The Price of Tea in China

We've been told that the economic problems we are experiencing are caused, in part, by the advent of the “new global economy”. While there is some truth to the idea that economies in other parts of the world are doing better than they have in the recent past, and that ours is doing worse, the idea that somehow the “global economy” is new and is the cause of these phenomena is simply misleading.

The global economy goes back at least to the days of the Colombian Exchange, in which Europeans shipped plants, seeds, tobacco, cotton, wood, produce, and lots and lots of gold back to Europe and left behind horses and smallpox and syphilis. The claim that this is a new phenomenon is an attempt to ignore the serious deficiencies in our own understanding of simple economics.

The growth seen in countries other than the U.S. is a direct reflection of the decline of American manufacturing, and is tied to our cultural addiction to constantly lower prices. I am not advocating that anyone overpay for anything. I am stating, hopefully with some clarity, that it is impossible to underpay for anything. At least not for long. The price one pays for something is tied to its value. If we pay less, the object is worth less. If this were not true, the person selling the object could not afford to sell it for less, again, he might, but not for long.

The fact that we demand lower and ever lower prices simply forces suppliers to constantly reduce the quality of their product. From the post WWII era until the late 1970's, this was not the case. Prices on many consumer goods tumbled as industries added efficiency, automating production lines, computerized everything, and, with the deregulation of the trucking industry, reduced inventories. These new innovations allowed producers to make better and safer cars that cost less, (as a percentage of the average wage), than cars had previously cost. Once it became less expensive to export the labor than it was to increase efficiency, the only corner left to cut was quality.

It may simply be a function of growing older for me to say “When I was a kid...”, but there is a difference between how we look at consumer goods now and how they were viewed just twenty or thirty years ago. We have become comfortable with disposable items. This allows manufacturers to reduce the quality of their goods, thereby making a little more money per unit sold. Then they sell us a replacement every few years and make much more money on volume sold.

This may be a good business model if it is sustainable. But there is a concept in economics called “externality”, that refers to the unintended consequences of policy decisions made within an economy.

We are just now experiencing externalities that have resulted from the changes made through the eighties and nineties. By shipping jobs offshore, we have effectively reduced the total buying power of the United States, which results in greater demand for lower prices. In addition, the cost of shipping raw materials and recyclables overseas for processing and manufacture, then back as finished goods artificially raises the cost of production on these goods, forcing the overseas manufacturer to reduce quality even more.

Our demand for lower prices has driven down prices, quality, net earnings for American workers, and has resulted in a global economy that is on the brink of collapse because we insist on getting less for our money.

How do we fix it? By buying value, not price. The fact that we are obsessed with price and ignore value is proven every time we opt for a lower price without considering the consequences. Where do you find value? Find someone who is determined to build markets rather than destroy them. Find someone who is offering the best possible product, (and that someone is probably in your area). Buy from that person. You may pay a little more “up front” than you did for the cheaper substitute, but it will be cheaper in the long run. The products you buy from a market builder will be superior in every way.

They will fit your purpose better, because they are made with you in mind, not the lowest common denominator, "everyman" customer that the market destroyer is selling to. You will not be paying hidden transportation costs in the form of reduced quality. You will support a local businessman who does business in your area, and may even be your customer in your work.

We need to come to the realization that you get what you pay for. If we stayed with that premise, and demanded that what we paid for be worth the price, quality would increase. When quality increases relative to price, value rises. By building value into every step, we lift the entire market for everyone.