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. 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. 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. 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. > Constructing safety nets is hard I wouldn't trust the job to those > who think they aren't needed. ;-) Nick _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
