One Less Reason to Fear "Russia"

MOSCOW, Feb 11 (Reuters) - Russia is cutting military spending amid a deepening economic crisis but this will not affect purchases of new weapons and ammunition, the head of Russia's military said on Wednesday

"We have revised a number of items," Army General Nikolai Makarov, the armed forces' chief of general staff, told Reuters after closed-door hearings on army reform in the lower house of parliament, the State Duma.

"But I believe that on the issues we had wanted to resolve first, in particular, (new) weapons and ammunition, we will be fully covered. We will keep them at the planned level."

[...]

"Probably not a single ministry would agree to trim its spending," Makarov said. "But judging by the real economic situation of the country ... if there is just no cash, we simply cannot ask for it."

- Reuters North American News Service, Feb 11, 2009 11:09 EST

From a friend in Komsomol Nashi:
Well, we do need to save money. Plus, Medvedev is not the hardline militarist that Putin is (soon will be "was" all is pointing to it). He's a businessman. He sees when things are unprofitable and tries to fix that.

By contrast:

The Obama administration has given the Pentagon a $527 billion limit, excluding war costs, for its fiscal 2010 defense budget, an official with the White House’s Office of Management and Budget said Monday.

If enacted, that would be an 8 percent increase from the $487.7 billion allocated for fiscal 2009, and it would match what the Bush administration estimated last year for the Pentagon in fiscal 2010.

- CQ Politics, Feb. 2, 2009 – 12:52 p.m.

And yet, the neoconservative noise machine is gearing up to accuse Obama of "cutting defense spending".

If this seems utterly inexplicable to you, then you don't understand the central organizing (or is that disorganizing) principle of post-9/11 America.

I Don't Understand the Economy

The creator of 'Dilbert', Scott Adams, wonders about on the current state of the US economy:

As a general rule, wherever you find a large group of people who are baffled by complexity, you will find a smaller group of people making a good living screwing them. It's true with all complex things: insurance, cell phone plans, legal stuff, technology, you name it. But it has never been truer than with the mortgage backed securities that are currently crapping down the throat of the global economic system.

As I understand it, a bunch of geniuses used something called math to make it seem like a good idea to loan money to people who are unlikely to pay it back. But here's the part I don't understand: Who invested in these risky securities?

According to a recent piece on 60 Minutes, there might be $50 trillion invested in these exotic financial vehicles. So why didn't anyone ever offer those investments to me? And why don't I know anyone else who invested in them? And why haven't I seen a crying widow on TV who wishes she hadn't invested her life savings in them?

As I understand it, banks and mortgage brokers offloaded their crappy mortgages to these investors, thus transferring the risk from the system that makes loans to a bunch of confused people who apparently ran out of regular things to invest in. So why is the banking system in trouble if they moved their worst loans to other people? And who are these other people?

Do you personally know anyone who invested in these exotic securities? And if not, how did we watch so much coverage of the economic crisis without learning such a basic fact?

Gains from Trade

I don't normally post anything about the economy (a topic I have little interest in), but this has proved to be a most fascinating read. James Fallows on who benefits most from China's manufacturing boom:

Has the move to China been good for American companies? The answer would seemingly have to be yes—otherwise, why would they go there? It is conceivable that bad partnerships, stolen intellectual property, dilution of brand name, logistics nightmares, or other difficulties have given many companies a sour view of outsourcing; I have heard examples in each category from foreign executives. But the more interesting theme I have heard from them, which explains why they are willing to surmount the inconveniences, involves something called the “smiley curve.”

The curve is named for the U-shaped arc of the 1970s-era smiley-face icon, and it runs from the beginning to the end of a product’s creation and sale. At the beginning is the company’s brand: HP, Siemens, Dell, Nokia, Apple. Next comes the idea for the product: an iPod, a new computer, a camera phone. After that is high-level industrial design—the conceiving of how the product will look and work. Then the detailed engineering design for how it will be made. Then the necessary components. Then the actual manufacture and assembly. Then the shipping and distribution. Then retail sales. And, finally, service contracts and sales of parts and accessories.

The significance is that China’s activity is in the middle stages—manufacturing, plus some component supply and engineering design—but America’s is at the two ends, and those are where the money is. The smiley curve, which shows the profitability or value added at each stage, starts high for branding and product concept, swoops down for manufacturing, and rises again in the retail and servicing stages. The simple way to put this—that the real money is in brand name, plus retail—may sound obvious, but its implications are illuminating.

At each factory I visited, I asked managers to estimate how much of a product’s sales price ended up in whose hands. The strength of the brand name was the most important variable. If a product is unusual enough and its brand name attractive enough, it could command so high a price that the retailer might keep half the revenue. (Think: an Armani suit, a Starbucks latte.) Most electronics products are now subject to much fiercer price competition, since it is so easy for shoppers to find bargains on the Internet. Therefore the generic Windows-style laptops I saw in one modern factory might go for around $1,000 in the United States, with the retailer keeping less than $50.

Where does the rest of the money go? The manager of that factory guessed that Intel and Microsoft together would collect about $300, and that the makers of the display screen, the disk-storage devices, and other electronic components [in Malaysia, Korea, and elsewhere outside China] might get $150 or so apiece. The keyboard makers would get $15 or $20; FedEx or UPS would get slightly less. When all other costs were accounted for, perhaps $30 to $40—3 to 4 percent of the total—would stay in China with the factory owners and the young women on the assembly lines.

Other examples: A carrying case for an audio device from a big-name Western company retails for just under $30. That company pays the Chinese supplier $6 per case, of which about half goes for materials. The other $24 stays with the big-name company. An earphone-like accessory for another U.S.-brand audio device also retails for about $30. Of this, I was told, $3 stayed in China. I saw a set of high-end Ethernet connecting cables. The cables are sold, with identical specifications but in three different kinds of packaging, in three forms in the United States: as a specialty product, as a house brand in a nationwide office-supply store, and with no brand over eBay. The retail prices are $29.95 for the specialty brand, $19.95 in the chain store, and $15.95 on eBay. The Shenzhen-area company that makes them gets $2 apiece.

In case the point isn’t clear: Chinese workers making $1,000 a year have been helping American designers, marketers, engineers, and retailers making $1,000 a week (and up) earn even more. Plus, they have helped shareholders of U.S.-based companies.

- China Makes, The World Takes, The Atlantic, July/August 2007

There's just one problem with this. The low-income class in America who aren't benefiting from this form the largest voter section, and I doubt they enjoy the fact that their richer peers are making more while they get nothing out this.

Just one of many reasons why democracy is something the majority can easily abuse.