What U.S. Economic Recovery? Five Destructive Myths

John Creighto

I don't think that GNI numbers are not that different then GDP numbers. You also missed the point. Phantom GDP doesn't have to do with ownership.

Consider the extreme case where a company manufactures most of a good over seas, ships it to an American plant and sticks a label on the product like Nike or something. If it costs almost nothing to produce it over seas then subtracting the over seas cost from the total coast of production makes it look like the American factors are adding significant value to the product per worker when in fact the bulk of the work is done over seas. Measuring productive output is very difficult and trying to use the net production costs of a product does not give any relevant apples to apples comparison.

rhody

50 Amazing Numbers About the Economy
I picked item's #23 and #26 as a test cases, feel free to pick and agree with or dispute as you wish. Any comments on these two items ? I would love to see multiple sources agree with or dispute this data...

Rhody...

WhoWee

The home equity line of credit originally fueled home improvement and eventually became the tool of the predatory lender among older populations.

The banks figured out a secured line of credit was a safer bet than an unsecured credit card - and the brokers figured out the houses (some otherwise un-saleable in places like Cleveland) were made of gold -IMO- a bad combination.

mheslep

The last point in particular shows how a large government debt provides a large conflict of interest for the government spending class to work against the best interest of the country:
should inflation ramp up requiring an increase in interest rates to stem inflation, then the government interest on the debt explodes. Thus the government has a motivation to allow inflation which eats away personal savings.

rhody

Sigh... This gives me a good feeling from the list I posted above if true, which I hope it is.

Rhody...

mheslep

What is the source of that quote? There's no chance that US primary education is the world's best as it says there. Edit: I see now, its from a reader on your Motley Fool link. The Fool must be referring to US universities. While they may be the best in an absolute since, I doubt it they're the best for the dollar. - a consideration given the thread context.

rhody

Agree, mheslep,

The larger issue is how credible and accurate is Motley Fool to begin with ? That's why I said multiple sources that corroborate or refute each claim that is made. For those who know, please jump in here. There are still plenty of points to discuss. Some with figures so they are generally easier to check.

Rhody...

JonDE

Sorry I kinda forgot about this thread. But you are thinking about it wrong. Consider this example.
An American corporation runs a factory in China that produces a product for $1. It then spends $1 to ship it to Europe where it then sells for $10. What value did it add to the American economy? Well the company ends up with $8 per product sold nothing was taken from the economy, so the total addition to the economy is $8 (assuming a non-american shipper).
Now assume that same company sells it in America. $10 is taken out of the economy but $8 of it is kept in the country. This is what GNI does, it adds our foreign sales in and subtracts what we spend outside. GDP does the same thing, when you account for the trade deficit/surplus.
Another way to think of it is this, the factory is China IS producing $10 of stuff, The American Corporation is just paid to "steal" it from them at a fraction of the cost. There is still a net gain for the American economy in that situation. While the American corporation is not adding value, it is stealing value.

WhoWee

No, the Chinese factory is producing $1 of stuff. If they could sell it for more - they would.

The shipper is contributing $1 of value. Next the wholesale company, marketing company, and retailer are adding (producing) $8 of value to ultimately sell the product for $10 - it could just as easily sell for $1 - $2 again if the value isn't produced.

Label this IMO - I have a shed full of product samples with $0 retail value in excess of production + shipping cost. I can give them away - but need to spend money on marketing to sell them for more than I would pay.

Astronuc

I found this an interesting talk - Dr. Jeffrey Sachs @ The Commonwealth Club
Mon, Oct 10 2011 - 7:00pm

Dr. Jeffrey Sachs, Director, Earth Institute, Columbia University, Special UN Advisor; Author, The Price of Civilization

... Michael Moritz, Managing Member, Sequoia Capital - Moderator

Sachs gives a startling account of the inadequacies of US-style capitalism. He offers a bold plan of reforms relating to sustainable infrastructure, taxes, job training, etc., that he says must be taken to avoid further damage. One of the most influential international economic advisors, Sachs was the director of the UN Millennium Project and is the president and co-founder of Millennium Promise Alliance.

Location: Schultz Cultural Hall, Oshman Family JCC, 3921 Fabian Way, Palo Alto

Also know: In association with Oshman Family JCC

http://www.commonwealthclub.org/even...-jeffrey-sachs


I think Sachs, or perhaps it was a reporter on Marketplace, that most of today's wealthy did not inherit money, but worked for it.

I should point out that Sachs is rather critical of Ayn Rand and folks like Alan Greenspan.

John Creighto

I'm not sure we should assume that $8 of value is added to the American economy. If they were doing this in an efficient and low cost way then sure I could agree. If they are making huge margins and incurring all sorts of unnecessary cost like a large amount of marketing and administration then I think that much of the supposed value creation is due to inherent inefficiencies.


That said even if the $8 was due to reasonably efficient and competitive business practices it says nothing about gains in American manufacturing efficiency. Well manufacturing output statistics may be account for if the product was shipped directly to a store, the statistics often show phantom gains when the final stage of production is done in America.

Moreover, much of the gains achieved this way are achieved through keeping the Chinese currency artificial low through dollar PEGs. That is we are not paying fair value to Chinese workers for the products we buy. Is this analogous to slavery or is it simply a forced savings by the Chinese to develop their industrial capacity. Additionally if it is a form of forced savings should it come at the expense of American industry.

So you are effectively saying GNI and GDP are pretty simmillar measures.

What is a reasonable amount to spend on marketing?

JonDE

I think we are kind of arguing the same thing. My point was to Johnny who said that the marketing company and retailer aren't adding value. Your view and mine are just different ways of thinking about the same thing.

WhoWee

That's going to depend upon several factors including where the product is in it's lifecycle.

1.) Is this a product that is known to consumers - offering a price advantage - such as a flashlight? This will require Point of Sale marketing materials in high traffic locations - very low budget.

2.) Is this an improvement to an existing product type - such as a new kind of portable electric saw? This will require some consumer education focused on competitive advantages and value, point of sale materials and placement on shelves. Depending upon cost might be a candidate for infomercials. A definite plus if used on cable TV remodeling shows. Depending upon the scope of the distribution - perhaps $50k for a regional rollout

3.) Is this a "new-fangled" item that is new to consumers - such as a hand held gyro ball that simulates the effect of ben-wan balls (a real product). This is the most expensive and complicated product launch. It requires a complete marketing plan that includes product, price, place, and promotion. The product must first be sold to distributors. If they don't believe it will sell - it's a big challenge. Next, you need to create a market by educating the consumers. They don't know what is is, how to use it, or why they'd want to use it (or be seen with it). If possible, it's a good idea to show the fun/cool/social aspects to kids. This might include social media, print, point of sale - anything and everything visual - along with in-store instruction and trial. This product would eventually need TV exposure. The $.50 cost of the item (a 2" item in container quantities) might increase to $15 to $20 per item and the first (only) container (might ultimately be) sold only on the counter of health food stores or medical equipment locations. (Label IMO on this product and note it's based on a true story)

mheslep

I have lost any use for Sachs as everything he writes or speaks lately seems wholly absent argument and is instead loaded with sermons propped up by hubris.

Sach's has a new book out, The Price of Civilization, that has been reviewed, interestingly, by US Representative Paul Ryan, WI.

http://online.wsj.com/article/SB1000...204327736.html

Quote from Sach's book:

rhody

Some good news on oil boomtown jobs in North Dakota, but it has potential for a downside as well:

My students make twice my salary
Looks like some can't resist the good money without a full college degree, in many cases that stay just long enough to get a background in a needed skill, welding for example, and then they quit to work for the oil industry. It will be interesting to see if the "boom" lasts. If not, will the students who gave up the education for the easy money regret it later.

Rhody...

JonDE

Hopefully they are smart enough to save some of that money. If they can save 5-10k a year they could eventually go back to college and pay for it and not leave college loaded with debt, although I have a feeling that most wont do this.

rhody

JonDE,

Great idea. If young people can have the foresight to do this in their early 20's, their sense of fiscal restraint and ability to save will serve them well later in life. We still manage our daughter's finances, early 20's, only allowing her to withdraw so much from her bank account, so that she always has a reserve in case of emergencies. She is paying off a student loan too. I just checked, her gov't loan is at 6.55 %.

Rhody...