Macroeconomics 101

Disclaimer: I am not an economist. But I did take a few Econ courses as an undergraduate and I’ve read Keynes’ General Theory 😉 The opinions herein are mine…

The scenario: We, the consumers, like cheap stuff.

Take cars, for example. We want more goodies on our cars, and they are getting expensive. Car manufacturers say, hmmm. If I put a plant in a country where there’s less expensive labor, I can hold down costs. Plant moves, some jobs lost, but there is more spending since cars are now less expensive, and other jobs created.

Fast forward: For whatever reason, we want to impose 20% import tariff. Now cars cost more, because we, the consumer pay this tax. Spending drops on other goods and services, jobs are lost.

But wait, car manufacturers could bring jobs back. Yes, but higher wages mean a more expensive car. Spending still drops on other goods and services, jobs are lost.

Car manufacturers say hmmm, with tax break on investments, I can build new plant with robots replacing even more jobs, and cars will cost somewhat less, but likely more than before. Especially with that big tariff removed, a 10% increase looks good. But, now, we still don’t have jobs, the car manufacturers have bigger profits, paid to shareholders who buy luxury imported goods…

2 thoughts on “Macroeconomics 101

  1. John Ager

    I appreciate the impulse Joel but you’re overthinking it – like many people!

    The tariff issue isn’t complicated and it’s based on the flawed logic that high paying US manufacturing jobs can be recreated. They cannot, except in small numbers for highly specialized tasks. Robots and automation are the future for almost all manufacturing. Politicians avoid talking about this because the voters are very susceptible to wishful thinking. And the pols don’t have an answer to the robot revolution!

    The other point is about fancy features added to vehicles. Most (all?) manufacturers are addicted to the yearly model cycle and continue to add new features to drive showroom traffic and sales. Ideally features that cost them a lot less than they can charge the customer (still putting in those navy systems which are very overpriced). Tesla is showing the way with over-the-air software upgrades that add features at a low cost. It’s been interesting to observe the savage opposition to Tesla and their sales model (no showrooms) by the traditional car dealers – dinosaurs under threat! I see Ford making some good strategic moves (towards Uber/driverless car approaches) but the rest are all stuck in the past.

    As for the profits going to shareholders – not going to change without some radical politics. Bernie not only lost, he was destroyed by the elites. But hey, we get more shiny things!!

    Reply

Leave a Reply

Your email address will not be published.