Are You A Rational Consumer?

I’m not aware of any test. The phlebotomist cannot draw blood, run the blood sample, and then give you the good news; “Guess what, Mr. Busby? You’re good, you are a Rational Consumer. Keep your finances in order, and you should live a long life of comfortable consumption.” If only life were simple like that.

And, I am plagiarizing myself, as I cut-and-paste portions from a previous essay.

Rational Consumers will purchase what they can afford, through savings, or through buying off-brands. Rational consumers will abide by common financial practices of setting aside 10%-15% of income to retirement. Rational consumers will maintain a debt load of less than 30% of income. Rational consumers will use the rule of 2-1/2x’s annual income for determining the affordability of housing.  Many financial web sites are available to assist people in making good choices.

People do not want to make good choices, or do not have the experience in making good choices. Shopping at Wal-mart or Target or CostCo may superficially seem like a good cost-saving measure, but not if you spend more than earn.

However, people do seem to want value for their money, even if that money is really VISA or MASTERCARD. That purchasing power, whether credit/credit cards or cash is The Voice that CEOs listen to.

In the 1970s and early 1980s, televisions were available from both United States and Asian manufacturers. Eventually, U.S. makers were forced to close factories in the U.S. and contract with factories in China, Malaysia, Taiwan, and Japan. Were their TVs better? No, not really. But, they were cheaper. Same quality, but less expensive.

Thus, if you were shopping in the 1980s, you might go to K-Mart. In my early years, if we wanted better shopping, my family would shop at Venture. In the electronics department of K-Mart, you would see a U.S.-made RCA TV for $199.99. Next to the RCA is a similar TV made by Japan’s LG or Sony for $169.99. All things being equal, which one did you buy? I’ll tell you; you bought the Sony and saved $30. You, and a bunch of other Americans opted for the less expensive TVs. RCA, after a few years of seeing profits decline, had a difficult choice to make. Close; or stay in business but move manufacturing to Asia. RCA got the message, though; Americans would rather have a cheaper TV than a more expensive TV made in the United States, made with U.S. labor.

The Price of Labor is crucial in remaining competitive. See, raw materials are pretty much priced on the global market. Everyone pays pretty much the same price for leather, fabric, plastic, etc., all the inputs for products. The other major cost for products is transportation. While transportation can be expensive, it is expensive for everyone equally. That leaves labor.

Americans require benefits, health insurance, dental insurance, eye care. Americans require paid vacation and paid sick leave and maternity leave. Americans want retirement plans. Americans want a minimum wage and regular raises. Americans want unemployment insurance and retraining benefits when we lose our jobs. None of this is free.

Furthermore, as none of this is free, someone has to pay for it. That someone is you, but not exclusively you. Your employer also chips in. In fact, you as an employee cost your employer an additional 25% to 40% above and beyond your wage (MIT Sloan School of Management). In other words, if you make $9/hr, you cost your employer at least $12/hr.

Now, pretend you are Mr. Employer, you have your own company making TVs. You now have a choice: are you going to try to make TVs in the United States, and pay your workers Minimum Wage (good luck) $7.35/hr, which is a cost to you of about $9/hr per employee, $72/day per employee, $1,440/month per employee? Not if you are smart, or have some robots working for you – but that is an example of innovation.

Or, are you going to hire a Chinese worker for $4/day, or maybe $120/month?

By shifting production to China, using my numbers, you would save about $15,840 per year per employee. Pretty soon, you’ll have enough for that private jet and won’t have to fly coach any longer. And, you have the added benefit of not having to deal with whiny, bitch-y, complain-y U.S. workers  and labor unions frequently taking you to task over wages, working conditions, vacation time/pay, sick time/pay.

“Well that isn’t fair! Those Chinese people will work for less money! How can we compete with that?”

Duh. You can’t, so why should you try to?

If someone has Competitive Advantage, then you need to try something different. Innovate.

Otherwise …

Vote for people who support something akin to a Social Market Economy. Allow the government to control wages and the cost of imports.

If you want to pay the least for your clothes, electronics, whatever, then the Free Market must be allowed to work. That has to apply to labor, as well. Otherwise, as a U.S. company owner you might petition the U.S. government to pass an excise tax on incoming products from China. That might be good for you; a TV coming in from China now has $30 added on to it so now it is equal in cost to yours. But, when Americans find out that they are paying $30 more for that TV than what they could pay, someone is going to be upset.

Then, consumers will come after you, or decry the import tariff.

American consumers need to become more educated about the down-stream effects of their own purchasing coupled with the U.S. government economic policies – at least in simple terms. The effects of purchasing can have wide-ranging impacts across multiple manufacturing sectors. Simple solutions, uh, yeah, there probably are none. Real solutions involve alternatives which include both positive and negative aspects.

When/if U.S. consumers eventually realize we cannot eat our cake and have the cake, too, then we, as a voting body, can ensure that our national economic policies work to our own best interest and advantage.

Then, when a country decides to undervalue currency, the impact won’t be as deeply felt.

Hey; Thanks for taking the time to leave a comment! Your feedback is greatly appreciated!

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s