Gyroscopic Investing

There's many people who look for Made in US on goods. And who go out of their way to spend extra to find "pre-outsourced" goods or to support companies who haven't yet outsourced.

For me personally, as a Libertarian, I fall under this mindset somewhat, but it's less about supporting US employment, because as Libertarians, we believe in the free market. If China really could make a product better than the US at cheaper cost, we'd want those products even if it meant our neighbors would be out of work because that would "free up" their labor to do something that is economically efficient.

You wouldn't pay a Medical Doctor $300/hour to landscape your garden simply because he "likes" landscaping and his hourly rate is $300/hour as a doctor. Maybe his medical license got revoked due to a false allegation or some other reason. And he's "forced" into landscaping because he can't work as a doctor any more. You wouldn't pay him the $300/hour to landscape because he has no other choice and the market isn't fair to him and he shouldn't have to learn a new skill because he's already a doctor.

That's the argument I hear about "supporting" US labor. People took manufacturing jobs, did them for 20 years, don't know how to do anything else, and are doomed to unemployment until death if those jobs go overseas because they are too old to learn a new skill or shouldn't have to change. So we should erect barriers to outsourcing such as tariffs to protect these people from the realities of the free market.

Calling on government for help is like pulling a fire alarm. You might be desperate when you pull it, and you might think the people who show up will be there to help you, but once those fire fighters do arrive on scene, you have no control over what they will do. If they want to cut a hole in your roof to fight the fire, then they are cutting a hole in the roof. Nothing you do or say can stop them at that point. Government is similar.

The reason we're outsourcing jobs overseas isn't because Chinese people are working for pennies on the dollar. It's because of OSHA and the EPA and unemployment taxes and a FICA tax that rises greater than inflation, and the ACA that mandates health insurance and etc. etc. etc. [insert government program meant to help laborers here].

People pulled the fire alarm of government and it showed up. It cut a hole in our roof of the economy and you can try to shift blame to fat cat CEOs on private jets all you want, but the reason jobs are being outsourced is the government.

That said, I feel no obligation to "help support" US manufacturing. The reason I prefer US made products to ones made in China is quality differences. It's very difficult to perform quality control (QC) on outsourced manufacturing. I have some training in this field and my colleagues frequently fly to China to manage their contract manufacturers factories. The Chinese government is ridiculously corrupt and doing business there is not a pleasant experience. The culture difference is dramatic.

There is huge risk of shipments coming through customs from China, only to discover QC is lacking and the products are unusable. Supply chain problems exist with respect to demand forecasting because of lead times extending out an additional 4 to 6 weeks above what domestic manufacturing is capable of, due to shipping by boat across the ocean, waiting in customs for approval, then shipping by train from the port, then LTL to the company. If you're in a business that depends on making quick decisions and shifting your output based on rapid market changes, you can't do it with Chinese manufacturing.

Why do I prefer US-made? Again, quality. It's made by people and the QC crew is in the next office. The manufacturing laborers and the QC people go to softball together. Their kids go to the same school. The manufacturing guy won't cut corners and screw over the QC guy. Whereas the guy in China making 50 cents per hour, who doesn't even speak the same language as the QC guy, doesn't care what the QC guy thinks of him or his work product. If it sucks, it sucks. Let those lazy Americans make it themselves if they think they can do better.

As a consumer, I prefer first-world made goods. US, Canada, Germany, Switzerland, Japan, etc. It's not about supporting my neighbor's desire to avoid the harsh realities of the free market. It's about getting a good, high quality product. And I've been "upgrading" all of my products over the last few years at a feverish rate. I've thrown out or given away as many "crappy-third-world-foreign-made" items as I can replace with higher quality ones made in the first world.

Why? Because it will simply not be feasible to buy these products in a few years. Governments of first world countries keep getting bigger and more "socialized" which makes cost of manufacturing skyrocket. The Knipex pliers made in Germany that I bought 10 years ago have tripled in price since I started buying them. Soon, it won't even be a matter of cost. It will simply be impossible to meet environment regulations to have a factory of any kind in the US. Even if you wanted to spend 5x the cost of Chinese-made tools for US-made, there won't be any US factories left to make them. Because of the three-toed spotted salamander's habitat was in the backyard of the factory so it had to be shut down to preserve that endangered species.

The Apple Watch is made in China. Make of that what you will.

My personal experience is that Chinese-made goods are not automatically worse; it's just that for every quality level desired, the Chinese can accommodate it, and it usually makes more economic sense to have them make the cheap goods. Back when I sold 3D printer stuff, my own observation was that I could almost always get components from China for a fifth the price of the American versions, for maybe 80 to 90% the quality. For many applications, the drop in quality may be irrelevant, and it's for those uses that the cheaper components shone.

Pointedstick wrote: my own observation was that I could almost always get components from China for a fifth the price of the American versions, for maybe 80 to 90% the quality.

Pareto's principle in action. 80% of the quality can be had for 20% of the cost

I've noticed similar observations. For me, personally, in many applications, like tools that I want to last my entire life, the additional 20% marginal gain in quality is worth paying 4x to 5x the price. I've seen Chinese-made screwdrivers snap in half and nearly take out the user's eye. 80% of the time, that screwdriver was just fine. The 20% of the time when it snapped, it could be a sight-costing injury.

Same for sunglasses that protect your eyes.

Same for luggage. 80% of the time, your Chinese-made luggage will be fine. But 10% to 20% of the time, it will break in half in the middle of your trip, causing you huge problems. Is it worth paying 5x the cost for German-made luggage for that extra 10% gain in quality that could prevent your business trip or vacation from being ruined?

Would you get a medical procedure done by a doctor that's 80% as good for 1/5 the cost? Or would you pay 5x more for the best possible medical outcome?

These are real economic decisions that drive our purchase habits. For me, in most cases, since I can afford it, I prefer paying 5x more for the better item. I never know when hyperinflation will kick in, the zombie apocalypse will come, or I'll be laid off work for extended periods due to injury or a bad economy and won't have any free cash flow. It may not be possible for me to replace that Chinese-made item when it breaks. But it is possible to spend 5x more and get an item that's much less likely to break.

There's nothing wrong with spending 1/5 of the price and getting 80% of the quality. In many instances and for most people, it's a great decision. It does need to be a conscious decision and the value proposition must be considered. There's limited resources and you can't have the best of everything.

In one of his radio shows, didn't Harry Browne talk about this? I think he said something like, we have moved our manufacturing overseas and it's fine. It's a natural evolution. I'm not sure whether or not I agree.

Pointedstick wrote: The Apple Watch is made in China. Make of that what you will.

Designed in the U.S. and made in China is still better, in my book, than a purely Chinese product.
Designed in the U.S. with some kind of American quality control and oversight is better still.

In the 80s, we and all of our neighbors were buying Japanese cars because we wanted them to "just work." But there are things made in the U.S. these days that are actually good quality. I can't buy American all the time, but I try. A more expensive leather belt at J Crew over a Chinese-made one from Banana Republic. American Apparel cotton t-shirts and underwear.

Last night, I was reading Kevin Kelly's 'What Technology Wants', and he was discussing Amish technology. Yes, that's what I said.  There were pneumatic devices in the workshop, all connected by hoses, because some Amish consider compressed air to be "Amish electricity." One Mennonite community has a massive, truck-sized ,off the grid, computer-controlled milling machine for making precision parts for stoves and for those pneumatic tools. This seems ideal to me. Instead of merely made in the U.S., made in your community. 

My wife is Chinese. Her mom and sister still live in China and her mom was recently told that she has a small blood clot in her brain. We are shipping over omega 3, garlic oil & aspirin today. All these were recommended by her doctor and are available in China, but the quality apparently varies dramatically over time and producers. Definitely better to buy American in this case and pay more (have to include the cost of getting the product to its point of consumption).

These products are regulated under the Dietary Supplement Health and Education Act of 1994 (DSHEA). Surely this is a case where government oversight is good, no?

It's not about government regulation; it's about a culture that values honesty and safety in commerce. If they passed that law in China, it would be widely ignored and the appropriate officials simply bought off. It's not the law itself that grants those very real and tangible benefits to Americans, but rather the law is symbolizing a willingness on the part of American supplement manufacturers to be honest and not poison their customers.

barrett wrote: Definitely better to buy American in this case and pay more (have to include the cost of getting the product to its point of consumption).

These products are regulated under the Dietary Supplement Health and Education Act of 1994 (DSHEA). Surely this is a case where government oversight is good, no?

There is zero cases where government oversight on private trade and regulation are good. What if the government didn't regulate those supplements? Would our "free market" simply turn into China where the products are unsafe and crappy?

If so, which Americans would buy them? The answer is the products would be just as safe, if not safer, than today, and at cheaper cost, because a private third-party entity can perform regulation cheaper and better than the government. Americans wouldn't buy products that companies can't prove are safe. Without government regulation, there'd be other ways for companies to prove their products were safe. And one a company lost the trust of the American public, it would go bankrupt.

Consider Johnson and Johnson. Suppose the FDA were shut down today. Would you still trust them to self-regulate? I would, because they are a multi-billion dollar company and they wouldn't risk their entire brand name value to make a few dollars by cutting corners.

It's also worth mentioning that you really can't depend on country of origin as a proxy for quality.

I bought a bunch of plastic clothes hangers the other day for $2, and one of them snapped in half the very first time it bent a bit so I could squeeze a shirt on it. Made in the good ol' USA, said the packaging.

Pointedstick wrote: It's not about government regulation; it's about a culture that values honesty and safety in commerce. If they passed that law in China, it would be widely ignored and the appropriate officials simply bought off. It's not the law itself that grants those very real and tangible benefits to Americans, but rather the law is symbolizing a willingness on the part of American supplement manufacturers to be honest and not poison their customers.

OK, PS, so let's assume you are right about this. Why did the US evolve into a culture that "values honesty and safety in commerce?" And why should the Chinese be so inherently more corrupt? I am not really taking issue with what you are saying (my wife often goes on rants about not knowing what you are getting in China), just trying to understand what pressures, societal or otherwise, compel people/companies to do the right thing?

Or what about this case... When we bought our house in CT in the winter of 2007/2008 one of the things we didn't know was that the builders/subcontractors didn't put down a decent driveway. While our home is generally of decent quality, we have definitely found other areas (drainage, top spoil) where corners were cut. This goes on all the time in construction here in the US. Are the builders "valuing honesty?" Well, to a point, I guess (and certainly WAY more than would be the case in China from what I know), but they are also trying to make as much profit as they can.

I was still reading this thread when a cnn email came in about GM's ignition switches. 

barrett wrote: OK, PS, so let's assume you are right about this. Why did the US evolve into a culture that "values honesty and safety in commerce?" And why should the Chinese be so inherently more corrupt? I am not really taking issue with what you are saying (my wife often goes on rants about not knowing what you are getting in China), just trying to understand what pressures, societal or otherwise, compel people/companies to do the right thing?

Or what about this case... When we bought our house in CT in the winter of 2007/2008 one of the things we didn't know was that the builders/subcontractors didn't put down a decent driveway. While our home is generally of decent quality, we have definitely found other areas (drainage, top spoil) where corners were cut. This goes on all the time in construction here in the US. Are the builders "valuing honesty?" Well, to a point, I guess (and certainly WAY more than would be the case in China from what I know), but they are also trying to make as much profit as they can.

It's a good question. And I'll admit I don't have a really solid answer, just speculation and rumination.

Part of the issue may simply be China's relative immaturity as a modern country. The USA was full of dangerous snake oil type stuff 150 years ago. But as people get richer and more prosperous, they seem to become less tolerant of hucksterism, especially when their personal health hangs in the balance in a very direct manner (e.g. "eat this and die").

Don't get me started about the construction industry. I think this industry is a relic of the past. And you'll notice, all the crap you rightly complain about goes on despite a dizzying profusion of building codes. They can blanket the entire industry in rules and it barely makes a difference because the rules are not accepted by the people who are bound by them, and in many cases, not even the people in government who are responsible for overseeing that they are followed.

You can't change a culture with rules. You can only make rules that reflect the culture. At least, that's the way I see things.

barrett wrote:

Pointedstick wrote: It's not about government regulation; it's about a culture that values honesty and safety in commerce. If they passed that law in China, it would be widely ignored and the appropriate officials simply bought off. It's not the law itself that grants those very real and tangible benefits to Americans, but rather the law is symbolizing a willingness on the part of American supplement manufacturers to be honest and not poison their customers.

OK, PS, so let's assume you are right about this. Why did the US evolve into a culture that "values honesty and safety in commerce?" And why should the Chinese be so inherently more corrupt? I am not really taking issue with what you are saying (my wife often goes on rants about not knowing what you are getting in China), just trying to understand what pressures, societal or otherwise, compel people/companies to do the right thing?

Or what about this case... When we bought our house in CT in the winter of 2007/2008 one of the things we didn't know was that the builders/subcontractors didn't put down a decent driveway. While our home is generally of decent quality, we have definitely found other areas (drainage, top spoil) where corners were cut. This goes on all the time in construction here in the US. Are the builders "valuing honesty?" Well, to a point, I guess (and certainly WAY more than would be the case in China from what I know), but they are also trying to make as much profit as they can.

I personally believe a main reason (probably not the only reason) the US evolved into a culture that values honesty and safety in commerce is because it was founded in a large part by people seeking religious freedom, i.e. they had a relatively strong religious background, mainly Christian, with its associated values and ethics.  I won't get into a debate on this thread about "justification by faith alone" or "justification by works righteousness" but either way, if one thinks they are going to end up in a better place after this earthly life is over, it does tend to give us Christians a reason to "do good" to others and not just gouge them for all you can get, i.e. maximizing personal gain at the expense of others.

If I'm correct, it does paint a rather disturbing picture for where our increasingly secular values country is headed, does it not?

Should this post have gone in the "balls" thread for an example of telling people what they don't want to hear? 

... Mountaineer

barrett wrote: OK, PS, so let's assume you are right about this. Why did the US evolve into a culture that "values honesty and safety in commerce?" And why should the Chinese be so inherently more corrupt? I am not really taking issue with what you are saying (my wife often goes on rants about not knowing what you are getting in China), just trying to understand what pressures, societal or otherwise, compel people/companies to do the right thing?

I've spent a lot of time in China on business.  Now that does not make me an expert in the slightest on Chinese culture, but I've heard a few stories along the way.  Take them with an appropriate grain if salt. 

One Chinese factory owner explained to me that Chinese manufacturing is hindered by the cultural history of Taoism.  http://en.wikipedia.org/wiki/Taoism  Some interpret the concepts of "Wu-wei" (roughly translated as "action without intent") and "bugan wei tianxia xian" (or "not daring to act as first under the heavens") as philosophical and religious directives towards passiveness in business and following the lead of others.  This both stifles innovation and encourages copycat products and companies.  Note that in this context, product knockoffs may be interpreted as perfectly moral rather than corrupt.  "Go with the flow."

The influence of Communism is also strong, especially when you talk corruption.  I've seen planned rolling blackouts near Shenzhen during the summer due to rapidly growing infrastructure, but factories who pay local communist leaders have no issues keeping the power on.  The bribe (passed along to the customer) was positioned to me once as an "expedite fee". 

BTW, the earlier comments about Chinese products not automatically being poor quality is also spot-on.  Big companies understand where to do certain tasks in order to get the desired quality and cost.  That usually means "premium" products are designed in the US with input from Taiwanese engineers, and the tools are built in Taiwan before being shipped to China for the cheap labor to run them.  I've worked with Quanta Computer and Foxconn engineers in Taiwan, and they're quite talented. 

Pointedstick wrote: It's also worth mentioning that you really can't depend on country of origin as a proxy for quality.

Is this true worldwide?  I agree that buying american is no longer a dependable indicator of quality, but I wonder (don't know) if there are parts of europe that have not been "infected".  Perhaps Germany (I've always had a preference for german cars) or Switizerland?  Or is this just some idea in my head that is not true?

Mountaineer wrote: I personally believe a main reason (probably not the only reason) the US evolved into a culture that values honesty and safety in commerce is because it was founded in a large part by people seeking religious freedom, i.e. they had a relatively strong religious background, mainly Christian, with its associated values and ethics.

I agree, to an extent. I think the Protestant work ethic was a very good head start.
It probably goes without saying, but there are cheaters in every country and Chinese hate their own cheaters (melamine in milk, fake camera film, etc) as much as we hate them. And, those are the ones who make it into the news, not the factories that run smoothly and without incident.

On the other hand, Christianity is not what is going to save China. Once upon a time, "Made in Japan" was a sign of dodgy quality, and someday in the future "Made in China" will be a point of pride, and deservedly so. But, it will be because of a practial evolution of their business, not because they found religion.

Pointedstick wrote: It's also worth mentioning that you really can't depend on country of origin as a proxy for quality.

Benko wrote:Is this true worldwide?  I agree that buying american is no longer a dependable indicator of quality, but I wonder (don't know) if there are parts of europe that have not been "infected".  Perhaps Germany (I've always had a preference for german cars) or Switizerland?  Or is this just some idea in my head that is not true?

Aren't some German car parts made in East Asia, though? I had a Taiwanese engineer brother-in-law who told me they were.

I don't think that one country's work is necessarily of higher quality; it depends on the company and product. I do think that if an American company is designing Apple products (ok, with British industrial engineers), it helps to have American oversight to make sure things get made the way you wanted them made.

dualstow wrote: Aren't some German car parts made in East Asia, though? I had a Taiwanese engineer brother-in-law who told me they were.

Wouldn't surprise me at all.

Legally speaking, when you see "Made in the USA" on a product, that only means the final assembly was done here.  Often, most sub-components are made overseas and shipped to the US for final assembly (sometimes as simple as dropping the product into the final retail box) for import tax purposes.

I read something similar about olive oil, about how the contents of a bottle can be largely from Spain and still bear the mark, "Product of Italy."

dualstow wrote: I read something similar about olive oil, about how the contents of a bottle can be largely from Spain and still bear the mark, "Product of Italy."

Do a google web search on olive oil.  Apparently outright fraud e.g. if you think you're really getting extra virgin olive oil is the norm. 

That's a separate issue, but true. (Another uncomfortable truth). Fraud.

dualstow wrote:

Mountaineer wrote: I personally believe a main reason (probably not the only reason) the US evolved into a culture that values honesty and safety in commerce is because it was founded in a large part by people seeking religious freedom, i.e. they had a relatively strong religious background, mainly Christian, with its associated values and ethics.

I agree, to an extent. I think the Protestant work ethic was a very good head start.
It probably goes without saying, but there are cheaters in every country and Chinese hate their own cheaters (melamine in milk, fake camera film, etc) as much as we hate them. And, those are the ones who make it into the news, not the factories that run smoothly and without incident.

On the other hand, Christianity is not what is going to save China. Once upon a time, "Made in Japan" was a sign of dodgy quality, and someday in the future "Made in China" will be a point of pride, and deservedly so. But, it will be because of a practial evolution of their business, not because they found religion.

I agree Christianity is not going to "save" China, economically speaking of course  .  It was "easy" for the US, since it started relatively close to ground zero.  China has a massive population already in place with a minority of Christianty based ethics, even though the Christian religion found and sustained many Chinese people during all the persecution times.  I'm not saying you can't teach an old dog new tricks, but it sure is harder than starting with a new puppy that has a blank slate, and is not full of old tricks to unlearn.

... Mountaineer