Sunday, March 11, 2007

Screwed up economics

There is something fundamentally wrong with our economy when commodity prices (food and energy) are extremely high, while at the same time our country is flooded with cheap imported finished goods. Let me start by giving some examples of what has inspired my view that there are rampant incongruous economic underpinnings present throughout the United States (and the rest of the world I suspect).

My friend called me the other day to say how he had just purchases a brand new washing machine for $309.00, and on the same day received his natural-gas bill for February that was also $300.00. We both observed how this situation was both poignant and repugnant. How can it be that an entire washing machine is built, shipped (from overseas most likely), marked up (by a retailer), and delivered to one's house for no more total cost than heating the small house it was delivered too for a single month? When I consider the energy used to melt, roll, bend, shape, and weld the steel in the machine together, and the further energy consumed during transportation, display (lighting/heating at store selling it), and so forth, I just can't fathom how the additional raw material costs and labor and store profit can not put the price of this device over $300.00.

Next, I fill up my gas tank in my car. Luckily I do not drive much, but when I filled the near-empty tank this time, it cost $45.00! Then, I go to Staples to get a new office chair to replace an aging one I have, and see that I can purchase the exact replacement for less than what I just paid to fill up my gas tank. And, that chair has all sorts of plastic and petrochemical-based components in it, plus, as with everything else sold in the USA these days, it was shipped here from China, and has included packaging and markup, etc. How in the heck does this all work? I am fully aware of "economies of scale" and "mass production" and all, but something just doesn't seem to add up for me regardless. In the end, my chair purchase actually exceeded the price of my gas, since I decided that in relative terms, I might as well purchase a model that is better cushioned and ergonomically correct, even if it costs the same as 3 tanks of gas -- at least I'll get ten years or more out of the chair, versus a month or two of driving (like I said, I drive very little).

So far, I've only discussed energy prices. Food is equally insane! When I go to the store and see oranges for $1.00 each, or tomatoes for $3/pound, or Cantaloupe for $5/each, I just once again have to question the price of finished goods being so low. Are food prices in the USA completely manipulated (upwards), because if not, and the prices here were representative of the prices elsewhere in the world, the people making those cheap imported finished goods overseas could never even afford to eat!?! And, you can't blame shipping costs either, since I have checked into that and found that even for reasonably small shipments (a few tons) all the way from China to the USA, I can palletize and ship stuff for 25-cents/pound... and, the vegetables I'm discussing are coming from this continent!

Fact is, anything outside of the "core CPI", which by definition excludes the "volatile food and energy" sectors, is experiencing insane price pressures. I just don't get, if these energy and food prices are not just out of control here in the USA, how the price of finished goods is not soaring too. I suspect price manipulation at the point of origin (especially in China), but even that seems unable to account for everything.

So, I stick with my economics blog title of the day, that is, everything is screwed up!