Why are manufactured goods cheap in the United States?

I enjoy reading Kevin Graham’s blog, because he often has observations that disagree completely with my own.  Recently, he’s blogged that inflation has increased the standard of living.  Kevin and a certain Joel got into an interesting conversation about it.  But here is the picture that Kevin got from Carpe Diem from the 1964 Sears Catalog:

Kevin’s point is that big screen HDTVs today are hardly more expensive in nominal dollars, and far cheaper in inflation adjusted dollars.  But furthermore, the actual TV product is superior.

Now, I encourage readers to read both Joel and Kevin to see the two sides of the coin.  I interjected myself with a couple of comments that I wish to record here:

@Joel, thanks for your thoughtful responses to Kevin’s stimulating post. I would like to add one point, which is crucial in this whole picture. The 1964 TV is American made in factors in the United States with US workers; back then, TVs were likely exported to other countries. The 2012 TV is made in China. The reason it is cheap is because the Chinese sell their products in exchange for the United States fiat dollars, which the Chinese can then use on world markets either to invest or to buy the raw materials that they need. The United State has a three-decade trade deficit. All that means is that the United States has been able to export its own currency receiving manufactured goods in return, currency which it costs virtually nothing to make–particularly when it is created electronically and not printed. Now the United States by inflating its currency over this period has been a big winner in global trade. And those TVs and such are indeed cheap. But I defy you to go to a country which is not able to export its currency to China. Say a poor African country. There, people still fix, e.g., 30 year old refrigerators, because the cost of labour and parts is still much, much cheaper than replacing the unit. All this means is that it is possible for the United States to overdo it–I think inevitable at this point. Then the rest of the world will reject the US dollar and there will be completely new dynamic, where the cheap money is unable to chase real goods. This is an unprecedented situation in the world today; to my knowledge, no fiat currency has ever enjoyed the ascendency of the dollar, and so no such currency has ever fallen from such a pinnacle. When it does, watch out. It will be the end of the global economy as we know it.

By the way, Kevin, did you take into consideration that that TV you picture is in a fine piece of crafted wood furniture? I know the TV cabinet is out of style, but if you were able to purchase something comparable in quality and materials, say a buffet cabinet without the hutch, it would cost starting  at around $2000, and that is without a the TV. How does that figure into your calculations about the benefits of inflation?


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