel workers at a higher rate of pay, but is any new wealth being created that way? That higher rate of pay has to come out of someone else's pocket first. This is why government can't create wealth or stimulate the economy.


I don't think California has any steel works of that size so they would have to go out of state for it. Since this is being paid for with California tax money, it wouldn't really come back to them anyway.


So wealth is only wealth if it is hold by the private business owners' hand both in the US or in China? and money charged by government to pay for productivity gain (bridge for example) is not wealth, but waste?

What you and Pablo describe is called, in accounting term, cooking the book. You shift all the lost to one party (government) and all the gain to the other (businesses owners), and then go blame all the problem to government and all the merit to the businesses.

I'm wondering if either you or Pablo (or maybe a few more members who hold this view) have ever taken even a high school accounting course.

 

[CivicFan]

Originally Posted By: Tempest
Quote:
The added benefit of this spending is what OverKill described - the multiplier effect where 1 dollar spend is turned around in the economy resulting in the generation of $1.89 wealth in the society.

Please explain to me, exactly, step by step, how this multiplier happens.

Then please explain to me how it's possible to have a 44% deficit with a return of 189% on spending.


Google "multiplier effect" or go to Wikipedia. There are tons of sources explaining this basic concept in the economic thought.

 

[buster]

On a side note:

Quote:
BlackRock Inc. (BLK) Chief Executive Officer Laurence D. Fink,head of the world’s largest asset manager,said he understands the concerns of protesters speaking out against financial firms in New York and other cities

 

[buster]

Tempest hasn't heard of the multiplier? That's econ 101.

 

[KrisZ]

Originally Posted By: CivicFan
Originally Posted By: Tempest
Quote:
The added benefit of this spending is what OverKill described - the multiplier effect where 1 dollar spend is turned around in the economy resulting in the generation of $1.89 wealth in the society.

Please explain to me, exactly, step by step, how this multiplier happens.

Then please explain to me how it's possible to have a 44% deficit with a return of 189% on spending.


Google "multiplier effect" or go to Wikipedia. There are tons of sources explaining this basic concept in the economic thought.



I just skimmed over your "source" and I'm pretty sure that you got that totally wrong. There is no way on this Earth that a $1 of taxpayers money spent by government creates $1.89 or even $1.01 in the market, at best it is even and most of the time it is much lower.

If you concept was true, then we could spend ourselves out of the recession... oh, wait a minute...

 

[brianl703]

Originally Posted By: mechanicx
What in the world is the difference between consumer spending money directly and doing it indirectly through the government?


Perhaps the biggest difference is that the consumer makes the decision how the money is to be spent, not the government.

 

[CivicFan]

The concept of the multiplier is simple. When you spend a dollar, that is income for someone else. Then that person spends that one dollar which is income for someone other. And it goes on. Of course, you do not spend all of that one dollar. Some of it is saved. That saved money is then loaned to a business which invests. This is not exclusive feature of the dollars spent by the governments. Money, after all, does not care where it came from.

Economic activity has a pattern of turning money over and over. During normal times, it works like a well oiled machine through different mechanisms available in the free market.

It's the abnormal times that require decisive actions by the central banks for monetary policy (interest rate changes) or the executive branch for fiscal policy (spending increases). Both are to encourage economic activity and resumption of the confidence by consumers (70% of all economic activity in the US is consumption) or investors.

 

[OVERKILL]

Originally Posted By: Tempest
Nothing is being "put back". Once government takes it out of the system, it is gone as a wealth building mechanism. You can employ American steel workers at a higher rate of pay, but is any new wealth being created that way? That higher rate of pay has to come out of someone else's pocket first. This is why government can't create wealth or stimulate the economy.


I don't think California has any steel works of that size so they would have to go out of state for it. Since this is being paid for with California tax money, it wouldn't really come back to them anyway.


Mechanicx and Panda summed up what I think on this nicely.

"Out of state" is still part of the United States, and people outside of California are still Americans. California or Ohio, they are still American tax payers, American consumers.

Lets draw out two scenarios (these are hypothetical):

1. Bridge is built for 1.68 billion using all American workers and steel. That money is spread out into profits and wages among the multitude of companies and skilled trades employed to complete the undertaking. Let us say there are 5,000 direct workers on the project making $30/hour. The project will take a year. That is $312,000,000 in wages being paid out to these workers. That is money that will be spent paying bills, taxes and spent at stores for food, goods, tools....etc. That is 320 million being put BACK into the economy. Now, there will be a company or companies required to provide the steel. Say there are 500 workers at the steel mill making $25/hour. There is another 26 million put in the pockets of Americans to be put back into the economy through taxes and consumer spending. Now, there will be a company or companies required to provide the concrete. Say they employ 250 people at $25/hour. There is yet another 13 million going into the pockets of Americans to go back into the economy through taxes and consumer spending.

There alone we are looking at 351 million dollars, almost a 1/4 of what the project cost, being put into the pockets of Americans labourers. The rest of that money will be paid into American corporations for their professional fees (consultants...etc) and for the products themselves. A percentage of that will go to profits. And these companies will pay American taxes.

So all of that money, in some way shape or form is recycled back into the American economy.


2. Bridge is built for 1.32 billion. An American consulting firm is given the contract and the main work is given to a Chinese company. The Chinese company hires 3,000 workers, making $4380/year. That is $13 million in labour paid out by the Chinese company......

250 California government officials are sent to China to oversee the project. At $50/hour, that is $26 million to babysit the Chinese.

Let us say they use 500 American contractors to do the final assembly here. At $35/hour, that is $36 million going to American workers to be injected back into the economy.

The fees for the bridge sections go to the Chinese, with some nice profits tacked on top of it to the consultants who arranged the outsource. They will of course pay some taxes on that. Maybe a few million. They will have employed architects and engineers to design the project, so if we say a team of 30 at $100/hour, there is another 6.2 million. But not all of the architects or engineers are American (some are Canadian) so of that 6.2 million, only about $4 million gets put back into the economy through American tax payers.


So:
Scenario #1, all of the $1.68 billion gets put back into the economy in some way, shape or form.

Scenario #2, $66 million gets put back into the economy through American jobs. Another couple million may go as taxes paid by the consulting firm. The rest of it, $1.25 BILLION dollars ends up in China, never to be seen again, out of the American economy forever. A small percentage of that ($13 million) is paid in wages to the Chinese labourers.

Scenario #2 is $360 million "cheaper" than scenario #1. But the true cost to Americans in the form of lost wages, lost taxes and lost revenue makes this scenario MASSIVELY more expensive than scenario #1.

 

[Al]

Originally Posted By: CivicFan
The concept of the multiplier is simple. Money, after all, does not care where it came from.

What you are missing is that although "money does not care where it comes from"...in the "Total Cycle" it does matter.

This money was extracted by government and a lesser amount passed back into society. We can use a simple formula:

(Money extracted from the economy by Gov. [bad]) - (Gov Waste [bad]) = (Gov Stimulus [good])

Obviously it follows... (Bad) > (Good)

 

[CivicFan]

 

[buster]

 

[Al]

Figures lie and liars figure

Example.

I have 20 dollars. Aunt Sally gave me 10 dollars and dad gave me 10 dollars. I go buy 2 packs of cigarettes for 10 dollars. Aunt Sally sees me buying them and says "You are buying those cancer sticks with money I gave you"

Since my name is Ben Bernanke I say, "No I did not use your money to buy these cancer sticks"

 

[PandaBear]

There are too much hypothetical numbers on both opinions. The reality is actually more straight forward.

The assembly, design, architectural, engineering of the bridge are done by American in America or developed world based on bid and performance. So that part of the money will be where it is regardless of we outsource the components of the bridge to China or not.

The components of the bridge, will cost certain amount in steel and concrete and the labor / profit on top of that. The material cost is fixed regardless of who build it, but the labor and profit is the one that is debatable.

Basically, we have two numbers depend on who won the bid and where to build it:

1) All American: assuming American labor is 2x as productive, we have labor + profit staying in the US that goes around with multiplier for the economy. However we have loan to pay back for the additional cost of the higher price. That's 400M more from California to put back into the US (most likely the steel belt states and the wall street).

2) Chinese with American QA/supervisor: the material cost is the same and the labor is cheaper and assuming the Chinese government is subsidizing with low profit to get future marketing material, technology know how, or just plain economy of scale because they will build identical bridge parts in the future. The labor and profit will be gone from the US (lost potential profit in the steel belt and the wall street). But the debt load of California and local cities would be 400M lower.

Assume steel and concrete is a commodities that get shuffle around the world and every producers are selling as much as they can produce (because China is buying up all the steel and concrete in the world, they are our primary concrete export customer, and our auto industry feel the cost impact from the steel tariff the last president setup). We would be looking at the (labor cost + profit) x multiplier vs 400M saving x multiplier.

Assume the same or similar multiplier number, as a whole if the labor is more than 400M (likely since the bid is 1.6B), the economy would benefit more if it is made in the US.

In a "small government" world where California is paying for most and the steel belt states are getting the most, California would make the selfish decision to buy Chinese instead, regardless of which make more sense in the bigger scheme.

Small government doesn't always give you efficiency as long as there's participant that isn't playing by your rule or benefit you in return.

 

[PandaBear]

Originally Posted By: Al
"You are buying those cancer sticks with money I gave you"


How many years in your life does it take you to learn that as soon as you lose control of what you have, it is no longer yours?

Originally Posted By: Al
(Money extracted from the economy by Gov. [bad]) - (Gov Waste [bad]) = (Gov Stimulus [good])


Money extracted by business - shuffled to an off shore account and pay foreign tax = Worst

Worst > bad > good.

 

[Al]

Originally Posted By: PandaBear

Money extracted by business - shuffled to an off shore account and pay foreign tax = Worst

Worst > bad > good.

No its money Business Earned (their money). 'If' they send it offshore its just like we shuffle our money offshore when we go to Wallyworld and buy Chinese stuff.

 

[LS2JSTS]

Originally Posted By: PandaBear


Money extracted by business - shuffled to an off shore account and pay foreign tax = Worst


In your opinion, is this the exception, or the rule?

You seem to post this argument all the time as if it is a widespread and common business practice. While I would never and could never honestly argue that it doesn't happen, we both know and acknowledge that it does. But to suggest it is common practice is just wrong...look at all the companies with under 500 employees, even those that are multi national and you'll see that the vast majority of them dont utilize the holding company tax dodges allowed by our convoluted tax codes. Even many larger corporations have never utilized these tax dodges...IMO, it's a shame that the companies that dont follow these ghost corporate off shore holding company practices get painted with the same brush as those that do.

As far as those that do....I agree with you, the loopholes should be slammed shut...I know of at least one Michigan company that I avoid their products for just this reason. The founders sons even took the extraordinary step of renouncing their citizenship and moving the bulk of their wealth off shore, taking up citizenship and corporate presence in some island nation who acts more like a partner in crime rather than a regulatory body. Meanwhile the factories and the products are still made here and sold here and the profits are still being stolen from here....in these specific instances I find this practice despicable, but I refuse to believe it is the rule rather than the exception unless you can provide substantial evidence to the contrary. I've seen the lists of the companies that do this stuff, they are clearly in the minority as far as total numbers.