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Author Topic: The iPhone Economy  (Read 690 times)
anvi
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« on: January 22, 2012, 11:54:50 am »
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Interesting video posted on the New York Times website, which gives a nice, basic analysis of the changes that have taken place in manufacturing and the labor market in the U.S. in the last several decades.

http://www.nytimes.com/interactive/2012/01/20/business/the-iphone-economy.html?nl=todaysheadlines&emc=thab1
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Wonkish1
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« Reply #1 on: January 22, 2012, 01:28:26 pm »
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Not a very accurate video, but I will say the production value was pretty good.

The job multiplier exists, but it actually isn't a domestic phenomenon. What I mean by that is that you don't only get multiplier affects from jobs created in your home country. You get multiplier affects from jobs created in foreign countries as well. The truth is that for that reason alone Free Trade is in most situations good for domestic job growth(at the bottom I'll point out a big caveat that we currently find ourselves in today, but is also an odd caveat that technically should only happen once in human history).

So lets go back to there example. 1000 manufacturing jobs creates 5700 total jobs. This is probably true. So lets say prior to free trade agreement for example there were 100,000 jobs in the US making TVs for an average retail cost of 3 weeks salary(of the average American worker). Now that would be 100,000 manufacturing jobs and 470,000 complimentary jobs for a total of 570,000 domestic jobs.

Now lets say that free trade agreement is signed and the cost of workers in another country is enough to lower the average retail cost of TVs to 4 days salary(of the average American worker). Due to this decrease in cost the demand for TVs(and therefore the TVs per household skyrocket). What was less than 1 TV per home now becomes 3 TVs per home.

Now to handle the additional buying of TVs by the American public(and the rest of the world for that matter) the amount of manufacturing jobs created in the cheaper country increases from the 100,000 in the US to lets say 300,000 in the other country. To use the job multiplier that was used in the video 470,000*2 = 940,000 complimentary jobs created. Most of which(in trucking, retail, management, marketing, etc.) are created here in the US to service the higher quantity of goods. But lets stay conservative here and claim that half of those 940,000 complimentary jobs are created here in the US. That would mean that decision to engage in the Free Trade agreement causes a net increase of 370,000 jobs(470,000-100,000 outsourced) holding everything else equal.


Here is where the problem has developed. The problem is that the rest of the world was essentially 1 day not in the market economy and the next day was. The developed world only accounted for 1/6th of the world's total population. In economic history I've never heard of any point in history where the supply of the world's most valuable productive asset(people) increased 6 fold overnight. And once that entire population has integrated into the market economy and started to approach income parity with the rest of the world it will never happen again in the history of this Earth. But to integrate 5.5 billion additional people into the market takes years upon years upon years. It could be 2025 before you start to see anything looking like equilibrium in the labor market.

So to be very specific what is happening today is that the benefits from the job multiplier aren't large enough to make up for the flow that is going out to pickup the absolutely massive excess supply in foreign labor. So they are two competing forces and the former isn't strong enough(and wont for some time) to counteract the latter. The best way I can analogize it is that you are in a boat that has a hole in it and a bilge pump working to get the water(unemployment) out. In this case the hole is big enough that more water flows into the boat than the bilge pump(the multiplier) can get out. But the good news is that each day the bilge pump gets a little bit better and the whole in the boat gets a little bit smaller so one day way down the road the bilge pump will be stronger than the hole.

Does that make sense? So I still end up coming to a similar conclusion that right now production moving overseas is a net problem(for now), but I arrive at it from a different angle completely.


But the 1 error that blew up his analysis from the beginning was the notion that the job multiplier is 100% domestic. Its most certainly not. The job multiplier gets distributed among countries like the original jobs do. But the biggest importing country(the USA) gets probably the largest chunk of complimentary jobs.
« Last Edit: January 22, 2012, 04:16:51 pm by Wonkish1 »Logged
opebo
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« Reply #2 on: January 22, 2012, 03:53:57 pm »
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Of course the problem Wonk is no matter how cheap a TV is, it doesn't make up for the fact that there are no jobs in the US anymore.  Technically the TV would have to become free because when you have no job, you have no money to spend (leaving aside the issue that without food one could not really focus on the programming for long).
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anvi
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« Reply #3 on: January 22, 2012, 05:14:32 pm »
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I certainly agree that the economic analysis of the video is not exhaustive, and ignores a lot of the multiplier complexities of trade and exports in a number of industries.  Sure, you get multiplier effects from jobs created in other countries, which is one major factor that makes trade deals desirable.  And I agree that competing forces are partly responsible for the situation we are in now.  But, another salient detail about the consequences of the export of manufacturing jobs to the domestic economy is that, compared to other kinds of jobs, manufacturing jobs have high multipliers.  In addition to that, in what is directly pertinent to the production of iPhones, as manufacturing jobs get exported, so do designers' jobs.  In fact, in Isaacson's recent biography of Steve Jobs, it was reported that Jobs, in advocating for more targeted education spending, actually complained to Obama about the surfeit of engineers that were being produced by the U.S., and thus the need to hire more factory workers in China and send designers there to direct them.  I guess the ultimate point that the video was driving at, in an overly simplistic way, is that one feature of our present employment problem in the U.S. has to do with a rising number of service workers, with low wages and mobility on one end of the employment spectrum, and highly skilled and well-paid workers on the other, with dwindling manufacturing jobs that otherwise would have high domestic multipliers--to demonstrate what effects this situation has on class mobility in the labor market.   
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Wonkish1
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« Reply #4 on: January 22, 2012, 05:57:27 pm »
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I certainly agree that the economic analysis of the video is not exhaustive, and ignores a lot of the multiplier complexities of trade and exports in a number of industries.  Sure, you get multiplier effects from jobs created in other countries, which is one major factor that makes trade deals desirable.  And I agree that competing forces are partly responsible for the situation we are in now.  But, another salient detail about the consequences of the export of manufacturing jobs to the domestic economy is that, compared to other kinds of jobs, manufacturing jobs have high multipliers.  In addition to that, in what is directly pertinent to the production of iPhones, as manufacturing jobs get exported, so do designers' jobs.  In fact, in Isaacson's recent biography of Steve Jobs, it was reported that Jobs, in advocating for more targeted education spending, actually complained to Obama about the surfeit of engineers that were being produced by the U.S., and thus the need to hire more factory workers in China and send designers there to direct them.  I guess the ultimate point that the video was driving at, in an overly simplistic way, is that one feature of our present employment problem in the U.S. has to do with a rising number of service workers, with low wages and mobility on one end of the employment spectrum, and highly skilled and well-paid workers on the other, with dwindling manufacturing jobs that otherwise would have high domestic multipliers--to demonstrate what effects this situation has on class mobility in the labor market.  

But as I said jobs created through the multiplier of manufacturing jobs benefit the United States approximately the same if they are here or there. So if you are looking at the multiplier on manufacturing jobs what you want is the *most manufacturing jobs created in the world* not the *most created here*. And I mean that purely by looking at multiplier and not anything else. So there is no such thing as a "domestic multiplier"(at least not on any scale your thinking and its net on net worse than having more total in the world).

Think about it if this is your current employment numbers in a particular industry domestically:
- I------------------------------------------I manufacturing
- I---------------------------I domestic resources tied to those products
- I-----------------------------------------------I Trucking, transportation, distribution
- I---------------------------------------I sales and retail
- I----------I management and corporate servicing
- I---------I marketing and PR
- I-----------I industry contribution towards ancillary service jobs such as janitorial, utilities, accounting, IT, etc. and many other areas that account for general overhead
- I--------I miscellaneous.

Now lets say we completely wipe out manufacturing by moving it overseas, but the price difference of units causes a 3+ times increase in demand and therefore a tripling of the supply over several years. Well

-I--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--x--I Manufacturing jobs now overseas and without benefit to American workers or labor markets
- I--------------------------------------I Domestic resources
- I----------------------------------------------------------------------------------------------------------------------------------I Trucking, transportation and distribution
- I------------------------------------------------------------------------------------------------I sales and retail
- I-------------------------I management and corporate servicing
- I--------------------------------I marketing and PR
- I----------------------------I ancillary services
- I---------------------------I Misc.

And this all before taking into account that when a buyer saves money on buying something he then has more discretionary money left over to buy from other industries boosting their earning power so they can expand their supply.

The amazing thing is that the power of job and earnings multipliers still isn't enough to overcome a 6 fold increase in the supply of labor overnight(appr. 1 billion people to 6 billion people over night) and that large of a supply increase is a huge pressure downward on wages and a huge pressure on unemployment. For the time being that pressure is much stronger than the job multiplier.

I mean if your city increased in size 6 fold in the matter of a year do you think that it would be a good or bad outcome for your wages? I mean a small increase of even 10% a year probably wouldn't affect your job, salary, or anything. But a 600% increase in 1 year is going to. And its going to take a long time for the market to catch up to that large of a labor supply increase.
« Last Edit: January 22, 2012, 05:59:49 pm by Wonkish1 »Logged
anvi
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« Reply #5 on: January 22, 2012, 07:39:58 pm »
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It seems to me that the following report from 2009 is making largely the same points, particularly in its conclusions, as the Times video.

http://pcic.merage.uci.edu/papers/2008/InnovationAndJobCreation.pdf
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« Reply #6 on: January 22, 2012, 07:43:22 pm »
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They're manufactured by slave labor in China just so that Apple's profits can be even larger.

http://apple.slashdot.org/story/12/01/22/0445233/how-the-us-lost-out-on-iphone-work

Of course the corrupt politicians we elect don't plan on doing anything about this.
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Wonkish1
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« Reply #7 on: January 22, 2012, 08:24:21 pm »
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They're manufactured by slave labor in China just so that Apple's profits can be even larger.

http://apple.slashdot.org/story/12/01/22/0445233/how-the-us-lost-out-on-iphone-work

Of course the corrupt politicians we elect don't plan on doing anything about this.

You do know that China's average household income is now about $12k a year and they have freedom to choose any job that will take them right?

Minus an upcoming crash one of the conversations going out there is that China's cost of labor isn't the asset it once was. Competition has started to drive up wages considerably and now companies are starting to look elsewhere for their new plants including the very, very beginnings of looking at bringing some manufacturing back to the US.

Also keep in mind that the areas where the US has continued to dominate manufacturing in are the capital intensive industries. There is a reason why China has never succeeded in breaking into the automotive industry even though they have been trying for more than a decade. And there is a reason why their announced plans to enter airplane manufacturing is "pie in the sky" crazy dreaming on their part.

When China devalued their currency through their peg they made themselves an attractive destination for low capital cost manufacturing. By utilizing low skill labor and low cost machinery they could do well in that sector. But at the same time by devaluing they made the importation of expensive machinery and high wage work almost impossible for themselves. You devalue and your exports become cheap, but your imports become expensive and many industries like automobiles, planes, heavy equipment, etc. require very, very expensive machinery and labor to get started on production. Those things became 40% more expensive to the Chinese when they devalued so they are at a huge competitive disadvantage.

In the US our appreciation of the dollar vs. the rest of the world over most of the 19th and 20th centuries made the manufacture of capital intensive goods our competitive advantage. And we still haven't lost that advantage still to this day. Think of all of those Asian and German automobile manufacturers that have opened tons of plants in the South over the last couple decades and you have a prime example.
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Wonkish1
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« Reply #8 on: January 22, 2012, 08:42:40 pm »
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And the reason why Apple has among the highest profit margins in all of the US is because they sell technology for a huge markup over component costs relative to other technology companies. Think about it. Compare an Apple laptop to a PC once. The components inside a Mac are not that impressive to pay over $1500 for one. What makes up the difference is peoples appreciation for their more stable operating system and their marketing that's it.

Right off there sites: http://www.apple.com/why-mac/compare/notebooks.html and http://www.shopping.hp.com/webapp/shopping/computer_can_series.do?storeName=computer_store&category=notebooks&a1=Category&v1=High+performance&series_name=dv6zqe_series&jumpid=in_R329_prodexp/hhoslp/psg/notebooks/High_performance/dv6zqe_series

-A 15" Macbook pro has 2.5GHz quad core, 4GB of memory, 128 GB Hard drive, etc. price tag starts at $1800
-A 15" HP starts at 2.4GHz quad core, 4GB of memory, 640GB Hard Drive, etc. price tag starts at $550.
I provided the base components to receive the listed price in each case.

Now what accounts for the vast majority of the $1250 or 327% price difference? Marketing and people's views on the operating system. Apple has convinced people that a Mac is a superior computer and for that reason it justifies the substantially higher cost.

And people wonder why Apple has approximately a 50% profit margin which is basically about 10 times the average of large American corporations and really unheard of outside of only a few rare examples involving high cost low volume businesses.
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opebo
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« Reply #9 on: January 23, 2012, 04:52:48 am »
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You do know that China's average household income is now about $12k a year and they have freedom to choose any job that will take them right?

That's PPP nonsense again, isn't it, Wonk?

In any case, it is still slave labor - non-slave labor involves full benefits, a comfortable pension, and about $35-45/hour.
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« Reply #10 on: January 24, 2012, 04:29:17 pm »
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I read the accompanying article yesterday and I was just exahusted by the time I was through with it. It's quite telling in regards to the fact that that those jobs lost are not lost due wages per se, but the lack of a supply chain. That did not have to be the case. The US needs a coherent industrial policy now. We need mass industrial skills education, even if paid with taxpayer monies, major infrastructural investment, and immigration reform to bring in the best minds and even mid-level managers. Jobs is wrong. We can get these jobs back. But we don't have the will.

However we can, in a way, blame the hipsters for their Mac-obsession as they, as Wonkish said, justify Apple's high prices.
« Last Edit: January 25, 2012, 02:41:45 pm by Simfan34 »Logged

Duke
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« Reply #11 on: January 25, 2012, 01:16:25 am »
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Blame the hipsters? I'll take my mac, iPhone and PBR elsewhere, I guess.
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opebo
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« Reply #12 on: January 25, 2012, 05:51:06 am »
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... We can get these jobs back. But we don't have the will.

No problem, the only way to get them back is to reduce the average wage to around $5/hour.  And the controllers certainly have the will to do that.. its coming soon.
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Simfan34
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« Reply #13 on: January 25, 2012, 02:42:48 pm »
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... We can get these jobs back. But we don't have the will.

No problem, the only way to get them back is to reduce the average wage to around $5/hour.  And the controllers certainly have the will to do that.. its coming soon.

Nonsense. If you read the article you'll see it's not about wages. It's about...

Quote
The US needs a coherent industrial policy now. We need mass industrial skills education, even if paid with taxpayer monies, major infrastructural investment, and immigration reform to bring in the best minds and even mid-level managers.
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« Reply #14 on: January 25, 2012, 03:36:42 pm »
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... We can get these jobs back. But we don't have the will.

No problem, the only way to get them back is to reduce the average wage to around $5/hour.  And the controllers certainly have the will to do that.. its coming soon.

Nonsense. If you read the article you'll see it's not about wages. It's about...

Quote
The US needs a coherent industrial policy now. We need mass industrial skills education, even if paid with taxpayer monies, major infrastructural investment, and immigration reform to bring in the best minds and even mid-level managers.

We also have to be willing to pollute our environment like nobody's business.

We can compete for those jobs.  The real question is do we want to...

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Simfan34
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« Reply #15 on: January 25, 2012, 06:59:46 pm »
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Poor Germans and Japanese, dying of unmitigated pollution for their positive trade balances (Japan, not so much last year).
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« Reply #16 on: January 25, 2012, 07:56:23 pm »
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Poor Germans and Japanese, dying of unmitigated pollution for their positive trade balances (Japan, not so much last year).



Too soon, dude.  Too soon.


Anyway very little of the iphone is built in Germany or Japan.  Look it up if you don't believe me.
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Simfan34
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« Reply #17 on: January 25, 2012, 10:16:09 pm »
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Poor Germans and Japanese, dying of unmitigated pollution for their positive trade balances (Japan, not so much last year).



Too soon, dude.  Too soon.


Anyway very little of the iphone is built in Germany or Japan.  Look it up if you don't believe me.

That was the effects of a natural disaster. It could have happened here; it doesn't pertain to pollution. As your point was, the pollution of Chinese manufacturing would clearly be replicated here. Your example is not industrial pollution.
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« Reply #18 on: January 26, 2012, 12:06:26 am »
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Poor Germans and Japanese, dying of unmitigated pollution for their positive trade balances (Japan, not so much last year).



Too soon, dude.  Too soon.


Anyway very little of the iphone is built in Germany or Japan.  Look it up if you don't believe me.

That was the effects of a natural disaster. It could have happened here; it doesn't pertain to pollution. As your point was, the pollution of Chinese manufacturing would clearly be replicated here. Your example is not industrial pollution.

It was a joke.
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Simfan34
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« Reply #19 on: January 26, 2012, 11:38:04 pm »
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Poor Germans and Japanese, dying of unmitigated pollution for their positive trade balances (Japan, not so much last year).



Too soon, dude.  Too soon.


Anyway very little of the iphone is built in Germany or Japan.  Look it up if you don't believe me.

That was the effects of a natural disaster. It could have happened here; it doesn't pertain to pollution. As your point was, the pollution of Chinese manufacturing would clearly be replicated here. Your example is not industrial pollution.

It was a joke.

I presume that is an admission of the hollowness of your original point that we'd suffer from pollution.

As per the other part, I'm talking about manufacturing in general. It doesn't have to be an iPhone.
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