Ben Shoemate's Notebook

A very interesting analysis by Galina Hale and Bart Hobijn of the San Francisco Fed concludes that very little of American personal consumption spending actually ends up in China. When Americans go buy stuff, they’re overwhelmingly buying things that are made in America:

In part, this reflects the fact that 67 percent of spending is on services rather than goods, and services are 96 percent made in the USA. But even durable goods, which only account for about 10 percent of total spending, are mostly made in America — 66.6 percent to 12 percent for China with the rest coming from the rest of the world. In fact the only category of spending in which Made in the USA doesn’t account for the majority is clothing and shoes. What’s more, even a lot of the spending on imported goods actually reflects the cost of shipping them around the United States:

Table 1 shows that, of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services.

Hale & Hobijn draw from this the narrow point that inflation in China is not likely to have a substantial effect on the price level in the United States. There’s no reason, in other words, for the Fed to worry that inflation in developing countries is a reason for tight money at home. But the broader point, as Doug Henwood says is to serve as “an antidote to the widespread belief that the U.S. is hollowed out and all the action is in China.”

I’ve long felt that the American consumer’s aversion to lamb was slightly odd. It’s got a more delicious flavor than beef, in my opinion, and sheep are generally raised in more humane conditions than other mass market animals. Unfortunately, lamb turns out to be an ecological catastrophe:

That meat in general is bad news, climate-wise, is familiar. But it’s interesting what a big gap there is. The carbon gap between lamb & beef on the one hand and pork & chicken on the other is larger than the gap between between pork & chicken and vegetarianism.

Karl Smith observes that the flight to quality has become so severe that the real interest rate on some classes of government debt is negative:

Suppose the government had two choices. It could either pay for infrastructure improvements as it went along out of tax revenue or it could borrow money build the infrastructure now and then repay the money with tax revenues. Ordinarily the question would be, does the advantage of building quickly outweigh the cost of the interest. However, right now the interest cost is negative. The government saves money by borrowing now rather than waiting and paying cash. Let me say again because I have noticed that this goes against so much intuition that its hard for many people to wrap around when I first say it.

In a sane political environment, Washington would be obsessed with the question of how much can get done within this window. How many projects is it logistically possible to complete quickly enough to take advantage of the cheapness of debt. Instead, we’re attempting to resolve thorny and ideologically freighted questions about the long-term trajectory of the welfare state even though resolving these issues won’t change anything about the present environment. It’s weird. It’s sad.