There comes a time when you have to put your money where your mouth is.
A few days ago, my wife discovered a crack in one of our toilets. The crack had started at the top of the bowl, below the lip, and had propagated downward, ending at the water line. If it went any further, we’d have a leakage problem. So it was time to buy a new toilet. Oh, joy.
So we were off to Lowe’s. They had a nice display of a big selection of toilets. We wanted one that was elongated (not round), with a good flush rating. Several models seemed suitable, so we narrowed down our selection to an American Standard model, based on price.
But just before closing the deal, I asked the salesperson where these toilets were made, fully expecting to hear that none of them were made in the U.S. She explained that the American Standard toilet we had selected was made in Mexico, but there was another, the Kohler model that, to my surprise, was made in the USA, in Wisconsin.
So we stopped and reconsidered. The American Standard was $225. The Kohler was $248. Which was better? Who knows? A toilet isn’t one of those things you can take for a test drive, at least not while the salesperson or other customers are looking.
For us, the decision was easy. The American Standard went back on the shelf and we took the Kohler home with us. It was simple to install, looks great and flushes as advertised.
As a general rule of thumb, about two thirds of the cost to manufacture a product is labor. My $248 Kohler toilet probably cost about $150 to manufacture. So $100 of labor went into that toilet. For a premium of $23, I was able to put $100 back into an American worker’s pocket. Had I bought the American Standard, I’d have spent $225 without putting back a penny.
It’s kind of like the “paying it forward” concept that has become so popular among philanthropists. If I invest in helping someone out, it’ll eventually come back around at a time when I might need the help myself. If we all bought American on those occasions when we have the choice, it’d make a huge difference in our economy, fueling a big demand for labor to fill high-paying manufacturing jobs. What’s an extra $23 for a toilet if a high demand for labor causes me to get a $100/month raise?
So buy American! If we’ve learned anything over the past year, it’s that low prices for foreign-made products don’t mean much if you’ve lost your job and have no income at all. Instead of benefitting from low prices, we can now see that the loss of jobs has left our economy in the crapper!
"Five Short Blasts" Forum 
If the creation of an intense manufacturing base and its resulting exports has proven and continues to prove to be a “Game-Changing” moment for the economies of third world countries like China, Thailand, Vietnam and Indonesia; we, the United States also need one of these game-changing moments.
Why has “MANUFACTURING” become a “dirty word” in the U.S.?
We need to revisit some of those historic play books that allowed us to become the economic powerhouse that we ONCE WERE………………
Good question, Mark. Why is it that other countries see the value of manufacturing while our leaders dismiss it, in spite of the fact that it was our manufacturing sector that turned us into a world super-power and enabled us to prevail in World War II? It just defies belief. My theory is that our leaders and economists were willing to trade it away, believing that we could build a new economy on more sophisticated things and believing that our corporations would make a killing in the vast, untapped markets of places like China. Neither has happened. New technology moves off-shore almost as quickly as it’s invented and the profits to be made in foreign markets by our companies have never been sufficient to offset the lost market share in the U.S. But, even now, when challenged to show evidence of all the purported benefits of free trade, they fall back on Enron-esque responses like claiming that it’s just too complicated for average people to understand.
I’ll toss in my 2 cents worth. We’ve given the environmentalists so much voice that they are able to label virtually all manufacturing as undesirable. The conficatory corporate tax rates have driven many businesses away. The ‘free trade’ boosters have taken the position that ‘if only we had the will, we could compete with any one’. Economists all over the planet take the position that more people equals a bigger market. They, the economists, completely ignore the increasing efficiency of the workforce which seems to deliberately dismiss the growing disparity between a growing labor supply and a reducing demand. And now, to top it all, we have the looming specter of ‘cap and trade’ carbon suppression legislation to drive the final stake in the heart.
Being a bit of an environmentalist myself, I’d much rather see manufacturing take place here in the U.S. where regulations minimize the effect on the environment, instead of in places like China where they pollute with reckless abandon.
Your comment about economists is dead on. They never give a thought to what happens when consumption can’t keep pace with rising productivity. They dismiss it by asserting that workers will always find another job in some new field making some new product that we can’t even imagine.
And you’re right that “cap and trade” could put the U.S. at a serious disadvantage if not structured and managed properly. First, it needs to be a program designed to reduce our dependence on foreign oil, not a program for collecting more revenue. It needs to be made revenue-neutral by offsetting it with income tax reductions. Secondly, the products of any nation that doesn’t implement similar program need to be subjected to tariffs to prevent them from having an unfair advantage. And the oil consumed in transporting those products needs to be taxed as well. If all of that were done, I believe it would actually enhance the competitive position of American manufacturers. But we can all be forgiven for doubting that the program would be run properly. It’d probably be run about the same as our trade policy, which means common sense would never be a factor.
The problem is that more people is not creating a bigger market.
With reference to my previous comment about China, Thailand, Vietnam and Indonesia. For the first (2) months into the 1st quarter of our 2009 game, these four countries are beating us $50.6 billion (their imports to us) to $10.8 billion (our exports to them) or 50-10.
Thus far, we are only beating ourselves.
If I were the coach and we were losing 50-10, I think I’d try a new quarterback and a new game plan!
I take what I believe is a practical approach to the environmental issue. I conserve where possible, recycle, maintain my home, keep my car and lawnmower in tune and encourage others to do so as well. The problem as I see it, for example, is when some well spoken impassioned individual, concerned for the increase in traffic, can effectively stall, stop or so grow the cost of a factory expansion that the prospective jobs go to Mexico by default. We see it time and again.
You are so right that the planet would be better served by manufacturing based here with controls vs. in foreign countries with no restraint. Real cost of the product could prove to be lower when the entire life time cost of the facility is calculated. Just look at our own ‘super fund’ sites and imagine the rest of the world full of ‘super super fund’ sites.
Good Morning Folks,
At the heart of nearly all of our problems lies the flawed basis of the underpinnings that drive our economy.
The U.S. is totally dependent on exponential growth of our GDP and consequently for the associated tax collection. Exponential growth in a finite world is mathematically impossible.
As Kenneth Boulding so correctly assessed, “Anyone who believes that growth can go on forever in a finite world is either a madman or an economist.”
As America reached the inability to expand domestically in a balanced manner (1970), we unwisely continued with ever expanding debt creation.
As Pete has pointed out so many times, we simply cannot compete with people who literally make 50 cents per hour and at the same time maintain our present living standards.
Therefore, the U.S. has reached an apex in our development.
Returning a portion of our manufacturing would certainly help, but is not a long term fix and in a country that is transfixed on global warming, I’m not sure that it is possible to restart industry. We are also (depending on the month) 60% to 70% dependent on foreign energy and nearly 100% dependent on foreign finance of our government deficits.
There are certainly problems that lack palatable solutions. Our current situation will require a paradigm shift of stellar proportion.
I love the Ken Boulding quote, Mike.
In your last sentence, you said:
I’d like to hear your thoughts on what that paradigm shift might entail. I’ve advocated halting population growth by dramatically cutting immigration and by providing economic incentives to lower the birth rate. And I’ve also advocated restoring a balance of trade through a system of tariffs indexed to population density. I’m wondering what additional actions you might see as necessary. What more should be done? Do you think taxes could be raised sufficiently to cover expenses as the aging population worked its way through the system? Obviously, federal spending could be cut as well. Other things, like raising the retirement age and removing the cap on wages for social security taxes could help. Is there any solution to the health care crisis that wouldn’t involve rationing? These kinds of things go beyond my theory and its ramifications, but I’d still be interested in your thoughts.
If we held a class and test today on “Globalization and Domestic Trade Policy” and you had nineteen of the world’s most influential trading countries as students, the following would be the test scores based on their most recent performance (2008 Exports as % of Imports).
Please notice that even with the inclusion of struggling countries like Spain and Portugal, the United States is still the only country that was probably only (2) Six Packs of Guiness away from receiving an “F”.
Ireland @ 150.00% = A+++
China @ 126.08% = A++
Germany @ 121.47% = A++
Canada @ 109.11% = A+
Brazil @ 108.26% = A+
Taiwan @ 106.31% = A+
Japan @ 102.67% = A+
Thailand @ 99.55% = A
Italy @ 97.02% = A
South Korea @ 96.94% = A
Australia @ 93.56% = A
Mexico @ 90.28% = A-
France @ 86.01% = B
Vietnam @ 78.23% = C+
United Kingdom @ 72.48% = C-
Spain @ 66.64% = D
Portugal @ 62.24% = D-
India @ 61.42% = D-
United States @ 60.04% = D-
** Information used in analysis obtained from W.T.O. website.
Mark,
Is it safe to assume that these are gross numbers and are not related to per-capita values?
As you have them, the differences are not so bad, i.e. Ireland at 150%, Japan at 102% and the US at 60%.
When you look at them as Pete does, that is on a per capita basis, you get a much more drastic disparity.
Clyde,
Although these are “gross” numbers, they reflect are current stature when compared to many of the energy poor and previously 3rd world countries listed. In 1995 when we were a much more prosperous country, this gross percentage was 75.85%.
Also, in 1996 our gross non energy exports as a % of our gross non energy imports was 85.01%. By 2005 our gross non energy exports as a % of our gross non energy imports had dropped to 63.42%. The U.S. manufacturing jobs lost during this time period probably had the greatest impact on our demise and our current condition.
In essence, when it comes to the promises of future prosperity associated with globalization and free trade, it appears that the common citizens and workers of the U.S. are the principal victims vs. principal benifactors.
Thanks, Mark
Mark, I like that analysis. It makes it simple to see which countries do a good job of managing trade and which don’t. A couple of observations:
1. The majority of those nations with a grade of “A” or higher are relatively wealthy nations. So, somehow, they do a decent job of managing trade policy regardless of low wages in other countries, unlike the U.S.
2. Regarding India, it’s curious that they haven’t enjoyed the same success as the Chinese. I think it’s simply a matter of China arriving at the table first and scarfing down everything there was to eat, leave nothing for the Indians. That is, China cannibalized what remained of American manufacturing that the Japanese, Germans and Koreans hadn’t already taken. There was just nothing left for India. It’s a clear indication that the world is awash in over-capacity.
I believe Bolding was redundant.
Good Morning Pete,
Nice conversation following this thread. While I don’t have space here to speak to my total thoughts on a paradigm shift, I will mention a doozy.
Let me forewarn all, this is a brain twister.
Our monetary system is fatally flawed by the single inclusion of compounding interest.
Compounding interest with its phantom growth, adds an exponential function to the necessary creation of M-3 Fed money stock. This is of course mathematically impossible to continue in a finite environment.
Over the past 39 years, M-3 has increased by more than 2400%. In 1970, the funded National Debt was around $371 Billion. Today, INTEREST ONLY on the debt exceeds $448 Billion annually. And yes, there is a link between compounding interest and our going off the gold standard in 1971.
For compounding interest to have ever been even remotely possible long term, it would have had to been coupled to the general economy. It is not. When the economy dips or stops, compounding interest continues unabated. The results of this imbalance is obvious at this juncture.
We will eventually be forced to totally abandon our current monetary system. Talk about a paradigm shift!
Interesting idea. So are you saying that the government should stop expanding the money supply or that interest rates should be set at zero, or both? I’m trying to imagine how this would work. If compound interest was banned, what motivation would there be to loan money for the purchase of a home, for example? Or what motivation would there be to put money in a bank (other than for safety, I guess).
At times, I’ve thought it wouldn’t surprise me if the U.S. decided to “sunset” the dollar and start issuing a new currency, which would start out at a 1:1 exchange rate. With time, however, the old dollar would probably devalue, essentially allowing the government to default without appearing to do so.
Mike,
What would be your alternative to compound interest?
I don’t see the difference between compound interest and simple interest IF, and here is the rub, if the simple interest does not get paid but is added to the outstanding balance. Should the unpaid interest not become subject to interest as well?
Clyde,
I know this subject is a brain twister, it took me 60 years to get it.
The alternative is “zero.” No interest at all. Our current Fed overnight lending rate is now at zero. Japan’s central bank has been at or near zero for years. Everything eventually yields to math.
The element that is, and will with absolute certainty, prevail, is the mathematically demonstratable fact that compounding interest (or even simple interest),interjects an exponential function into the equation (geometric growth)which is an impossible theorem in a finite world.
Like I said, hows that for a paradigm shift?
I’m happy to discuss this further.
Mike,
Truly, a paradigm shift, and one that I’m going to need some education to understand. Have you written a book on the subject, by chance?
If I understand your position so far, it is that no interest should be charged for a loan or earned on deposits. If that is the case, what are those folks, who depend on a modest accumulation of money from their years of hard work, frugal living and sensible spending, to do in their later years if they can not expect that accumulated money to work for them by earning interest? I have the scars to show for attempting to have it work in the equity market.
Would you differentiate between interest and dividends, especially a dividend reinvestment plan?
Is, by chance, your statement about the exponential function being interjected into the equasion, related to the condition of interest never being paid but allowed to accumulate (compounded)?
Clyde,
I’ll put something together for you that describes how a “steady state” economy could work. Believe me, I know how difficult this thing is to understand.
In his historic writing “Common Sense,” Thomas Paine wrote, “Perhaps the sentiments contained in the following pages, are not YET sufficiently fashionable to procure them general favour; a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.”
Copy me too on that, Mike. Am I correct in assuming that a stable population is a requirement in order for this to work?
Pete and Mike,
My take.
We are rapidly approaching the point of no return as far as the growing national debt is concerned. It may very well be the only way we can retire the outstanding debt represented by the treasury bills and notes held by foreigners and that to be represented by the latest round of borrowing, is to declare them worthless or redeemable at a deep discount. All my life I’ve heard the expression “the full faith and credit of the United States of America”. Our present circumstance puts that statement in as much jeopardy as at any time in history. Compound interest certainly helps to create that situation, but the flaw in the plan is the failure of the economy to continue growing as hoped.
This still does not speak to the issue of the individual depending on his savings working to help support him and his.
Pete and Clyde,
Pete, The answer, does it include a stable population, is yes.
Clyde, We must remember that compounding interest automatically creates monetary inflation by driving the M-3 Fed money stock. If not for inflation, a person could save a portion of their income interest free and retain the same buying power of those savings, year after year.
Today, interest received is less than monetary inflation gain. It always has been. You are then taxed on your meager interest income gains.
In reality, the purchasing power of savings is reduced by the difference in positive interest income, and the negatives of taxation and a greater percentage of monetary inflation than that being paid on the savings!
Another way to view this is, “How could I, after retirement, continue to see my money grow with no physical input on my part?” Where would those come from?
It will the most difficult paradigm shift that this nation has ever faced. We have lived on the false prospects of never ending inflation. As Clyde said, we are reaching the limits to National Debt accumulation.
Ya can’t win for losing, just like Vegas.
OK, Mike. I’ll keep harping on overpopulation to set the stage for zero inflation, and you keep harping on inflation. I suspect that you’re right but need to give it more thought. I think the answer to Clyde’s question about retirement is that a person would have to save enough during their lifetime of work to carry them through retirement. Pensions (if any) and social security would be part of that calculation. It would mean that people would have to save more than they do now – not a bad thing.
Mike, you didn’t answer my question about savings and loans. Without any interest, there would be no incentive to do either. How would someone afford a home? You can say that they’d have to save up and pay cash, but that’d take a very long time.
Pete,
I didn’t mean to address the entire issue is this short post. I’ll send both you and Clyde a lengthy explanation.
The money to purchase a home would come from the government (not the Fed) without the burden of interest at the Fed, the issuing bank, and the secondary lenders cashing in. (I’ll explain in detail).