Thanks, I'll have to check it outBrilliant post Michael...I can see you've been reading Henry Hazlitt's 'Economics in One Lesson'
http://en.wikipedia.org/wiki/Economics_in_One_Lesson
The Great Sugar Shakedown
- Thread starter Michael
- Start date
Carcano
Valued Senior Member
The difference is that hundreds of millions of dollars leaves the country with the import scenario...and all that wealth stays in America with the 'sugar machine' scenario.
Of course, if the inventor of the 'sugar machine' has a MONOPOLY he would set his price just slightly below the cost of imported sugar...and make HUGE profits.
No, you have the effect on the balance of payments exactly backwards if considering the two current real posibilities (Magic sugar machine does not exist) Importing cheaper (than US sugar beet sugar) instead of finished chocolate from Godiva, Nestle, Cadbury, etc. is a great reduction in the volume of dollars leaving the US.
For example, with guessed number but not seriously wrong just to make it easy for you to understand the flaw in your thinking which is focused on only dollars leaving the US to buy sugar:
Assume:
(1) Foreigners currently supply 10% of the US chocolate market (in part because they are buying sugar at nearly 1/3 the price of US chocolate producers. -Page 5 of Hersey´s annual report to SEC for 2011 tells Hersey had to pay an average of $0.60 / pound when world price was approximately $0.20/ pound )
(2) The cost of the sugar is 1% of the cost of the chocolate if bought at the world price but 3% if bought at the US price.
(3) Calculate for each million dollars of chocolate consumed in US:
The foreigners sold $100,000 of that million and paid,$1,000 for the sugar in it. Point is US could have made and sold its $900,000 share of that million dollars of consumption and paid only $9,000 for the sugar in it IF the stupid tariffs and quotas etc, did not exist; but they do so US paid $27,000 for the US sugar it used. (cost to their bottom line profit of $18,000.) By using US sugar, they profit less but avoided sending $9,000 out of the US. This is only 9% of the money ($100,000) that the US sent to the European makers of chocolate
SUMMARY (not exact as only giving simple numerical example that perhaps you will understand):
To help US balance of payments you want to avoid sending of $9,000 out of the country, but pay $100,000 to Nestle, Godiva, Cadbury etc. for the chocolate they ship to the US. (With that extreme display of stupidity, no one will ever hire you as their accountant!)
Probably, if US makers were not at a cost of sugar economic disadvantage to the European makers, the European makers would lose part of their current shair of each million dollars of chocolate consumed in US. Again just a guess to show the effect numerically, say Europeran makers share falls from 10% to 8%. I.e. instead of $100,000 leaving the US only $80,000 leaves. That balance of payments improvement alone is more than twice the $9,200 US could be sending out of the country to pay for the cheaper global price sugar. (With the European share of the US market to 8%, the US makers have 92% so will import, if they could, $200 worth of more sugar. I.e. $9200, instead of $9000.)
Even if you say my guesses are wrong by a factor of two, there is still a great SAVINGS in net balance of payment by importing the cheaper global price sugar: however, other things, not sugar drive the US´s negative balance of payments so fixing the relative small net drain of dollar the current stupid tariff, quota, and subsidy system causes will not cure US balance of payments problems.
The main reason US should stop being so stupid is to keep candy factory jobs in the US instead of have them migrate to Mexico and Brazil. Fact that ceasing to be so stupid would also slightly reduce Joe Americans food bill and the taxes he must pay for sugar subsidies is also small compared to the income tax on the salaries of US workers who lost their job to Mexican and Brazilian workers and even more important it the taxes the corporation would pay, if it had not moved to Mexico or Brazil.
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Carcano
Valued Senior Member
You are assuming a scenario in which there are trade restrictions on some products but not on others. And also that low sugar prices are the ONLY reason chocolate is made elsewhere.
Trade restrictions on sugar imports necessarily also apply to finished products.
As John Stuart Mill pointed out, the ONLY reason for international trade is differences in the availability of raw materials including agricultural products...not differences in price.
No. I did not make that assumption. Why do you assert I did? And even if I did, how other products, like light bulbs, not related to candy are priced and traded, is irrelevant to our discussion. (A smoke screen -?)
No, not assuming that either. In fact have several times I have mentioned that there may be relatively unimportant labor saving, but if there is, most of it is because the Brazilian plant is only 10 years old and very highly automated, compared to Hersey´s more than 100 year old facility in Hersey PA. (Many more tons of chocolate made per worker) When I get time to do some research (not good at that) I will estimate how much labor and sugar at US prices adds to the cost of making Chocolate candy.
That may be true, I don´t know, but even if it is true, the sugar in a candy bar of chocolate is on the order of a penny of cost, I think, so it can´t be very important to Cadbury etc. If there is a "sugar offset tax" on that penny, ($0.0015 per bar?) at best (from your POV) it could remove the disadvantage US chocolate makers have in the domestic market, but there is the economy of volume production to consider also.
I.e. when exporting to other than the US, Cadbury etc. still have an economic advantage over Hersey. (Data I gave for 1099 many posts back, showed that European sold 150% more chocolate, ONLY to the US, than US chocolate makers exported to the entire world - I.e. US is NOT competitive in the global export market, due to the economic advantage European makers (or now Brazilain & Mexican makers) have over US makers, forced to pay higher prices for the sugar they use.) If US makers were more competitive, exported more chocolate, etc. that too would help with the US balance of payments problems but it doesn´t.
SUMMARY: Smoke screens, claiming I made assumptions I did not, etc. are very weak reply to quantities numerical analysis, which even if its stated assumptions are 100% wrong (factor of two) clearly shows that the effect of the current tariffs, quotas, and subsidies, which make sugar from sugar beets economical possible, causes net damage the US balance of payments, not the benefit you claim, with no numerical support, for this government interference in the market.
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Not that I care much for his POV, but I thought Brazil being world´s largest supplier of coffee, orange juice (and many other things, like beef) had more to due with cheap land, longer growing seasons and more sun and fresh water than any other country has.
I guess he is calling sunlight and 12 months with no freezing a raw material! When governments don´t intefer with tariffs, quotas, and price supports (or even free insurance) etc. then the price differences are due to natural advantages.*
John, in his era, could not imagine for example: China buying more than half of the world´s iron ore production (and half of that shipped from Brazil´s east coast!) or oil from Iran, lots of gold, etc. With the cost of bulk shiping in the huge CapeSize tankers and dry bulk carriers if makes no difference where in the world your raw materail is, even if it is bulky. Much more important, and not even mentioned by John, is the political stability of the government where the raw material is.
A little more thinking plus numerical economic analysis and less quoting of 250+ year old obsolete opinons would improve your posts, IMHO.
* Not always the case as the winner of two years ago Nobel Prize in Economics pointed out - I.e. historical reasons often determine who makes what.
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At the beginning of 2011 the world sugar prices beat all records for the last 30 years. On February 2 the historic record of $0.3608 per 1 pound of sugar
http://www.sugarinds.com/2011/07/rumours-world-sugar-prices-are-going.html
http://www.sugarinds.com/2011/07/rumours-world-sugar-prices-are-going.html
Thanks. But your table says for US $1.53 for 2.2 pounds (one Kg). Where does your $0.3608 /pound value come from?
1.53/2.2 = $0.695 / pound, which is very consistent with Hersey´s average cost of $0.60 / pound in 2011 as they must buy railroad car loads at a time and get considerable discount. Also, I am not sure but think the table is giving the grocery store price, not the industrial bulk buyer´s price.
I have already mentioned that no one in Brazil buys alcohol fuel for their flex fuel car now* as it is more expensive than gasoline on a per mile driven basis (and requires filling the tank 3 times for every 2 gasoline fills); AND that 200,000 TONS / year (soon to be 400,000 tons) of plastic are being made from Brazilain sugar; AND that more than 1 million perons globaly are jointing the middle class monthly from having been to poor to buy candy, so in a couple of years, expect to pay about $/pound for sugar in your grocery store (and more for all foods with sugar added.)** In Brazil alone, the surging prosperity for the poor is adding about half a million new candy eaters each month!
* Even saying that my wive will probably NEVER again put alcohol in her flex fuel car as sugar price will climb much higher, for the reasons just given.
** True the sugar beet producer´s cost are not rising as fast as the global price of sugar, but if you think they will sell their surgar for a "fair profit" - say making slightly less than10 cents net on the pound, instead of to the higher global market´s higher price, then I have a bridge near NYC you can buy, cheap.
True story will be much like it was for corn-based alcohol when it enjoyed a $0.54/ gallon subsidy from the tax payers. I.e. then the US exported alcohol to Brazil as with tax payers subsidy, the sales price to Brazilains was below Brazilian production costs.
Hell, putting on my Brazilian hat, Please increase the sugar beet subsidies, then Brazil will be able to buy US sugar cheaper than grow it. My wife can begin to use alcohol in her flex fuel car again as Brazil has plenty of now underutalized capacity to make alcohol from sugar.
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Carcano
Valued Senior Member
The assumption is implicit in your whole rap Billy....and no its not about light bulbs.:bugeye:
You've been flogging this dead horse for endless eons now, without checking your sometimes wildly inaccurate facts and figures, and towards the same old futile objective.
The people have woken up to the fact that free trade just happens to be coincidental to the greatest wealth decline in recent US and European history. A decline covered up and papered over by an equally massive run-up in DEBT at all levels...which will soon dissolve into a tsunami of money printing and inflation.
Enjoy the show!
That is not clear, actually. To the extent that heightened immigration puts downward pressure on worker compensation, it also puts downward pressure on inflation. It isn't clear that the result in terms of purchasing power isn't wash - or even, a positive, if the knock-on effects of cheaper labor result in more growth.
No Billy.
Look at the CHART I posted.
The EU countries pay MORE for Sugar than the US does.
Let me make sure I have this right, the whole reason we immorally subsidize sugar plantation owners in the USA is because we don't want our money leaving US shores?
Why?
We use fiat currency and so, unlike gold money, we can print more of it.
Also, if we purchase cheap sugar from overseas we should be able to use it to produced a finished product that can then be sold to the people from overseas to buy more sugar and whatever else they sell. I mean, now they have some USD which we can use through which to trade with them.
Lastly, why resort to an immoral option, subsidization? IF the real problem is currency (or maybe money) why not address the root cause? I mean, no one finds it CRAZY that it's "bad" that the Chinese devalue their currency so as to produce stuff for us nearly freely? Why is this bad? If it is bad, then obviously the system is screwed and must be changed because they continue to do so and probably will continue to do so until their internal markets are such they will stop selling to us and sell to themselves - which is fine, except I doubt we'll get the same treatment. Imagine a day comes when the US government is buying bonds to keep our workers wages (and lifestyles) low so we can work as Cattle for the Chinese? Oh, wait, that IS happening now!
Seem to me, something is wrong with the monetary system we're using.
NOTE: Immoral, don't get hung up on it. It just means initiation force against someone. In this case tax is forced upon other people to pay for the subsides that off set the plantation owners running costs - to great benefit to him and his extremely wealthy family. Kind of like debt-serfs forced to part with a portion of their produce. Of course back then it was 12% tops... how times have changed....
Why?
We use fiat currency and so, unlike gold money, we can print more of it.
Also, if we purchase cheap sugar from overseas we should be able to use it to produced a finished product that can then be sold to the people from overseas to buy more sugar and whatever else they sell. I mean, now they have some USD which we can use through which to trade with them.
Lastly, why resort to an immoral option, subsidization? IF the real problem is currency (or maybe money) why not address the root cause? I mean, no one finds it CRAZY that it's "bad" that the Chinese devalue their currency so as to produce stuff for us nearly freely? Why is this bad? If it is bad, then obviously the system is screwed and must be changed because they continue to do so and probably will continue to do so until their internal markets are such they will stop selling to us and sell to themselves - which is fine, except I doubt we'll get the same treatment. Imagine a day comes when the US government is buying bonds to keep our workers wages (and lifestyles) low so we can work as Cattle for the Chinese? Oh, wait, that IS happening now!
Seem to me, something is wrong with the monetary system we're using.
NOTE: Immoral, don't get hung up on it. It just means initiation force against someone. In this case tax is forced upon other people to pay for the subsides that off set the plantation owners running costs - to great benefit to him and his extremely wealthy family. Kind of like debt-serfs forced to part with a portion of their produce. Of course back then it was 12% tops... how times have changed....
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We aren't subsidizing sugar plantation owners Michael.
They are getting sugar from Sugar Beets, which is more expensive to produce than from Sugar cane.
Sugar Cane grows in areas where it NEVER stops growing.
Sugar Beets only grow half the year and have to be replanted.
One can't produce sugar as cheap in the US as one can in Brazil or India or China (where the workers make much less as well) and so we don't allow them to be put out of business by not allowing cheap foreign sugar to undercut the price of their more expensive to produce Sugar Beet Crop.
And because we grow our own sugar, we also have the sugar refineries to turn Beets into Sugar, which we wouldn't have if we imported sugar.
As pointed out, it costs us about $3 per person per year to be able to produce our own sugar and not be dependent on Foreign sugar.
Because if we WERE dependent on Foreign sugar, then the price they charge for sugar would quickly be more than that $3 per person per year (ever heard of OPEC?)
They are getting sugar from Sugar Beets, which is more expensive to produce than from Sugar cane.
Sugar Cane grows in areas where it NEVER stops growing.
Sugar Beets only grow half the year and have to be replanted.
One can't produce sugar as cheap in the US as one can in Brazil or India or China (where the workers make much less as well) and so we don't allow them to be put out of business by not allowing cheap foreign sugar to undercut the price of their more expensive to produce Sugar Beet Crop.
And because we grow our own sugar, we also have the sugar refineries to turn Beets into Sugar, which we wouldn't have if we imported sugar.
As pointed out, it costs us about $3 per person per year to be able to produce our own sugar and not be dependent on Foreign sugar.
Because if we WERE dependent on Foreign sugar, then the price they charge for sugar would quickly be more than that $3 per person per year (ever heard of OPEC?)
Yes European typically shop in smaller food stores and pay more for most everything, but that is irrelevant. What is important for the comparison of candy company competiveness is the price of sugar in train cae loads. Do you have data on that? I found on page 5 of Hersey SEC report for year 2011, that their cost was ~$0.60
Perhaps you can find the same for Cadbury. (Their annual report should be in English) If you can then the comparison would have meaning to the discussion, not be irrelevent.
I´m still courious how you got the surely very false value of $0.3608 /pound for US sugar cost, even at the retail level.
That isn't the RETAIL price of sugar Billy, so the size of the EU food shops is irrelevant.
I gave you the link:
http://www.sugarinds.com/2011/07/rumours-world-sugar-prices-are-going.html
Which shows this is just silly:
This is only 9% of the money ($100,000) that the US sent to the European makers of chocolate
They pay MORE for sugar than we do.
I gave you the link:
http://www.sugarinds.com/2011/07/rumours-world-sugar-prices-are-going.html
Which shows this is just silly:
This is only 9% of the money ($100,000) that the US sent to the European makers of chocolate
They pay MORE for sugar than we do.
Please expand on this, giving your logic or arguments. To hear most Republicans on the subject, these immigrants only add to local costs (schools, health service demands, etc. with essentially no taxes paid) - I.e. increase the ratio of government spending to revenue collected. If true that INCREASES inflation.
They "steal jobs" from native Americans (not the true natives -American Indians) drive down wages and this also reduces tax revenues. The conservatives would say: We don´t need QE3 if a hoard of immigrant gets into US - They will cause the US to spend money it does not have, make the debt increase with lower revenue even more damage than the FED just printing money makes.
I am not making that argument, just warning you that it needs to be more than shot down to support your suggestion that immigration lowers inflation.
It's real straightforward: If you can pay your workers less, then you can charge less for the finished products while maintaining the same profit margin. Labor costs represent 2/3 of the costs of private non-farm businesses in the USA. That downward pressure on wages cuts into inflation is such an obvious truism that it's almost axiomatic. Frankly I'm kind of apalled that you'd even ask this - should be common knowledge for anyone claiming to be conversant in economics.
Like most things that Republicans say, that's horseshit. Like all residents and workers, illegal immigrants pay plenty of taxes.
Moreover, we were talking about legalizing them, which would ensure that they pay the same taxes as any other legal worker here.
That said, it is true that individuals on the low end of the socioeconomic scale (immigrant or native) consume more in government services than they contribute in tax payments. It should come as no surprise that people with less than a high school education represent a net drag on the finances of a welfare system.
No, that increases the gap between spending and revenue at current tax levels. Several other steps are required for that gap to be expressed as inflation.
Presumably you are assuming that the gap will be covered by deficit spending, which will then be propped up by the Fed through inflationary monetary policies. To see why that is wrong, realize that almost all of the costs of the new immigrants are carried by local and state governments (this is who pays for the schools, etc.), but lots of the taxes paid by them go to the Federal government. In terms of the Federal budget, said immigrants/workers are a net plus. If you read the Republican screeds carefully, you'll note that they complain about the States paying all the costs of illegal immigration, while the Feds get many of the benefits. More to the point, the Fed doesn't prop up the States in the same way they do the Federal Government, so it's unlikely that the new pressures would be expressed as inflation - instead, the states would likely cut services or raise taxes. There is a cost to changing the composition of the labor pool in favor of the low-end - it harms the solvency of welfare systems - but it is by no means required, or even likely, that such be expressed as inflation.
That said, even if 100% of the budget pressure stemming from an influx of low-skill labor were to be expressed as inflation, this is still a second-order effect that would be swamped by the first-order effect of reduced labor costs themselves. The direct labor cost effects are necessarily much larger than the budget effects, because the services/taxes are only a fraction of the overall wages.
Driving down wages necessarily also drives down consumer prices. Labor costs are an important component of inflation - that's why restraining wages directly reduces inflation.
Again, I'm not particularly concerned with the bullshit that some hypothetical conservative would spout. They oppose said immigration on racist grounds in the first place, and to the extent they're interested in economic arguments at all it's simply as a cover for that.
But, indeed, liberalizing immigration at this point is a political non-starter, because of right-wing parochialism.
I'm unclear on why you think I need to "shoot down" hypothetical bullshit distractions from conservatives to establish a basic economic fact.
Let's also keep my actual positions in sight:
1) Like the case of sugar tariffs, labor costs could also be dramatically reduced by government action to liberalize immigration policies.
2) To the extent that said immigrants put downward pressure on wages, such will also put downward pressure on inflation. This is because labor costs - i.e., wages - are an important component of inflation.
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Carcano
Valued Senior Member
Thats exactly what has been happening...and because other nations use the dollar as a world currency most of that money has remained outside the US.
Without the 'world reserve currency' status all that money printing would have crushed the dollar's domestic buying power.
To quadraphonics:
I agree with all your points but you are assuming that the lower production costs with lower labor costs due to immigrants willing to work for less will be passed on to the customers in lower prices rather than increase the profit margins.
That indeed should happen, but only if there is price competition in the market. In many cases where immigrant labor is used, for example picking crops, the large agricultural corporation (land owners) may be the only supplier of that crop at that local at that time of year. I.e. & E.g. they may have essentially a monoply on the supply of fresh peaches, in volume, to supper markets of their area.
I agree with all your points but you are assuming that the lower production costs with lower labor costs due to immigrants willing to work for less will be passed on to the customers in lower prices rather than increase the profit margins.
That indeed should happen, but only if there is price competition in the market. In many cases where immigrant labor is used, for example picking crops, the large agricultural corporation (land owners) may be the only supplier of that crop at that local at that time of year. I.e. & E.g. they may have essentially a monoply on the supply of fresh peaches, in volume, to supper markets of their area.
This argument could be made for many, if not all, things.
What about iPhones? What about computer processing chips? What about toys? Etc... etc... etc....
It sounds to me, and correct me if I'm wrong, you are suggesting we can't compete because they pay their workers so much less? OK, why don't we do the same? It seems to be a structural problem having to do with our monetary system. Perhaps being locked to oil is screwing up our currency? Maybe if we didn't back it up with our military (immoral as well) we could compete? Our productivity would give us the cutting edge. And, at the end of the day, it's up to people like the owners of Coke and Pepsi or candy makers to organize their own future contracts with sugar plantations.
Your notion that "they'll bump the price up" suggest the CEOs of Coke and Pepsi are complete idiots. You don't think they know that? You don't think they'll sign big contracts that are mulit-years in length with futures and insurance?
Come on, you know better than that!
Did I win yet?