By Morgan Housel
At a conference in Philadelphia last October, a Wharton professor noted that one of the country's biggest economic problems is a tsunami of misinformation. You can't have a rational debate when facts are so easily supplanted by overreaching statements, broad generalizations, and misconceptions. And if you can't have a rational debate, how does anything important get done? As author William Feather once advised, "Beware of the person who can't be bothered by details." There seems to be no shortage of those people lately.
Here are three misconceptions that need to be put to rest.
Misconception No. 1: Most of what Americans spend their money on is made in China.
Fact: Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services.
I used that statistic in a recent article, and the response from readers was overwhelming: Hogwash. People just didn't believe it. The figure comes from a Federal Reserve report. You can read it here. A common rebuttal I got was, "How can it only be 2.7% when almost everything in Walmart (WMT) is made in China?" Because Walmart's $260 billion in U.S. revenue isn't exactly reflective of America's $14.5 trillion economy. Walmart might sell a broad range of knickknacks, many of which are made in China, but the vast majority of what Americans spend their money on is not knickknacks.
See full article from DailyFinance: http://srph.it/zGyvqc
I'm interested to hear how this jives with our considerable trade deficit. I'd definitely like to hear how someone like Peter Schiff would respond to this.
Well, looking at the Federal Reserve link, it's some shifty accounting because it is restricted to "Personal Consumption Expenditures" as defined by the Commerce Dept's Bureau of Economic Analysis and includes a "Services" category, weighted at 66.9% of the total, which is nearly 100% "Made in the USA".
@Groucho: Even if only 1/3 of Americans' expenditures are on goods, then that's still less than 10%.
No2statism:@Groucho: Even if only 1/3 of Americans' expenditures are on China made goods, then that's still less than 10%.
That's a lot more than the 2.7% the article quotes. And it's not just "expenditures," but the Bureau of Economic Analysis' "Personal Consumption Expenditures" (PCE) category of GDP (which has plenty of problems of its own). There seem to be a few things that are fishy about the article and those jumped right out at me.
Sometime this weekend when I have more energy I can really look at it and see what's off, but it is using some very carefully selected numbers and methods that seem designed to produce smaller results for China.