We’re a bit complicit in inequality, trade deficit

Bill Knight column for Thursday, Friday or Saturday, June 29, 30 or July 1

The New York state government’s recent agreement to require using U.S.-made iron and steel for roads and bridges next year is good news, promising to help steelworkers, employers, communities and middle- and working-class residents.

But is it too little, too late? Is it too far removed from the real problem: us?

The arrangement reached between Democratic Gov. Andrew Cuomo and state lawmakers promises to buy from U.S. steel plants; the state budget calls for spending $677 million on highways, $564 million to rebuild expressways around Kennedy Airport and $264 million toward replacing the Koszciusko Bridge.

Although that’s a positive action, it’s one state, and it doesn’t affect other sectors – nor consumer choices on where and what we buy.

The American Dream is that anyone can prosper if they work hard, but many people don’t have the same opportunities if they’re born into poverty or are in the working class. Further, middle-class consumers in particular contribute to economic inequality because of their expectations, if not demands, for considerations provided by government, according to the new book “Dream Hoarders” by Richard Reeves, co-director of the Brookings Institution’s Center on Children and Families.

It’s not about middle-class greed or malice, but privileges – college savings plans (in Illinois, such contributions are tax-deductible), mortgage-interest deductions, zoning regulations that result in who can afford to live in certain areas, and internships that offer opportunity but are essentially limited to the well-off since most internships are unpaid.

Consumers of all classes, from the poor to the 1%, also make up a factor, as do manufacturers and the government that regulates commerce. A Commerce Department report out this spring – “What is Made in America?” by Jessica Nicholson – analyzes “how much of our economy’s total manufacturing production is American-made.” And despite moves like New York’s and campaigns to “shop local,” small-town business districts offer few locally owned places to shop while consumers patronize dollar-store chains or commute miles to shop at Big Box stores that use imports from countries paying virtual slave wages. Even major retailers such as Sears/Kmart, Macy’s and J.C. Penney are hurting, closing stores and laying off thousands.

Only 53 percent of the total U.S. demand for manufactured goods was for domestically produced items, Nicholson shows.

The report doesn’t precisely define “Made in the USA.” Instead, its more accurate study shows the share of “American” products after using factors such as domestic material or value-added domestic features. She starts with U.S. gross output, adds “value added” inputs such as labor costs and taxes paid (less subsidies), recognizes domestic sourcing of supplies, and determines U.S. manufacturers’ “domestic content.” She concludes that domestic content from the most recent year for which data is available (2015) is more than four-fifths across the board, with 18 percent foreign content.

“We found that, on average, of the total manufacturing gross output of $5.7 trillion, 82 percent was comprised of domestic content,” she writes. “However, while a large percentage of the value of goods that are made in America is from domestic sources, this does not necessarily imply that the domestic content of the goods that we purchase from our store shelves is also high.

“Final purchases by U.S. consumers, businesses, and governments of manufactured goods was [about half,] $2.9 trillion – including goods manufactured here and imported,” she says.

That indicates the need for more exporting and more supportive shopping.

A comparison of cars and clothes reveals nuances we might consider.

“Consider the motor vehicle and parts industry,” the report states. “While 82 percent of the gross output of the industry is accounted for by labor, capital and other inputs sourced in the United States, a relatively large portion of these other inputs contain content that was imported. As a result, the domestic content of this industry is 73 percent, significantly lower than the simpler estimate of domestic sourcing.

“Output from the U.S. apparel industry was [also], on average, 82 percent American,” she adds. “However, only 16 percent of the apparel that was sold as final products in the United States that year was American in origin. The domestic content of what we produce and what we purchase in the United States is not the same.”

Whether income inequality or the nation’s trade deficit, it’s partly our fault. Indeed, sensible shopping and sensible trade (exporting) are part of the calculation over which we all have some control.

Reeves urges conscientious consumption as well as pressure on industry and government policymakers.

“It's about trying to change the way we think about inequality and taking more responsibility for it in the hope that will prepare the ground for the bigger policy changes which are going to be required,” Reeves writes.

[PICTURED: Chart from the Office of the Chief Economist, U.S. Department of Commerce.]