Barry Ritholtz’s most recent post at Bloomberg is dominated by the graphic above. It is notionally about inflation over the last 20 years but, unfortunately, he confuses price increases with inflation. They aren’t the same. He looks “a little more deeply at each category” but it can be summarized pretty easily. Sectors that have been protected and/or subsidized have risen in price; sectors that haven’t have fallen, largely because their production has moved overseas.
The conclusion is simultaneously painful and easy: protect everyone or protect no one. The idea that our comparative advantage as a country will be as consumers is fatuous.
The idea that our comparative advantage as a country will be as consumers is fatuous.
You mean “competitive advantage.” “Comparative advantage” is a term of art in economics with a meaning far from obvious. Why not just “advantage,” which implies a comparison anyway?
No, I meant comparative advantage as in Ricardo’s theory of trade. Recently, I’ve read some really bizarre assertions about international trade claiming exactly that.
Ricardo’s theory of trade says that even when one country produces everything at less cost than another country it still makes sense for the two countries to trade when the relative costs are different. Unfortunately, neither managers nor consumers make their decisions based on relative costs but on absolute costs. Ricardo’s theory is smart and elegant and correct as far as it goes. It just doesn’t address the situation we have now.
Good try, Schuler, but Ricardo’s theory doesn’t treat either “consumers” or “producers” as potential trade products subject to “comparative advantage” analysis.
I imagine that what you are trying to get at is that Amerikans can’t seem to produce much of anything that the Chinese want to buy. Not true of course, when it comes to agricultural products especially, but this is exactly the situation that Ricardo’s theory of Comparative Advantage envisions: just because the Chinese could produce both rare-earth metals and refrigerators more efficiently than we can does not mean that it would be unwise to form a trade deal for them to sell us rare-earth metals, in which they have a clear advantage, in return for our less-efficiently produced refrigerators.
“We can be cops or criminals. But when you are looking down the barrel of a loaded gun, what’s the difference?”
Inflation, price increases. Whatever. It would be interesting to see a real life weighted average of price increases weighted by expenditures. Hard to do and demographically dependent for sure. But I bet expenditures on health care, food, housing and the like are far greater than TVs, toys and other consumer electronics. Not that consumer savings of several thousand dollars a year are nothing. But consumer bottom line costs are way up.
As an aside, note that the categories where costs are way up tend to be in subsidized/protected industries, or those where the goods and services must be conveyed locally. You don’t go to China to see a doctor.
Speaking of food. Most people are aware of the (suspect) quality and features adjustments applied to prices. But here is another trick being used, especially in container fill products. The retailer approaches you and says “reduce the price to us. Our sales are lagging and we are going to pass half the savings on to the consumer. You currently provide containers filled such that 5% of your distribution falls below advertised weight. Skew the fill practices so the mean weight is at the advertised weight. The packaging still says, say, 30 oz. You save on material. We save cost. The consumer saves price.”
But unspoken is that the relative product delivered to consumer price ratio goes down. Is that inflation? Is that captured by the Burea of Measures. By the economists who calculate inflation? Not to my knowledge.
Enjoy your potato chips. Think of it as stealth dieting.