If only Apple products were made in U.S.A.

Some in my office believe that Apple should on-shore its iPad and other product manufacturing.  Some have even labeled Steve Jobs a terrorist because he takes advantage of lax and unfair labor laws in China and elsewhere.  These folks lament the fact that corporations like Apple ship jobs overseas and rake in billions in profits.   “If only Apple would make their products in America – we’d all be better off,” they claim.  Let’s examine what might take place should Apple decide to move all its manufacturing to the United States.

Higher labor costs lead to higher product prices

Were Apple to make its products here, I think we all would agree that its labor costs would increase.  For the sake of argument, let’s (correctly) assume that increases in labor costs lead to higher product prices.  The immutable law of supply and demand inform us that, ceteris paribus, higher product costs lead to a decrease in sales.  Apple would surely take measures as a result of a drop in sales by adjusting the size of its labor force.  A significant drop in sales could lead to mass layoffs.  In any event, it’s unlikely Apple would do nothing in the face of a decrease in sales.

 

But some might say that because Apple employs Americans to assemble its products, Americans would reward the company and buy their product anyway, despite an increase in price.  If you believe this, I have a question for you: why doesn’t Apple just raise the price of its product now?  If price increases carry no negative effects, surely Apple is leaving a lot of consumer surplus on the bargaining table, no?  The fact is Apple products are prices about right and any increase in the sales price would, in fact, lead to lower sales. 

 

Higher labor costs do NOT lead to higher product prices

“Apple is a rich company and could easily absorb any increase in labor costs,” many might proclaim.  Apple is indeed a well-resourced company, so let’s examine this theory.  We would all agree that an increase in labor costs, without increasing product prices, would increase Apple’s COGS (cost of goods sold).  This would undoubtedly lower Apple’s profit margin and make less cash available for other uses.  Another pernicious effect of a lower profit margin would mean less cash for dividends and retained earnings.  As a result, Apple’s stock price would almost certainly fall.

“So what,” you say!  Well, let’s run the numbers.  As of 9-20-2013, Apple stock price was trading at $472.30 per share giving it a market cap of $429 billion.  That means Apple has about 908 million shares outstanding.  Let’s assume that in response to lower profits, Apple’s stock price falls 10%.  Using the figures above, almost $43 billion in value would suddenly be erased.  Gone.  Vanished.  That’s real money (unrealized capital gains) gone from peoples’ 401(k), retirement portfolio, and brokerage accounts.  Everyone who is invested in the stock market, including via index funds, would bear this cost.

Conclusion

These scenarios aren’t mutually exclusive and the effects of bringing all manufacturing to the United States, if such a move could even be accomplished given environmental laws, would likely include some mix of what I described.  It is my opinion that such a move would not only be detrimental to current and future Apple employees but also to stock holders and consumers.  There is no fairytale scenario under which Apple on-shores its manufacturing without incurring costly unintended consequences.

But it IS made in the U.S.A.

I was recently subjected to this thought process: Apple products aren’t made in the United States, and are, therefore, unworthy to be purchased.  Sigh.  Economic illiteracy abounds.  Apple products are made in the U.S.A.  The birth certificate of every Apple product is stamped Cupertino, California.

 The almost completely irrelevant and hugely wasteful and unfortunate task of assembling the darn things occurs elsewhere.  Make no mistake: the genius of an iPad lies not in its final assembly but rather in the minds of the engineers, innovators, and employees located in California.

Never mind that were Apple products to be assembled between latitude and longitude 38° 00' N and 97° 00' W, almost everyone would be worse off – higher marginal costs equal fewer Apple consumers; lower Apple profits and a lower Apple stock price; fewer Apple employees, less-wealthy stock investors, etc.  Apple, Inc. is not a jobs program – it’s a consumer-oriented, profit-generating enterprise. 

So, here's a question for these folks: could your objections be overcome if Apple products were "made" not by human hands but by one of these? 

Required Reading

If you don’t read George Will, you should.  Some men are gifted in the art of written communication, and a select few are better still.  He has much to offer both groups.

Sadly, not everyone consumes his illuminating columns or even recognizes his name.  This is a tragedy.

You may dwell upon his weekly insight at the Washington Post.  

Time vs. Money

Here’s a letter to Consumer Reports

Dear Consumer Reports,

In your most recent issue (August, 2013, “Step on the gas? Not so fast!”) you analyze the effects of gas mileage at varying speeds. You aptly conclude: “True, driving 200 miles at 75 instead of 55 shaves an hour off your trip.  But in the cars we used, it also wastes 1.5 to 2 gallons and costs about $5 to $7.”

Could you not also have concluded that bicycling the 200 miles would have saved about 4.5 gallons of fuel and $15? 

While only those who value money over time would consider such a trek, you incorrectly label the reverse as waste.  Those who drive faster simply place more value on time than money.  And since the proper level of trade-off can only be determined by individual preference, your outside observation is irrelevant.

 

Do we want more lawyers?

Obama recently suggested that law schools rearrange their academic construct from a three year course of study down to two.  Such a move would, presumably, lower the cost of attending law school.  In the short run, this would encourage more students to pursue a law degree, but would that be a good thing? 

It’s my contention that the world would be better off with fewer lawyers not more.

Return to Blogging

With this blog post, Prof J announces his return to the blogosphere. Not that anyone except my co-blogger missed me! Prof J had numerous challenges this past year, the most important of which was losing his mother. She was a model citizen who contributed greatly to her community by raising a wonderful family, working as a nurse and public health official, and volunteer with the Catholic church and schools. She is sorely missed.

But Prof J's mom was not someone to wallow in self-pity, or to let others do so. She was a doer, a woman of action. She'd say "feel your feelings, but get on with the job." She also said "follow your dreams." It's her passion for education and growth that led to Prof J's path to the Ph.D.

Unfortunately, losing his mom has led Prof J down a dark path of alcohol abuse, self-pity, poor eating and sleeping habits, and generally a regression of goodness. However, after a visit home last week, Prof J is newly committed to living a virtuous life. Living a life Prof J's mom would be proud of. My model for this life? Ben Franklin of course! Having just read his autobiography (spurred on by Art of Manliness' book club selection for August), I have found in Franklin a model of productivity, prudence, community spirit, and manliness. Moreover, he was a friend of liberty (if not the staunchest libertarian).

Franklin followed a list of 13 virtues. He attributes his successes to a strict adherence to the virtues early in life, until they became ingrained in his character. The first virtue on his list? Temperance. Franklin didn't drink alcohol until much later in life, and he ate sparingly, consuming a mostly vegetarian diet. He found his eating & drinking habits to be very helpful in maintaining a good work ethic (never drunk or hungover is good for productivity!) and it was easy on his pocket-book. He saved money at the end of the payday, rather than owing money to the tavern. All to the good in my view!

Franklin had 12 more virtues, but he focused on one of the virtues until he'd mastered it, and then moved on to the next. Of course, he kept an eye on not violating the other virtues, so it wasn't one to the exclusion of the others. As I progress through the year, I'll be cycling through the virtues a la Franklin.

At any rate, as my new focus is personal betterment, I will mostly be blogging about how liberty contributes to moral development in individuals, and state constraints work against said moral development. This will hopeful interest more people than just me, but if it doesn't, tough 'taters.

Eureka!

Eureka, which is the state motto for California, means simply “I have found it”.  And after reading a recent article on a new tax code hiccup about to hit certain California businesses, I believe many of them will have their own “Eureka” moment. 

If ever a tax scheme could be concocted to frighten away any level headed entrepreneur, this new tax code twist in California would be at the top of the list.

According to the Wall St Journal, certain companies could lower their capital gains taxes by investing in “qualified state businesses” whatever that means.  However, a court recently ruled this practice unconstitutional.  Ok, no problem.  But the fix, if adopted by the state Franchise Tax Board, is hugely unfair and outright insane. 

From the article - “Instead of simply ending the tax incentive going forward, the state Franchise Tax Board has ordered investors who used the tax break to pay five years of back taxes. As a special insult, these taxpayers may have to pay interest and penalties on the "unpaid taxes" they were never required to pay in the first place.”

Imagine being assessed penalties and interest on taxes you weren’t required to pay!  If there were any doubt that any semblance of equity, fairness, and justice had long departed Sacramento this is solid proof.   

California might as well erect signs at its border telling would-be entrepreneurs to FLEE!