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'Late Show' Economics 101
Leave it to David Letterman to make the most critical economic point this year in one of his Top Ten lists. Maybe he should be the next Secretary of Commerce. Why? Because the late show host simply gets it in a way that most policymakers and pundits on the left and right don't.
Here's Letterman from the Top Ten list on his February 17 show:
I'm going to tell you something you already know. I go every now and then to a toy store because I have a 5 year old son. And I think maybe a toy would hit the spot. You start looking around and it's a long time before you find something made in the United States. And I think that's the problem. You wonder where the hell did the money go. Well, we're not making anything here in this country. I don't know what to do about it...
You don't see this line of thinking from Davos, the Fed, editorial boards, or Washington think thanks. But Letterman is right. Our trade policy is a Madoff scheme. We buy cheap goods from China, run up debt; China buys the debt, and sells us more cheap goods. Rinse and repeat.
Well now the music has stopped, a chair has been removed, and America's over-consuming fanny has nowhere to sit.
And here's my point: unless we fundamentally shift our economic point of view from consumption to production, we'll end up back in this same spot, even if housing and credit stabilize in the near future.
We need to start making things in America again. We have tremendous human capital and innovative potential, but it's being squandered on get-rich-quick schemes that leave us all worse off. Until our society and policies value production -- actually making stuff like steel, fuel-efficient autos, high-tech widgets, and lead-free toys -- we'll be poorer and weaker as a nation. Our manufacturing base is highly productive, but it is shrinking every day. Wal-Mart established the "China Price" for its sourcing that drove thousands of factories overseas. Other policies, like our lack of trade enforcement to combat foreign subsidies and intellectual property theft, high health care costs, and a tax system that promotes offshoring, have simply heaped it on.
The White House had a budget summit this week. It will have a health care summit next week. In the near future -- before it's too late -- we urgently need a manufacturing summit to chart the course for economic renewal. Maybe invite Letterman?
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I frankly never understood the demonization of the words "Buy American" or being protectionist. Being anti-free market nowadays is a GOOD thing b/c the demons in this irrational Reaganonsense economy is the disappearance of American manufacturing industry after industry with the eventual collapse of our entire economy taht we are seeing now. I find it rather patriotic to Buy American and be PRO America and make it and buy it here. I consider ALL those that supported the mythical free trade policies and dissed all of us who opposed free trade as TRAITORS b/c that's exactly what they have done - betrayed America for profit.
Thank You ! I couldn't agree more. You can't build a consumer economy and then ship the jobs off shore. Is this really arcane knowledge ? Our policy makers didn't see the outcome ? If you don't have a job or one that pays enough, you can't be a consumer ! Duh !
At what point will we have reached the bottom? When there is no cheaper labor, no one to lay off? What then? Are we seeing it now? Some people have all the money, and none left for anyone else.
There's your Econ 101. Good Luck To You All.
Letterman is right.
But we used to produce a lot of things. Until the early 1980s, the US led the world in manufacturing. We were also the leading exporter of goods. Maybe it's coincidence, but our decline as a manufacturing nation began w/ the rise of the Reagan era.
Problem is Scott, these days that kind of attitude is considered "protectionism" where you look for the locally made product over all the rest. I totally agree with your blog here, dont get me wrong but why has this attitude been worped into a negative that makes those that want to buy American made into anti- "freetrade" & globalization" supporters for doing so? We all know global free trade is a pipe dream while extreme "nationalism" remains. Real free trade would require a borderless or atleast a workpermitless world for EVERYONE in the world.
What people need to ask themselves is why "globalization" involves people in other parts of the world getting the jobs (ok, they work for less), while we are left to mortgage our homes and our childrens' futures and then going to the loan-shark credit card companies, to do all the buying. That thread has finally spun itself out and the whole game is collapsing. Keep your eye on who is heading out the door with bags of money in their hands while the roof falls in on the rest of us.
The toys made in the US are not going to be in your big box stores. Letterman needs to visit the local crafts and arts fairs to find locally made items.
Riiiiight.
I go to Pike Market and see the craptastic $20 wooden toys made for Abraham Lincoln's son. Letterman is talking about toys made in America for *todays* American kids....
Unconventional energy conversion systems will become available that tap a never previously commercialized, renewable, abundant source of energy. These revolutionary new energy conversion devices are inherently cost-competitive. They can eventually power everything from cell phones and iPods to homes and businesses. They also make practical cars, trucks and buses that need no engines, banks of batteries, or any variety of fuel or battery recharge.
One Proof-of-Concept prototype was said to be analogous to the early work on the transistor, which eventually led to a Nobel Prize and the creation of Silicon Valley.
A generator under development is expected to provide sufficient power to demonstrate replacement of the plug needed by a plug-in hybrid car. This will be a harbinger of automobiles that need no conventional fuel or recharge. A prototype system is anticipated to replace an automobile engine within three years. That goal might be achieved much more rapidly if development involves four teams of engineers and technicians working on a 24/7 basis. The prototype will open a path to mass production of an entirely new variety of automotive power plant. Electric vehicles powered by these generators will breathe new life into auto manufacturing. Independent laboratory validation, Demonstration Devices and toys are included in the program. Who will not want an electric car that never requires fuel or recharge? Car companies will see demand in excess of production capacity. A beacon of hope can be found here for the entire world economy.
See: magneticpowerinc.com
I heard this concept from a young cab driver in Hialeah, Fl. back in the 70's....sounded good then too.
NO WE NEED A TECHNOLOGY BASED ECONOMY !!!!!
Turn Technology loose.
Stop holding it back to profit from each small release !
Let Technology serve man instead of man serving Technology !!!
We need everything: Technology & industries including steel, machinery, textiles, shoes, garments, commodities, and local stores (not just these big chain stores who only buy from off shore producers), on & on. We need diversity. God help us if we ever get into another world war. We won the last one because we had the industry & infrastructure to support the effort. There are no jobs currently for Americans to obtain because our government promoted US businesses relocating to other countries. If you are from PA you will remember the trips at our expense that former Governors took to the far east including China to promote business opportunities. The current trade agreements have sold us out. Ross Perot tried to warn us about this in the early 90's, but we didn't listen. We need to produce useful and economy sustaining products. We need to revisit the trade agreements & enforce the immigration laws so businesses that are in this country are not hiring illegals. Americans also have to get over this elitist attitude regarding jobs we think are beneath us to perform. The old work ethic was that if you worked, you can hold your head up proudly regardless of the type of work it is or what position you hold.
if protecting jobs was the "real" goal of companies then we shouldnt have mechanization in factories to begin with. they got rid of more labor than china ever did !!
This country seems to have ALWAYS had a prejudice against people who actually make a living with their hands. Somehow people who make too much money by selling things made by others are superior. They can proudly look down their noses at folks who get their hands dirty. They are so full of themselves and so self-important. If the actual hands-on producers don't rank, then what does that make consumers? Hogs at the trough? The shameless arrogance of the financial wizards on Wall St is testimony of this self-righteous, empty point of view. Is it any wonder that in every revolution, the money-changers are among the first to go?
EXCELLENT POINT:
"You don't see this line of thinking from Davos, the Fed, editorial boards, or Washington think thanks. But Letterman is right. Our trade policy is a Madoff scheme. We buy cheap goods from China, run up debt; China buys the debt, and sells us more cheap goods. Rinse and repeat."
It's kind of like the bank execs who literally RIP OFF the AMERICAN PEOPLE, under the pretense that they need a BAIL OUT for their outrageously FAILED leadership, and THEN....they get BILLIONS, while MISREPRESENTING HOW THOSE FUNDS ARE BEING USED, are NOT HELD ACCOUNTABLE, only then for us to be told that THEY and other FAILED LEADERSHIP MODELS NEED MORE BAIL OUT FUNDS OF TAX PAYERS DOLLARS. Rinse, repeat.
It's like the haunting questions around Mr. Delay who waxes on about what constitutes "hypocrisy" while he somehow escapes federal indictments for concerns regarding his role - if any, in the JACK ABRAMOFF SCANDAL, that his AIDES were indicted for their involvement in that scandal.
The criminal conduct is kept to the minimum from public view, so that more corruption can continue in private. Rinse, repeat.
As a person who worked in industry for 30 years, I can tell you this post is spot on. From the moment I was hired in the 70's, the company I worked for was spending most of it's energy trying to figure out how to get rid of me. Not me personally, but employees in general.
There's some kind of perverted business mindset in our nation, that views employees as the biggest drag on their profits. The irony is, all of us at the plant drove new cars, and most traded in those cars for a new one every couple of years.
Well guess what 90 percent of the products we made went into? That's right! The auto industry. Everytime some smart guy figured out a way to eliminate a job in our plant, he also eliminated a customer for his products.
Today that plant has only a small fraction of the employees it did when I began working there in the 70's, and they're talking layoff because of the worldwide mess the auto industry's in. It's funny how people quit buying cars when they either don't have jobs, or don't know it they'll be working next week.
ECONOMICS 101 - Chapter on Comparative Advantage.
1) Lesson Number One - Letterman is not an economist.
2) Lesson Number Two - America's economic problem is NOT that the toys are made in China. It is ACTUALLY good for Americans that they are made in China. After all they were "designed" / "created" in America, sold and distributed in America. Of the $1 of economic value created by the toy (along with the joy for the little kid) - as long as 0.80 cents stayed in America, it is a good deal. That is why most of us don't farm anymore.
3) IF CHINA did not get that 0.20 cents what would THEY DO? Who would buy the 100 million iPods or the 300 million Blackberrys and Nokias? IN ECONOMICS, The bigger the PIE, the better off EVERYONE is.
4) THE PROBLEM WITH AMERICA's economy is EDUCATION. WE CONSUME like we have Ph.D's but we dropped out of high school. If we fix education, America will continue to dominate the world economy. For the portion of the population that will still be without education, there will be enough high paying jobs. AS LONG AS we have enough people with education to "create" things, we do not actually need to "make" them. That is why an ENGINEER makes more than a BLACKSMITH.
I read the first chapter of a college level Economics 101 text a few years ago, and it turned my stomach.
There is was, laid out in the first chapter, all of the things that have led the US closer and closer to becoming a banana republic in the last few years. Offshore accounts, and shipping as many jobs to low pay countries as possible.
Avoiding environmental labor laws. Doing every possible thing you can to make sure the profit from the business ends up in the fewest hands.
Do you not find it ironic that the country that was booming the most before this big economic meltdown, was the newly industrialized CHINA? And isn't it quaint, that the only country not hurting from this economic mess is the REGULATED Canada?
You can take your US Economics 101, and flush it down the toilet of history.
Yeah, I agree. Flush it away. My dad made me take econ 101 in college so I could become a 'business major', whatever that is, but all it did was make me manic depressive for the past 20 years. I knew then that what is happening now was inevitable, it was only a matter of time. My family thought I was crazy for wanting to go to Canada then, I wish I had.
the other response to your post is a perfect example of why merely getting more people college degrees doesn't help downsize ignorance. Your post about comparative advantage is spot on. It's basically division of labor. If we can design and finance the operation, who cares where the toys are made? Here's a better way to look at it: instead of buy American, you should be thinking... buy quality products, buy from fundamentally solid companies, buy product whose manufacture supports your ethics and agendas. These are all more important characteristics than the country of origin.
1-Letterman may not be an economist, but his common sense answer seems more wiser than most economists.
2- 20 years ago China was a farming country, today they are an industrial giant, tomorrow they will design all the products they manufacture.
3- Tomorrow China will get .80 cents, we will get crumbs.
4-India & China are making more engineers everyday that don't come to the US. They also earn a lot less. It's not only manufacturing jobs that are sent overseas, it's also engineering for pennies on the dollar. The Blacksmith may actually be the job of the future.
China has built its economy on the back of slave labor, while utilizing a population trained to do as they're told, without complaint. It has never had to suffer the consequences of its actions, both internally and abroad, the way that, say, Iraq or Cuba has.
I think you're sadly mistaken if you think there will be a brain drain to a country that enslaves its people.
Good points being made here. Maybe we should be looking elsewhere for an economic model that does work. Take a look at northern Europe where, yes, things cost more and people have less "stuff." BUT, what they do buy is home-grown and homemade. People aren't ultra-rich there but their economies have low unemployment, they have great public health care systems, they have strong family ties, LONG vacations, and great education systems. Sounds like a win-win to me.
buying American is one thing, buying Something that works and lasts is another...I have found that all these "cheap" goods from china (and a lot of american goods too) last about as long as it takes to get it out of the box, if american manufacturers can make a product that will last then I would rather pay the $10 than the $1 for the chineese made product of which i would ultimately have to buy 20
72' volkwagon convertible ... valiant with the slant six ... 57 panel truck with the fuel filter that looked like a mason jar ...
There's been a lot of products built to last and worth the money.
The way they package stuff you're lucky if you get it out of the package in one piece!
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