Gift Cards and Federal Notes for the Holidays

With little fanfare in the US, another pair of countries have announced another move away from the dollar.  China and Japan will no longer use dollars to transact between the two countries.  This follows a similar agreement between China and Russia as well as talks developing with India and Brazil.  Smaller but still notable countries making noise along those lines also include Vietnam, Qatar and Iran.  So why should we care here in America?  To understand the problem, consider the sale of Holiday gift cards...

Gift cards (like rebates) work because the merchants that issue them expect a certain percentage to never be redeemed.  Thus, they can bring in cash and never worry about giving a portion of their customers anything in return.  To crunch the numbers, merchants have made $41 billion in "free money" by selling gift cards.

This is small potatoes though.  Uncle Sam has "sold" $4.45 TRILLION to foreign countries, in exchange for real goods and services, with the hope that they never redeem their gift certificates / Federal Reserve Notes.  Three of the biggest holders of those gift cards?  You guessed it: Brazil, China and Japan.

We're still pretty safe for the immediate future, but places that need dollars to do business are slowly becoming fewer.  Eventually places that *want* dollars will also diminish.  And when that happens, everyone who has dollars is going to come shopping at the US of A to redeem their coupons, competing with domestic demand and inflating prices through the roof.

Bad, Productivity! Bad!

Are Workers Too Productive?

Increased productivity is exhausting the workers?  Yet the source of the increase in productivity is tools which multiply the effects of their labor... which creates more output for the same effort. Really?  Yeah, that doesn't quite jive when you think about it...

You can find similar doom-and-gloom predictions in historical documents from the agricultural revolution and the industrial revolution (and I'll bet all the way back to the Bronze Age "Woodcutters will be WAAAAY too productive!"). Times of change often result in displaced workers, which eventually frees up enough people to shift into new or expanding industries. Productivity in one area or another may create saturation in that particular market, but I can't believe that we've exhausted the capacity of human demand. First, that doesn't mesh well with accusations of "boundless capitalist greed" and it also conveniently ignores large parts of the world where people's wants and needs for goods and services are certainly not being met.

The big factor here is globalization. Localized industries (like retail and other services) remain little changed, while easily transferred industries (like manufacturing and export) shift to developing countries. But with 15% annual salary growth in India, how long do you think it will remain profitable to shift jobs there? The short term impacts are unsettling, but the long term result will be more countries with populations that produce things that we want and that want things we produce. The alternative is to condemn entire nations of people to living in squalor and subsisting on handouts: much better to allow them the dignity of work.