Friday, 18 August 2017

Something (Probably) About 98% Of Americans Are Wrong About!!

Greetings!! Holidaying in America, and ingratiating myself with the locals, as you do, there is one belief that literally every American I've spoken with about this has. Both Trump supporters and Trump haters alike all seem unified on one basic consensus: that America badly needs to get back all those manufacturing jobs it has lost to foreigners.

Allowing for the proportion of the American population that knows why this is an ill-conceived idea - and America is more like a continent than a country, lest we forget - it could be that as many as 98% of the population actually believes this erroneous notion. This isn't unique to the USA, of course - you'd probably find similar ratios in most European countries too.

To see why the notion is wrong, you have to understand why it's so much better for Americans that foreign competition enables them to buy their local goods and services cheaper than if they were produced domestically. For simplicity, suppose you are an American who only eats bangers and mash - and you get all your potatoes from Tom the greengrocer, and all your sausages from Fred the butcher.

Suppose that you buy your potatoes for $2 a pound (it is pounds and ounces in America, not kilos), and your sausages for $5 a pound every week. On a typical weekly shop you buy 30 pounds of sausages and 50 pounds of potatoes.

Then one day you find out about Jack the butcher in the next street, who is selling the same quality sausages for $4 a pound, and because he has a bigger store he also sells potatoes for $1.50 a pound. Suppose, again for simplicity, that in the first 26 weeks of the year you had been shopping with Tom and Fred, and then at the end of week 26 you find out about Jack, and you shop with him for the remaining 26 weeks of the year.

I'm sure even an 8th grader could understand why you are now better off on the deal, as is Jack of course (too often people forget about the benefits to Jack as well). The maths will show you by how much better off you actually are:

Weeks 1-26 shopping with Tom and Fred - total expenditure: $6500 ($100 of potatoes x 26 and $150 of sausages x 26)

Weeks 27-52 shopping with Jack - total expenditure: $5070 ($75 of potatoes x 26 and $120 of sausages x 26)  

Total saving by shopping with Jack: $1430

Your saving money by shopping with more efficient Jack has no important logical difference to shopping with more efficient foreign competitors - in both cases there are significant consumer (and producer) benefits.

It's astonishing that almost all people in the world's most developed nations get this simple piece of logic and fact-finding bang wrong! Domestic producers of steel, aluminium, glass, plastic and timber are far outnumbered by the number of domestic citizens who are consumers, because except for perhaps Amish-type sects, everybody in America is a consumer on an international level.

And yet it seems the vast majority of people in the developed world desire the crafting of policies that benefit a small minority of the population at the expense of the rest of the population. When will people learn what's good for them?