Wednesday, October 27, 2010

Food is Now More Affordable Than Ever, Thanks in Part to International Trade

Charles Campbell, retired senior VP of Gulf Oil, cooks up quite "a stew of errors, misunderstandings, and non sequiturs" about free trade, according to Don Boudreaux, in this Baltimore Sun editorial "Free Trade Has Failed the U.S."

Some of the errors appear in this discussion on U.S. food export and imports:

"In 1970, U.S. technology was superior to that of every other nation in the world; we manufactured nearly everything we consumed; we were essentially self-sufficient in energy; we exported food; and we imported little of consequence.  Over the last 40 years, we have hollowed out our industrial base and .... we now import more food than we export."  

In fact, we typically export more food than we import in most years, and have run trade surpluses for food in 2007, 2008 and 2009.  And we have always imported billions of dollars of food each year (think bananas, coffee), see chart above.  Partly as a result of increasing international trade, food is more affordable than any time in U.S. history, when measured as a share of disposable income (see chart).  Free trade has not failed the U.S., it has contributed to a rising standard of living for all Americans, and the increasing affordability of food is just a small part of the story.     

38 Comments:

At 10/27/2010 8:41 PM, Blogger PeakTrader said...

Federal Reserve Bank of Chicago
Is U.S. Manufacturing Disappearing?
August 19, 2010

Manufacturing employment as a share of total employment in the United States has been declining over the past 60 years. In 1950, nearly 31% of nonfarm workers were employed in manufacturing. Since then, the share has been dropping...falling to 28.4% in 1960, 20.7% in 1980, 13.1% in 2000, and 9.1% in 2009.

By 2006, the U.S. economy employed about as many workers in manufacturing as in 1950, just over 14 million. In contrast, the growth of nonfarm employment averaged 1.9% per year.

While employment has changed very little over the past 60 years, output in manufacturing has increased at an annual rate of 3.4%. Manufacturing output in 2007 was over 600% higher than in 1950.

So how was manufacturing output able to surge over the past 60 years with little change in the sector’s employment? The answer can be found by looking at productivity. The increase in both the number and quality of machinery over time, along with technological improvements in production processes and inventory management, have given rise to greater manufacturing sector output at lower unit cost.

Productivity growth in the manufacturing sector has averaged 2.9% over the past 60 years. In essence, this means that manufacturing sector output has risen each and every year by around 2.9%. What took 1,000 workers to produce in 1950 could be produced with 184 workers in 2009.

In 1950, the manufacturing share of the U.S. economy amounted to 27% of nominal GDP, but by 2007 it had fallen to 12.1%. How did a sector that experienced growth at a faster pace than the overall economy become a smaller part of the overall economy? The answer again is productivity growth. The greater efficiency of the manufacturing sector afforded either a slower price increase or an outright decline in the prices.

Advancement in technology leads to productivity gains. U.S. spending on research and development can be used as a proxy for the effort being devoted to developing new technology. On this front, the U.S. appears to be in relatively good shape as we continue to invest heavily in research and development. Research and development averaged 2.5% of our GDP between 1953 and 2008. Between 1999 and 2008, it averaged 2.7%.

Fifty years ago the majority of research and development was being funded by the government, much of it in support of public sector programs. More recently, the private sector has become the major funder—the privately funded share of research and development averaged 36% during the 1960s; 47% in the 1970s; 54% in the 1980s; 66% in the 1990s; and 72% between 2000 and 2008.

I often have the opportunity to tour manufacturing production facilities, and I am impressed by the continuous improvements in technology that companies employ.

The new pieces of equipment are more accurate, faster, more versatile, and less expensive than their predecessors.

The manufacturing sector remains vibrant and innovative. Manufacturing output has been rising at a solid pace over time...highly productive operations can achieve their output goals using fewer workers. Nonetheless, higher productivity has fostered a globally competitive U.S. manufacturing sector with the ability to produce more goods with relatively lower price increases, which has benefited U.S. households and the overall economy.

 
At 10/27/2010 8:41 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 10/27/2010 9:10 PM, Blogger PeakTrader said...

Charles Campbell, retired senior VP of Gulf Oil says: "We have hollowed out our industrial base."

He may hold that belief, because even with technological improvements in the oil industry, it increasingly cost more to extract a barrel of oil, while it increasingly cost less to produce a unit of output in manufacturing.

 
At 10/27/2010 9:13 PM, Blogger PeakTrader said...

I'm sure he "hollowed out" some oil wells.

 
At 10/27/2010 11:01 PM, Blogger Don Culo said...

It's a shame I don't have a job to psy for thr More Affordable food.

 
At 10/27/2010 11:39 PM, Blogger sethstorm said...

Except that the goods are very odd, given the reputation of (more than a few) that don't keep poisons out of food.

Unless you like melamine, mercury, or various degrees of spoilage in your food.

 
At 10/28/2010 12:32 AM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 10/28/2010 8:42 AM, Blogger juandos said...

Peak Trader's has pointed to William Strauss' Is U.S. Manufacturing Disappearing? commentary which is really quite interesting...

What Strauss fails to mention (or is it a failure?) is how excessive regularion might give extra added impetus to the disappearance of manufacturing and its associated jobs...

 
At 10/28/2010 8:58 AM, Blogger Jet Beagle said...

Gulf Oil, like the other large U.S. refiners, undoubtedly invested billions over the past half century to increase the productivity of oil refinery workers. My father was a refinery operator and labor leader when his company introduced computer controls which eventually resulted in a workforce reduction.

If Charles Campbell was involved in decision-making in the original Gulf Oil Corporation, he knows exactly how automation reduced manufacturing employment. He also knows how increased productivity and economies of scale in the refining business accounts for this interesting fact:

While the number of refineries in the U.S. has been cut in half since 1980, and refinery employment has been slashed, total U.S. refinery output has remained unchanged.

 
At 10/28/2010 9:18 AM, Blogger Jet Beagle said...

Don Culo,

Employers in Texas have added 153,000 jobs over the past year. Have you tried looking for employment in Texas? North Carolina added 49,000 jobs. Indiana employment was up by 39,000. Are you looking in the right places?

 
At 10/28/2010 9:26 AM, Blogger Buddy R Pacifico said...

This might not be the right time in history to compare food prices. An inflection point has been reached with food prices skyrocketing!

 
At 10/28/2010 9:31 AM, Blogger Tom said...

Our food would be at least 10% cheaper if not for the idiotic ethanol program, competing for farmland.

Automation is doing for manufacturing what it did for agriculture - greatly reduces labor inputs.

What is hollowing out America is obese government, now 63% of our economy and growing like a weed - 43% in direct government spending and another 20% in the cost of regulation, most of it excessive.

Government is driving up costs for all major parts of consumer spending - housing, food, energy, medicine, education, and retirement savings. Big government IS the problem. If we cut government in half, it would double the income available to the rest of us.

 
At 10/28/2010 12:15 PM, Blogger PeakTrader said...

Rather than export-led economies losing through inflation, interest rates, and currency exchange rates, which is a slow process, the U.S. should allow more immigrants who are wealthy, high-income, and high-skilled, particularly from export-led economies.

Those immigrants can raise their living standards substantially by selling their assets, exchanging their currencies for dollars, and moving to the U.S.

They will create jobs and promote economic growth, and when a real recovery is underway, the Fed can absorb those dollars to maintain sustainable growth.

The U.S. government, over the past two years, has refused to refund the dollars sent from the private sector to the U.S. government through export-led economies. Instead, the U.S. government grew bigger and more powerful, at the expense of the U.S. masses, who will pay one way or another.

 
At 10/28/2010 12:37 PM, Blogger James said...

Dirk Van Dijk, Director of Research at Zacks Investment Research, a stock analysis firm, has a new note out today about the unemployment claims falling. He says in part:

As they age out of the system, they will have no income, and they have probably already depleted their other financial resources. In other words, they will not be able to buy anything. That is a disaster for them, but it is also not good news for the economy. It is hard to see how hundreds of thousands or millions of people unable to buy food is a good thing for Kroger (KR - Analyst Report) or Wal-Mart (WMT - Analyst Report).

That lack of spending will tend to depress employment further, as the Krogers and Wal-Marts of the world see less business and thus become less inclined to hire. While we don’t want to turn extended unemployment insurance into a back-door welfare system, with all the dependency issues that entails, we should also not pretend that having millions of desperately poor people -- poor to the point of serious hunger -- is a good thing for the economy.

 
At 10/28/2010 1:26 PM, Blogger Jet Beagle said...

"we should also not pretend that having millions of desperately poor people -- poor to the point of serious hunger"

You know, I've had to listen for at least 50 years now about all this "poor people .. serious hunger" garbage. And yet, somehow, the liberal media can never seem to find a malnourished poor person to put in front of the camera.

It wuold do the nation good in the long run to have a few seriously hungry people on the nightly news. Then people might finally realize - as they haven't in 50 years - that they are responsible for themselves. They might finally start once again "saving for a rainy day" as we were taught many decades ago.

 
At 10/28/2010 9:40 PM, Blogger Hydra said...

If we cut government spending in half it would double income.

This is pure unadulterated fantasy.

Say tax rates are 30%. Cut that in half and you have 15% more to work with. How do you use that to double your income? You could do it, but it might take 40 years. After you pay down accumulated debt.

Meanwhile, you stretched out government payment of its debt (your other debt) by 80 years. You increase your income by a fraction of what you decrease government income.

You assume that all of the government cuts result in zero loss of benefits.

How much would you have to expand the economy to make your 15% increased investment in it double your income?

Sorry, this kind of hyperbole flunks any kind of test.

 
At 10/28/2010 9:47 PM, Blogger Hydra said...

Food production is industrial production. We are shipping it overseas almost as fast as we are increasing it here.

Regulation and labor costs are the drivers. Reducing regulation wont help unless you either work more competitively or increase protective regulation. And we know how well that works.

 
At 10/28/2010 10:54 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 10/28/2010 10:59 PM, Blogger Ron H. said...

"You know, I've had to listen for at least 50 years now about all this "poor people .. serious hunger" garbage. And yet, somehow, the liberal media can never seem to find a malnourished poor person to put in front of the camera."

This has got to be the best comment I've ever read on this blog. Seriously!

Thank you Jet. Thank you, thank you, thank you.

I hope you won't mind if I preserve it in its entirety for future use. I know it will come in handy.

 
At 10/29/2010 5:55 AM, Blogger juandos said...

"...we should also not pretend that having millions of desperately poor people -- poor to the point of serious hunger -- is a good thing for the economy"...

Hmmm, wouldn't this help mitigate the supposed obesity problem in America?

 
At 10/29/2010 7:19 AM, Blogger sethstorm said...


Rather than export-led economies losing through inflation, interest rates, and currency exchange rates, which is a slow process, the U.S. should allow more immigrants who are wealthy, high-income, and high-skilled, particularly from export-led economies.

No. You're trying to advocate the use of a program that has been used solely for fraud against the US. Not jobs.

We have plenty of those people and plenty of people looking for work. No shortage existed in a good economy, and no shortage exists in this economy. But if you want to count the people who promote the fraud as jobs created, go ahead.



Jet Beagle said...

...hungry people...

So you want to advocate more opportunity for harm. Desperation makes for very uninformed choices, and gives business a bit too much power. Case in point would be mining country - they could theoretically leave, but the cost is too high for most.

Feel free to work in a coal mine if you want to know what happens with advocating your view. Or a Third World country. But don't let reality break your control of the message.

 
At 10/29/2010 7:34 AM, Blogger juandos said...

"You're trying to advocate the use of a program that has been used solely for fraud against the US"...

What the heck does that mean?

 
At 10/29/2010 3:32 PM, Blogger Tom said...

Hydra does not recognize that big government is soaking up 63% of the economy, he only thinks of recapturing half the 30% income tax rate. Taxes and regulation costs are hiding everywhere.

Corporations are passing on all their tax costs and regulation costs to consumers, who pay it all. By cutting government in half, 31.5% of GDP (half of 63%) would be available to the private sector, to add to its 37% share not already dictated by big government. That would move the private sector share of GDP to 68.5%, a nice improvement over the existing 37%.

The US has been Europeanized, and we will have high unemployment and economic stagnation as long as we tolerate 63% government. I'm quite sure Americans will not long tolerate Eurosclerosis. We demand prosperity and freedom. However, we have not yet recognized the appalling level of government - 63%. And many among us cannot conceive of taking our country back from the socialists.

 
At 10/29/2010 6:21 PM, Blogger Hydra said...

"Hydra does not recognize that big government is soaking up 63% of the economy, he only thinks of recapturing half the 30% income tax rate. Taxes and regulation costs are hiding everywhere."

=================================

Ususally we hear that consumers represent 70% of the economy and Government 30%. By your math the econsomy must be 138% as big as it is, so we are a lot better off than you claim.

You are not counting the Benefits that come from regulations. Many regualtions are explicitly passed because they provide benefits greater than their costs. According tot he GAO there is no reason to pass any legislation that does not provide a net positive benefit.

There is still a problem with distribution of those benefits. We could do a lot better job of analysisi, in many cases. some of the analysis is simply not believeable.

And that includes analysis that says government is 68% of the economy. If that is really the case, we had better not cut government in half: that would represent a huge recession.

Put it another way: if government is really 68% of the economy, how wil youeer get more than 32% to agree to cut it? everybody else is making their living off of it.

I agree witht the basis of what you are saying, I just can't swallow the kind of ridiculous hyperbole that makes conservatives look like raging idiots.

"I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it."

John Stuart Mill

Tom, your second paragraph is complete gobbledygook, it manages to be not understandable and disbelievable at once. Coporations pass their tax costs on to consumers, but after all the loopholes, subsidies, and protectionism are taken in account their share is nowhere near 31.5 % let alone twice that.


I fully recognize that a new local regulation took a million or so out of my pocket a few years ago. But my local governmeent is not answerable to the GAO, and in fact is constrained by law to ONLY consider the effect on local budget in its deliberations.

I am, therefore well, aware of your argument abut regulations, but even I don't think it is anywhere near as good an argument or as large an argument as you think.

Try showing me a problem I can believe, with a solution that might be workable.

Food is more affordable due to foreign trade, and so are a lot of other things. Now suppose that other manufacturors were limited by zoning to only the business they are in.

A closthespin manufacturere put out of businsess by foreign competition could only sell his enterprise to another clothespin manufacturor.

That's the situation many farms are in: they have been expropriated by zoning regulations, ostensibly because they have value beyond that of agriculture.

Since they cannot get out, (like the clothespin manufacturor, who would buy in that market?) farmers go on producing for less and less, trying hopelessly to compete with the overseas market.

You are eating their goods, but they are eating their equity.

So there is a case where regulation produces lower prices to consumers.

 
At 10/29/2010 9:21 PM, Blogger sethstorm said...


What the heck does that mean?

I was pointing out that they were supporting a program that claims to bring in "skilled workers", but only delivers fraud. That is the H1-b program (and friends).

The only product of those programs is to bring in fraud.

 
At 10/30/2010 7:18 AM, Blogger juju said...

To Peak trader,
As a manufacturer, you are absolutely correct! Finally someone understands technological advances in manufacturing.
I am considered to be a "small manufacturer". Last year my small company purchased 5 robots!!!!
If I am doing that, multiply me by millions of businesses.
Manufacturing is following the same pattern as farming.

 
At 10/30/2010 9:52 AM, Blogger Hydra said...

Farming is manufacturing and we should stop treating it differently.

 
At 10/30/2010 11:14 AM, Blogger Moataz said...

You are not counting the Benefits that come from regulations. Many regualtions are explicitly passed because they provide benefits greater than their costs. According tot he GAO there is no reason to pass any legislation that does not provide a net positive benefit

there are no benefits to claim from such regulations passed. Just as Sarbanes-Oxley didn’t eliminate financial crime after Enron, the forthcoming reregulation of the financial markets will not thwart the Bernie Madoffs. It will only violate rights, raise costs, and curtail growth.

Unless of course you mean benefits to the regulators themselves who are more than happy to inject their fantasy world about how things ought to work in a marketplace

 
At 10/30/2010 7:54 PM, Blogger Hydra said...

I'll agree that sometimes benefits are not measured accurately.

Like when we claim there are none.

 
At 10/30/2010 8:02 PM, Blogger Hydra said...

The death penalty didn't prevent murder.

Pesticides don't prevent pests.

Nuclear weapons don't prevent war.

Contraceptives don't prevent births.

If we are going to eliminate things that don't work, we can start with reasoning like yours.

 
At 10/30/2010 8:13 PM, Blogger Hydra said...

We have a regulation that says you stop at red lights. It works most of the time because we understand the concept of most probable value.

It has also been shown that in extreme conditions like rush hour in Rome, that traffic lights work less well than chaos.

That doesn't mean we should always opt for chaos.

 
At 10/30/2010 8:18 PM, Blogger Hydra said...

You mean like the growth Bernie and Enron created?

If the regulations cost less than the losses they prevent, are they worthwhile, even if they don't prevent every loss?

 
At 10/31/2010 6:24 PM, Blogger Ron H. said...

Hydra,

"If the regulations cost less than the losses they prevent, are they worthwhile, even if they don't prevent every loss?"


Based on your handy little formula for measuring the worthiness of a regulation, how does the 'Public Company Accounting Reform and Investor Protection Act' better known as Sarbanes-Oxley measure up?

Does it save more that it costs?

Can you show examples of its benefit?

Who pays the cost & who saves?

Keep in mind that this set of accounting rules didn't prevent Bernie Madoff's scheme from continuing for years..

You should know that I already know the answers so think carefully before you answer.

 
At 10/31/2010 6:41 PM, Blogger Ron H. said...

Hydra,

Here's a hint: consider carefully the role of unintended consequences, as that's part of the correct answer.

 
At 10/31/2010 7:46 PM, Blogger Hydra said...

If you don't have the numbers you don't have the answer. Your preface seems to imply that I cannot have the answer, since it is unknowable.

Those rules did not prevent Bernie. So what?

I do know that execs think twice and double check before they certify something they can be held responsible for.

 
At 10/31/2010 8:11 PM, Blogger Hydra said...

S-O was passed in response to corporate scandals that cost investors billions. S-O is a continuing requirement and it is not free to comply. Eventually it will cost billions, too.

But it will be harder to raid the company as happened at Adelphia. Corporations brought this on themselves. It should not be so hard to do accounting honestly. But what I hear you saying is that fraud will happen anyway.

It is nice to know you have such a high opinion of our corporate citizens.

So why is it you don't think they need oversight?

 
At 10/31/2010 8:18 PM, Blogger Hydra said...

Unintended consequences fall in the category of external costs.

Minimize total cost where TC = production cost + external cost + government cost.

Fraud and crime are external costs, too

 
At 11/01/2010 1:39 AM, Blogger Ron H. said...

"Your preface seems to imply that I cannot have the answer, since it is unknowable."

That's exactly right. As usual you're just talking out of your ass about things you know nothing about. You can't possibly know whether this accounting requirement has a benefit greater than its cost.

Those rules did not prevent Bernie. So what?

So what? The intent is to prevent just this type of fraud. There is no indication than any positive benefit has ever accrued.

"I do know that execs think twice and double check before they certify something they can be held responsible for."

You should consider using more nuanced language when you write comments about something you don't have any knowledge of. You sound really ignorant when you say something like "I know...". Try something like "I believe..." or "In my opinion...".

In the real world, as opposed to yours, Sarbanes-Oxley was a knee-jerk political reaction to public outrage over corporate and accounting scandals involving Enron, Tyco, Adelphia, Peregrine Systems and WorldCom. If dishonest dealings could somehow slip by regulators, then there must not be enough regulation. "Lets throw lots more accounting and reporting requirements at corporations; that should prevent further wrongdoing!" cried the politicians.

The fact that wrongdoing continues, including Madoff, carrying on in plain sight for so many years, is an indication that Sarbanes-Oxley may not be very effective.

The fact that many large corporations supported Sarbanes-Oxley should be a clue to you that it may not be the solution you think it is.

It's my understanding that Sarbanes-Oxley adds approximately $5million to the cost of compliance and reporting for every company that must comply. This is pocket change for a company like GE, or Bank of America, or IBM, but to smaller competitors, it can be a serious problem. In fact, for some smaller companies, it can make the difference between staying in business and failing. So naturally, large companies who stood to improve their competitive positions were all for it.

So the costs are pretty easy to see, but the benefits? Not so much.

If you respond, try to stay focused on what I've written, and leave the unrelated stuff out.

 

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