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Reality TV Inventor Loses Big to ‘Buy American’ Fallacy

Bad economics and reality television just made Donny McCall an overnight hero. Unfortunately for him, it’s all for naught.

On a recent episode of ABC’s Shark Tank, a show that features a panel of super-rich investors negotiating investment proposals from entrepreneurs, Invis-a-Rack owner Donny McCall was denied $100,000 to help expand his business because of his refusal to outsource any part of his production structure to foreign labor markets. Because of a love for his country and his ailing hometown economy, he decided beforehand that looking overseas for cheaper production costs was simply unacceptable. “It’s high time that somebody stood up and not just bow down to the automatic of going to overseas to do anything” he said in a post-show interview.

McCall has been praised all around for his apparent “patriotism” and refusal to outsource. He appeared on Fox and Friends to discuss his experience on Shark Tank, and his patriotic spirit has earned him the love of Americans everywhere. A Washington Times commentator said he was simply “doing the right thing”, and one blogger has condemned the “quick-kill mentality” that supposedly kept the venture-capitalists from seeing things the right way and investing in McCall’s business.

But there is one problem with this: Producing overseas does not hurt American workers. McCall’s refusal to outsource production only limits the growth of his American-owned corporation, in turn limiting the size of the American economy.

Not surprisingly, the venture-capitalists knew very well why McCall’s insistence on “American-made” product was unwise and ultimately self-defeating. All five of them rejected his otherwise-enticing offer, saying he was not willing to do what it took to take his business to the next level. One wisely remarked that by refusing to outsource, he was limiting the number of Americans who would benefit from his product, as well as the number of Americans he could ultimately employ. McCall offered no response but to stand by his decision.

As I’ve shown before, the notion that ‘buying American’ is inherently good for the American economy is simply wrong. While it may seem that such a claim is true on the surface, a deeper investigation into just what happens when consumers pay more to ‘buy American’ shows that not only does doing so not help the economy, but it actually limits economic growth.

When foreign producers sell goods in the United States, it is because they are making a profit. They are supplying goods that American consumers demand at prices they agree to pay. By doing business in the US , they are inevitably in competition with American firms as well. This has the effect of incentivizing all firms to increase the quality of their good while lowering prices. This in turn benefits the American consumer, who has more goods to choose from while keeping more of their income. Reality TV Inventor Loses Big to Buy American Fallacy

In McCall’s case, outsourcing production would allow him to lower production costs and sell his product at a lower price. This would make the Invis-a-Rack available to more Americans, who would in turn use it to run their own businesses and lower their own production costs. He would be able to hire more American workers, and perhaps begin to sell in foreign markets as well, eventually bringing revenue into the United States from foreign markets.

Perhaps McCall’s economic mistake is most obviously revealed in the fact that he seemed to have no problem outsourcing to other states. Indeed, he said his parts come from several suppliers around the country. But according to his logic, such outsourcing harms his hometown–which he claims is suffering economically. Why outsource to Ohio or Michigan when the same production can be done in one’s own state or hometown? I would wager that he’d say it still benefited the American economy. But if that is the case, does not outsourcing to China benefit the global economy, in turn benefiting Americans?

McCall is wrong, and his stubbornness harms both his business and his countrymen. His adherence to principle is admirable, but the principle itself is flawed.

The ‘buy American’ fallacy is costly. It inhibits economic growth, keeps prices high, and limits trade between nations. It cuts off capital flows to developing economies and restricts consumer choices. It makes small-business owners feel guilty for using cheap overseas labor to start businesses in the US–some of which ultimately create thousands of American jobs. It contributes to the “fortress mentality” that has millions of Americans erroneously believing that sacrificing innovation is more than acceptable if it means one more step down the road to American economic ‘self-sufficiency’.

But for Donny McCall, the fallacy has been costly indeed.

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38 Responses to Reality TV Inventor Loses Big to ‘Buy American’ Fallacy

  1. dotrat February 13, 2012 at 7:52 am #

    Take Weathertech….100% American made and doing just fine. I understand your concept that Donny could possibly employ more people if he outsourced. But what everyone fails to recognize is that we are not a country made up of just administrative staff and office workers. We have a whole segment of our population that are tradesmen and craftsmen…its embedded in their DNA. The general consensus and practice at the top of the corporate food chain has been to write these folks off completely….because it produces higher margins. It can be done here…it can be profitable….and the folks who love building products with their own 2 hands can feed their families with their skillset.

    • nfreiling February 13, 2012 at 1:47 pm #

      There is no doubt that some firms can produce exclusively in the US and make a profit. But for other firms, it is impossible. Insisting on domestic production only means that those firms for whom it is impossible will not exist.

      In Donny McCall’s case, it is possible, as Invis-a-Rack seems to have existed for a few years already. But it is impossible for his firm to grow as fast producing domestically as it would if he outsourced production. This means less revenue and fewer Invis-a-Racks sold to consumers who want one.

    • Matthew Leslie February 15, 2012 at 6:26 pm #

      Your reply is purely emotional and devoid of logic and reasoning.

      • dotrat February 15, 2012 at 8:58 pm #

        And your reply lacks vision and belief your country could compete. Don’t get brainwashed by everything you read in the WSJ.

  2. dotrat February 13, 2012 at 8:16 am #

    Invis-a-rack outsources to other states for steel…there is no steel production in the Carolinas.

    • nfreiling February 13, 2012 at 12:42 pm #

      Yes, but the reason there is no steel production in the Carolinas is because it is more profitable to produce steel elsewhere. I see no reason why producing steel in Carolina would be impossible…entrepreneurs have simply moved production to those places where it is more profitable.

      In the same way, entrepreneurs outsource production to places where production is more cost-effective (often overseas due to lower prices of labor). To limit entrepreneurs by making them produce at home would be like forcing those Carolinians interested in producing steel to stay in Carolina to do so. This would mean drastically higher prices for steel, which in turn limits the growth of any enterprise that uses steel, which in turn limits the growth of the American economy.

      Does that make sense?

      • dotrat February 13, 2012 at 3:14 pm #

        They buy their steel in Ohio….where there has been steel production for 100 years.

        • Matt W December 21, 2012 at 8:39 am #

          You are hurting your own protectionist argument by highlighting this fact.

  3. dotrat February 13, 2012 at 3:01 pm #

    Is America becoming the world’s office park? Is this what we have been reduced to? I just can’t digest that….nor accept it. GE just made the news today for reinvesting in American factories for aviation equipment. Folks buy German products based on an expectation of quality. And I think Invis-a-rack wants to build the finest possible truck around. They also want to protect their design. Not every product has to sit on the shelves at Walmart to be successful. Invis-a-rack will be successful for the same reason Ford has made a comeback….they didn’t take the bailout and they produce higher quality products you can feel good about.

  4. Charles February 14, 2012 at 7:32 pm #

    This is pretty rich . . . we need to not hire American workers so we can hire more American workers. Just more neoliberal market fundamentalism without the fundamentals.

    Have you really not read this article?

    http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?pagewanted=all

    Apple follows that market fundamentalism and they’re one of the most profitable companies in the world. And yet how many people do they employ? Not many, and more and more Americans are being left behind as a managerial, quantitative, technocratic class reaps all the benefits.

    How many people can become desk jockeys or analysts? Not enough for a healthy economy, that’s for sure.

    • nfreiling February 14, 2012 at 9:11 pm #

      So you think Apple should limit their profits and production in order to employ more Americans?

      • Charles February 14, 2012 at 9:28 pm #

        So you think Americans shouldn’t have jobs?

        • Matt W December 21, 2012 at 8:39 am #

          Hey, look, a strawman.

  5. nfreiling February 14, 2012 at 10:37 pm #

    Charles: Mine was an honest question. I can’t figure out what your conclusion is from your comment. Do you think that Apple should limit how much they produce and raise the prices of their products in order that more Americans might be employed?

    And to answer your question: Of course I think Americans should have jobs. Outsourcing production in no way means that Americans will less more jobs than if production was domestic. There is no ‘fixed-pie’ of jobs, and if foreign workers are producing goods for sale in the US, it only means that American workers can focus on those areas in which they have the comparative advantage, thereby expanding the division of labor and facilitating economic growth around the world. Such areas would include things like the health care, retail, tech, and finance industries (although I do believe American manufacturing industry will remain very large for many years to come).

    • Charles February 15, 2012 at 9:30 am #

      Only someone who is hoping themselves to work in the tech and finance industries could possibly say what you just said.

      I work in tech. Do you know how many people the tech industry employs in the United States? Definitely not enough to provide good jobs for the vast majority of the country. The cost of education in this country makes it prohibitively expensive for people to learn the skills it takes to really succeed in tech or finance, and for every talented student who leverages up on student loans and then “makes it” there are ten others whose purchasing power is curtailed for the rest of their lives. Even tech jobs are starting to be outsourced at an increasing rate, so what are graduates supposed to do?

      Finance has shown itself to be a bloated and unstable Ponzi scheme after it torpedoed the global economy and it is shedding workers and hangers-on to return to the smaller, specialized profession it has been historically.

      And retail? Please, the growth of the retail and service sectors is why the economy is so dependent on unsustainable asset bubbles. We have an over-leveraged and underpaid consumer base that can’t sustain an economy of rising commodity prices.

      As you can see in the Times article, Apple reduces their prices by ~$65 per unit through their dependence on outsourced slave labor. They could raise their prices and employ Americans, even though it would probably cut into their profits, but perhaps the good they would do for the American economy would boost purchasing power domestically.

      The narrow mindset that believes in profits and shareholder value above all else has been criticized by, among others, Jack Welch, and is rapidly becoming incongruent with the emerging economic reality that Americans are waking up to.

      Something that Americans seem unable to realize is that if your economy doesn’t work for the ten other guys, and not just the well-connected superstar, it doesn’t work period.

      Read this, and think about where your mindset is leading. To communism, frankly, not that that would bother me.

      http://www.rushkoff.com/blog/2011/9/7/cnncom-are-jobs-obsolete.html

      • nfreiling February 15, 2012 at 5:38 pm #

        The economy is very dynamic. Of course the tech industry cannot employ the entire country right now. I was simply making the point that outsourcing manufacturing of certain goods to countries where such goods can be produced more cheaply allows the investment of American capital in other industries…industries where the United States has a decided advantage over other nations, thereby encouraging the flow of capital into the United States.

        Regarding your comment about Apple…yes, they could have raised the price of the iPhone by $65 and produced it here. They would have also sold fewer iPhones and iPads, though, meaning they would be a smaller corporation and would not employ as many people as they do now. This means fewer jobs total…not just for Americans. This would also mean that the entire industry that has grown up just around the iPhone and iPad would be decidedly smaller, and less people would have access to this technology, which has been creatively utilized by thousands of Americans to increase productivity and increase quality of life.

      • Charles February 16, 2012 at 12:55 pm #

        The profits that Apple makes turn into retained earnings or manufacturing costs, with a few small capital expenditures taking place in the US and maybe some proportionally small fixed costs to hire new retail employees and a small bunch of software and product professionals.

        Relative to the size of their profits, they employ a very small amount of people in the country. Increasingly, most people are starting to not give a crap about shareholder value. The stock market hasn’t reflected the actual health of the American economy for over a decade.

        And in a cheap money economy where the stock market is propped up by liquidity from the Fed, ECB and DOJ discount windows, that is only going to continue, provided we don’t have another massive crash in the meantime.

        Wake up. Your Econ textbook doesn’t reflect reality.

  6. Rick February 15, 2012 at 1:12 am #

    This incident reminds me of when Ford Motor Company turned down government bailout money. They stood up for their principles, and consumers rewarded them for it. If I was smart enough to predict how consumers would react and invested in shares of Ford stock, I could have easily retired by now.

    I think it’s a brilliant tactic on the part of the Invis-i-rack inventor because he’s not cheapening the perceived value of his product by adding a “made in China” sticker. Sure, he might lose on a few sales, but he won’t be forced to sell his product at Wal-Mart prices. If he had a boring commodity product to sell, he would be forced to sell it at low prices to compete with the competition, but since his product is unique and inovative, he should be able to charge whatever reasonable price he wants to.

    The Shark Tank show did him a favor by rejecting him. With all of the free publicity he will be getting, consumers who hear his story will become more polarized (Much like Ford customers) and either throw money at him hand over fist or go buy an inferior Chinese product from his competitors at Wal-Mart like they would have anyway.

  7. adam February 15, 2012 at 1:52 am #

    This whole post is predicated on the fallacy that the markets w trade with are naturally fair, and aren’t manipulating their resources to put our workers and economy at a disadvantage. What you write sure sounds good, and as long a you never investigate the fairness of all of our trading partners, then it works reasonably well. The biggest problem is the utopian naivete that Chicago school economists seem to hold the worlds trading markets, while doing everything they can do to avoid ever last dime of taxes. How ironic is it that cheating is fine if it screws your country out of taxes, and fine if you screw the economy out of labor, but you’re obviously stupid for thinking this way. Obviously.

  8. J Public February 15, 2012 at 3:52 am #

    Outsourcing Economics is dismal pseudo science
    ========================================

    Do you understand how many American lives are sacrificed every day on the alter of global economy? Outsourcing is nothing but exchanging dollars against goods and today’s dollar derives it’s value from oil, so it becomes imperative for America to control world oil supply which essentially comes from middle east. Americans are paying price of outsourcing in sacrificed human lives.

    Now think about this scenario of compulsorily drafting children of supper rich in age group 20 – 50 years of say wealthy people with more than 50+ million financial assets. Then send them to fight the war in middle east, if the recruits are non soldier material still send them to war zone as support personal. The whole dollar, oil, war game that supports outsourcing will stop in six months….. Never fight a war unless children of supper rich are fighting alongside you.

    Check all your economics text books, none will have a definition of wealth, that is why economics is a dismal pseudo science. Think….

  9. Eric Evans February 21, 2012 at 1:15 am #

    I think some of the “Buy American” zealots who see fit to comment on this issue would do well to read Chapter 7 of Henry Hazlitt’s “Economics In One Lesson”, titled ‘The Curse of Machinery’. It is not about outsourcing specifically, no, but the root issue behind the fallacy is still the same; replacing less efficient labor with more efficient labor displaces jobs. The problem is that most people only look back in that same direction of the economy for jobs and see losses, when the reality is that the money saved by implementing more efficient labor (both by the producer and the consumer) can now be put to better use in the market, which will tend to create labor opportunities in the market, opportunities which may put the skills of those displaced to a better, more efficient use.

    In just over 200 years the U.S. farming sector has been almost completely wiped out in terms of manpower, and yet our agricultural output is is amongst the highest in the world. Furthermore, there were not and have not been masses of displaced farm hands in the streets begging for change; virtually all of those affected were able to find employment somewhere. Some of them may have even taken jobs helping to manufacture the machines that displaced them, and they probably made more money assembling the machines than working farmland.

    Coincidentally, you can download a free PDF copy of the Hazlitt’s book right here:

    http://mises.org/books/economics_in_one_lesson_hazlitt.pdf

    • nfreiling February 21, 2012 at 9:55 am #

      Thanks for your input, Eric! As Hazlitt would say, it’s all about seeing the unseen.

    • Matt W December 21, 2012 at 8:47 am #

      Hazlitt’s work EIOL is an excellent, succinct work. To add to your point, we aren’t after ‘jobs’ or ‘work’, in the same way we are not after ‘money’, we are after what money buys and what is produced from ‘jobs’ or ‘work’, real wealth/value.

      Like you said, the protectionist argument relies upon the same argument for the curse of machinery. Why do we care who or what produces something, or where a particular good/services is produced? The more that is produced overall, the more everyone benefits, assuming we maintain the freedom to produce our own value to exchange for other produced goods/services.

      The ‘incredible bread machine’ is a good illustration of this. Of course, as more production is assumed by machines/robots, including 3-d printers, IP will have to be overhauled as it will highlight its flaws, but that is another topic.

  10. hotdogman March 12, 2012 at 9:15 pm #

    The buy American fallacy? Are you kidding me? It is only a fallacy for those who believe it. I don’t think getting goods produced by Chinese (or any other nation) workers who make substandard income and can never hope to afford the goods they produce does the world economy any good. The people who make out here are the corporations that are behaving in a socially irresponsible way- the same corporations that hire fancy economists to justify their views. If you buy a product made in America, you are giving an American a job. That person can then afford to go out to dinner, or buy something else or, God forbid, pay his rent and clothe and feed his family without becoming a burden to taxpayers.

    There is an old saying: “Think globally, act locally,” that applies to political involvement. Basically, all great changes initially occur at the local level. Apply that to economics: “Think globally, buy locally.” Maybe American made goods cost a bit more, but the reason they do is it’s an uneven playing field on the global labor market. Paying a buck or two more for locally produced goods affects the local economy positively; Reagan called it “trickle down economics” and even though it has become a phrase twisted by politicians and corporate economists, it is a very real phenomena. Show me a community with a strong manufacturing base and low unemployment and I will show you a healthy economy. Show me a community buying the “buy American fallacy” and I’ll show you an economically depressed community with a bunch of Chinese made, plastic crap in their landfill.

    Spew all the corporate economic rhetoric you want- I aint buying YOUR fallacy. Americans can make a good ten dollar tee shirt just as well as any other nation, they’re just numb from all the corpoate propoganda, like this article, that’s been jammed down their throats while their standard of living declines.

    Give me an Invis-a-Rack over something made with Chinese steel any day. Not only does it give an American a job, it shuts up corporate economic mouth pieces like the author of this article who claims to study economics at Grove City College. Study some more son, and don’t believe everything they tell you about guns and butter.

    Just sayin…..

    • nfreiling March 15, 2012 at 4:54 pm #

      “I don’t think getting goods produced by Chinese (or any other nation) workers who make substandard income and can never hope to afford the goods they produce does the world economy any good.”

      My response: Ending imports from China won’t do any good either. It will impoverish the Chinese people and stifle what economic growth they have. And, as I showed in my article, it will mean higher prices for American consumers.

      “The people who make out here are the corporations that are behaving in a socially irresponsible way…”

      My response: What is the alternative? Should corporations try to increase their costs, in turn increasing the prices of consumer goods for Americans? This would be almost impossible to even conceive of. As Milton Friedman said, the social responsibility of business is to increase its profits. By doing so, they reward the more efficient producers and punish the less efficient. And the people who “make out here” are American consumers, who face lower consumer prices.

      “Think globally, buy locally.”

      My response: How local? Is it wrong to buy something from another state, or just another country? If just another country, then why should we seek the economic welfare of Americans over and above people of other countries?

      “Americans can make a good ten dollar tee shirt just as well as any other nation…”

      My response: They sure can! But there is only so much capital in the world. It is simply more profitable for everyone when Americans employ capital in those lines of production where the US has a comparative advantage over other nations (tech, health care, consulting, etc). There is nothing better about producing shirts than producing medicines or technology. Indeed, it would be sad if American capital was reverted back to textiles! That would mean millions of Americans would move out of their offices and back into the field and factories, something I think most Americans would rather not do.

      “…it shuts up corporate economic mouth pieces like the author of this article who claims to study economics at Grove City College…”

      My response: I do study economics at Grove City College…if you don’t believe me, I don’t know what else to say. And I am not a “corporate economic mouth piece”. I simply believe in the supremacy of free markets over centrally-planned economies. I support the right of business-owners to produce overseas, and have been convinced of the economic benefits gained from an expanded division of labor and voluntary exchange, both of which would be involved in Donny McCall’s outsourcing the production of Invis-a-Racks to China.

  11. hotdogman March 15, 2012 at 5:23 pm #

    The playing field need to be leveled. I KNOW we live in a global economy and we can’t turn back the clock, but if a company can’t efficiently and profitably manufacture or produce goods anywhere but places where inequities in labor markets exist, then maybe they aren’t efficient at all. It’s a global shell game. When Chinese workers raise their standard of living and living wages, will corporations continue to manufacture there or will they move to the next cheap labor market?

    At a certain point, the socioeconomic costs outweigh the so called efficiencies. Profits are one thing, community standards of living are another.

    Funny how you are quick to defend the supremacy of free markets over centrally-planned economies when the free market corporations exploit labor in countries with centrally-planned economies. You can be a capitalist and still provide local (American) jobs while turning a profit. A community with a diverse labor force will have higher employment and a more vibrant economy. More money in the economy means more folks can buy more goods and services- boosting every one in the process.

    Calling it the Buy American Fallacy and criticizing companies that value community as much as profits is about as UN American as you can get. No offense to the potentially displaced Chinese worker who doesn’t have a job because the Donny McCalls of the world keep production on this continent, but I care more about my neighbor. The Chinese worker would do well to concern himself with his.

    And I do believe you go to Grove City College. You speak with the certainty of a naive and idealistic twenty something. You better learn Mandarin Chinese (my kids are), because the path we are taking is putting China at the top of the world economic food chain.

    • csfuller March 15, 2012 at 9:03 pm #

      You state that, at a certain point, socioeconomic costs outweigh efficiency and that profits are one thing, but community standards of living are another. How else do you judge whether benefits outweigh costs than by whether a profit is made?

      You state that free market corporations exploit labor, yet individuals in those countries voluntarily choose employment at these “exploitative corporations.” Are you suggesting that we can improve the plight of poor individuals by removing one of the few options for income that they have? I don’t deny that many in 3rd world countries suffer under extreme poverty, but it is illogical to propose to help them by further narrowing their choices for making a living.

      You state that more money in the economy means more folks can buy more goods and services. Aside from the fact that the amount of money in an economy is irrelevant to its health, this is precisely what the practice of outsourcing allows for. Because outsourcing allows for more and cheaper consumer goods, individuals have “more money” by which to buy more “goods and services.” Your view implicitly suggests that a country can increase its wealth by increasing its costs of production.

      You state that we are putting China at the top of the world economic food chain. The Chinese are indeed becoming wealthier through trade…but so are we. No country can benefit itself at the expense of another through the voluntary actions of individuals who engage in mutually beneficial trading relationships.

  12. tj November 11, 2012 at 6:16 pm #

    Apparently Invis-A-Rack is doing just fine after all – right here in The US. Good for Donny for sticking to his values and integrity. check it out http://invisarack.com/

  13. BN December 6, 2012 at 7:23 pm #

    I applaud your attempts to educate people on basic economic ideas.

    In North Korea, they say BUY NORTH KOREAN.

  14. Chris A April 22, 2013 at 11:40 am #

    I read Hnery Hazlitt’s ‘Economics in One Lesson’ in high school 30+ eyars ago and at the end of theschool year I bought all my teacher’s spare copies and gave it to friends.

    The issue with farming out manufacturing jobs overseas, is that in the next war, we need a manufacturing base to support the war effort. Between WWI & WWII Britain emasculated it’s defense industries and lost muc of its manufacturing base to the US, Germany, et al. When war came not only did they not have enough capacity to make destroyers and Spirfires in the quantaties needed, they did not have the machine tooling the make the manufacturing facilities to produce the destroters and Spitfires they needed. They were lucky that the world’s largest industrial power – not the world’s largest service economy – was sympathetic to them and then came into the war on their side.

    Who will we rely on? China? Japan? Germany? What if they are on the other side? What if they are indeed on our side, but they are an ocean away with supplies subject to interdiction by the enemy?

    Farming our jobs is particularly bad since they are our fiercest competitor and most likely opponent. Yes, we will get cheaper lamps, truck racks, and cell phones in the meantime, allowing us to focus on what we are best at – financial shenanigans and real estate development – but when tens of thousands of artillery pieces and 6-wheels drive 5-tons trucks are what is needed, we will be as poorly prepared as the British in 1939.

    I worked for an importer of chinese manufactured goods and dealt with 19 different Chinese manufacturing concerns 6 eayrs ago. believe me, I wouldn’t wish that job on anyone and we do NOT need those jobs here. The products were markedly substandard, the manufacturers’ ability to respond to customer needs were atrocious, i.e., nonexistent, and a consumer is much better off buying a non-Chinese product of any origin in the long run.

    So, Hazlitt yes, but in the real world, we don’t just exist in a purely economic vacuum, we have political and military and realpolitik concerns to address which benefit our country, just as much as ecomomic efficiency.

    Buy 1) American, 2) from a friendly nation like Britain, Canada, Austrialia, Taiwan, or Japan, or some other NATO or SEATO ally 3) from a neutral nation like Sri Lanka or Brazil, 4) from anyone but China, and 5) from China if their is no other option.

    Go Donny!

    • Chris A April 22, 2013 at 11:51 am #

      Dear Moderator – editied for spelling, typos, & incomplete sentences -

      I read Henry Hazlitt’s ‘Economics in One Lesson’ in high school 30+ years ago and at the end of the school year I bought all my teacher’s spare copies and gave them to friends.

      The issue with farming out manufacturing jobs overseas, is that in the next war, we need a manufacturing base to support the war effort. Between WWI & WWII Britain emasculated its defense industries and lost much of its manufacturing base to the US, Germany, et al. When war came not only did they not have enough capacity to make destroyers and Spitfires in the quantities needed, they did not have the machine tooling the make the manufacturing facilities to produce the destroyers and Spitfires they needed. They were lucky that the world’s largest industrial power – not the world’s largest service economy – was sympathetic to them and then came into the war on their side.

      Who will we rely on like that? China? Japan? Germany? What if they are on the other side? What if they are indeed on our side, but they are an ocean away with supplies subject to interdiction by the enemy?

      Farming our jobs out to China is particularly bad since they are our fiercest competitor and most likely opponent. Yes, we will get cheaper lamps, truck racks, and cell phones in the meantime, allowing us to focus on what we are best at – financial shenanigans and real estate development – but when tens of thousands of artillery pieces and 6-wheel drive 5-tons trucks are what is needed, we will be as poorly prepared as the British in 1939. We cannot even produce enough MRAPs for our needs in Afghanistan and that is not a major industrial power opposing us there.

      I worked for an importer of Chinese manufactured goods and dealt with 19 different Chinese manufacturing concerns 6 years ago. Believe me, I wouldn’t wish that job on anyone and we do NOT need those jobs here. The products were markedly substandard, the manufacturers’ ability to respond to customer needs were atrocious, i.e., nonexistent, and a consumer is much better off buying a non-Chinese product of any origin in the medium and long run.

      So, Hazlitt yes, but in the real world, we don’t exist in a purely economic vacuum, we have political and military and realpolitik concerns to address which benefit our country, just as much as economic efficiency.

      Buy 1) American, 2) from a friendly nation like Britain, Canada, Australia, Taiwan, or Japan, or some other NATO or SEATO ally 3) from a neutral nation like Sri Lanka or Brazil, 4) from anyone but China, and 5) from China if there is no other option.

      Go Donny!

      • Moses May 5, 2013 at 2:29 am #

        most of the world has decimated their militaries.

        has been shown time and time again,
        the countries that are the US largest trading partners are the most unlikely to engage the US in war.

        The best thing the US can do is further economic activity with the world’s malcontents not reduce it.

    • Nicholas Freiling April 22, 2013 at 11:52 am #

      Chris,

      What effect do you think economic inter-connectedness has on nations’ incentive to go to war with one another?

      • Chris A April 22, 2013 at 2:24 pm #

        With due respect Nicholas, I think is has zero inter-connectedness. Books were written by serious scholars before WWI giving clearly-reasoned arguments that because of economic inter-dependence, a general European war would never happen. Economic disruption and fear of same would cause leaders to find peaceful solutions.

        People and leaders will cut off their economic noses to spite their faces when faced with issues of pride, territorial aggrandizement, philosophy (like Marxism), religion, etc.

        Believe me, I am all in favor of economic efficiency along Hazlitt/Mises/Friedman lines, but military and industrial power must also be maintained. Economic power feeds these, but cannot be allowed to subvert them.

        To bring us back to Shark Tank, Donny seems to be doing well – googling him to see what has happened to him is how I found this blog. Would he be doing even better if he had the product made in Taiwan or S Korea? Would consumers have more $$ in their pockets of they were buying a S Korean Invisirack for $549 instead of an American made one at $689? Yes. But he will be able to make stamped receivers for sub-machine-guns or whatever else if we need that when the time comes, and I’m ok with that.

        There is another benefit to producing in the US, since I’m on a ramble -

        I used to work in inventory planning for a major publisher until 2002, then left the industry and came back in 2004 working for another company. Up until 2002 we printed all our books with printers whose manufacturing facilities were in MO, OH, and TN. By 2004 the new company I worked for bought books from the company I left in 2002, and that first company had moved all its work to vendors who then printed their books in China and Singapore. When it used to take 6 weeks at the height of the busy season to have 50,000 1,100-page color hardcover art history books printed and delivered from an American print facility in 2002, in 2004 it took 3 months to get 600 40-page color hardcover childrens’ books printed and delivered by ship across the Pacific. Forget the unit cost for materials less shipping – the opportunity cost was enormous!

        My colleagues who stayed with the 2002 publisher had to carry more stock against the possibility of a sales spike because they knew it would take longer to get inventory if they ran out. This results in more warehouse space, greater increase of product obsolescence and spoilage, etc.

        Add to that, the political instability of many foreign countries, possibility of nationalization, etc, and what made sense to someone in a corner office on the front end, i.e., moving production overseas, makes no sense on the back end in some cases. But in the prevailing US corporate culture, VPs move on to other 6-figure jobs in 2-5 years and do not have to live with the havoc such decisions cause, while they are patted on the back and given raises and promotions for making the decisions in the first place.

        Sorry for the soapbox, and thanks for the opportunity to vent ;)

Trackbacks/Pingbacks

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