Quotulatiousness

March 2, 2011

Why “Buy American” or “Buy Canadian” campaigns are bad economics

Filed under: Economics, History, Liberty, USA — Tags: , , , , , — Nicholas @ 12:26

Daniel Ikenson takes ABC to task for their misleading propaganda against international trade:

Back in the “golden age” of 1960, when imports were oddities to marvel over in a disdainful way, the per-capita U.S. income was $2,914. In 2009, with imports ubiquitous, per-capita income was $46,411. (Economic Report of the President, 2010, Tables B-1 and B-34). In real, inflation-adjusted terms, even with a U.S. population increase from 181 million to 307 million, per-capita incomes in 2009 were almost triple what they were in 1960 ($42,277 vs. $15,669 in 2005 dollars — ERP, 2010, Tables B-2 and B-34). Oh, if only we could replicate the relative poverty, the limited consumer choices, the inefficient production processes, the massive trade barriers that compelled Americans to buy American, and the uneconomic work rules and wages commanded by once-powerful private sector labor unions. In 1960, before real economic liberalization spawned cultural and social liberalization, Diane Sawyer would never have dreamed of being a network news anchor, if she even dared to entertain the concept of working outside of the home. How can she pine for such an era?

It’s frustrating that so much research refuting the myth of manufacturing decline and supporting the conclusion that U.S. manufacturing is thriving — and is in fact leading the world in terms of value of output — is simply neglected by a media that is more committed to scaring than informing. Today Americans are less likely to find in their homes products manufactured in the United States because U.S. manufacturers have moved on to producing higher value products. American manufacturing isn’t focused on products that consumers find in retail stores, like furniture, hand tools, sporting goods, flatware, draperies, carpeting and clothes. American factories produce more value than any other country’s factories by focusing on producing the highest value products: pharmaceuticals, chemicals, airplanes, sophisticated componentry, technical textiles, and other items often sold directly to other businesses.

I and others have been making these points for several years, as U.S. manufacturing continues to thrive in every metric . . . except employment. Manufacturing employment peaked in 1979 and has been on a downward trajectory ever since. But that is the point that eludes ABC and everyone else who thinks U.S. manufacturing’s best days are in the past. Making more with less is the goal! That’s how an economy grows! The political imperative of “putting people back to work” regardless of the economic value of that work — remember the so-called stimulus? — spits in the face of economics. The fact that Americans are unemployed speaks to a mismatch of skills demanded and skills available, as well as to a business and regulatory environment that dissuades investment and hiring.

February 12, 2011

Deeper implications of the rise of “3D printing”

Filed under: Economics, Technology — Tags: , , , , — Nicholas @ 10:49

One of the most interesting things happening in the manufacturing world is the rise of a technology that may well make huge swathes of factories obsolete: practical 3D printing. What was originally just a neat way to develop small prototypes for mass production is quickly becoming a viable way to replace the entire mass production step. The technology is still limited to a small range of materials, but the price has been dropping steeply enough that small 3D printers are within the reach of hobbyists already.

The Economist points out that this will not be an unmixed blessing (as technological revolutions ever have been):

Others maintain that, by reducing the need for factory workers, 3D printing will undermine the advantage of low-cost, low-wage countries and thus repatriate manufacturing capacity to the rich world. It might; but Asian manufacturers are just as well placed as anyone else to adopt the technology. And even if 3D printing does bring manufacturing back to developed countries, it may not create many jobs, since it is less labour-intensive than standard manufacturing.

The technology will have implications not just for the distribution of capital and jobs, but also for intellectual-property (IP) rules. When objects can be described in a digital file, they become much easier to copy and distribute — and, of course, to pirate. Just ask the music industry. When the blueprints for a new toy, or a designer shoe, escape onto the internet, the chances that the owner of the IP will lose out are greater.

There are sure to be calls for restrictions on the use of 3D printers, and lawsuits about how existing IP laws should be applied. As with open-source software, new non-commercial models will emerge. It is unclear whether 3D printing requires existing rules to be tightened (which could hamper innovation) or loosened (which could encourage piracy). The lawyers are, no doubt, rubbing their hands.

Just as nobody could have predicted the impact of the steam engine in 1750 — or the printing press in 1450, or the transistor in 1950 — it is impossible to foresee the long-term impact of 3D printing. But the technology is coming, and it is likely to disrupt every field it touches. Companies, regulators and entrepreneurs should start thinking about it now. One thing, at least, seems clear: although 3D printing will create winners and losers in the short term, in the long run it will expand the realm of industry — and imagination.

So, even if you don’t have immediate plans to buy a 3D printer, you could do worse than to dust off your old drafting book and learn a bit of CAD. You may be using those skills sooner than you expect.

There’s more information (from 2009) on the 3D printing process here.

December 18, 2010

The fascinating economics of Chinese manufacturing

Filed under: China, Economics, Tools, Woodworking — Tags: , — Nicholas @ 11:17

An interesting post at the Bridge City Tools blog about how Americans (and Canadians) are actually willing to pay the outrageous price of $5 for a single 1/8″ drill bit:

About 10 years ago I was in an OEM Chinese factory that made bench grinders. You have seen them, 1/2 HP motor, two 6” grinding wheels, pig tail cord, a small plastic face shield and no nameplate — these would be attached by the American companies that bought them. The total cost per grinder, landed in the US was $7.15. Of course at this price it would be asking too much for a UL tag.

These grinders were, and still are being sold here and the prices range from $49 to $200 — awesome margins by any standard.

Behind the factory floor there was a small mountain of insulated wire that had been pulled from old cars, appliances, televisions and the like and it was replenished daily. Surrounding the wire mountain were a couple of dozen women who were stripping the wire of insulation. These wire remnants were then spliced together and used in the grinder motor windings. Completely illegal, and dangerous. But cheap.

I thought I was shocked until I walked into the factory section that made twist drill bits. Here they were making, for the AMERICAN MARKET, those 59, 89, 119 pc drill sets found at the box stores and other discount joints for $19.95. Again, there were rows of women who were dipping the bits in what looked like Easter egg dye.

I asked the interpreter what they were doing. He replied, “They are making all the bits the same color as these four.” The four bits he pointed out were the 1/8”, 1/4”, 3/8” and the 1/2”.

I asked why.

I learned that those four bits were properly hardened. The remaining 115 bits were made with what I call pot metal. The reason?

“Because those are the only four hole sizes that Americans use.”

I asked, as politely as I could, if there was any guilt or remorse for duping their American customers. The reply was shocking.

“In America, if it cost less than $20, nobody complains about quality — everybody in China knows this.”

It’s an interesting explanation . . . and has the ring of truth to it: I’ve got several sets of drill bits, most of them bought from a reputable source (Lee Valley Tools), but I have one “big” set bought from a big box store (I think it’s branded as DeWalt, but probably made in China).

Most of the sizes of drill I use in woodworking are from the Lee Valley sets, but I think I’ve only used the 1/16″ and 1/8″ bits from the big box set. I wonder what’d happen if I tested all the rest of that set?

I have to admit being guilty of this:

More recently, I found myself at the local paint shop to purchase a Purdy paint brush — I have always liked them. So when I walked into the store I asked the sales rep to show me the most expensive brushes…

“I don’t get asked that very often…” he replied.

I then learned that the cheapest brushes outsell the flagged end bristle brushes by about 20 to one. The reason?

So people can throw them away rather than clean them.

In my defence, I can say that I get several uses from each of the “disposable” brushes because I do clean them after each use, but I do eventually throw them away. Once the quality of the applied stain or finish starts getting worse, it’s time to get rid of the brush.

October 12, 2010

Monty on structural unemployment

Filed under: Economics, Education, Technology, USA — Tags: , , , — Nicholas @ 12:07

Monty is still too busy with real life to do a daily Financial Briefing, but he’s dropping by a few times a week with his insightful-and-acidic thoughts at Ace of Spades HQ:

Welding jobs may be plentiful, but that’s no help to you if you’re not a welder. This is called “structural unemployment”, and it has no real short-term solution. It results from a disconnect between current worker skills and employer requirements. It’s really a form of malinvestment. Students train in subjects like Postmodernist Literary Theory and The Hermeneutics of Lesbian Cinema, but the job market is asking for engineers and plumbers. Workers in fading industries won’t or can’t retrain. The last time this problem cropped up was during the 1982 recession: the old manufacturing jobs were gone, and the hundreds of thousands of Rust Belt factory workers — many now middle-aged, with high union wages and benefits packages they didn’t want to lose — either could not or would not re-train into other fields. This led to a long cycle of stagnation in which the American upper midwest remains mired to this very day. Pull quote:

Victor Calix Cruz, 51, has been job hunting for two years after being laid off from construction work in Miami. He, his wife and their two teenage children are “surviving” on his wife’s disability and his unemployment payments, he said. While he heard of openings at hotels, he hasn’t applied because the pay and benefits aren’t as good as what he had before.

I don’t imagine that your unemployment check matches what you were making before either, Chief. It’s like the old Rolling Stones song: you can’t always get what you want.

July 26, 2010

The unwillingness to disbelieve

Filed under: China, Economics, India, Media — Tags: , , , , , — Nicholas @ 15:03

Mike Elgan debunks the latest “mind-crogglingly cheap computer for the masses” announcement:

“India unveils $35 computer for students,” says CNN.com. “India unveils prototype for $35 touch-screen computer,” reports BBC News. “India to provide $35 computing device to students,” says BusinessWeek.

Wow! That’s great! Too bad it will never exist. That this announcement is reported straight and without even a hint of skepticism is incomprehensible to me.

[. . .]

India itself doesn’t build touch screens. They would have to be imported from China or Taiwan. The current price for this component alone exceeds $35. Like touch screens, most solar panels are also built in China. But even the cheapest ones powerful enough to charge a tablet battery are more expensive to manufacture than $35.

Plus you need to pay for the 2GB of RAM, the case and the rest of the computer electronics. Even if you factor in Moore’s Law and assume the absolute cheapest rock-bottom junk components, a solar touch tablet with 2GB of RAM cannot be built anytime soon for less than $100.

More to the point, no country in the world can build a cheaper computer than China can. The entire tech sector in China is optimized for ultra-low-cost manufacturing. All the engineering brilliance in India can’t change that.

There’s also the point that government bureaucracies and university engineering departments are not designed for or experienced in the mass production techniques that any of these “ultra-cheap but powerful” computing initiatives all require. Have you ever heard of a government that could keep their hands (and political priorities) out of the critical decision of where this wonder device would be assembled, tested, packed, and distributed? The “industrial policy” wonks would need to get intensely involved in such a decision and the location would have to meet diverse electoral and financial requirements (note that the economics of the project won’t even make the top five priorities in the process).

Awarding the contract to just one area would be unthinkable: the benefits must be seen to be helping areas that elected the current government and emphatically not going to opposition ridings. The horsetrading over that alone would consume any possible price advantage such a scheme might have over ordinary computers and software bought commercially.

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