Economics 101

As I noted last time, I admit to being untrained in economics, but that does not mean I know less about what drives our economy than professional economists. This is sadly true because of the sad nature of the dismal science, which is all conjecture and bias and precious little science.

The scientific method requires hypothesis, test (experiment), conclusion, reassessment when the next experiment gets done. The economist, whether he is the cluelss Milton Friedman or the more informed Paul Krugman, has to stop after the first step. His version of experiment, testing is, at best, a mathematical model.

Because the model involves math, it intimidates everyone but other economists, so it is often accepted as truth.

But if you want to learn something about the real economy, log on to the New York Times of 1/22/12, Sunday, and read the article "How U.S. Lost Out on iPhone Work."

The central story here is how Steve Jobs suddenly decided he wanted stratch proof glass screens on his iPhone because he had carried the plastic screen iPhone in his pocket and the screen was scratched by his keys. And he wanted the change NOW. So his minions scurried off to China, where the factory had a dormitory filled with workers who were roused from sleep, given a biscuit and a cup of tea and they started churning out the new phones with the new glass screens overnight and Mr. Jobs had his glass screen iPhone.

This is supposed to demonstrate that: 1/ Chinese workers are more flexible and 2/ Diligent 3/ Skilled and 4/ Dedicated than American workers. Those Chinese workers in that factory will never be displaced by American workers. Steve Jobs loved them. His successors at Apple love them.

But the question you have to ask yourself is, how important was it that iPhone had a new glass screen overnight? If American workers had come in the next Monday, after they'd had a weekend at their kids soccer games, hunting or fishing, and they'd got those glass screens into the iPhones, say a week or two later, how much market share would iPhone and Apple have lost?

Here in Hampton, New Hampshire, I was astonished when I first arrived in 2008, and discovered the laundramat closed down at 3 PM on Saturday, as did the barber shops and many of the stores. It was like when I was a kid in Bethesda, Maryland and everything closed down at 1 PM on Saturday and nothing was open on Sunday, which was God's day, and you were supposed to be in church and not worshiping at the palace of Mammon on Sunday.

But you know, we all managed to plan a little and to get our shopping done and that meant we played ball on Saturday and Sunday rather than shopping. I doubt we bought any less; we just planned our shopping in advance.

I could be wrong.

By the time I left Bethesda, I could have my hair cut at 7 AM, Sunday morning by the Vietnamese barber, but, you know, if he had not been open then, I would have gone in on a Monday.

Anyway, this is all a digression, I understand.

A man I know who got rich making dress shirts for executives told me about the factory he had in Arizona. He lived in Maryland, but his factory was in Arizona and ultimately, he discovered he could make the shirts at a factory in China, pay for the shirts to be shipped back to the USA and he still could get the same quality workmanship and shirt for ninety-seven cents less per shirt and when you're selling hundreds of thousands of shirts to Brooks Brothers every year, that savings becomes significant.
But when you really questionned this guy, in a friendly, non judgmental way, what became evident was what really attracted him was he owed nothing to the workers in China. When he got his shirts from China, he sent the cloth in and out came the shirts and he paid the factory owner and he had no more cares than how to get the shirts back to the USA and sell them.

He did not want to be the father of the people who made the shirts. When he complained about "regulations" in the USA, he was talking about inspections to be sure the factory didn't go up in flames, and negotiations over pensions for the workers, and taxes he paid for the workman's comensation insurance, and taxes he paid for the employer's share of worker's taxes and the money he spent on medical insurance for his workers, which any year could rise enough to wipe out any profit margin.

"I just wanted to get a shirt out of a factory," he said. "I didn't want to adopt 400 children."

For this same reason, American companies now "outsource" or contract out lots of tasks and work to people who have a contract, but are not on their payroll. You do a specific task, and I pay you a set fee and I have no more responsibity to you or for you.

This is a far cry from the man in Georgia who kept his broom factory open, making specialty brooms because he had 30 workers who had worked for him for 30 years and he felt he owed them a job. And it's a far cry from the partner in the real estate development firm who kept the firm open after he and his two partners struck it so rich on a single deal that his two partners promptly retired, but he felt he had to keep the firm open because 12 people depended on him for their jobs. His partners were living the lives of country squires in Hunt Country in Virginia, while he went in to the office every day and worried about health insurance costs for his employees.

The fact is, that sort of paternal feeling of the CEO of the company who feels he owes his workers and his country something is becoming quaint and has been rejected as sentimental.

The company is run for the guys who own it, which, even in a publicly owned company like Apple, means Steve Jobs and a few others, who make hundres of millions while the Chinese factory workers live in dormatories.

Is this right?

Wrong question. That's the way it is, under current law and under current American values.

But it reveals the big lie in what the Republicans have been saying, that it's "Regulations" that is keeping American companies from creating jobs for American workers.

Regulations have nothing to do with it. You can say, well regulations which require factory owners to deal with unions are government regulation, and regulations which require the factory not burn down or poison the workers or the river next to it are regulations and regulations which take the form of taxes are government's heavy lash. But the fact is, American factory owners are willing to bear all that to make cars in America because it's still cheaper than trying to do it in Asia, and when it stops being cheaper, those jobs will vanish.

Fact is, making a product can happen anywhere and with current modes of transport, the other side of the world is just fine--the product is as close to you as your nearest Walmart.

American jobs will have to be done here only for those things where proximity matters.

You can out source the reading of an X ray to a doctor in India--and many if not most hospitals have already done this. You go to the emergency room after a brick has fallen on your head and the CT they do there is read in India, by a radiologist who doesn't even have to be roused from bed. He's already awake because it's 3 PM in India. But the neurologist who examines you, the IV tech who starts your intravenous line, the nurse who gives you your medication, those folks cannot be in India.

What's making American workers lose out to Chinese workers is a lot bigger than any set of government regulations. The Republicans are just looking for a scapegoat which will benefit their own election ambitions, and they've found it in "The Government."

Creating jobs here at home will take more thought than a few clever slogans. We've got to figure out what we can do here that those Chinese workers in the factory dormatories cannot do faster and more cheaply. We'll be happy to have what those Chinese factories can give us, but we have to figure out what they cannot do for us and we can do those jobs here.