It is from The New York Times Book Review, and it covers Michael J. Casey’s The Unfair Trade: How Our Broken Global Financial System destroys the Middle Class, and Daniel Gross’s Better, Stronger, Faster: The Myth of American Decline…and the Rise of a New Economy. My bottom line:
Each of these books illuminates one particular economic story very well, but fails to see the larger and more complex picture.
One excerpt on the Casey book:
But does China deserve so much attention (5 chapters out of the book’s 10)? Casey writes that China “provided the cheap goods needed to sustain the American way of life, as well as the finance to pay for it.” Yet the numbers tell a less dramatic story. Currently, imports from China are measured at about 2.7 percent of consumer spending in America. Furthermore, for each dollar of imports from China, a lot of that money was spent in the United States preparing the import; imagine an iPad designed and marketed from Cupertino, Calif., but counted as an import from China. That leaves Chinese imports, measured in terms of true net impact, at about 1.2 percent of American consumer spending.
One excerpt on the Gross book:
The most probable American economic future is a lot of export success, fantastic wealth for the owners of thriving businesses and persistent productivity problems, and thus high prices, for some major items in consumer budgets. That means more stagnation of real wages at the middle of the income distribution.
Both books are already on the market.
I have major problems with the idea that export success means productivity problems and high prices.
At first glance it does not make sense.
export success stems largely from being the low cost producer and at a minimum means greater economies of scale for the producer that generates lower cost and prices.
Repeatedly, the greatest US exporters are the most successful firms.
That was the experience in Japan. But the US isn’t Japan, having as well a vigorous competitive consumer marketplace open to outsiders.
This is the same Dan Gross that wrote a book about why bubbles are good for the economy and two years ago authored a Newsweek cover story about the country’s “amazing” economic comeback? Think I’ll pass.
“Currently, imports from China are measured at about 2.7 percent of consumer spending in America. Furthermore, for each dollar of imports from China, a lot of that money was spent in the United States preparing the import”
Yes, I’ve had this problem for a while now with the discourse on these issues. China’s share of of US debt are uncompellingly small. Moreover, (last I checked) 70% of US Gov’t debt is owed to US citizens or firms. I realize this is about exports rather than debt, but the two variables tell a consistent story: China is hardly some imposing force on the US economy compared to, say, the financial markets here at home. Its certainly not what is squeezing the middle class here, unless cheap labor, cheap products, and massive purchases of US bonds are somehow bad for that class. Our own disemployment of capital and labor stock is the major problem as I see it, and I don’t see a clear link to trade imbalances there, at least not as a controlling factor.
But I wonder to what extend US exports (or control over foreign production) that you cite here is manifested as patent control rather than fresh or unique production? All of the big name innovators – apple, Microsoft, Google – not only built on what others have created previously, but very often have patents which are absurdly general and constantly overlapping with rival patents.
I think Professor Cowen’s numbers are wrong on China trade. Back of envelope calculations show it’s closer to 4% of total US consumer spending on China imports not 1.2%. Source: http://www.census.gov/foreign-trade/balance/c5700.html shows net China imports (after exports) is $295B for 2011. GDP is roughly 15000B of which 67% is consumer spending. so 395/(15000*0.67) = 3.9% = 4% Perhaps not all China imports are consumer items, but I bet the vast majority are, so this calculation is close to the truth. Gadfly flamebait: What ELSE is Tyler LYING about?
The China figures come from a study by the San Francisco Fed: http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html
Thanks. Still the SF Fed survey is a bit misleading, as you can tell from this blurb from their site: “Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP. ” 2.5/16 = 16% of total foreign imports, which is a bigger number than 1.2% of GDP. Backing out the ‘transportation costs’ which are assumed ‘Made in America’ gives the figure of 1.2%, which I’m still not convinced is accurate. Put another way: if the oil spilled by the Exxon Valdez is only 0.001% of all oil shipped by tanker, does that make the Alaska oil spill insignificant? Well considering that the environmental damage was less (or more) than expected, perhaps it is (or is not).
A very fascinating example.
When was the last time anyone heard anything new about the Exxon Valdez disaster? Exactly.
While it seemed huge at the time and probably was an important event to improve the oil trabsport industry and to raise awareness to ecological issues, in the grand scheme of things it was obviously fairly insignificant.
Might that just be the case with China?
Al Jazeera tends to run stories about the lingering effects of events and social polices long after they are instituted. Most of the studies in the US media like this seem to have very specific partisan, policy or corporate influence / relevance from significant actors. To put it simply, Exxon Valdez is am embarrassment to the oil industry which has strong ties to both parties. As soon as the media comes to quiet down about these kinds of things, it stays that way, because it doesn’t play into a favorable narrative to either clique or the economic powerhouses.
The lasting effects of the Valdez spill is important. It has crushed Alaska’s fishing industry and last I checked, growth rates never recovered. The same kind of destruction has or is occurring in Nigeria, the Amazon (never recovered), and the Gulf.
Sure, there may be a negligible effect to the oil industry alone. But there are countless lives, industries and communities irrevocably damaged, and a massive net loss of economic value from this destruction. These are externalities, which means that civil society is supposed to counter them via sanctions or regulations. But of course, civil society doesn’t have the influence that BP and Exxon do.
I knew Al Jazeera ran a piece not too long ago:
Legacy of Alaska oil disaster
Al Jazeera visits residents still living with the aftermath of the Exxon Valdez spill. (June 2010)
But percentage of GDP is not the correct measure for understanding the impact of China as to the ability to obtain work at decent wages for mid and low level workers. Instead, how about presenting data on the percentage of GDP that was spent on US manufactured goods 20 and 30 years ago, versus today. I’d suspect the numbers are significantly different because 1) today we spend far more on services (e.g. health, financial services, restaurant food and experiences) and 2) the other goods and services spending of the 1% dwarfs the spending of many others. Also, as to sustaining lifestyles, China does matter to Costco and Walmart shoppers but the 1% are not buying many goods made in China and instead are buying lots of $ 1-50 million paintings, plus high end electronics, with only a few of the latter made in China.
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