Friday, August 19, 2011

Blame Shifting

Something we are all experts in: blame shifting (don’t deny it).  There are arguments we all have where we can’t understand why the offending party doesn’t stop, take a step back, and finally realize that you did nothing wrong and they are being offensive.  Even if you are obviously at fault (the horror) you try to think of every possibility that would not force you to admit guilt.  Some of us could make a profession out of it (it’s never your fault, how could it be, you’re perfect in every way).   Somehow not one, but TWO of Charlie Sheen’s cars ended up off a cliff into the woods (definitely wasn’t his fault, aliens did it).  Then he’s on drugs and his teeth fall out, goes crazy on twitter, but it’s his boss’s fault he got fired (technically his boss did fire him – but clearly for no good reason).

There is a lot of blame shifting going around the economy these days.  The interesting part is how we can see the shifting down the line in economic statistics and stops with us, the consumer.  Take prices.  Data released yesterday shows consumer prices are up by 3.6% over last year, which eats into how much stuff we can buy (thank goodness clothes with holes in them are actually in style).  Why?  Because producer prices, the prices producers pay to make the stuff we buy, are up.  Data released Wednesday shows producer prices increased by 7.2% over last year in July (and by 2.5% excluding food and energy).  Why?  Because producers use a significant amount of foreign made inputs in their production of said stuff (we don’t know exactly how much but some estimates are around 20%).  And on Tuesday data released showed import prices increased by a staggering 14% over last year.  Given this supply chain, we are at a stopping point: we don’t have much control over the prices other countries charge.  In other words, it’s their fault across the oceans.

Price increases don’t just make our pockets lighter.  They may also be to blame for another (lately downward) economic statistic: U.S. production.  As a driver of our economic growth, and an important sign of a healthy economy, recent indicators are not very favorable.   Growth in U.S. production has been weak all year, and a larger uptick in July (the sector expanded by 0.9%) looked promising.  However, August is not looking good.  According to indicators released this week, in August New York manufacturers saw a continued deterioration in their business outlook (the indicator went from a - 3.76 in July to -7.72 in August) while Philadelphia manufacturers felt an even bigger deterioration in business conditions (the indicator went from a slightly positive 3.2 in July to -30.7 in August).  Why?  Certainly it can’t be the factories’ fault (that’s nonsense).  U.S. producers need U.S. consumers to buy their stuff (increasing exports is for another day).  So, it is a spiral: if consumer prices go up, the amount of stuff we buy goes down.  If we are buying less, producers will produce less.  

Of course it’s not just price’s fault (that’s not fair to blame everything on prices).  There is much more at work here.  If we are earning less, or are out of work (stupid high unemployment), we simply don’t have as much spending money.  Can those who are unemployed be the ones to blame?  Is it their fault they are unemployed?  Perhaps we should remember that if producers weren’t so reliant on U.S. consumers, they wouldn’t be so dependent on how much money we have.  If they made more stuff for people overseas many there would be more jobs for the currently unemployed.  The blame cycle continues.

Being an expert blame shifter yourself, perhaps you could offer a few words of advice for the U.S. manufacturing sector.   What would you suggest?   Maybe setting up kiosks in malls overseas or offshoring less where financially viable?  You are so smart, how could anyone possibly think you are ever to blame for anything!  Then sit back and watch the economy jump back to life and wonder how they could ever thank you.

(Bureau of Labor Statistics, Federal Reserve, Bureau of Economic Analysis)

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