I Bet Lou Dobbs Is Not Happy With Mattel

Thomas A. Debrowski is Mattel's executive vice president for worldwide operations. After a meeting with Chinese product safety chief Li Changjiang, Mr. Debrowski decided his company should take a lot of the responsibility for the recent product recalls:

"Our reputation has been damaged lately by these recalls," Debrowski told Li in
a meeting at Li's office at which reporters were allowed to be present. " And Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys," Debrowski said … The recalls have prompted complaints from China that manufacturers were being blamed for design faults introduced by Mattel. On Friday, Debrowski acknowledged that "vast majority of those products that were recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in China's manufacturers." Lead-tainted toys accounted for only a small percentage of all toys recalled, he said, adding that: "We understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers." In a statement issued by the company, Mattel said its lead-related recalls were "overly inclusive, including toys that may not have had lead in paint in excess of the U.S. standards. "The follow-up inspections also confirmed that part of the recalled toys complied with the U.S. standards," the statement said. Li reminded Debrowski that "a large part of your annual profit... comes from your factories in China. "This shows that our cooperation is in the interests of Mattel, and both parties should value our cooperation. I really hope that Mattel can learn lessons and gain experience from these incidents," Li said, adding that Mattel should "improve their control measures."

I mention Lou Dobbs as his show has been on a tirade of China bashing as if we should stop importing goods from this trading partner. The reality is that most of the toys purchased by American households are made in China. During 2006, we imported $22.2 billion worth of toys from China according to this source. Mattel sales were $5.65 billion during 2006 and its operating margin was just shy of 13 percent. Mattel’s 10-K filing notes:

The foreign countries in which most of Mattel’s products are manufactured (principally China, Indonesia, Thailand, Malaysia and Mexico) all enjoy permanent “normal trade relations” (“NTR”) status under US tariff laws, which provides a favorable category of US import duties. China’s NTR status became permanent in 2002, following enactment of a bill authorizing such status upon the country’s accession to the World Trade Organization (“WTO”), which occurred in 2001. Membership in the WTO substantially reduces the possibility of China losing its NTR status, which would result in increased costs for Mattel and others in the toy industry. All US duties on toys were completely eliminated upon implementation of the Uruguay Round WTO agreement in 1995. The European Union, Japan and Canada eliminated their tariffs on most toy categories through staged reductions that were completed by January 1, 2004. The primary toy tariffs still maintained by these countries are European Union and Japanese tariffs on dolls of 4.7% and 3.9%, respectively, and a Canadian tariff of 8.0% on children’s wheeled vehicles.

I realize that the Lou Dobbs crowd is pushing hard for higher tariffs on imports from China, but such tariffs are not exactly the right incentive structure to promote better quality control in terms of toy production. Mattel and the Chinese government both have incentives not to wreck the flow of Mattel profits and Chinese jobs that would come American parents not trusting the products they produce. Sure – there are incentives to cut production costs and maybe the lower cost of lead paints may have been part of the problem here – as argued by this Angrybear. But as Mr. Debrowski notes, one can overemphasize this one aspect of the incentive structure.

I say this because Mattel and other companies that design and distribute toys with production outsourced to third party Chinese manufacturers have established the type of Hong Kong sourcing companies that I discussed here. OK, my Angrybear post from over a one ago was complaining that the IRS allows too much transfer pricing manipulation. But as one digs into the facts about these sourcing companies, one sees that these subsidiaries of companies like Mattel hire a lot a quality control personal. Are they spending enough on quality control? Perhaps not, but let’s see if the toy industry learns a valuable economic lesson from these product recalls.

Men at Work

As you can see we're trying to improve the template of this blog. Mistakes will be made. Please bear with us.

Go ahead, attack me for the colors I've picked. I can take it.

This is the rest of yourpost you'll see when following the "Read more" link. Continue the restof your very long post here. Blah, blah and blah.

THE DOLLAR DIVE GETS SERIOUS

So, it is not just that the US dollar has hit an all time low against the euro, but it has hit parity against the long-derided Canadian dollar (aka "looney") for the first time in over 30 years, and much more significantly, for the first time in 50 years, the Saudis are considering unpegging their riyal from the US dollar, frustrated at the inflationary pressure arising from the rising cost of imported food as their currency declines with the dollar. The upshot is a very real danger of a full-blown plunge of the dollar internationally, in the wake of the interest rate cuts by the Fed, in their efforts to stem the tide of housing price declines and failures in the sub-prime mortgate industry that have been filtering out into the global financial markets. But, with the unprecedented and humongous net international indebtedness of the US, combined with ongoing and large-scale current account deficits, this is indeed a very dangerous situation (especially for someone like me about to travel to Europe, :-)).

Delong Smacks Lucas Down!

Check it out. I went to grad school during the heyday of Lucas/Sargent/Wallace/Barro "policy-ineffectiveness" theology. The picture of how the macroeconomy works that this gang flacked has turned out to be utterly, utterly wrong. The idea that the business cycle is caused by "unanticipated money" shocks - so that an economy where the Fed acted in predictable ways would be cycle-free: this is, and was, intellectual rubbish! Why have these people paid no price for being so wrong, I wonder? Like the liberal war-bloggers, their eminence is undiminished.

A Comment on Senator Obama’s Tax Proposal from a Bear Inflicted by Deficit Dementia

While I have been a big fan of what Max Sawicky started in Blogland a few years back, he and this ProGrowthLiberal (if you are thinking another Gene Sperling type – you are close) did not entirely agree 100% on how to express our views on things like fiscal policy. After all, someone who has been signing onto the Angrybear blog (before our cave got too crowded with all sorts of Bears – some of which I worry have been visiting Dick Cheney’s cave) as PGL, it is fair criticism that I’m in the Rubinomics camp at least when it comes to trying to restore national savings. I can try to defend my DeLong-ish deficit hawk view on things by appealing to the Solow growth model and all, but I know this crowd will rightfully fire back with things like the benefits of public investment, the importance of distributional equity, and even the need to stay close to full employment. No argument here, so let me get to my first politically framed post with an economist twist by pointing to a recent Angrybear post:

I see the Republicans topping the modest tax cuts that Senator Obama is proposing by promsing larger tax cuts for everyone. But that’s the problem. The GOP is all about Spend&Spend and Borrow&Borrow, which simply means deferring the tax bite. I don’t want Democrats promising voters that money grows on trees.

OK, you may say this Bear really has Deficit Dementia so badly that he has no clue as to how to play the DC games with the reprehensible GOP types. Fair enough but as I try to distance myself just a bit from Kevin Drum, I do need to step back and realize that Kevin is also afflicted with both Deficit Dementia and a desire to be slightly right of MoveOn. But that should not stop either one of us for calling on the next President for insisting on a more progressive tax code.

Which leads me to where I think Senator Obama must have been reading MaxSpeak, You Listen. Over at Angrybear, I had two habits: (1) complaining a lot about how multinationals manipulated transfer pricing and got away with it; and (2) stealing choice phrases from Max. These were not mutually exclusive activities as Max has some of the best commentaries on how transfer pricing manipulations would cheat the US Treasury.

So my first post is less on the issue of fiscal policy and more a promise to say more on this issue of how the next President – be that Senator Obama or one of the other good choices from the Democratic side (please don’t get me started on Rudy McRomney) – can gather at least a few morsels from effectively enforcing section 482, which should be the domain of economists even if we let the tax attorneys trample all over us.

Of course, if one of these responsible GOP types dusts off Social Security deform, expect this Bear to reject the notion that prefunding is jive. But I don’t want to go down that road just yet as I remain thankful that Max has given me the right to post here.

Update: Did I predict that the Republicans would up the ante on tax cuts? Ramesh Ponnunu proves me right! He wants everyone to get a tax cut. And I thought Ramesh was the sole smart one at the National Review. For why this is another nitwit rant, see Mark Thoma. Shall we just call the GOP, the “money grows on trees” party?

Prices as Intellectual Property

The magic of the marketplace that Hayek proposed works because prices covey the information necessary to make efficient decisions. I never believed Hayek, but I never supported intellectual property either. Here we have Harvard's bookstore acting as if its retail prices were intellectual property to prevent students from buying "efficiently."

http://www.boingboing.net/2007/09/19/harvard-bookstore-ou.html

"The Coop, Harvard's Barnes-and-Noble-run bookstore, has begun to throw out students who "take a lot of notes" about book pricing, stating that their prices are "intellectual property." Apparently, no one with a Harvard Law degree is involved in formulating this notion, as factual matters (such as pricing) are not copyrightable."

"Coop President Jerry P. Murphy '73 said that while there is no Coop policy against individual students copying down book information, "we discourage people who are taking down a lot of notes." The apparent new policy could be a response to efforts by Crimsonreading.org -- an online database that allows students to find the books they need for each course at discounted prices from several online booksellers -- from writing down the ISBN identification numbers for books at the Coop and then using that information for their Web site. Murphy said the Coop considers that information the Coop's intellectual property."

Greenspan on the futility of Economic Forecasting

Dufour, Jeff and Patrick Gavin. 2007. "Alan Greenspan's a Pessimist on Economists." Yeas & Nays (11 September). http://www.examiner.com/blogs/Yeas_and_Nays/2007/9/11/Alan-Greenspans-a-pessimist-on-economists

When you gather together three Nobel prize winners, four former members of the White House's Council of Economic Advisers, a Congressional Budget Office head and a former treasury secretary, you sure don't expect them to be told that, well, their life's work has all been for naught. But, at a private dinner Friday held at the Washington Club to honor Brookings Institution economist George Perry and Yale's Bill Brainard (both the retiring editors of the renowned Brookings Panel on Economic Activity), former Federal Reserve Chairman Alan Greenspan told the audience that economists don't really know anything.

"The one thing that struck me is that, despite the extraordinary sets of articles, insights and analysis by the people in this room and the other colleagues in BPEA, our ability to forecast the business cycle has not improved one iota," Greenspan said. "The best models don't work all that well."

Ouch.

But don't cry just yet, wonks: Greenspan was actually asked by BPEA to discuss the inherent difficulties in economic forecasts (economists are gluttons for punishment, don't you know) and Greenspan -- in the type of English only he can employ -- said the uselessness of their jobs actually creates usefulness!

"It doesn't, however, induce us to then conclude that, if the model doesn't forecast -- which implies that it has not captured the appropriate structure -- we nonetheless tend to use the structure of the model to do analysis and draw significant conclusions about how the inner workings of relationships occur even though the coefficients which we're employing clearly don't forecast anything worthwhile."

Exactly. What he said.

Thanks to Doug Henwood who posted this to the LBO mailing list.

more on Liberals vs. Conservatives

This one makes more sense to me than the one about conservatives being "rigid" and liberals being "flexible," which seemed tautological. Whereas that article really couldn't say anything about non-liberal, non-conservative people like Marxists (who I guess would be both rigid and flexible simultaneously), this one might: Marxists might be saying that the five different moral principles that Haidt posits have been ripped apart by the rise of modern capitalist society and that this alienation needs to end, to find harmony among them. -- Jim

from the Science section of the NY TIMES, 9/18/07: >>“Imagine visiting a town,” Dr. Haidt writes, “where people wear no clothes, never bathe, have sex ‘doggie style’ in public, and eat raw meat by biting off pieces directly from the carcass.”

>> He sees the disgust evoked by such a scene as allied to notions of physical and religious purity. Purity is, in his view, a moral system that promotes the goals of controlling selfish desires and acting in a religiously approved way.

>> Notions of disgust and purity are widespread outside Western cultures. “Educated liberals are the only group to say, ‘I find that disgusting but that doesn’t make it wrong,’ ” Dr. Haidt said.

>> Working with a graduate student, Jesse Graham, Dr. Haidt has detected a striking political dimension to morality. He and Mr. Graham asked people to identify their position on a liberal-conservative spectrum and then complete a questionnaire that assessed the importance attached to each of the five moral systems. (The test, called the moral foundations questionnaire, can be taken online, at www.YourMorals.org.)

>> They found that people who identified themselves as liberals attached great weight to the two moral systems protective of individuals — those of not harming others and of doing as you would be done by. But liberals assigned much less importance to the three moral systems that protect the group, those of loyalty, respect for authority and purity.

>> Conservatives placed value on all five moral systems but they assigned less weight than liberals to the moralities protective of individuals.

>> Dr. Haidt believes that many political disagreements between liberals and conservatives may reflect the different emphasis each places on the five moral categories.

>> Take attitudes to contemporary art and music. Conservatives fear that subversive art will undermine authority, violate the in-group’s traditions and offend canons of purity and sanctity. Liberals, on the other hand, see contemporary art as protecting equality by assailing the establishment, especially if the art is by oppressed groups.

>> Extreme liberals, Dr. Haidt argues, attach almost no importance to the moral systems that protect the group. Because conservatives do give some weight to individual protections, they often have a better understanding of liberal views than liberals do of conservative attitudes, in his view. [what about the "extreme conservatives"?]

>> Dr. Haidt, who describes himself as a moderate liberal, says that societies need people with both types of personality. “A liberal morality will encourage much greater creativity but will weaken social structure and deplete social capital,” he said. “I am really glad we have New York and San Francisco — most of our creativity comes out of cities like these. But a nation that was just New York and San Francisco could not survive very long. Conservatives give more to charity and tend to be more supportive of essential institutions like the military and law enforcement.”<<

GETTING KERRY'D AWAY

by the Sandwichman

Democracy is unruly. Can't have that.

The jazzy sounds of Alan Greenspan

It's not news that AG spent some time playing clarinet in the Herbert Jerome band. In the memoir, so the grey lady informs me this morning, he recalls, during down-time, band-members clouded in tobacco and marijuana smoke in one room, while he sits alone in the next ensconced in an economics tome, or - I'm imagining,- some of the texts that pre-figure his inauguration into the Rand cult . I picture the standard jazz repertoire filtered through his green-eye-shaded, Objectivist sensibility:


"How High The Prime."
"I'm Growing Sentimental Over Me."
"In A Rationally Exuberant Mood."
"Tea For Two - With Separate Checks, Please."
"I Concentrate On Me."
"I've Got Liquidity - Who Could Ask For Anything More?"
"Concerto For Kooky (For Ayn)."
"In The Wee Smaa Structures Of The Minimal State."


---and that's just the first set!

National Bureau of Economic Research. 3

The third article, continues the downward spiral. There, Alexander Dyck, Adair Morse, and Luigi Zingales in "Who Blows the Whistle on Corporate Fraud?" suggest that government regulators are not very effective in rooting out corporate fraud, and, what is worse, rational expectations of investors are not very active either. The authors recommend giving more incentives to whistleblowers. This recommendation certainly must be wrong. What corporation needs such meddling? The decline in the standards of economics generally upheld by the National Bureau of Economic Research must be reversed.

http://www.nber.org/digest/aug07/w12885.html

National Bureau of Economic Research. 2

The second National Bureau of Economic Research article must have slipped in by mistake. There, Pinelopi Koujianou Goldberg and Nina Pavcnik in the article entitled "Distributional Effects of Globalization in Developing Countries." In what must be a horrendous blunder, they come to the conclusion, "the evidence has provided little support for the conventional wisdom that trade openness in developing countries would favor the less fortunate." After all, everyone knows that the purpose of expanding trade is an act of generosity, intended only to help the poor.

National Bureau of Economic Research. 1

I'm just looking over the August NBER digest. It covers five NBER articles, of which three may be mildly interesting. The first has the scary title, Public Insurance Expansions Crowd Out Private Health Insurance by Jonathan Gruber and Kosali Simon. We learn that: For every 100 children who are enrolled in public insurance, 60 children lose private insurance." Thank God that George Bush had the courage to stand up to the radicals and threatened to veto an expansion of child health coverage. Otherwise, they might lose their private insurance.

http://www.nber.org/digest/aug07/w12858.html

It's About the Oil Money

The web is ablaze with talk about Iraq, oil and the latest passing comment from Alan Greenspan. Let’s be clear:

The Iraq war is not about controlling oil. There is a global market in the gunk, and if the US or anyone else has difficulty getting it from country A it can always turn to country B. Also, no otherwise poor country would ever, ever refuse to sell oil for any prolonged period of time. It’s the difference between being important and having some leverage, and being a nobody. Quite aside from whatever you think about Hugo Chavez’ policies, where would he be if he stopped pumping and selling oil? So, no, there is no threat that any oil producing country will cause chaos by dismantling its industry or even reshuffling its sales contracts.



It could be about setting OPEC quotas, maybe. The countries the US hates and tries to undermine tend to be OPEC hawks (Iran and Venezuela). But it is not clear that those who set US priorities are so in favor of cheap oil either. There are also less expensive ways to influence OPEC.

Then what’s it about? The oil money. It’s big, one of the primary forces in the global economy. If Everett Dirksen had been a sheik, he might have said, “a few hundred billion here, a few hundred billion there, and soon you’re talking about real money.” Who gets this moolah and what they do with it is what it’s all about.

Washington has two overriding imperatives. First, the money should not be used to fund political movements the US opposes. This includes Chavismo, Islamicism or any other attack on liberal capitalism from the left or right. Second, the money should be recycled to banks with the appropriate dollar and euro portfolios, lest financial imbalances lead to a run on the hegemonic currencies. (OK, maybe there is no alternative if you have to put an unimaginably large sum somewhere, but it remains an imperative.) The blog folk wisdom about “the war was because Saddam wanted to price oil in euros” is technically wrong but gropes after the right answer: those who are allowed to rake in the oil billions must be counted on to send them back to the proper address.

Follow the money.

How to Blunt Competition

In a world with massive overcapacity, firms need to blunt competition. Here is a case in which one company buys out another, just to eliminate a competitor.Hansell, Saul. 2007. "Seagate: Missed the IPod but Selling to Lots of Snoops." New York Times On Line (10 September).

http://bits.blogs.nytimes.com/2007/09/10/seagate-missed-the-ipod-but-selling-to-lots-of-snoops/#more-423"

In 2006, there was a cutthroat battle for market share set off in part by Seagate's acquisition of Maxtor. This year, competition has eased and Seagate's gross margin has expanded to 24 percent. "The industry can't sustain two years of price wars, Mr. Watkins said, referring to rival drive makers. "People decided to stop losing money." When Seagate bought Maxtor in 2005, it kept hardly any of that company's technology or employees. The $1.9 billion deal was simply about removing a competitor. Seagate was No. 1 in the market; then Western Digital followed by Maxtor. While it kept the Maxtor brand, Seagate makes all its drives in what had been Seagate facilities using Seagate's technology. The company figures it lost half of Maxtor's market share. But the other half, plus the benefits of reduced competition, make the deal worth while, Mr. Pope said."