Krugman: 85% of consumer spending in America is on American-produced goods and services

[pampango]

Not So Global

http://krugman.blogs.nytimes.com/2012/01/16/not-so-global/

Barry Ritholtz sends us to a San Francisco Fed paper from last summer that makes a point on which many people seem confused: despite globalization and all that, the bulk of a consumer dollar spent in America falls on American-produced goods and services.

The reason this matters — or at least one reason it matters — is for discussion of austerity, stimulus, and all that. I often get comments along the lines of “Well, maybe stimulus worked back in the old days, but now it just means spending more on stuff from China”. In reality, that’s nowhere near true.

Why? For one thing, most consumer spending is on services, few of which are really tradable. For another, even if the thing you buy in WalMart says “Made in China”, the price includes a lot of US value-added in the form of transportation and retailing costs.



So we’re still a country where about 85 cents of your consumer dollar is spent at home, one way or another. And this means, among other things, that the rules of macroeconomics haven’t changed nearly as much as people imagine.

Canadians spend about 75% on domestic goods and services, Germans about 70%, Swedes less than 60%. Less than 2% of consumer spending here is on Chinese-produced goods.

[Broderick]

1. I would like to see the separation on goods vs. services

What percentage of services are spent vs. goods is American based and separate the two.

[cthulu2016]

2. You are looking at it.

The chart is isolated goods.

We do not spend much on Chinese services. If anything.

[Broderick]

4. I am not following the chart at all. Confusing to me

“Made in China”, the price includes a lot of US value-added in the form of transportation and retailing costs.


Then there is this in the article. I want like to see a pure breakdown on the products as a percentage. Maybe it's there but I have a hard time seeing where the percentages line up to the claims made.

Thanks by the way. I was merely musing out loud in pixels.

[cthulu2016]

8. The two scales do make it confusing

I think that what is being represented is that about 2% of our spending goes to isolated cost of Chinese goods and about 13% of our spending to the isolated cost of imported goods. (Not counting the value-added costs of shipping the imports from a port to a Walmart, etc.)

If your question is what part of the remaining (domestic) 87% is goods, versus services, that's a good question.

[DCBob]

11. I assume the graph was done that way to better show the rise in the line for Chinese goods.

If they used the same scale as the left side you probably couldnt discern any slope.

[DCBob]

3. That is fascinating..

I would not have thought that.

[Mz Pip]

5. Does this include food?

Those hidden costs must count for a lot. I try to buy stuff made in the US but have a hard time finding much. I read labels and Made in China really seems to dominate the marketplace.

[cthulu2016]

6. This is an important point, as is understanding who holds our debt

The ubiquitous view that America makes nothing, imports all its energy and has a huge national debt held primarily by China makes for zingy talking points but retards our understanding of real issues.

The largest holder of US debt is US bond mutual funds.
We are the world's greatest manufacturer by a lot.
We produce a tremendous amount of energy.

Our problems are very real, but are not usefully defined by our popular short-hand for describing our problems.

[Fumesucker]

7. Services includes a lot of things that are fixed expenses, housing, insurance, vehicle maintenance..

When it comes to discretionary income the proportion going to China is a lot higher, that's what people tend to notice more than paying a bill.

[canoeist52]

9. Food has to be a large part of the "made in USA" buying.

Other than food, manufactured goods consume a very small part of my family's budget.

[muriel_volestrangler]

12. When food and energy are excluded, 88% of expenditure is 'Made in USA'

Here's the paper: http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

(Food and energy are 13.9% of total personal consumption expenditure)

Also: "Two-thirds of U.S. durables consumption goes for goods labeled “Made in the USA,” while the other third goes for goods made abroad. "

Manufactured goods may not be a big part of your budget, but they are for most people - cars, for instance.

[DCBob]

10. I assume outsourcing IT, call center, data processing is a service.

and China would not be doing much of that due to language issues.

On edit: I misread the graph. I think these types of services would not be included in "consumer spending".

[HopeHoops]

13. Services, sure. GOODS? No fucking way.

Utilities make up a shitload of the "services" category. Damn near all of that is domestic.

[dmallind]

14. Even DU heroes like Krugman are pissing in the wind against "common sense"

No matter how many times people post mfg data, export data, US debt ownership data and so on pointing out that the US is a manufacturing leader, export leader and in debt far more to ourselves than those durn furriners, the idea that China makes everything for us and could cripple us by "demanding repayment" ( of fixed term securities no less) remains an immutable and unchallenged opinion of the majority.

I think it's because the only time most people see "Made in XXXXX" labels is when they are buying cheap consumer items where China et al. do have a relative economic advantage. Everybody thinks they know where cars are made, although often wrong (a Ford truck is more likely to be an import than a Hyundai), and almost nobody looks for origin labels on food, housing, fuel, etc.

[cthulu2016]

15. +1

[pampango]

18. Nice post. Actual facts usually do little to change a belief that "remains an immutable and

unchallenged opinion of the majority." It's more comfortable that way.

[Zalatix]

20. +1!

[Igel]

16. It's an interesting claim about aggregate consumer spending.

But Krugman's point is that since 85% of consumer spending is for domestically produced goods/services, therefore 85% of any stimulus spending that gives money to people will be spent on domestically produced goods/services.

He misses the point that if you make $15k/year versus $150k/year you're likely to spend the money on different kinds of things. There's no reason to really suspect that spending by both the poor and the wealthy, as well as by the intermediate categories, is the same. Perhaps. Perhaps not.

Since most people that would receive stimulus money in the form of a tax rebate or reduction already have income and transportation, most of the increase would go for goods or services. So drop housing and transportation largely from the mix. What's left? That's what he has to focus on.

His claim, he gets to prove it instead of pointing out a claim that's probably fairly factual and allowing us to draw the non-fact-based, conclusion deemed appropriate by him.

[cthulu2016]

17. What's left is food

Which is heavily domestically produced

[quaker bill]

25. The word "aggregate" means added up

and then averaged out to a percentage, results will vary between individuals, this is the point of the statistic. He is simply restating what we actually do based on the real numbers.

[TheWraith]

19. Kicked and recommended.

Maybe we can put that shit to bed now.

[applegrove]

21. I stand corrected.

[joshcryer]

22. Fascinating result.

[Bonobo]

23. I wonder if fast food is counted and how much that accounts for... nt

[JCMach1]

24. what Krugman ignores if the knock-on effect of manufacturing...

Factories create a whole complex economic ecosystem.

It is like tearing down the Amazon forest to grow soybeans. Eventually the soil will run out and even artificial fertilizers become ineffective.

[cthulu2016]

26. Krugman has not, and is not likely to ignore that

He is presenting data aboout actual current consumer spending, not arguing that we shouldn't have factories or that we have enough factories.

If he was a propagandist he could make up numbers to make it look like we make less than we do to further encourage development of domestic factiories but he wouldn't remain influentil for long if he did that.

[JCMach1]

28. I am a Krugman fan actually... his point is about stimulus

not manufacturing.

85% of any stimulus would circulate directly back into the US economy.

Of course the multiplier effect of manufacture would be better.

However...

[cthulu2016]

30. Sorry for misunderstanding you

[JCMach1]

31. He would probably say something like

-of course manufacturing is better...
-but given the current economic mix... STILL most of the money (i.e. stimulus) would stay in America.

It is very telling that neither Krugman, or Reich are in Obama's administration...

[joshcryer]

27. Theoretically the real analogy is more like this:

We're keeping our rainforest safe so that other countries can destroy their rainforests to sell us goods, then when their soil runs out, we'll be doing just fine, and having jumped a few technological leaps in the process.

[JCMach1]

29. mon dieu

[joshcryer]

32. Check it out:

The United States produced 4% of the world’s iron ore output and consumed about 5%: http://minerals.usgs.gov/minerals/pubs/commodity/iron_ore/feoremcs05.pdf

The US produced 2.8 million tonnes of aluminum (half from recycling) and consumed 4.6 million: http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2011-alumi.pdf

We have to consume more from elsewhere. I think with the exception of agriculture this is the case with every resource.

What's unfortunate is that other countries don't realize what we're doing. We'll be fully prepared for things like peak oil, for instance. It's going to suck.

[JCMach1]

33. We have bauxite reserves, but no mining

http://en.wikipedia.org/wiki/Bauxite

and apparently we have done little to insure any new supplies of iron ore...

During the 1960's and 1970's, massive pelletizing complexes were built in the Lake Superior District to compensate for the shutdown of the natural ore mines. Today, the district still produces the bulk of the Nation's iron ore, but almost all of the ore being recovered is magnetite. Pellets made from finely ground magnetite concentrate now account for 97% of U.S. usable production (fig. 2). In the late 1980's, blast furnace operators began switching to fluxed pellets in response to environmental restrictions on cokemaking and higher energy costs. This more easily reducible type of pellet is created by adding limestone and/or dolomite to the iron ore concentrate during the balling stage. In 1990, fluxed pellets accounted for 39% of U.S. pellet production... http://minerals.usgs.gov/minerals/pubs/commodity/iron_ore/stat/

Somehow, I suspect the industry remaining is taking advantage of cheap foreign iron supplies... with the notable exception of the automobile industry.

Seems like American business doesn't like miners, or mining.

Can anyone say union?

[joshcryer]

34. +1, I think that's true, and it's not like a conspiracy or anything.

We just want the cheap stuff first and we've decided to let the rest of the world be our supplier. I think it's wrong, but what can ya do?

The labor movement really needs reinvigoration!