The Curse Of Woe

I wanted to clarify my understanding of why a Chinese manufactured product is cheaper than American made, but I couldn't make sense of it. Seems to me that the evisceration of U.S. manufacturing is more of an excuse (a choice) rather than anything else.

Say you have a $500 item produced in China where the labor to build it represents 5% of the total cost. Really, most of the expense in such a big item is not in labor at all...it's in the supply chains, the parts, the pieces. If they get paid $500 a month to build stuff while their American counterparts would have been paid $2500 a month, the 5% cost of labor would be $25 in China and 5x that in the U.S., or $125. The wage differential is a hundred bucks.

But the story doesn't end here. Think of these factors:

Your 401(k) is doing as well as it has because corporate profits surged over the past twenty years by sending jobs overseas. Fiorina's Hewlett Packard saw immense gains. So, let's take twenty bucks off that wage differential for not having moved offshore.

A $500 item made in China is likely a big, hulking thing. Not likely a small, intricate electronic device. So take twenty bucks off that wage differential for not having to ship it 8,000 miles on a container ship.

China uses predominantly coal fired electricity to power their manufacturing sectors. There is a social cost that will arise from this use, along with the expectation that they will eventually spend trillions to develop the same levels of OSHA-like regulations, HAZMAT controls, and other regulations worthy of an advanced manufacturing sector. Take off another 20 bucks for the current and future costs of pollution and worker safety.

Lastly, they are very likely vastly less efficient in that energy use than the U.S. Take off another $5 bucks.

Now the real difference is $35...on a $500 item that's less than 10%. Really, if we were to consider the American retail markup of these things (to account for the cost of the escalators and air conditioning at the Gallerias where we drive to purchase these things) we could narrow that difference even further. There's a lot involved in the selling of shit to Americans; a lot of retail fat that can be lopped off.

This is an amateurish estimate of things, I fully admit. But really, would you expect that American labor lower wages to Chinese levels, or work in cost-effective stripped conditions like Mexican factories?

Well, the former is where we are headed. We won't get lower wages in American manufacturing, we will instead off those manufacturing jobs and replace them with lower paying strip retail associates and other service jobs. We'll do so, because in my America the notion of manufacturing work is not a part of our identity anymore.

Not when there is better money to be made in the FIRE (finance, insurance and real-estate) sectors of our economy, where the idea that CEOs are worth millions instead of hundreds of thousands, where anyone can flip real-estate and never get their fingernails dirty. Our culture has shifted, unlike in other advanced manufacturing nations like Japan or Germany where factory labor is an important part of their national identity.

Our culture has shifted towards the FIRE. These jobs don't produce a fucking thing yet somehow out comes a pile of money -- JP Morgan builds a collateralized debt obligation, AIG insures it, the government develops policy to facilitate it, fund managers hedge it, yet nothing has increased in value. All those mortgage holders in that CDO didn't get any improvement on their housal units, didn't get shit for all this financial speculation except for a much deeper recession than what would have otherwise occurred.

I forecast the continuation of woe. Not just because I want it to happen (I do), but because I don't think this nation can move away from its culture of consumption to that of production...something that would reverse this decades long slide of shuttered rust belt jobs. Instead I see a culture, as I've mentioned dozens of times on my blog, bent on entitlement -- on getting something for nothing. Flipping a housal unit was the epitome of this culture and once these values are established it's very likely impossible to reverse.

I paint a bleak future for this nation, but truthfully I want to see it happen so that we may emerge from the other side a better people that what we've become. I want to see a nation that respects its bicyclists, that builds beautiful places to live, that values their crafts, that respects their environments.