News From the Dismal Science . . .

So Moody’s has downgraded Japan’s debt.  Zero Hedge, my favorite site for economic paranoia of all stripes and dimensions, offered a suitable comment: “What was that word Freud used when you are a weak, pathetic, corrupt, powerless, piece of anachronistic filth and instead of doing the right thing (for fear of losing your job or worse), you lash out at a weaker and irrelevant substitute? Oh yes, projection.“

And over at Forbes, Steve Denning offers a detailed and fascinating explanation of Why Amazon Can’t Make a Kindle in the USA. Here’s the short answer:

• The flex circuit connectors are made in China because the US supplier base migrated to Asia.

• The electrophoretic display is made in Taiwan because the expertise developed from producting flat-panel LCDs migrated to Asia with semiconductor manufacturing.

• The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.

• The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets.

• The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia.

• The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.

An exception is Apple [AAPL], which “has been able to preserve a first-rate design capability in the States so far by remaining deeply involved in the selection of components, in industrial design, in software development, and in the articulation of the concept of its products and how they address users’ needs.” (Hmm.  My impression was that Apple manufactures everything overseas, too.)

It’s all the result of a long, sad process:

“So the decline of manufacturing in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering expertise can’t be maintained, since it depends on daily interactions with manufacturing. Without process-engineering capabilities, companies find it increasingly difficult to conduct advanced research on next-generation process technologies. Without the ability to develop such new processes, they find they can no longer develop new products. In the long term, then, an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.”

It’s a long and depressing article, well worth reading.  And while most of it isn’t a surprise, exactly, it’s very much news to the political class in Washington, as well as our lords and masters at the Federal Reserve.

But there’s at least a little hope here and there.  From Deena Stryker, the story of the remarkable revolution in Iceland, possibly one at least as interesting as that in Libya.

“What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents. The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.”

A stiff middle finger for the IMF!  You’ve got to hope that the Icelanders are resilient enough to rebuilt their economy on their own, once the entire economic structure of the world is dedicated to impoverishing them and sending the entire population back to peonage.  (Hmm.  Would you rather live in Cuba or Haiti?  An interesting question.)