Last Updated on April 18, 2017 by Dave Farquhar
OK, so this is a bit late coming, and I haven’t really been able to think this through as well as I should, so I hope some other people will think through it with me. The problem: Our trade deficit is up.
The solution is to devalue the dollar. Supposedly.Americans crave cheap, foreign-made products. Multinational corporations crave cheaply made products from third-world countries that they can mark up astronomically because of the brand recognition and achieve monstrous profits that they can report to their shareholders every quarter.
To that end, the United States has encouraged outsourcing and granted most-favored nation trading status to totalitarian regimes such as China who are willing to create favorable conditions for this way of doing business.
And now the United States is complaining about continually breaking its own records for trade deficits.
The current administration is responding by devaluing the dollar. That’s a classic idea. By devaluing your currency, you make your own goods less expensive abroad and you make foreign goods more expensive inside your own borders.
But I see at least two problems with that policy. The ruthless Chinese tie the value of their currency to the U.S. Dollar. So devaluing the dollar does absolutely nothing to help our trade deficit with China. Chinese goods continue to cost the same amount of money here, and the price of U.S. goods in China remains the same.
The price of a BMW or Mercedes automobile goes up, but the people who are willing to spend $60,000 on a car are probably also willing to spend $65,000. It only increases the monthly payment by about $80. It might make the price of a Cadillac look a little bit better, but there are plenty of people who believe the BMW is the better car and will pay the extra money. Meanwhile, Europeans will continue to not buy U.S. cars, because Europeans just aren’t very fond of them.
The second problem is that the United States just doesn’t produce all that much anymore. Consumer electronics are almost exclusively made in China, with the main exception being some high-end consumer electronics still produced in South Korea or Taiwan. Toys are almost exclusively made in China. Some large items such as appliances are made here because they are too expensive to ship overseas, but that cuts both ways.
Buying American helps. But we didn’t do that 20 years ago when we still made stuff here. Now it just might be too late.
Part of me also thinks that we need to quit complaining. Look at these plans for a bungalow house from 1912. This house cost $900 to build–assuming one paid someone else to do it. You provided the land. Adjusted for inflation, that would be about $17,000 today. Our grandparents were raised in houses like this. By comparison, my house is a mansion.
Today, without blinking, we’ll pay that much for a car.
Just two or three miles away from me, houses fitting the modern idea of a proper size for raising a family are being built. They’re about twice the size of mine and they sell for about $400,000. Houses like those from 1912, no longer suitable for storing our lawnmowers, are claimed under eminent domain and razed to make room for big-box stores to sell more foreign-made goods. I’m not sure what becomes of the people who by their own choice were still living in them.
Republicans like to blame high taxes for what they call the decline of the traditional American family, where only one parent had to work. Democrats ask what was so great about that, and blame the modern struggle to make ends meet on low wages or discrimination.
But if we lived within our means, we’d be able to afford to buy U.S.-made goods from stores owned by our neighbors, who are far less likely to abuse eminent domain and deprive people of their property rights.
This is a mess of our own making. The government may have encouraged it somewhat, but the government didn’t make it and the government can’t fix it. That job belongs to us.
Assuming it isn’t too late, that is.
David Farquhar is a computer security professional, entrepreneur, and author. He started his career as a part-time computer technician in 1994, worked his way up to system administrator by 1997, and has specialized in vulnerability management since 2013. He invests in real estate on the side and his hobbies include O gauge trains, baseball cards, and retro computers and video games. A University of Missouri graduate, he holds CISSP and Security+ certifications. He lives in St. Louis with his family.
Dave,
My father was complaining about the move to the service economy back in 1965. (At least that’s when I first remember the rant.)
About house sizes, I live in a house built in the Erie RR town of Hornell, NY. I would say that the house was built in 1900-1910. It could be as early as 1890. There is a parlor, living room, dining room and kitchen on the first floor. The second floor has three bedrooms and a bath, Attic, unfinished basement and garage round out the space.
I date this house by the woodwork. It appears that it is all chestnut, finished, not painted. Many details.
Not all of us "baby boomers" want the "good life" of a too expencive house and a high mortage. Some of us just like kiving as our parents and grandparents did
John
That Sears bungalow is a pretty little house. I could see building one like it on some vacation property (assuming I had the income for such 😉 Our current home, which we had built about 8 years ago, is a one-story, 1,800-ish sq ft three bedroom, two bath (about 2,100 sq ft with the sun room we just had built by enclosing the back porch). It’s big enough, but not too big. We made a conscious decision to not get in over our heads size or price wise. With a new baby on the way, all of those bedrooms will eventually be filled – but I’m still not worried about it being too small. It’s certainly bigger than either my wife or I had when we were growing up, and I don’t recall feeling poor or deprived 🙂
I also suspect that your analysis of the economy is basically correct.