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Cronyism and Disruptive December 6, 2016

Posted by hslu in Economics, Global Affair, jobs.
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I usually don’t watch Jim Cramer’s Mad Money, especially his fast-paced, often off-the cuff  stock picks, because I don’t like his in-your-face style and sometimes superficial analysis. But once a while a good piece comes up which deserves some attention.

Greg Hayes, the CEO of United Technology (UTX,) was interviewed by Cramer about Carrier’s decision to stay put in Indiana instead of moving jobs to Mexico. Carrier makes heating and air conditioning units and is a subsidiary of UTX.

UTX's CEO, Greg Hayes, interviewed by Cramer

UTX’s CEO, Greg Hayes, interviewed by Cramer

http://finance.yahoo.com/news/ceo-united-technologies-just-let-231538059.html

Moving manufacturing jobs back to America is easier said than done. In this piece, Hayes said that Carrier has to make capital investments to make the assembly line process at Carrier more efficient to counter the higher labor costs in the United States.

But, here comes the rub: efficiency ultimately means fewer jobs. Take a look of the self-check out machines at Walmart and you’ll know what I mean.

Just imaging moving an oversea assembly line back to the U.S. and paying American workers five times more than what oversea workers make. If you were a CEO of such a company, will you make the decision to move your manufacturing plant oversea back to the U.S.?

Probably not.

Another important component of this story is the fact that Carrier got $7 million tax break from the state of Indiana. It was casually brushed off by Cramer in the interview. But we all know that, without this incentive, i.e., other-people’s-money, Carrier can’t stay. This is corporate welfare and it is done selectively. America calls this crony capitalism.

Free market will likely die a slow death in the U.S. under Trump and foreign countries will certainly raise their trade walls to counter Trump’s action.

The Third World War is coming upon us. But more interestingly, who will coming out of this trade war ahead in the years to come?

It will not be the U.S. because Americans will pay for it with higher costs on just about everything.

Oh, I haven’t mention that Trump wanted to send illegal Mexicans, El Salvadorians, Guatemalans and Hondurans back to their home countries yet. After they are gone, who will take up the slack to keep American business going and how much higher will the wage go up to?

 

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