Friday, August 21, 2015

Thoughts and Questions about Money

If a sweater made in the US sells for $85 at a downtown shop and a sweater of the same quality made overseas sells at JC Penney for $35, almost everyone would spend the $35 to be equally warm and stylish for the winter.  It is a reasonable decision.  Your friends and neighbors would likely not call you greedy, but would compliment you for being a smart shopper.  Perhaps a few of your more financially well-healed acquaintances might tell you that you have an obligation to support the American workers by spending more downtown.  That’s fine for those who can afford the luxury of showing their patriotism by throwing away money, but most could use that extra $45 to buy school supplies for the children or to spend on other needs.

What happens, though, when the sweater company that can buy skills in the US for $25 per hour (including benefits) decides instead to buy skills of exactly the same quality overseas?  It is accused of being greedy.  It’s exactly the same behavior, but it is so easy to represent this reasonable decision by a corporation as evil.  Those same well-healed critics may even start a campaign to boycott the greedy sweater company or try to pressure the retailers not to do business with them.  A certain segment of the caring and compassionate public, always eager to show how dedicated they are to concepts like social justice, buy in to the protest and support it.  It is particularly frightening how easily a campaign like this can gain momentum if it pushes the right emotional buttons and uses social media to spread the word, vilifying the target of displeasure, in this case the sweater company or the retailer.

Who then suffers and who benefits?  Assuming the campaign is successful:  the sweater company may have to adjust their business practices or lose business and the retailers may have to make similar adjustments.  A few Americans may be hired, but higher sweater prices will automatically reduce demand.  Fewer sweaters will be sold because the people who could afford only the less expensive sweaters will be forced to find other options to stay warm in the winter.  The well-healed critics will feel smug, thinking they made the world a better place, not caring how many ordinary people are now deprived of the choice they once had.  To do so they must trade off the school supplies to buy a sweater.  No one will care how those people overseas who lost jobs will survive.  Ultimately, was this the right thing to do?  The economic isolationists believe it is.  Often, though, noble concepts such as compassion and social justice lure us into a simplistic misunderstanding of economics, and the outcomes are least just to those who are least well-off.

Another short thought - this one on perspective:  Today the price of gasoline is between $2.50 and $3.00 per gallon in most parts of the US.  That seems high and people like to complain about it.  Older folks remember when it was 29.9 cents per gallon and you could easily refill the tank for about $3.00!  But that was back in the 1960s when you could buy a nice car for about $3,000 and the median family income was around $7,600.  Today (actually from 2013 US Census data) the median income is $52,300 and a nice car still costs almost half that – but the new car gets about twice the miles per gallon as we did back then.  Perhaps it’s not as bad as we think.

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