Was Ross Perot right on NAFTA?

[fskimospy]

Because prices are determined by supply and demand, not production costs.

Production costs directly relate to supply.

Lower production costs go to higher profit, not (necessarily) increased production (which would shift the s curve and lower price), because these companies are likely already at their optimal output to maximize profit.

https://en.wikipedia.org/wiki/Profi...e_product_of_labor.2C_and_profit_maximization

Price elasticity of demand for many goods is not linear, therefore lower prices can lead to correspondingly larger increases in demand. ie: cost declines per unit can allow a company to capture greater total revenues while maintaining the same costs.

This is pretty much the inverse of why people are wrong when they say companies pass all costs on to consumers. They may pass some of them on, but the demands of a competitive marketplace often limit the total amount that can be.

 

[fskimospy]

Thank you Gonad I've been involved in sales for a long, long time. The price of something is not really based on what it costs to produce or provide its based on what people are willing to pay for it.

Goods are priced at where people think they can make the most profit. For nonlinear demand curves a lower price can produce greater profit. The cost of producing an item is the floor at which you can't go beneath in order to capture market share because of the old joke of 'even though we're losing money on every sale, we'll make it up in VOLUME!'. Lower overall costs change that calculation.

 

[Fanatical Meat]

Goods are priced at where people think they can make the most profit. For nonlinear demand curves a lower price can produce greater profit. The cost of producing an item is the floor at which you can't go beneath in order to capture market share because of the old joke of 'even though we're losing money on every sale, we'll make it up in VOLUME!'. Lower overall costs change that calculation.

That is correct, therefore if your Chinese made Jeans can sell for $42-$175. The fact that it costs $5 to make in China is almost irrelevant to the consumer.

 

[Gonad the Barbarian]

Production costs directly relate to supply.

Relate. But don't necessarily determine.

Price elasticity of demand for many goods is not linear, therefore lower prices can lead to correspondingly larger increases in demand. ie: cost declines per unit can allow a company to capture greater total revenues while maintaining the same costs.

This is pretty much the inverse of why...

The second graph and link. If you control supply you control price. If you control price you control profit. Competition? All your competitors are doing the exact same thing: Manipulating output to maximize profit (outside the oddball that forgoes max profits for market expansion (increased supply), T-Mobile's recent expansion comes to mind). You're right about this:

...people are wrong when they say companies pass all [increased] costs on to consumers. They may pass some of them on, but the demands of a competitive marketplace often limit the total amount that can be.

But this is why. Production costs don't change the output that maximizes profit.

A change in cost shifts the TC curve up or down (and, inversely, shifts the Profit curve down or up), but it doesn't change the output quantity where profit is maximized.

 

[fskimospy]

Relate. But don't necessarily determine.

The second graph and link. If you control supply you control price. If you control price you control profit. Competition? All your competitors are doing the exact same thing: Manipulating output to maximize profit (outside the oddball that forgoes max profits for market expansion (increased supply), T-Mobile's recent expansion comes to mind). You're right about this:
But this is why. Production costs don't change the output that maximizes profit.

A change in cost shifts the TC curve up or down (and, inversely, shifts the Profit curve down or up), but it doesn't change the output quantity where profit is maximized.

I'm pretty sure that only relates to changes in fixed costs. A change in per-unit cost does in fact change the profit maximizing level of production.

 

[JSt0rm]

yeah yeah. None of this matters to the local cobbler who will make you a killer pair of custom boots.

 

[Gonad the Barbarian]

I'm pretty sure that only relates to changes in fixed costs. A change in per-unit cost does in fact change the profit maximizing level of production.

TC = fixed plus variable costs.

 

[fskimospy]

TC = fixed plus variable costs.

I know that, I'm saying that I'm pretty sure that profit maximizing output changes as per unit costs change, while it does not for changes in fixed costs.

 

[Gonad the Barbarian]

I know that, I'm saying that I'm pretty sure that profit maximizing output changes as per unit costs change, while it does not for changes in fixed costs.

I'd swear changing variable (labor) costs still changes the slope in such a way that the curves in TC and Profit become shallower/steeper but the peaks and troughs stay at the same points along the output axis. But it's been a while and maybe I'm misremembering.

 

[fskimospy]

I'd swear changing variable (labor) costs still changes the slope in such a way that the curves in TC and Profit become shallower/steeper but the peaks and troughs stay at the same points along the output axis. But it's been a while and maybe I'm misremembering.

I don't remember for sure either, and I'm pretty sure there is some interaction between competitors there that matters. I threw out my textbooks a long time ago though.

I'll have to look into it more later, but thanks for an interesting discussion regardless.

 

[Brian Stirling]

You guys realize that bshole is just exerting a nice long trolling?

bshole does not believe in any environmental damages.

He may be trolling about something he doesn't actually believe in but Eskimospy is a fraud of a liberal when he supports policies that result in:

1. Forced child labor!
2. Hugely dangerous work conditions!
3. Life shortening environmental conditions!

But hey, so long as you can say to yourself that that's over there then I guess it's not really a problem.

Oh wait, the effects DO travel the globe. Obviously the pollution in China isn't confined to China, but on top of that, the end result will/are a lowering of wage levels EVERYWHERE and a reduction in enforcement of workplace safety and environmental conditions EVERYWHERE!


When you pretend that how others threat there workers means nothing you eventually doom all workers to the same fate! Clearly, this is central to the world view of ... liberals like Eskimospy!


Brian

 

[Brian Stirling]

I think that pretty conclusively shows that it lessens your arguments as you just admitted you aren't taking a position based on the overall merits but instead on how well a policy benefits you personally.

You are not standing on the moral high ground! You self identify as a liberal yet you support policies that are crushing the middle class, endangering environmental protections and reversing the workplace safety enforcement. How the fuck is that in keeping with the goals and traditions of the left?


Brian

 

[norseamd]

He may be trolling about something he doesn't actually believe in but Eskimospy is a fraud of a liberal when he supports policies that result in:

1. Forced child labor!
2. Hugely dangerous work conditions!
3. Life shortening environmental conditions!

But hey, so long as you can say to yourself that that's over there then I guess it's not really a problem.

Oh wait, the effects DO travel the globe. Obviously the pollution in China isn't confined to China, but on top of that, the end result will/are a lowering of wage levels EVERYWHERE and a reduction in enforcement of workplace safety and environmental conditions EVERYWHERE!


When you pretend that how others threat there workers means nothing you eventually doom all workers to the same fate! Clearly, this is central to the world view of ... liberals like Eskimospy!


Brian

You realize that I was reading that from my bed at 90 degrees and was not able to actually read much of any comment and was only able to read that bshole was yelling about the Chinese polluting the environment when he does not give a fuck or even believe in environmental destruction.

 

[Brian Stirling]

Companies don't usually cut prices, they simply don't increase them at the same rate they would in the future.

Your microwave that you bought 30 years ago likely cost between $1k-$2k in current prices. I've had the same microwave for about 8 or 9 years now and it still works fine and it also cost a small fraction of what your 30 year old one cost. Thanks for providing an example for me.

Any product in production for an extended period of time, like microwave ovens, will go down in price relative to inflation if the company making them is worth there salt.

1. You learn how to make things better
2. Greater integration reduces parts count and lowers cost
3. Volume production permits the development of production equipment that is more efficient

This is not a new concept, surprising you are unaware!


Brian

 

[norseamd]

Economies of Scale is a concept that is not only very old but also very fundamental to economics and civilization.

 

[Brian Stirling]

So your argument is that in practice there is no net competitive advantage for companies to outsource labor, as any savings are simply taken as additional profits. That means if people wanted to they could set up industries in the US today and effectively compete with goods manufactured in China. I wonder what American Apparel thinks about that. (and that's just in clothing where margins are highly variable based on a brand's design, etc)

By your logic you should be able to open a factory in the US today and compete based on price with these overseas manufacturers. Do you think that's the case?

When the conditions the workers produce goods in makes no difference to YOU then clearly the cheapest labor pool is where to go. Actually, labor is just one part so you really need to figure in the cost for workplace safety and environmental safeguards. Once all those things are factored in then you can determine where the true low cost production places are.

But again, this depends on your not giving a rats ass about what happens to the workers -- and everyone else!


Brian

 

[Brian Stirling]

This

It's a huge problem. Also, if you shop in just about any other country not only do you pay import duties and tariffs on products but you also pay sales tax. So we shaft ourselves again by not paying the extra 20% to 50% that should be spent on the people if we didn't have a shitty government.

Ah but there's a catch 22 here. Most of the folks that shop frequently or exclusively at places like Wal*Mart do so because they are living at the margins and can't afford to shop in more upscale places. They get fucked again when the cheap item they purchased has to be replaced more frequently because the quality isn't up to snuff.


Brian

 

[alcoholbob]

The concept of free trade is based on comparative advantage. The knowledge and subcontractor infrastructure takes considerable time and money to establish and once you lose that you aren't establishing comparative advantage but absolute advantage, since any American enterprise today is not just competing on cost of labor but all the lost subcontractor infrastructure developed over decades. Even if Americsn labor cost is below China's manufacturing won't come back since the loss of subcontractorr infrastructure means everything needs to be vertically integrated in new U.S. manufacturing and investment needed is immense.

Somehow corporatists are selling absolute advantage--moving your capital to wherever the labor is cheapest--is now pandered as free trade. The problem is once you move the capital it might not come back, as any country you've moved heavy machinery and industrial tools to is free at any time to nationalize those industries. And now it's a state enterprise and the country that has outsourced their manufacturing may never see it come back, and Wall Street has traded long term business for short term gains.

 

[Gonad the Barbarian]

You are not standing on the moral high ground! You self identify as a liberal yet you support policies that are crushing the middle class, endangering environmental protections and reversing the workplace safety enforcement. How the fuck is that in keeping with the goals and traditions of the left?


Brian

To be fair to Eski and a whole bunch of other liberals out there mainstream economics measures "economic gain" while completely overlooking/dismissing such externalities and the distribution of the gain. It's a failing of the science. Another one is adopting models while assuming away any element that might disrupt them then overlooking those assumptions when putting those models into practice. The Austrian School is the worst for these, but it permeates the liberal side as well: https://en.wikipedia.org/wiki/Paul_Krugman#Free_trade

Edit: Though it looks like Robert Reich has come around:
https://www.facebook.com/RBReich/posts/950807244931872

 

[JSt0rm]

I think what this shows us is that liberals can also be enamored by the ideas and benefits of globalization. Eskimospy do you mind telling us what you do for a living?

 

[nickqt]

I think what this shows us is that liberals can also be enamored by the ideas and benefits of globalization. Eskimospy do you mind telling us what you do for a living?

Globalization isn't inherently evil.

Shaping it so that only the wealthiest reap any benefits is.

 

[piasabird]

Who was the idiot that thought it would be good to trade with China? Aren't we just paying communists to come and kill us?

 

[norseamd]

Who was the idiot that thought it would be good to trade with China? Aren't we just paying communists to come and kill us?

Nixon and Kissinger.

 

[fskimospy]

I think what this shows us is that liberals can also be enamored by the ideas and benefits of globalization. Eskimospy do you mind telling us what you do for a living?

People on here can get pretty angry and personal so I would rather not. If you're genuinely interested you can PM me though.

 

[fskimospy]

To be fair to Eski and a whole bunch of other liberals out there mainstream economics measures "economic gain" while completely overlooking/dismissing such externalities and the distribution of the gain. It's a failing of the science. Another one is adopting models while assuming away any element that might disrupt them then overlooking those assumptions when putting those models into practice. The Austrian School is the worst for these, but it permeates the liberal side as well: https://en.wikipedia.org/wiki/Paul_Krugman#Free_trade

Edit: Though it looks like Robert Reich has come around:
https://www.facebook.com/RBReich/posts/950807244931872

I would argue that there is nothing inherent to this that requires a net increase in inequality. In fact, it's what I mentioned much earlier in this thread. I view the resulting increase in inequality due to free trade as a failure of domestic policy, not trade policy.