Be the Best You Can Be

My background check came back today and all the paperwork was processed.  I am now officially a driver for Uber.  Since Uber first appeared, I was amazed by its simplicity and efficiency.  In many ways, it embodies why the free market is so great: it’s challenging the political and economic power of entrenched taxi cartels, and it’s helping ordinary people improve their lives.

This is why I’m driving for Uber.  I don’t really need the extra money (although it never hurts).  This is my way of standing up to the taxi cartels and crony capitalism.  I rebel by being successful, despite the machinations of those who would stop me.

What Does The US Manufacture?

A popular meme is that the US doesn’t make anything anymore, that all the manufacturing is now done offshore.  While in some cases that is true, the actual story is different.  The US still makes stuff.  We still make a lot of stuff.  It’s just different kinds of stuff.  I’ve put together the table below showing what things we still make and what we don’t.  All data is compared to the year 1980 as that is when offshoring really became “vogue.”

Index, 2012 = 100
NAICS Industry 1980 Current % Gain/Loss from 1980
31-33 Total Manufacturing 46.5 105.7 127.1%
311 Food 64.3 104.3 62.3%
312 Beverage & Tobacco 107.4 97.7 -9.0%
313-316 Textiles & Apparel 162.4 106.4 -34.5%
321 Wood Products 89.1 110.4 24.0%
322 Paper 91.0 97.2 6.8%
323 Printing 79.9 102.6 28.3%
324 Petroleum & Coal Products 81.4 107.8 32.5%
325 Chemicals 59.7 102.7 72.0%
326 Plastics & Rubber Products 43.8 113.6 159.7%
327 Nonmetallic Mineral Products 97.2 111.3 14.5%
331 Primary Metal Manufacturing 109.3 102.7 -6.0%
332 Fabricated Metal Products 77.9 104.9 34.7%
333 Machinery Manufacturing 71.2 100.6 41.2%
334 Computer & Electronic Products 1.8 103.9 5604.1%
335 Electrical Equipment, Appliance, & Components 92.1 104.2 13.2%
336 Transportation Equipment 52.8 114.7 117.0%
337 Furniture Manufacturing 85.5 113.0 32.1%
339 Misc. Manufacturing 43.0 111.1 158.4%

Source: Federal Reserve BankUS Census Bureau

You’ll notice only 3 of the 18 major manufacturing sectors have experienced declines.  Anticipating an objection of “cherry picking” I plan to upload in the next few days a graphical representation of this same table that will show the same story: US manufacturing hasn’t disappeared.  But it has changed.

Who Gets The Credit?

One of the most acclaimed (and rightfully so) economic writings out there is Leonard Reed’s I, Pencil.  I, Pencil contains many great economic insights, not the least of which is no one person possess all the knowledge required to make even a simple pencil.

But there is another lesson here: no one person deserves the credit for the creation of the pencil.  I, Pencil discusses the countless individuals, all with specialized and local knowledge, needed to build the led pencil, that that also means that no one person is totally responsible for it, either.

I bring this up because there is a tendency among people (myself included) to try and single out one person for credit/blame for economic events: Obama saved the economy!  Bush destroyed the economy!  Etc etc.  The reality is, in a market economy, no one person really can be blamed.  There are thousands of millions of actions that take place and they all aggregate to this thing we call “the economy.”

There is very little anyone can do, regardless of how powerful and/or rich they may be, to actually control the economy.  They can create incentives or impediments, to be sure, but that’s about it.  The Federal Reserve can lower interest rates to incentivize people to borrow, but it still requires people to actually borrow.  Congress can incentivize banks to lend to low-income borrowers, but it still requires banks to agree to it (likewise, banks can offer the loans, but someone still needs to sign on the dotted line).

One must remember that no man is an island.  The glorious thing about the market economy is that we all work together.  Nothing would be possible without this interaction.  However, most of the credit/blame for the good, bad, and ugly that may come is assigned to whatever poor schmuck is sitting in a particular chair at a particular time, whether he had anything to do with it or not.

Capitalism: Giving the Means of Production to People

It may not surprise many of you, but I am a huge fan of the sharing economy.  Not only does it allow for greater efficient use of resources, but it distributes economic power more and more to people.  Have an extra room?  Rent it out for a day or two.  Have some spare cash?  Fund a project.  Have a car and some spare time?  Help drive people around.  There are many more examples I could cite, but they all have this in common: they put means of production, that is the ability to generate profits, into the hands of people.

These gains are brought to you by capitalism, a system where innovation is rewarded and where people work together for the greater benefit of each other.

In the interest of full disclosure, I have no financial interests in any of the companies I linked to above, although I am an Uber driver.

UPDATE: In the comments, Peter points us to a better way of framing the above argument.

Hate Income Inequality? Free the Markets

Income inequality has been an on-again, off-again hot button issue in the US for several years now.  There exists one method that could be easily enacted that would move to reduce the transfer of wealth from the relatively poor to the relatively rich: enact free trade.

Trade protectionism in the US (that is, using tariffs, quotas, or other means to limit imports in order to protect domestic firms) is probably the largest source of wealth transfer from the relatively poor to the relatively rich.

How does it work?  A tariff, like any tax, raises the cost of goods imported.  The goal of which is to make the cost of the imported good above the cost of the domestic competitor, so the domestic competitor now has the edge.  However, who pays the price?  The consumer does.  Whereas before the consumer had the choice of a lower-cost item, now they do not.  The relative purchasing power of the consumer has fallen, while the profits of the protected industries has risen.  The owners of the firms have gotten richer while the consumer has gotten poorer.

Of course, the proponents of such actions will argue the increased profits will “trickle-down” to the rest of us in the form of jobs, but it is a high cost to pay.  As I discussed before, the cost per job saved from tariffs is especially high, even when factoring in the cost of welfare.  In reality, most of these excess profits stay in the pocket of the business owners (after all, what incentive have they now to improve?).

Another important thing to remember is that these costs are borne disproportionately upon the low-income folks.  This is true of any consumption tax, given that the relatively poor spend a greater percentage of their income than the relatively rich.  Last year, sugar tariffs alone cost the US consumer about $1.4 billion.  For a relatively wealthy person, paying an extra $0.06/lb of sugar is not a major issue.  However, for someone on a strict budget, it is.

Protectionism is a double-whammy against the poor: it increases their prices for no reason, and the gains go right into the pockets of the relatively rich, increasing their income.  One of the best acts the US government could take to address income inequality is to remove all tariffs right now.

The Simpsons and Worker Power

Do firms have undue bargaining power over workers?  Not according to the Simpsons.*  In 2010, the show aired an episode called “Once Upon a Time in Springfield.”  Part of the episode is…well, let’s let the episode description tell it:

Meanwhile, a corporate recruiter persuades Homer, Lenny, and Carl to work for a nuclear plant in Capital City, after Mr. Burns announces a moratorium on free doughnuts.

Let’s talk about what’s going on here: in an effort to cut costs, Mr. Burns (the owner of the power plant and wealthiest man in Springfield) stops buying doughnuts.  Homer, Lenny, and Carl are pissed, and a corporate headhunter finds them and attempts to recruit them for Mr. Burns’ rival company in Capital City.  Eventually, Mr. Burns wins them back by bringing back the doughnuts and doubling the number.

But how could this be if Mr. Burns has superior negotiating power?  Simple: firms don’t compete with workers, but with other firms for workers!  This allows workers to have bargaining power and, indeed, increases their power.

Another thing I’d like to point out: this episode aired in early 2010.  It was written in 2009, in the depths of a massive recession!  In theory, this would be the worst possible time for workers to negotiate.

*I know the Simpsons is a work of fiction, but fiction can be useful to revealing standards and expectations of the time.

Quotation of the Day

From Frederic Bastiat’s fantastic 1873 book “Economic Sophisms.”  Although he wrote these words nearly 150 years ago, he could have easily been saying them to Trump or Sanders.

But, you say, if foreigners flood us with their products, they will carry off our money!

Well, what difference does that make? Men are not fed on cash, they do not clothe themselves with gold, nor do they heat their houses with silver. What difference does it make whether there is more or less money in the country, if there is more bread in the cupboard, more meat in the larder, more clothing in the wardrobe, and more wood is the woodshed?