Where is US inflation?

My position is that Wal-Mart holds the clue. From a December 2003 piece in Fast Company:

Wal-Mart wields its power [as buyer] for just one purpose: to bring the lowest possible prices to its customers... Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

Now overseas firms are also facing the brunt of this pricing pressure. Since the USA still functions in many ways as buyer of last resort, this same principle applies to the US economy as a whole. In any area where suppliers cannot find an alternative buying in a timely manner, they will compromise in order to sell to the USA. Though one might expect the decline of the US dollar to have prompted more inflation, the impact of Wal-Mart and cash-strapped US companies has been synergistic in demanding lower pricing as the US dollar has fallen. In an efficient just-in-time supply chain, inventory left to build up is an additional cost. Foreign suppliers with nowhere else to go are faced with the disruptive option of stockpiling and producing less while still having to pay out accounts receivables, or accepting a reduced price and sustaining cash flow. Inflation is thus kept at bay in areas where suppliers cannot find alternative buyers.

The resulting profit squeeze then puts a premium on efficiency and productivity in order to remain profitable. The efficiency of Wal-Mart is even welcomed in China for such a transformational effect, as it puts pressure to reduce waste due to corruption. From a December 20, 2004 article in Newsweek:

Wal-Mart buys so many Chinese-made products that if it were a country, it would be China's sixth largest export market (after Germany) and its eighth largest trade partner. The company's iron-fisted price and performance demands on suppliers are changing the way China does business... China, more than most nations, welcomes the disruptive impact of Wal-Mart's business model... Chinese suppliers say Wal-Mart is already having a transformative effect on everything from supply chains, to distribution networks, to customer service. ...the spread of Wal-Mart stores is raising efficiency standards for a growing number of Chinese suppliers... Government officials see Wal-Mart as a good way to accelerate China's transition from state planning to free markets and to "bring the country's economy into the 21st century," says Li Fei, a retail-marketing professor at Tsinghua University.

Wal-Mart and other US buyers are thus acting in concert to check inflation. Of course, this approach has not limited the price of oil or gold where there are viable alternative buyers; in those particular cases, it has been the euro which has been the price limiter rather than the US dollar.

Chasing productivity

At a UCLA forum, two economists advanced different reasons why Europe's GDP hasn't caught up with that of the USA, specifically those of the EU-15.

Gianni Toniolo put forth that "Europeans place a higher value on leisure" than Americans. This translates into fewer hours per week spent at work, among other things. Barry Eichengreen said that "Europe's institutions need to change". Various institutions hamper competitiveness and limit the adaptation to the demands of global competition.

Already, we're seeing movement on both fronts. Last week, a vote by French legislators indicated that they were serious about eliminating the 35-hour work week; trade unions and popular sentiment may offer resistance. Germany is injecting funds into their education system to create elite universities to attract world talent and stem a brain drain; it appears such universities would be able to charge tuition fees, set pay rates, and select which students they accept.

The EU has little choice if it is to reduce dependence upon the USA for economic growth as well as compete with Asian economies. The ongoing decline of the US dollar relative to the Euro, with its attendant impact on the China yuan, is surely driving that point home.

How to make foreign investors uneasy

The BBC reports that Russia is restricting natural resource tenders in 2005 to firms with at least 51% Russian ownership. Combined with action over Yukos, I'd say this is part of an overall attempt to flex as much international influence via control of its national resources while trying to avoid scaring away foreign investment entirely.

Still in opposition?

It's also worth hearing what Gen. Anthony Zinni said back in Clinton's time. From an August 2000 UPI piece, which perhaps explained why Clinton was hesitant to arm the Iraqi opposition faster:

In testimony before both houses of Congress, he said the administration had identified about 90 opposition groups but that "they have little, if any, viability." ...
"Even if we had Saddam gone, we could end up with 15, 20, or 90 groups competing for power," the general said.

Now compare that estimate with the figure from Toby Dodge from a recently CSM piece:

... he warns that the insurgency itself is made up of 60 different, mostly autonomous, groups, and that Mr. Zarqawi - with just 200 loyalists, who have claimed some of the worst atrocities in Iraq in the past year - is a "fringe player."

I wonder how many of these insurgent groups are related to the opposition groups identified earlier.