Sunday, September 30, 2012

Terrible Economics in an Obama Advertisement

Fortunately, I don't have TV at home, or I would be subjected to this more frequently (I saw this at the mechanic's shop), but the above advertisement has absolutely terrible economics.

(No, I do not care that Romney ads also have terrible economics.  If you want to link me to a Romney ad with terrible economics, I'll agree heartily and lament the state of the American electorate.  But there's no reason to do so.  I don't want to see it, and it won't change the fact that the above ad is terrible.)

The problem with this ad is that there are far, far, far more American tire consumers than American tire producers.  If a Chinese company can produce a tire for $1 less than an American company can, that Chinese company could save Americans roughly $300 million a year (the U.S. goes through roughly one tire per person, per year).  According to the video, this threatened "a thousand American jobs" (a number which is, pardon the pun, more likely inflated than deflated).  Unless these tire manufacturing jobs were paying $300,000 a year, which seems unlikely, Americans as a whole would have saved far more in reduced tire costs than we lost in wages.  We would be better off to have lost the jobs and bought the tires.

The reason we keep making this mistake is that the lost jobs are immediate, tangible, and have an impact on nameable individuals and communities.  Saving $4 on a set of tires, however, escapes notice.

(Before you bring up monopoly pricing and all the dangers that could come about by Chinese influence on the tire market, tires are a good which is relatively easy to manufacture.  If China started monopoly pricing, someone else would start up a plant in short order.)

"Saving Jobs" also deals in a counter-factual.  You never know whether, if fact, the American jobs would have been lost.  Only 200 may have been lost, or a reduction in wages, or the American manufacturer may have been able to find some efficiency gains, or, or, or.  All we really know is that the Chinese were offering us a deal on tires, and we refused to take it.


Blogger Yoel Natan said...

A few years ago I read in the news that Good Year told workers in Nebraska that they'd either have to agree to earn only $9 per hour, the same as Mexican workers, or they'd move the plant to Mexico. Of course, $9 goes a lot farther in Mexico than in the US. So while Obaam is trying to save union factory jobs, they might not be paying as much as many think union jobs pay.

The US has come to the point where it can't indulge the purists of free trade and capitalism, and has to start worrying about keeping it people employed in gainful activity. The US could never really afford such purism, but when it couldn't pay its bills, it just added on the national debt. That's an unsustainable practice now.

When men especially aren't working, the govt collects less revenue, and thus the tax rates on corporations in the rich go up. In France the tax on millionaires is 75%, in the UK 45%, and on Jan 1 it will go up in the US, too. More will probably be levied in the future here.

Politicians know that the US actually has to continue manufacturing something if it doesn't want to go broke, and no, those unemployed workers won't just get different jobs in new plants in what Republicans like to refer to as "creative destruction." Moreover, there are plenty of people who are only fit for working in factories, or farms, so it's not as though many factory workers are going to switch careers and get a clerical job.
Obama's tire tariff:


"All future cuts in personal taxation must pass one clear test: Do they help people on low and middle incomes get by and get on? It's as simple as that," he said.

Labor force participation among men is now at the lowest level on record – going back to 1948. This includes men with a college education.
Why seeking trade barriers just got a lot easier - Washington Times

The United Steel Workers, which brought the case to the ITC, argued that the Chinese were dumping tires into the U.S. market and subsidizing their tire manufacturers, but was not required to prove either charge. Penalties for dumping and subsidization require a longer process to establish the practice, though the tariffs imposed usually stay in place for longer than 421 penalties, which in the tires case were imposed for three years.

2:39 AM  
Blogger Noumenon said...

One of the nice things about not going to Gen Con this year was that I didn't get my annual dose of driveby TV news that makes me go "People are actually being influenced by this stuff?!"

7:32 AM  
Blogger Octavo Dia said...

All the unsustainable features of the U.S./China trade relationship are on the Chinese side. We can continue to absorb trillions of dollars of free labor forever.

At any rate, the way to solve the problem is not to restrict trade, but let it continue, as this is a self-solving problem. China's wages have already risen enough that China is out-sourcing things to Bangladesh and Vietnam, and Mexican exports are becoming competitive with Chinese exports.

The trade relationship with China is a one-off historical event. Once China has fully entered the global economy, we won't need to "worry" about them, and everyone will be richer.

6:31 AM  

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