We sold our building to the Japanese, but it doesn’t make any difference whether it’s the Japanese or anybody else. We sold our buildings at ABC two years ago for about $175 million. That was equal to one day’s trade deficit with Japan. They sent up a bunch of VCRs and things, and we sent them the title to 54th Street and 6th Avenue. And we use up the one thing and they’ve got the other.
It’s got sort of a poetic justice to it. As a matter of fact, in 1626 I think, Peter Minuet handed a bunch of trinkets to the Indians and they paid him the island [Manhattan]. And now, people are handing us the trinkets, and we’re giving them the island. It happens every day. The trade deficit will be $100 billion plus, and that means we are giving out IOUs to the rest of the world that will draw interest, which are claims of future production of everybody in this room. -- Warren Buffet, 1991
We in America tend to buy a lot of stuff. Stuff that we may not even use for too long or even at all. In the meantime we are giving away not only hard earned dollars, but the land of our nation, and the economy that sustains it. The proof is that the once all-mighty dollar has recently lost value.
The recent bid from China for the Unocal company is an example. They did not succeeded on this big one this time, simply because of political pressure. But these figures may be surprising:
$58.8 Billion Trade Deficit in June 2005 - That is $200 of monthly imbalance for every person living int he USA. Can you stop buying $200 (per person on the household) of foreign trinkets? (see note at the end). Another interesting note is that on 1991 the trade deficit was $100 billion. Today, 14 years later is $700 billion (has grown a lot faster than inflation).
$14.6 Billion in Oil Imports every month - That is almost $50 of oil bought per person in the USA. Can you reduce the energy consumption by $50? Programmable Thermostat? Less driving? (see note at the end).
$4.8 Billion Trade Deficit with Canada (June 2005) - Even other industrialized nations are becoming smarter than us at producing and selling more than what they buy.
$17.6 Billion Trade Deficit with China (June 2005) - That means there is another $41.2 Billion in trade deficit with the rest of the world: China is not the only culprit! The rest of the world is eating our capital for lunch.
Guys and gals: lets stop buying so many trinkets. Use that money to invest them in revenue generating assets? (Certificate of Deposit, Bonds, Stocks, Real Estate)? Own things that bring more revenue (so that you can buy the things you need, enjoy, and are worth it). Don't sell the country away for trinkets!!
Said that, we all need to buy things. When acquiring things, try to do the following whenever it makes financial sense, and it is possible:
Buy as local as possible - Buy from your community if possible (it keeps the money inside it, and saves on transportation costs: oil imports), or from the USA at the minimum. Community Sustained Agriculture or local farms are an example (Farmer's Markets).
Buy Quality vs. Quantity - The USA can still produce some good quality products. It just can't mass produce cheap products (wages and employee protections are too high compared to other countries). If you can choose between a cheap product made overseas, which may break easily, and a well constructed product made in the USA that may last generations... it may be worth waiting a bit, and accumulating money over time to buy the quality product. If it is not worth the wait, think about it: it may not be worth to buy the cheap overseas version anyway (on some situations).
Re-Use - ebay.com, freecycle.org, craigslist.org, flea markets, yard sales, consignment shops, etc. You do not have to be cheap. You can find almost new items in ebay at less than retail. And in the process you would be saving an article from the trash and avoiding buying another article from a foreign country. Also, before throwing things away, consider passing them to friends, or listing them in the before mentioned services. Consider sharing tools or items with friends when you are not using (they may reciprocate): pressure washers, chain saws, and carpet steam cleaners are examples of infrequently used items that you can share with your friends.
Reduce - How many things can you really use? Do you use everything in your house at least every couple of months? Maybe you need to consider changing spending habits and making sure that the things you buy are the things you really need and want. Reduce energy consumption also: optimize your errands to minimize driving and use programmable thermostats, for example.
Preventive Maintenance - A Japanese or German cars are ussually great, and last a long time: if you mantain them. Same thing goes for lawn mowers, pressure washers, vaccum cleanners, and even non powered things like furniture, mattress sets (rotation), etc. Mantain your stuff so that it doesn't breaks down and forces you to buy something new (possibly from a foreign country).
Build it yourself (or repair it yourself - Recycle) - I have built bookshelves, and desks. I have stripped paint of furniture and refinished it. I have redone the upholstery of simple furniture. It is cheaper than buying a new product and looks almost as good (sometimes better, because is exactly what you wanted or needed). It saves money and it helps reduce the deficit.
What other suggestions you have for us, regular citizens, to help reduce the trade deficit?
NOTE: I am aware that the products and services bought in the USA have a local component: local transportation, taxes, marketing, and retailing for example. The price you pay is a lot higher than the price bought from a different country.
I have to agree wholeheartedly with your last three recommendation – “Reduce” us especially a good tip for any economy, personal or national. And, setting aside the U.S. vs. rest of the world approach of the second, yes, it’s often cheaper in the long run to buy one high quality good vs. several inferior items over the same period. But buy local? Why should I patronize an inefficient and costly producer just because he’s local? The flip-side of the virtue of do-it-yourself is that sometimes it’s more economical to hire or buy from outside sources than to produce by oneself. This is a result classical and neoclassical economists have touted at least since Smith.
Besides, if Congress didn’t panhandle the rest of the world, there wouldn’t be so much excess liquidity in the U.S. needing to be spent abroad: Capital Account > 0 if Current Account < 0. Bob () - 19 08 05 - 13:45
Well, I can only do what I can do. I like the ideas. But for those of us who don’t make a six-figured salary and yet live in the Northeast, we can’t cut too much more than we are already doing. For instance: I know that my household does not spend $200 per month per household member on trinkets simply because we can’t. My household is filled with stuff that has been given to us. (Nice stuff, too) But where the folks who bought it got it, I have no control over.
I know I am stating the obvious, but sometimes I just gotta speak up for the little guy.
By the way…I would venture a guess that, if someone has the $$$ for investing, they may want to consider investing in US companies that are working hard on producing alternative fuels. We won’t be giving the $$$ to other countries, and it’ll give the US an opportunity to produce another marketable, exportable product, one for which others will rely on the US. Now that sounds attractive to me. I just don’t have the surpluss cash to do so. But if you who make a bit more money are able, throw a few bucks at some of those. It’ll potentially help everyone.
Just one plea: a company that is not related to a big oil company would be a better choice than one that is already part of such a big machine. Danny Kaye () (URL) - 19 08 05 - 16:31
Great post jose! I’ve been thinking a lot about these very issues over the last few years and I love seeing them brought up in the PF blog ‘verse. I have a fair amount of (diminishing) clutter in my house for these very reasons…buying cheaper things that I dont love just to “make do” until the right thing comes along. Now I am much more selective about what we bring into our home. Participating in a CSA allowed us to have great tasting organic veggies for way less than shopping at whole foods in addition to all the other benefits (supporting local farmers, keeping green space open, deeper connection to the earth and weather)
Danny…not sure what you mean by “speaking up for the little guy”...the way i see it, this is about consciously choosing where and how you spend whatever money you DO have, not just about where to “invest” your savings. I started doing many of these things Jose speaks of when my household income was 36k a year in Boston. It made me feel a lot better when I did spend money.
Bob, economists have been leaving out a lot of the less tangible costs of “disposable” goods and the like such as the true “cost” of landfills, energy expended during distribution, etc etc…no? Again, I think the key is just conscious and informed choices, not necessarily “don’t ever buy foreign”. [Clutter2Cash] (URL) - 19 08 05 - 21:16
Love this post! Definetly the goals and values we are trying to live. I read taht buying one dollar worth of local goods creates seven dollars for your community. Huge national chains are like traaveling circus, they bring there own pre-fab materials, and often construction crews. Buying locally creates jobs and lessens our dependence on oil. Everytime we purchase something I ask myself was ths made in an ethical manner, that benefits the environment and contributes to social justice. Ms. Shiela Whotiger - 20 08 05 - 14:30
Nice resource blog for so many like me. shirazi () (URL) - 21 08 05 - 22:39
In some of the old cultures, there were different classes of people.
I’ll call them the Nobles and the serfs, for sake of argument.
The serfs owed money to the Nobles for their lands. The serfs were enslaved to the nobles for their lands.
The Nobles in your example are all the countries who leant money to the U.S. The Serfs is America and all of the Americans who who tons of consumer debt. The more you owe, the more control you give to the lenders.
I hope the Nobles don’t decide to exercise any of their powers any time soon.
Great article. Really substantive, helps to put things into perspective and very well-written. I appreciate it. Nicole (URL) - 28 08 05 - 16:03
I don’t dispute any of the facts found here, but I don’t think the solutions offered give a clear picture of what is going on. There is both a demand and supply side to this problem. In my opinion it isn’t so much where we are spending our money. We should be buying the best value product regardless of what country it is from. Where we as a country are failing is that we are not living below our means. We spend more than we take in. If we were saving and investing money, we would be buying the property of countries like China and producing more goods to sell to other countries. I guess what I am saying is the answer is not to boycott foreign products, but instead we need to get out of debt personally and start electing officials who are fiscally responsible. That may require an ammendment that requires some sort of supermajority to expand the budget faster than inflation or something. It would also help if the tax code incentivized saving instead of spending. For example, the mortgage interest deduction encourages people not to pay off their house. TheSnakeGuy - 29 08 05 - 19:35
I would like to say that I agree with TheSnakeGuy.
Also, though it sounds great and it is easy to say “buy local”, were I to do that I would only be able to purchase fresh food 3 or 4 months of the year, and never any seafood or rice for example. And also again, if there are choices anymore for made in the US textiles, clothes, home furnishings, etc it would be great if someone would post links to sites where they are available.
Thank you, Maria Maria - 30 08 05 - 15:01
Greate site. Thank you :) James () (URL) - 12 11 05 - 05:04
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