Alternative Ways to Stimulate the Economy?

[Radiki]

Although I agree that productivity will help. If those products are going to be made in China, then the money is going to them. The money for the fuel used to transport them in going to Canada and the Middle East. Hell, I can understand not making work just to have people working, therefore increasing the cost of a product when it can be made by machines for less. But those machines are being made in other countries. Productivity would be very helpful if the balance of trade was equal, but it isn 't.

If "John" can buy two of product B for what one of product A costs, then great he got a better bargain. But if all of that money is going to another land then it isn't helping this country unless, that country is buying something from us that we can make cheaper. Instead what they are doing is buying raw material causing our supply costs to rise higher and higher. Making it harder to compete then it already is.

I sell a product that used to be made in the US. It was only about .5% higher cost than the equivelient made in China, and I had no problem paying that. But that was years ago. Now it is about 30% higher and they are out of business. The Chinese product sells through an American distributor which as far as I can tell, employs aprox 15 people (american citizens??? not sure, but they are in MD.) Anyways, money for the product goes to China, moneyfor the transportation goes to chinese shipping companies, albiet once they hit the US warehouse it goes UPS, but I fail to see how their productivity is helping OUR economy. Granted I have not studied a great deal in the realm of economy and so I am nowhere near an expert. But these are my observations.

 

[jtaylor]

I already posted that I think the Federal gas tax should be removed. We obviously can cut some of the many programs that don't work and waste billions.
One thing that's not brought up is reopening and starting up more gold mines. Less than 5% of the gold has been mined! I think we stopped the effort when we thought it was ok to just print money instead of backing it with gold.
Even here in NH one can average an ounce a week panning, 1/2 ounce a day dredging. I know we'll see a lot more people out there doing this!

 

[Radiki]

Even here in NH one can average an ounce a week panning, 1/2 ounce a day dredging. I know we'll see a lot more people out there doing this!

Well, now that I know that, I might just take me a trip

 

[jtaylor]

Yeah, many don't know it, but NH has had some gold rushes. Indian and Perry streams, Ammonoosuc and Baker River. I know a guy that got a 4oz nugget in Baker and a guy who found a 1 1/4 oz nugget in the Ammonoosuc.
The problem for me is that the best areas to prospect are now in a stretch owned by some out of state group, against panning! So, access to parts of the river isn't available!
If gold hits $1500, which it should, there's alot of money to be made in the rivers. The problem is that gold really stays the same, the dollar changes! Our dollar is becoming worthless!

 

[theinvisibleheart]

tracking profit

if what used to cost $100 cost $70 because it's made in China and I buy the Chinese product, yes, the profit for $70 profit goes toward Chinese manufacturers. However, following people also benefit:

1. US importers and distributors (the whole supply chain end in US)
2. US retailers (remember: more people buy when it sells for less)
3. whole support end such as truck drivers (transportation people), accounting, supply management personnel, etc.
4. US consumers now get to keep $30 that they didn't have before

You have to realize that the Chinese manufacturers, US importers, US distributors, and US retailers all have to make a profit on an item that is 30% less! Yes, the overall profit margin on the $70 item is most probably substantially less than the profit on the item when it was sold for $100.

The real losers are those who was originally making the $100 item in US and was not able to control the cost. However, in US, losers are never losers permanently. They do have a chance to reorganize, either via merger, acquisition, or bankruptcy.

Winners: everybody else but most of all, the consumers.

Competitive advantage in making/distributing/selling anything is never permanent.

Furthermore, that extra $30 in the consumer pocket will either be spent or invested or put into the bank one way or other. It's an opportunity for another business to come up with a product that nudges that fulfills consumers' wants. Remember, human needs are fairly limited, but our wants are UNLIMITED.

Remember record shop? Guess what, because of iPod, other mp3 player, and portable devices such as laptop that can directly download music cheaply via the Web, they are disappearing.

Should we keep on supporting blacksmith as well as slide rule manufacturers? Also, cottage industry craftsmen when need for their services can be substantially reduced/removed due to widespread sue of CNC/MIM technology?

Closed economy model that is advocated by the "Buy US ONLY" crowd only fosters mediocrity that results in lack of innovation and continuous improvement in efficiency that is the hallmark of free market in ultra competitive arena.

If I design and manufacture a $150 cell phone that cost $120 to manufacture in US vs. design a phone in US but manufacture in China for $50...I get to keep $100 profit on a $150 sale item vs. $30 on a $150 sale item.

Real life story: local business man designs a product and have it built in China (his own patented design) for $800. He sells the product in US for $4,000. Now, if he designed and built it US, the cost will exceed for $4,000 and he will hardly be able to sell any simply because it cost too much for what people are willing to pay.

Supporting uncompetitive business solely because of its geographical proximity is silly to say the least.

No business last forever w/o change.

At one point, "Made in Japan" didn't have the connotation that "Made in Switzerland" have like Toyota cars have today for reliability. At one point, "Made in Japan" meant cheap junk. They changed and today, "Made in Japan" usu. imply high quality.

 

[Fremmer]

Point made, Invisible. Now, to apply it to the question at hand....how to stimulate the US economy. Possibly lower tarrifs? Excise taxes? Well, you know what I mean, lower those costs added to the price of imported and/or exported goods?

 

[kjm]

Now the last few posts on this thread are what TFL used to be like. Thinking people making good points! I pine for the good old days or at least more new days ahead with this level of debate.

 

[Radiki]

I see what you are say but a few things I disagree with are:

Remember record shop? Guess what, because of iPod, other mp3 player, and portable devices such as laptop that can directly download music cheaply via the Web, they are disappearing.

Very true. But that is because they were WAY overpriced, not a little price difference. If you could get that product for the cost of manufacturing plus say a 50 point margin after overhead costs it would be somewhere around $4-$5 dollars not 15-20. That is an example of greed by artists, manager and labels that get paid tens of millions of dollars before profits from the concerts and shows. But that is a byproduct of celebrity status, not true cost, and a topic for another conversation

However, following people also benefit:

1. US importers and distributors (the whole supply chain end in US)
2. US retailers (remember: more people buy when it sells for less)
3. whole support end such as truck drivers (transportation people), accounting, supply management personnel, etc.
4. US consumers now get to keep $30 that they didn't have before

Yes, but those things are still here with products made in the US. But in addition to that, the US has the manufacturing, R&D and executive jobs as well. Which is why I said I agree with the productivity arguement, because the US needs to become more competative with the market. The point I was trying to make was that since, as you said "the US only" crowd kept pricing high for too long to adjust to the market, now the other countries that were beating our pricing are also causing the price of raw materials to go up, making it harder to "compete back". I do agree that we need a fundemental change in how the US interacts with the world market on this regard.

At one point, "Made in Japan" didn't have the connotation that "Made in Switzerland" have like Toyota cars have today for reliability. At one point, "Made in Japan" meant cheap junk. They changed and today, "Made in Japan" usu. imply high quality.

I agree totally, if we are talking only about automobiles. But what about those less expensive toys that have lead in them. What about that food that was contaminated. These are the byproducts of alot of the more economical product out there. If the product we recieved for less money was of the same quality across the board as the product made in the US, then yes, its a bargain. But becaue we live in a world that with a "hey, I saved a dollar" attitude, we lower our standards. Unfortunantly, those standards are being lowered across the board. What will be left. MP3's are less expensive but result in lower sound quality. I still have well used action figures made in the US from when I was a kid (25 years ago) that are in good shape, where as my nephew's imported toys break all the time (or could be harmful), I drive a Japanese car as well an American truck. There is a difference in quality, but the truck serves a purpose that Japanese 4x4's can't match. But since that is the industry I deal in, I see people all the time buying because of a name or a deal not because of capability. Then they come to me looking for answer. Not to mention that equivolently equipped japanese vehicles are more expensive than US made one's and therefore should be of higher quality.

No business last forever w/o change.

I also agree with this, I also agree with letting the market correct itself. That doesn't mean to me though, that the government can't help.

I appreciate the responses, but unfortunantly I have to go back to work (my productivity seems to be an inverse proportion on how interesting this board its). I will try to rejoin this later. Thanks for the discussion guy,

 

[toybox99615]

The Chinese fallacy

The Chinese fallacy is what I call most of the issues surrounding the goods manufactured in China and brought to the US. While the goods made in China are typically selling for less than American good the profit margin tend to be greater for the retailer. The retailer is putting a greater profit margin in thier profit and investing the money out of the country.

The little experience I have with Chines goods and retailers over the last ten year more or less says profit is the game. And selling goods from China at prices lower than American goods where the Chines goods provide a higher profit margin is the game of the day. A $ 100 retail item had a $ 40 mark up before being produced in China/Mexico/India/Ireland/Malaysia/Peru. Now the same item sells for $ 90 with the retailer making $ 50 mark up. Thus is the story inside your computer where few if any parts are US made and the rest come from all over the world. Any doubts! Open a desktop computer and read the labels.

 

[gc70]

An interesting perspective on investing in alternative energy sources:

What's next? More asset-backed bubbles. The dot-com '90s created $7 trillion in market value. The housing boom created $12 trillion in "fake wealth." Janszen predicts the next great bubble will be a $20 trillion "alternative energy" bubble. In fact, Wall Street's already hustling biofuels, solar, wind, nuclear, geothermal and hydroelectric as the new alternative energies destined to replace oil, gas and coal in this next new economy.

 

[Radiki]

The little experience I have with Chines goods and retailers over the last ten year more or less says profit is the game. And selling goods from China at prices lower than American goods where the Chines goods provide a higher profit margin is the game of the day. A $ 100 retail item had a $ 40 mark up before being produced in China/Mexico/India/Ireland/Malaysia/Peru. Now the same item sells for $ 90 with the retailer making $ 50 mark up. Thus is the story inside your computer where few if any parts are US made and the rest come from all over the world. Any doubts! Open a desktop computer and read the labels.

I am not denying that. It is true, but the problem is that profit doesn't mean the guy on the sales floor gets a raise because of the profits, the higher ups get larger bonuses and stock options. So although the corporation might be more profitable, fewer people are profiting from it. And in the two fields that I am very familiar with... aftermarket automotive gear and audio/video equipment, those regular sales guys and store managers are typically making less per unit for many reasons ( I can list in another post if you want). But Basically, in the year 2000, at my old job, I could sell $10,000 of product and I would make about a $1000. By the time I left the company that ratio was about $10,000/$800. My best friend still works for them and he says it's about $10,000/$650 now.

Like it has been said, a less expensive product brings more people in the door so overall sale might be more, but there is only so much paperwork, phone time, floor time and proposal time that one person can spend. So a lot more work has to be done to earn the same amount of money.

I do not know about other fields, but one of the largest contributors to that trend is actually the internet. People are going online to purchase product. In the aftermarket automotive field, a lot of online vendors, never actually see the product. They take orders and dropship the merchandise directly from the manufacturer. Their overhead is a desk and a computer. Therefore, they sell at much lower prices than retail stores, forcing us to lower margins to try and compete. We (retail stores) can still charge more in exchange for better customer service and face to face conversation, which luckily a lot of people still value, but I fear that there will be a breaking point. But that is what I am saying, How does that guy at the desk making the profit off of another country productivity, help our economy?

Whether or not we are in a recession or coming to one, the paranoia alone is affecting my store. I do my best to adapt to the changing market, but there is only so much that can be done, when the store itself is under financial pressure. I am not at the point where I have to close the doors tomorrow, but if the market doesn't improve within 10-12 months, I will have to find a new career. Higher profit margins for big box stores and corporations help make the 1% richer, but it doesn't help the guys at the bottom. Like I said, I can speak for all industries, but am I totally off base here?

 

[theinvisibleheart]

Fremmer, re: post #46

Point made, Invisible. Now, to apply it to the question at hand....how to stimulate the US economy. Possibly lower tarrifs? Excise taxes? Well, you know what I mean, lower those costs added to the price of imported and/or exported goods?

1. you don't want to control where the jobs are going...that would be like trying to control the economy. Because of comparative advantage of each person, as well as nations, odds are that each country will develop their own special economic niche.

Don't try to predict the future. Focus on factors of GDP growth and labor mobility.


2. as for China, there is a lot of misgivings in this thread. China makes extremely high quality goods such as very high end tabletpc (Motion Computing tabletpcs are made in China and I've read interview of Bill Gates where he was using MC tabletpcs---note: they are very expensive) as well as satellite components used in outer space. They also make lower quality goods.

BTW, this is true for Japanese optics as well. You can specify the quality by specifying how much you are willing to pay. I've seen very low quality and very high quality Japanese optics.

As for making money via sales vs. manufacturing, look at Wal-Mart(WMT). WMT benefited people in lower income group enormously by allowing them to buy goods that they need at much lower prices. This effectively raised their disposable income so that they have much more money for other things that they value or need.

WMT is a common example of how to be extremely profitable on lower profit margin per item at high volume via sales/distribution model.


3. two things which affect most people more than anything else are education and family structure (out-of-wedlock, legitimate/illegitimate, step-family vs. traditional family). Data shows that people from biological parents who are married once and not divorced tend to be more productive and stable on average, through their life.

Vouchers for education is most probably the best solution for improving return on education. Education is a large part of human capital. I've met fair number of engineering program drop-outs due to the fact that their high school math education was deficient.


4. taxes:

i. lower or eliminate corporate taxes...US c-tax is higher than average when compared to other developed world

ii. lower or eliminate capital gains tax, both long and short term.

iii. switch to expenditure (sales) based tax...this will spur more investment and savings since right now, they are taxed

iv. FairTax

v. Flat Tax but FairTax > Flat Tax since it's expenditure based

--J

 

[theinvisibleheart]

Radiki

in an age of flatter world due to globalization and Web/cell phone/inexpensive world wide delivery system, it's very to stay competitive when you don't offer unique value to consumers.

If you just buy from one location and sell at another, there is very little added value that is produced.

Not only that, other business/individuals will eventually duplicate the business model/advantage you have and take away your profits away.

You don't want to focus on profit in the sense, feeling that other people/business are making too much money. Excessive profits result in more entrants in that specific market niche. This result in greater competition and greater competition result in lower prices. You can easily see this in gun market. Kimber entered the picture initially with CNC 1911A1 with bunch of custom features. Today, Springfield, Colt, Para-Ordnance, Taurus, etc. have entered the same market niche. If you take the added functionality and inflation (remember $600 ten years ago is not $600 today), consumers are getting much more bang for the buck. Sure some people lost jobs but more jobs were also gained via increased sales/support/manufacturing/import of cheaper pseudo-custom 1911A1.

I see more and more small businesses hitting the ground today than in 1980s due to the fact it's easier to start one and advertising via the web/opening up your website is relatively inexpensive.

BTW, 3 factors which define most high net worth individual in US are: married once, small business owner(SBO)/entrepreneurs, and spend less than they earn, putting the difference into appreciating asset (stock, bonds, lands, their own business, etc.).

Good luck.

--J

 

[Shane Tuttle]

My utter hatred for buying items made in China go well beyond the reasons of economics. My explainations would veer this thread OT, so I will just say that there's NO incentive to deal with China. Your explainations may look good on paper, but disastrous in the big picture...