Where Does Your Money Go?

Over the last few weeks, I’ve become an economics nerd. I really have only scratched the surface, but I’m starting to learn enough to understand that our government has a very complicated conversation it needs to have with us…and not put it off until after November 2012.

One of the major effects of globalization is that we have become a country of outsourcing. Good supply chain management suggests that you should look to reduce costs in production to allow you to have competitive prices and increased potential profit. Many of our companies now only produce the end product in the U.S.

Imagine you were given $300 to help do your part to bolster the economy. According to Keynesian economics, we should take this $300 windfall and spend it in the market. By spending it, that money will go to the wages of an employee, who can then consume more himself, and then go on to pay wages for someone else, and so on. The ripple effect is supposed to help increase our GDP.

As Dr. John M. Pinkerton says, “Suppose you go to Walmart and buy a toaster…” Who knows, you might need a toaster. It’s a durable good, and well, it makes toast. It is very possible the economic ripple effect could begin with your toaster purchase.

If it were made in America.

Unfortunately, it is pretty likely that the toaster was made from raw materials to at least the sub-assembly phase outside the U.S. By breaking down the costs to make that toaster and what part of the price you pay goes towards supporting those offshore operational costs, only a small percentage could actually be staying in the U.S. It’s the same with gas: you’re subject to high prices because the demand from the rest of the world is increasing, and as you pay at the pump, the dollars keep going outside our borders.

On the other hand, the U.S. is now a huge exporter of services. We’ll pretty much help anyone do anything, and that’s positive for our economy. It appears to me, part of the complicated conversation we need to have about the economy is admitting that we may be doing ourselves a disservice by being so good at certain things. We need to start thinking about balance (or bringing our production levels up to the rates of our service levels).

I’m not saying we need to rip our plants out of other countries, we’re helping economies there. However, we may need to take a look at our balance sheets and see where the money is really going. As consumers, we might need to increase our willingness to pay for goods we know can bolster our own economy.

You don’t have to buy only Made in America, but you should be aware of where your money is going. Then you’ll know what part you’re playing as we keep riding this rough road.

Photo credit.

Tagged as: business, consumers, costs, economics, exchange, globalization, money, profits, saving