Global Trade Is Why Your Television Did Not Cost $6,200 Like It Did in 1964
Supplychain247, by Mark J. Perry - December 27, 2016
American consumers benefit enormously both directly from lower-cost imported manufactured goods and also indirectly because foreign rivals discipline US manufacturers to behave more competitively and provide us with lower prices, higher quality products, and better service. Some color TVs from the 627-page 1964 Sears Christmas Catalog. The original prices are listed ($750 for the Sears Silvertone entertainment center and $800 for the more expensive one), and when those prices are converted to today's 2016 dollars using the BLS Inflation Calculator: $5,800 for the basic 21-inch color TV model and $6,200 for the more expensive model.
To put that in perspective, here is what about $5,800 in today's dollars would buy in the today's 2016 marketplace using current prices from the Sears and Best Buy websites:
For an American consumer or household spending $750 in 1964, they would have only been able to purchase the 21-inch color TV/entertainment center from the Sears Christmas catalog . An American consumer or household spending that same amount of inflation-adjusted dollars today ($5,800) would be able to furnish their entire kitchen with five brand-new appliances (refrigerator, gas stove and oven, washer, dryer, and freezer) and buy seven state-of-the-art electronic items for their home (a Toshiba Satellite 15.6″ laptop computer, a Garmin 5 Inch GPS, a Canon EOS Rebel T5i DSLR Camera, a Sony 1,000 Watt, 5.1-Channel 3D Smart Blu-Ray Home Theater System, a Samsung 55 inch Smart HDTV, an Apple iPod Touch 64GB MP3 Player (6th generation), and an Apple iPhone 7 Plus.
Measured in terms of the "time cost" of purchasing household and electronic items working at the average wage, there's a huge difference between 1964 and today. To purchase the $750 Sears TV in 1964 would have required 293 hours of work for the average American at the average hourly wage of $2.56 in November 1964 - that's 7.33 weeks, or almost two full months of work to earn the income required to purchase the TV. Today, the average American need only work about 23 hours at the average wage of $21.73 to earn enough to purchase a $500 Samsung Smart HDTV. A $400 laptop would have a "time cost" of only about 18 hours of work today (2.25 days), and a iPod touch would require only 13 hours of work (1.63 days).
"it doesn't matter whether production takes place on the same side, or the other side, of imaginary lines we call city, state and national borders vis-a-vis the location of the consumer." Donald J. Boudreaux, economist, author, professor, and co-director of the Program on the American Economy and Globalization at the Mercatus Center at George Mason University. And isn't it an amazing sign of the economic progress achieved over the last half century that even a billionaire in 1964 wouldn't have been able to purchase most of the items above that even a teenager working at the minimum wage can afford today like a laptop computer, iPhone, iPod and Smart TV?
And because many of the low-cost manufactured goods we have access to today in the US - like TVs, laptops, and appliances - are manufactured or assembled overseas, where labor costs are cheaper, the powerful forces of international trade and global competition are an important part of the "magic of the global marketplace" and the "miracle of global manufacturing" illustrated above.
American consumers benefit enormously both directly from lower-cost imported manufactured goods and also indirectly because foreign rivals discipline US manufacturers to behave more competitively and provide us with lower prices, higher quality products, and better service. As Don Boudreaux pointed out recently, trade is simply the wonderful opportunity to take advantage of the "lowest-cost method of production" - and it doesn't matter whether that production takes place on the same side, or the other side, of imaginary lines we call city, state and national borders vis-a-vis the location of the consumer:
"when consumers buy imports, they are simply choosing to make things for themselves and their families using the lowest-cost methods of production available to them: they "make" their consumer goods using the roundabout method of working at their specialties and then transforming through trade some of their incomes into these goods. Sometimes consumers trade with fellow citizens; other times they trade with foreigners. But in all cases the trades are the lowest-cost methods of production available to consumers for provisioning themselves and their families with the goods and services that they desire. Why should the making of such choices ever be blocked"
Bottom Line: As much as we might hear people complain about a slow economic recovery, the lowest labor force participation rate in nearly 40 years, the decline of the middle class, stagnant median household income, and rising income inequality, we have a lot to be thankful for, and we've made a lot of economic progress in the last 52 years as the example above illustrates, thanks to the "magic of the global marketplace" and the "miracle of global manufacturing."
Looking forward, let's hope that the economic progress we've experienced over the last half century continues, unimpeded by consumer-impoverishing trade policies that would prevent or restrict American consumers from having access to goods manufactured at the "lowest-cost method of production" - whether that's across the street or on the other side of the world.
US imposes Sanctions on Russian Entities
American Shipper by Chris Gillis - December 30, 2016
As a result of Russia's alleged interference in the US presidential election, the White House is imposing sanctions on three Russian companies, expelling 35 Russian diplomats from the US, and closing two Russian-operated US facilities. The White House on Thursday announced an executive order to punish Russia for its alleged interference in the recent US presidential election.
Investigations into the alleged Russian cyber-hacks of the Democratic National Committee's computer systems during the run-up to the recent election were carried out by both the CIA and FBI. "These actions follow repeated private and public warnings that we have issued to the Russian government, and are a necessary and appropriate response to efforts to harm US interests in violation of established international norms of behavior," President Obama said in a statement. "All Americans should be alarmed by Russia?s actions."
In addition to expelling 35 Russian diplomats from the US and closing two Russian-operated US facilities, among other actions against high-ranking government officials and entities, the Obama administration imposed sanctions on three Russian companies that it said had a hand in the computer hackings, namely Special Technologies Center, Zor Security (also known as Esage Lab), and Autonomous Noncommercial Organization Professional Association of Designers of Data Processing Systems. The sanctions include various US financial and export controls against these individuals and entities.
The incoming Trump administration has the authority to roll back the executive order once in office. However, it stated that it plans to review and seriously consider the facts of the investigation before making any decisions.
The Real Threat (and Solution) for US Jobs
American Shipper by Eric Johnson, December 28, 2016
Technology is the fundamental reason why the manufacturing jobs of the 1950s and "60s have gone away and won't come back, not trade deals and currency devaluation, according to American Shipper IT Editor Eric Johnson. In mere weeks, Donald Trump will be inaugurated as president, and part of the platform upon which he rode to Washington was the idea that manufacturing jobs can and should return to the United States.
Let's leave aside the issue of whether this is possible for the moment and look more closely at the real threat to those jobs. While the outsourcing of manufacturing, increased levels of imported goods, and free trade in general have been vilified as US job killers by some politicians and pundits, that view disregards a much more potent dynamic: technology.
Technology is the fundamental reason why the manufacturing jobs of the 1950s and
60s have gone away and won't come back - not trade deals and currency devaluation. Factories in Los Angeles and New England still churn out good ol" Made in the USA apparel, but at prices considered unpalatable to most American budgets. The issue is not whether consumer goods can be made in the US, it's whether American consumers can afford them. And this is where technology is really the threat and the solution. Makers of robotics and artificial intelligence are creating automated factories, warehouses, and vehicles that have little regard for hardline trade policies. And that innovation isn't going to stop for anything.
Those advances in technology certainly threaten jobs as they exist today, but they also create new, different jobs. After all, a human being is still needed to build, program and maintain all of the various systems and machines required for highly automated functions. The real questions to ask are: do these advancements threaten the total number of jobs available in the future; and, more hopefully, can we as an economy adapt our workforce and vocational infrastructure to match the jobs that will be created?
Let me reemphasize: the handwringing over trade deals is a diversion. Almost every economist worth their salt recognizes free trade lifts economies, though not necessarily evenly or quickly. But there is simply no way for politicians or governments to restrict technology development the way they can trade. Rather than complain, people should be figuring out how to ride this incredible (albeit scary) wave of technological innovation, rather than be displaced by it. This goes beyond grandma not being able to work the remote for the television. This is about resetting what work looks like and how people can prosper in a world where automation becomes more ubiquitous than we can imagine. It may sound harsh, but instead of waiting for manufacturing jobs to return from Mexico or overseas, unions and other groups should be looking to identify and train their members for the new jobs created by technological advancement.
From a supply chain perspective, think about how your role, and that of your department, will be transformed by technologies that exist today, and those that are coming. When the topic of trade and lost or outsourced jobs comes up at the next dinner party you attend, be the person who says, "forget about making trade the pariah, let's get real about technology."
Russian Sanctions: Addition of Certain Entities to the Entity List, and Clarification of License Review Policy 81 FR 94963
US Department of Commerce, BIS -December 27, 2016
This final rule amends the Export Administration Regulations (EAR) by adding twenty-three entities to the Entity List. The twenty-three entities who are added to the Entity List have been determined by the US Government to be acting contrary to the national security or foreign policy interests of the United States. BIS is taking this action to ensure the efficacy of existing sanctions on the Russian Federation (Russia) for violating international law and fueling the conflict in eastern Ukraine. These entities will be listed on the Entity List under the destinations of Russia and the Crimea region of Ukraine.
In addition to the Entity List changes described above, this final rule revises the licensing policy in three sections of the Commerce Control List (CCL)-based controls in the EAR to clarify that BIS's review of license applications for exports, reexports and transfers (in-country) to Russia will take into account and protect US national security interests.
As this will be the last issue of TradeInFocus for the year 2016 I Thank all of you for your input with hopes that you find this recap to be beneficial in today's complex world. I also wish one and all a
"Very Happy & Productive New Year!"
John A. Leitner, Editor and Composer, 30 December 2016
tradeinfocus is a summary of news and events on the trade policy front for clients, trade & legislative colleagues, and professional friends of W.J. Byrnes & Co.