economics

Tara B. drew my attention to a New York Times article on economic mobility in the U.S. and Europe. This chart compares intergenerational mobility in the U.S. and Denmark, showing where men raised in each quintile of the population (based on income) end up as adults (lighter bars = Denmark, dark bars = U.S.):

For both countries, there is more movement in the middle of the income distribution than at the extremes. However, there are important differences. As we see, in the U.S. men whose dads were in the bottom fifth in terms of income are much more likely to remain in the bottom earnings tier than men in Denmark are, with over 42% experiencing no mobility. We also see that they are less likely to move to the highest levels of the income ladder than are their Danish equivalents. However, this is partially due to differences in the overall distribution in income; because there is more income inequality in the U.S., an individual would have to gain much more income to make it from the lowest to the highest quintile than would someone living in Denmark, where the income distribution is more compact.

The full article from which this data is drawn, “American Exceptionalism in a New Light: A Comparison of Intergenerational Earnings Mobility in the Nordic Countries, the United Kingdom and the United States,” is available for free here.

Cross-posted at Reports from the Economic Front.

Here is a short (less than 4 minute) video that illustrates the fact that 53% of our tax dollars, conservatively estimated, go to finance our military.

And here is a link to a recent study by Robert Pollin and Heidi Garrett-Peltier on the employment effects of military spending versus alternative domestic spending priorities, in particular investments in clean energy, health care, and education.

The authors first examine the employment effects of spending $1 billion on the military versus spending the same amount on clean energy, health care, education or tax cuts.  The chart below shows their results.

Moreover, even though jobs in the military provide the highest levels of compensation, the authors still find that “investments in clean energy, health care and education create a much larger number of jobs across all pay ranges, including mid-range jobs (paying between $32,000 and $64,000) and high paying jobs (paying over $64,000).”

Let’s see if these facts come up in the next Congressional budget debate.

For the last week of December, we’re re-posting some of our favorite posts from 2011.

————————

The US economy faces a number of challenges—among them a lack of job creation and an ever-growing trade deficit. Many policy-makers believe that encouraging business innovation is the best response to these particular challenges. Sounds plausible but experience suggests otherwise.

The best example of why simply encouraging business innovation is not the answer for our employment and trade problems is Apple and its iPhone.

The iPhone was introduced in 2007 and has been incredible successful.  U.S. sales soared from 3 million units in 2007 to over 11 million in 2009.  Global sales topped 25 million in 2009.

While the iPhone is designed and marketed by Apple, almost all the phone’s components are produced by foreign companies operating outside the United States.  These components are then shipped to China where Foxconn, a Taiwanese company, oversees their assembly and their export to the United States and other countries.  As a result, the iPhone generates few jobs in the United States.

Two economists, in an Asian Development Bank working paper, examined the iPhone 3G production process in some detail.  The table below, taken from their study, highlights the main suppliers and the costs of the components they produce for a single phone.  Most of the components are supplied by Japanese, South Korean and German firms, although there are also some U.S. suppliers (although who knows where they actually produce their compnents).

The total component cost of an iPhone in 2009 was $172.46.    Workers in China assemble the iPhone, but because their wages are low the assembly cost per phone (labeled manufacturing costs in the table below) is quite small, only $6.50 a phone.  The total production cost per phone is $178.96.

Because the iPhone is assembled in China all sales in the U.S. mean an increase in Chinese exports (even though the phone is largely composed of inputs produced outside of China) and an increase in U.S. imports.  In 2009, China exported more than $2 billion worth of iPhones to the United States.  Thus, the iPhone, because of the Apple’s production strategy, also adds to the U.S. trade deficit.

Apple is not alone in embracing China as its production base.  China is now the world’s largest exporter of manufactured goods. And, as the chart below shows, the share of Chinese exports that are labled high technology is growing.  This trend has encouraged many analysts to claim that the U.S. is now locked in fierce economic competition with China.

However, as we see next, more than 80% of China’s high technology exports are actually produced by foreign companies operating in China.  Moreover, these foreign companies have significantly increased their control over this production.  In 2002 foreign owned firms that were 100% foreign owned (which means that they had no Chinese partner) accounted for only 55% of Chinese high technology exports.  In 2009 they accounted for 68%.

Why do so many transnational corporations choose to locate production in China?  The answer is obvious: profits. Apple again serves as a good example.  The table below, taken from the Asian Development Bank working paper cited above, shows Apple’s profit-margin on the iPhone.  In 2009 it was a whopping big 64%.

Struck by the size of Apple’s profit-margin, the authors of the Asian Development working paper considered whether the iPhone could reasonably be made in the United States.  As they note:

The role of the PRC in the production chain of iPhones is primarily the assembly of all parts and components into the final product for re-shipment abroad. The skills and equipment required for the assembly are very basic and there is no doubt that American workers and firms are capable of assembling iPhones in the US. If all iPhones were assembled in the US, the US$1.9 billion trade deficit in iPhone trade with PRC would not exist. Moreover, 11.4 million units of iPhone sold in the non-US market in 2009 would add US$5.7 billion to US exports.

For the sake of discussion, they assumed that assembly line wages in the U.S. are ten times higher than in China.   Given that Chinese production workers earn roughly $1 an hour, that is not an unreasonable assumption.  The higher wages would mean that the total assembly cost per phone would rsie to $65 and the total manufacturing cost would approach $238.  If Apple continued to sell the iPhone for $500, the company would still earn a very respectable 50% profit margin.

Moreover, as the authors point out:

In this hypothetical scenario, iPhones, the high-tech product invented by the U.S. company, would contribute to U.S. exports and the reduction of the U.S. trade deficit, not only with the PRC, but also with the rest of world. More importantly, Apple created jobs for U.S. low skilled workers; those who could not be the software engineers needed by Apple. Giving up a small portion of profits and sharing them with low skilled U.S. workers by Apple would be a more effective way [than depreciation of the exchange rate] to reduce the U.S. trade deficit and create jobs in the United States.

Of course, shifting production to the United States would mean that Apple would earn less money and there is little reason to believe that the company is prepared to sacrifice its profits for the good of the country.  If we want to tackle our employment and trade problems were are going to have to do more than promote more attractive conditions for business.

For the last week of December, we’re re-posting some of our favorite posts from 2011. Originally cross-posted at Scientopia.

————————

I came across this fascinating poster advertising tea at The Coffee Bean in Irvine, CA.  The ad features tea leaves balled up into small tea “pearls” and spilled into a person’s palm (text and analysis below):

Text:

Three minutes to fragrant perfection.

It takes a full day to hand-roll 17 ounces of our Jasmine Dragon Pearl Green Tea.  But in just three minutes you can watch these aromatic pearls unfurl gracefully into one of the world’s most soothing and delicious teas.

This ad suggests that others’ toil should enhance one’s experience of pleasure.  The fact that it takes a significant amount of human labor to “hand-roll” tea leaves into balls — an action that is in no way asserted to change the taste of the tea — is supposed to make the tea more appealing and not less.  We are supposed to enjoy not just the visual, but the fact that others worked hard to produce it for us.  A whole day of their labor for just three minutes of curly goodness.

This is a rather stunning value pervading U.S. culture.  Luxury may be defined not only as pleasure, or as the consumption of the scarce, but as the “unfurling” of others’ hard work.  What could be more luxurious than the casual-and-fleeting enjoyment of the hard-and-long labor of others?

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

For the last week of December, we’re re-posting some of our favorite posts from 2011.

————————

In this 26-minute talk, philosopher Gerald Allan Cohen offers a wonderfully eloquent critique of capitalism. His critique revolves around common defenses. He suggests that even the existence of people who have earned their riches legitimately and through their own wit and work do not justify a system of private property. He contests the idea that we are all better off under capitalism compared to other economic systems, suggesting that capitalism retards the human potential of workers nefariously and by design. And he disagrees with the claim that economic inequality is inevitable. Economic inequality, he contends, will someday be seen as an injustice. Capitalism was an important stage, he concludes, and one that we need to outgrow.

I recommend that everyone take a listen, though I’ll admit it starts off kind of goofy:

Part I:

Part II:

Thanks to Chris Bertam at Crooked Timber for putting these videos up.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Billions of dollars are spent on christmas trees — real and fake — each year.  The data for 2009:

Most of the companies benefiting from this spending are small businesses:

Fake trees appear to be growing in popularity, but the sales of real trees do not appear to be slowing:

The states that benefit most from Christmas tree sales include Oregon, Michigan, North Carolina, New York, New Jersey, Ohio, Pennsylvania, and Washington, and Wisconsin:

Found at Intuit.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

In an earlier post we reviewed research by epidemiologists Richard Wilkinson and Kate Pickett showing that income inequality contributes to a whole host of negative outcomes, including higher rates of mental illness, drug use, obesity, infant death, imprisonment, and interpersonal trust.

In the four-minute video below, Kate Pickett argues that once societies develop the capacity to enable status-based consumption (as opposed to survival-oriented consumption),  status-consciousness among humans exacerbates inequality.  Meanwhile, being status-conscious in a highly unequal society creates stress, and all kinds of other negative outcomes, among those who are judged less-than.

See Dr. Pickett, also, on why raising the average national income in developed countries doesn’t make people happier or enable them to live longer. And see more about income inequality and national well-being at Equality Trust.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

As we enter the last frenzied days of Christmas shopping, Dmitriy T.M. thought it was worth looking at international comparisons in spending on the holiday. The Economist posted a graph based on Gallup polls and other data sources about how much individuals in various countries in Europe, plus the U.S. and South Africa, plan to spend on Christmas shopping this year, plotted against national GDP. Overall, Christmas spending correlates with national wealth, with the Netherlands being a noticeable outlier (spending less than we’d expect) and Luxembourg in a spending league of its own: