3 Misconceptions That Need to Die

At a conference in Philadelphia earlier this month, 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: 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 an article last week, 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 Wal-Mart (NYSE: WMT  ) is made in China?" Because Wal-Mart's $260 billion in U.S. revenue isn't exactly reflective of America's $14.5 trillion economy. Wal-Mart 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.

The Bureau of Labor Statistics closely tracks how an average American spends their money in an annual report called the Consumer Expenditure Survey. In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA).

Even when looking at physical goods alone, Chinese imports still account for just a small fraction of U.S. spending. Just 6.4% of nondurable goods -- things like food, clothing and toys -- purchased in the U.S. are made in China; 76.2% are made in America. For durable goods -- things like cars and furniture -- 12% are made in China; 66.6% are made in America.

Another way to grasp the value of Chinese-made goods is to look at imports. The U.S. is on track to import $340 billion worth of goods from China this year, which is 2.3% of our $14.5 trillion economy. Is that a lot? Yes. Is it most of what we spend our money on? Not by a long shot.

Part of the misconception is likely driven by the notion that America's manufacturing base has been in steep decline. The truth, surprising to many, is that real manufacturing output today is near an all-time high. What's dropped precipitously in recent decades is manufacturing employment. Technology and automation has allowed American manufacturers to build more stuff with far fewer workers than in the past. One good example: In 1950, a U.S. Steel (NYSE: X  ) plant in Gary, Ind., produced 6 million tons of steel with 30,000 workers. Today, it produces 7.5 million tons with 5,000 workers. Output has gone up; employment has dropped like a rock.

Misconception: We owe most of our debt to China.

Fact: China owns 7.8% of U.S. government debt outstanding.

As of August, China owned $1.14 trillion of Treasuries. Government debt stood at $14.6 trillion that month. That's 7.8%.

Who owns the rest? The largest holder of U.S. debt is the federal government itself. Various government trust funds like the Social Security trust fund own about $4.4 trillion worth of Treasury securities. The Federal Reserve owns another $1.6 trillion. Both are unique owners: Interest paid on debt held by federal trust funds is used to cover a portion of federal spending, and the vast majority of interest earned by the Federal Reserve is remitted back to the U.S. Treasury.

The rest of our debt is owned by state and local governments ($700 billion), private domestic investors ($3.1 trillion), and other non-Chinese foreign investors ($3.5 trillion).

Does China own a lot of our debt? Yes, but it's a qualified yes. Of all Treasury debt held by foreigners, China is indeed the largest owner ($1.14 trillion), followed by Japan ($937 billion) and the U.K. ($397 billion).

Right there, you can see that Japan and the U.K. combined own more U.S. debt than China. Now, how many times have you heard someone say that we borrow an inordinate amount of money from Japan and the U.K.? I never have. But how often do you hear some version of the "China is our banker" line? Too often, I'd say.

Misconception: We get most of our oil from the Middle East.

Fact: Just 9.2% of oil consumed in the U.S. comes from the Middle East.

According the U.S. Energy Information Administration, the U.S. consumes 19.2 million barrels of petroleum products per day. Of that amount, a net 49% is produced domestically. The rest is imported.

Where is it imported from? Only a small fraction comes from the Middle East, and that fraction has been declining in recent years. So far this year, imports from the Persian Gulf region -- which includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates -- have made up 9.2% of total petroleum supplied to the U.S. In 2001, that number was 14.1%.

The U.S. imports more than twice as much petroleum from Canada and Mexico than it does from the Middle East. Add in the share produced domestically, and the majority of petroleum consumed in the U.S. comes from North America.

This isn't to belittle our energy situation. The nation still relies on imports for about half of its oil. That's bad. But should the Middle East get the attention it does when we talk about oil reliance? In terms of security and geopolitical stability, perhaps. In terms of volume, probably not.

A roomful of skeptics
"People will generally accept facts as truth only if the facts agree with what they already believe," said Andy Rooney. Do these numbers fit with what you already believed? No hard feelings if they don't. Just let me know why in the comment section below.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of Wal-Mart. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (102) | Recommend This Article (402)

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  • Report this Comment On October 25, 2011, at 4:00 PM, chadscards1274 wrote:

    Morgan, excellent article those 3 misconceptions and the reality that each is incorrect was an eye opener.

  • Report this Comment On October 25, 2011, at 4:25 PM, Hawmps wrote:

    Excellent research and reporting. This topic would make a very good annual or bi-annual report tracking changes/progress on these misconceptions. The change from 2001 to today is interesting and useful knowldge. Thanks.

  • Report this Comment On October 25, 2011, at 5:37 PM, dbtheonly wrote:

    Agree completely. Morgan cuts to the point.

  • Report this Comment On October 25, 2011, at 5:46 PM, aggiewes wrote:

    Thank you, helping me to relize how little we import from china. Also thank you for pointing out that most of our oil comes from Canada and Mexico it is a fact most people don't believe when I tell them.

  • Report this Comment On October 25, 2011, at 5:49 PM, bigweld wrote:

    VERY GOOD RESEARCH, TOO BAD MORE INFO LIKE THIS NOT AVAILABLE..

  • Report this Comment On October 25, 2011, at 6:03 PM, bretco wrote:

    Actually shocking information, makes me feel a little better than I did before I read the excellent piece, Morgan.

  • Report this Comment On October 25, 2011, at 6:12 PM, xetn wrote:

    " Both are unique owners: Interest paid on debt held by federal trust funds is used to cover a portion of federal spending, and the vast majority of interest earned by the Federal Reserve is remitted back to the U.S. Treasury."

    This is nothing more than recycling the federal debt. The Fed is basically monetizing the debt. The amount of interest the Fed pays back to the Treasury is net of the .25% they are paying to the banks that are holding excess reserves (currently .98 trillion, down from over 1.5 trillion a month ago), and the amount paid to cover the Fed's expenses.

  • Report this Comment On October 25, 2011, at 6:14 PM, TMFHousel wrote:

    ^ Profit is revenue minus costs, yes.

    Thanks for the comments everyone.

  • Report this Comment On October 25, 2011, at 8:01 PM, Clint35 wrote:

    It makes sense that we get most of our oil from Mexico and Canada considering that they're the closest oil producing countries to us. Importing the same amounts all the way from the middle east would make it even more expensive (I'm assuming). But the news media loves to talk about OPEC and middle eastern oil because they know that stirs up a lot of emotions in a lot of Americans. I've never heard any news anchor talk about Mex or Can as a country we get oil from. When they talk about Can they usually mention tourism hockey and free healthcare. When they talk about Mex they usually mention tourism and drug cartels. So I think we can blame a lot of misconceptions on the media. Good article.

  • Report this Comment On October 25, 2011, at 9:03 PM, tr8dingfool wrote:

    Finally, The truth is in print for everyone to see. Not sure the doom and gloom media will like this.

  • Report this Comment On October 25, 2011, at 9:33 PM, NationalMatch wrote:

    Another good article! It was kind of shocking - in a good way!

  • Report this Comment On October 25, 2011, at 9:38 PM, TMFBreakerRob wrote:

    Not quibbling with any of your fine article, Morgan, but I'd add an important fact to the oil topic.

    We don't get a lot of our oil from the Middle East, but the commodity is fungible. In any shortage situation, the price of our oil can (and does) bounce up....and *perhaps* the availability (depending on contracts) could be at risk. Plus, of course, we also get a fairly large amount of oil from our not-so-friendly Senor Chavez in Venezuela....potentially as risky as the Middle East.

    I'm sure you're aware of all that and more, but are constrained by the limit on the length of your article.

    Thanks again for your article.

    Rob

  • Report this Comment On October 25, 2011, at 9:47 PM, grux72 wrote:

    This article should be on the front page of U.S.A today. Americans need to read some positve news instead of doom and gloom. Great job!

  • Report this Comment On October 25, 2011, at 10:08 PM, portefeuille wrote:

    At least occasionally highlighting parts of your text, right-clicking it and choosing "Search Google for ..." might help. If almost no one spells the way you do and wikipedia shows that you are unaware of even the most basic facts and definitions you might want to not hit the "post ..." button. I am an exception. I am usually right and Germans are allowed a few errors in English spelling and grammar ...

  • Report this Comment On October 25, 2011, at 10:28 PM, TMFHousel wrote:

    Good point, thanks for the comment Rob.

  • Report this Comment On October 25, 2011, at 10:30 PM, Chilaw wrote:

    Once again, excellent article Morgan! Your articles should be required reading for anyone interested in government policy.

    The 9.2% of oil consumption from the Middle East seems likely to drop further as new finds and new technology are ramping up domestic oil production. Combined with efficiency gains (e.g. future CAFE requirements) and rising use of alternatives (e.g. solar, wind, nat. gas, non-oil cars), the absolute number of barrels imported from the Middle East will likely drop by more than half in the next decade.

    Over the next decade or two, as the U.S. exits and China/India grow their imports from the region, it will be interesting to watch the political ramifications.

  • Report this Comment On October 25, 2011, at 10:50 PM, alwysalady2003 wrote:

    My brain tingles when i learn a new fact. It feels so good I'm searching everyday for that feeling! Who knew Canada and Mexico had oil...i didn't! The myth about china and all of our money going to them for goods was very eye-opening. Thanks so much for a map to research further. Now that I know I want to know more...

  • Report this Comment On October 25, 2011, at 11:16 PM, frshtrx wrote:

    I used to look to fool.com as a source of inspiration and know-how in learning to involve myself towards a better invested future. Articles like this, which are able to draw conclusions after accounting for at least ~70% of the details (wow! dat's sum good research) are rapidly diminishing my respect for the fool.com brand of information.

    If this comment doesn't post, consider it an input to the brand manager.

  • Report this Comment On October 25, 2011, at 11:54 PM, CitizenInvest wrote:

    Good points made in the article. However, in certain industries China has overtaken the U.S. by a clear margin. In 2010, China produced 626.7 million metric tons of steel to the 80.6 for the U.S. China simply doesn't have to deal with regulatory and union constraints the the U.S. industry faces.

  • Report this Comment On October 26, 2011, at 8:28 AM, TMFBent wrote:

    Your facts do not fit in with my political motivations and goals. Therefore, they must be wrong...

    Too bad, really. They seem like such nice, cheerful facts. But how are we supposed to keep people angry and flailing for solutions if stuff they're angry about just isn't so true?

  • Report this Comment On October 26, 2011, at 8:28 AM, mardukkorn wrote:

    Think at the margin...

    "China owns 7.8% of U.S. government debt outstanding"

    Sure, but what percentage of new debt they are buying ?

  • Report this Comment On October 26, 2011, at 9:16 AM, MrsCathyGF wrote:

    Canadian oil also comes with a twist. I hear the Canadians do horozontal drilling right up to the areas near Prudhoe Bay,Alaska. Which means, they are taking our resource, quasi-legally, and selling it right back to us. Morgan, now, there is one article I'd like to read.

  • Report this Comment On October 26, 2011, at 9:50 AM, colddrink73 wrote:

    @Morgan House

    Great great article!!!

    @ veryverda

    Horizontal drilling also known as slant drilling or directional drilling is what started the 1st Gulf War. Iraq invaded Saudi Arabia because of Saudi slant drilling practices.... makes you wonder.

  • Report this Comment On October 26, 2011, at 9:59 AM, whereaminow wrote:

    This reads a little bit like those sports talk radio arguments where the guy makes up an argument that really no one fully believes, and then he defeats it, like "I don't care what anyone says, Rex Grossman is not a quality NFL quarterback!"

    When you do an article like this, you really should quote major thinkers who actually say these things (and no, two bit politicians from the Left or the Right do not qualify as major thinkers.) Otherwise, you might as well claim, "I don't care what anyone says, China does not own all of America's debt!"

    David

  • Report this Comment On October 26, 2011, at 10:02 AM, RedCloud1 wrote:

    @colddrink73

    Iraq invaded Kuwait in 1990 and not Saudi Arabia.

  • Report this Comment On October 26, 2011, at 10:08 AM, TMFHousel wrote:

    David,

    Trust me, I thought about the strawman aspect. I was going to quote people, but most of the quotes are from politicians, and I didn't want to turn a non-political article into a political shouting match. I think anyone who watches cable news knows that these arguments are made by real people.

    -Morgan

  • Report this Comment On October 26, 2011, at 10:29 AM, craineum wrote:

    @wheraminow: Morgan himself is a "major thinker" and rather than quoting other individual "major thinkers" he has provided data from the Federal Reserve, the Bureau of Labor Statistics, and the US Energy Information Administration - organizations that are, ostensibly, staffed with "major thinkers." Their data is numbers, which, many might say is more value than the opinion of a "major thinker." Furthermore, he has quoted Andy Rooney - and you don't get much more major than that. And Rex Grossman sucks.

  • Report this Comment On October 26, 2011, at 10:47 AM, TMFMarlowe wrote:

    Great article, Morgan. This stuff cannot be said loudly enough.

    John Rosevear

  • Report this Comment On October 26, 2011, at 11:14 AM, richthegeek wrote:

    Be careful here - it is so easy to lie with statistics. If I look at what is reported, both my current and my previous companies make medical equipment that is made in the US.

    In reality, though, little of it really is. The final assembly is done in the US, but the circuit boards all arrive assembled and tested from China and Malaysia. The displays which consist of a flat-screen and several circuit boards are already assembled (in China) - they are just snapped into the housing (also from China) at the final assembly in the US. All of the components for those circuit boards come from China, Japan, Tiawan, etc. (but I don't know of any that are fabricated in the US). Of the total time spent manufacturing the product much less than 5% of it is done in the US.

    Oh, and much of that design (both hardware and software) is done in India.

    I've been in the medical and telecom industry enough to know that you only have to go a bit beneath the surface to see that WAY more than 2.7% of expendatures go to China.

    Rich

  • Report this Comment On October 26, 2011, at 11:27 AM, TMFHousel wrote:

    ^ The Fed study tackles that issue. The problem you refer to is offset almost entirely by the fact that the purchase price of what we buy that is labeled "made in China" consists of shipping costs, store costs, store profits, etc.

  • Report this Comment On October 26, 2011, at 11:48 AM, whereaminow wrote:

    @Morgan,

    "I think anyone who watches cable news knows that these arguments are made by real people. "

    Heh, well I think we have identified the problem right there. Don't watch cable news. Problem solved :)

    David

  • Report this Comment On October 26, 2011, at 11:56 AM, KKnese wrote:

    The cost of oil, steel, etc... is not determined by where it is from or where it goes, but supply and demand. Right now China and India are countries with large populations which are experiencing rapid growth in per capita income. Most of the consumers in those nations are buying their first cars, their first washing machines, their first whatevers. That causes increases in demand for steel (those cars), petroleum (more cars), and copper (gotta have electricity to run those washing machines). There's only a finite amount of those basic materials produced each year and new methods of production can't keep up with the new demands. The predictable result is higher prices for oil, steel, and copper. The marginal suppliers are abroad, and no matter how much we conserve (which is our duty to the environment anyway), we will still see dollar volume rises in imports.

  • Report this Comment On October 26, 2011, at 12:33 PM, UKIAHED wrote:

    Kknese - The cost of oil, steel, etc... is not determined by where it is from or where it goes,

    Really? Why is Brent crude much higher than WTI?

  • Report this Comment On October 26, 2011, at 12:40 PM, ayaghsizian wrote:

    I learn something every time I read one of your articles. Lately I find myself logging onto Fool.com just to see what you've written today.

  • Report this Comment On October 26, 2011, at 12:43 PM, boftedal wrote:

    It's true that we get a relatively small percentage of our oil from the middle east, but the market for crude oil is world wide. I don't know what percentage of the worlds production comes from the middle east,but i'm sure its quite large. If there are disruptions in the supply it will have a huge effect on the amount we pay for oil.

  • Report this Comment On October 26, 2011, at 12:47 PM, EnigmaDude wrote:

    "People will generally accept facts as truth only if the facts agree with what they already believe," said Andy Rooney. Wow - I have new-found respect for Andy Rooney!

    And for you too, Morgan. Excellent article!

  • Report this Comment On October 26, 2011, at 12:49 PM, ejazz2095 wrote:

    Thanks for writing this article. I've spoken to others about myths 1 & 3 and most of them think I'm crazy when I state the facts as you stated in this article.

  • Report this Comment On October 26, 2011, at 12:53 PM, financeguy85 wrote:

    Morgan is always an enlightening and interesting read. I was not aware of the first misconception at all. Thanks Morgan for another great article. You remain the only author on this site I read diligently.

  • Report this Comment On October 26, 2011, at 12:54 PM, IamL wrote:

    This sure provides me with some ammunition for the upcoming holiday party debates with my extended family. Awesome article...enough said.

  • Report this Comment On October 26, 2011, at 12:59 PM, 9sec93lx wrote:

    I'd like to add a 4th misconception that needs to die. But you convieniently overlooked here. That the Federal Reserve is owned by the federal government. It's a PRIVATELY HELD BANK OWNED BY EUROPEAN (ROTHCHILD) FAMILIES...

  • Report this Comment On October 26, 2011, at 1:10 PM, jimmy4040 wrote:

    I've been doing this for 15 years, and I've never seen housing included in consumer spending. Goods and services, never housing. Disingenuous to say the least.

  • Report this Comment On October 26, 2011, at 1:12 PM, DocMonsta wrote:

    Really enjoyed reading this. Jon Stewart needs to read this - he could make a whole show out of it!

  • Report this Comment On October 26, 2011, at 1:14 PM, jrleake94 wrote:

    i didnt believe these facts before but then again i also believed that China is nothing to worry about, These facts are pretty opposite of what people say, but i accept it fully and will try to educate the people who keep talking about China =p (Just the other day my English teacher was preaching buying U.S goods)

  • Report this Comment On October 26, 2011, at 1:16 PM, FutureMonkey wrote:

    Subtext to the first two misconceptions is that CHINA = BAD. Reminds me of the 1980's when anything Soviet was our more or less automatically assumed to be evil (Rocky IV). Now we have substituted China for Russia in our nationist anxieties and phobias.

    I've also noted that anytime we want to put a positive spin on something from another country we call it "international" but when we want a negative spin we call it "foreign" For example, I'm guessing people would worry a lot less about dependence on international oil. And think about this one....how many of us want to eat brunch at the Foreign House of Pancakes?

  • Report this Comment On October 26, 2011, at 1:22 PM, jimmy4040 wrote:

    Also If you look at the actual report it breaks down the numbers in a way that ordinary consumers would find incomprehensible. For instnace in the category of choes or clothing, they ONLY count that percentage of the final price that is actually given to the Chinese themselves.

    "Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations."

    So a pair of shoes made in China for which Walmart pays $15 dollars, would actually in content be more American when the final product is sold in Anywhere USA, according to their methods.

    http://www.frbsf.org/publications/economics/letter/2011/el20...

    So the popular conception is right that a very large percentage of the products themselves ARE made in Asia, and the Fed's numbers ARE correct because of the way they calulate the dollar figures.

  • Report this Comment On October 26, 2011, at 1:26 PM, TMFHousel wrote:

    ^ The 2.7% figure is calculated before those adjustments.

  • Report this Comment On October 26, 2011, at 1:32 PM, booyaskidaddy wrote:

    Good article but...

    A barrel of oil from Texas is more expensive to refine and yields less gasoline than a barrel of sweet crude from Saudi. The question is, what percentage of gasoline do we import from the Middle East?

  • Report this Comment On October 26, 2011, at 1:43 PM, jimmy4040 wrote:

    Housel:

    "Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services. "

    Everything is 100% accurate and 100% deceptive to the people who read the article. Using this method would leave almost nothing in the category of a imported good, if we measured by the percentage of the final price paid to the manufacturer.

    For instance all TVs would have to be considered American, even though not even a single one is manufactured here.

  • Report this Comment On October 26, 2011, at 2:05 PM, fikemj wrote:

    Nice article. Some really interesting stuff. I must say that I enjoy the comments section as much as the article a lot of times giving people the opportunity to ask questions and get some points elaborated on. Props to you Morgan, for taking the time to defend and/or support your information and conclusions.

  • Report this Comment On October 26, 2011, at 2:18 PM, DangerousDave8 wrote:

    The part about the oil is particularly true and commonly misunderstood.

  • Report this Comment On October 26, 2011, at 2:31 PM, DJDynamicNC wrote:

    I was aware of myth #2 because of my rabble rousing ways, but #1 and #3 were quite the surprise. Very informative article, Morgan, thanks for posting this.

    Good comments as well (and as always).

  • Report this Comment On October 26, 2011, at 3:03 PM, Hawmps wrote:

    @ FutureMonkey,

    Love the International/Foreign bit... 2 thumbs up.

  • Report this Comment On October 26, 2011, at 3:35 PM, HyperionCR wrote:

    Great article on huge misconceptions. Well done

  • Report this Comment On October 26, 2011, at 3:48 PM, ershler wrote:

    veryverda,

    What is quasi-legal about drilling on your own land? We do it in the US all the time, there are setback requirements that must be met but as long as you don't cross those lines everything is good. Second, you are talking about a ridiculously small percentage of Canadian production .

  • Report this Comment On October 26, 2011, at 3:57 PM, troym72 wrote:

    The problem with oil is not where it comes from .. its the fact that OPEC pretty much has control (and actively manipulates) the price to their advantage. If each country in OPEC had to compete with the others for the countries who import their oil, we'd still be paying $0.75 per gallon of gas. Just my opinion. I could be a complete moron. :-)

  • Report this Comment On October 26, 2011, at 4:30 PM, bwmurphy4486 wrote:

    That's still $391.5 billion leaving every year to China. I've never argued that we are enslaved to China; I do argue, however, that we need to increase domestic production to put lower-end educated Americans back to work.

  • Report this Comment On October 26, 2011, at 4:38 PM, Darwood11 wrote:

    Let's not forget the old axiom "If you can't dazzle them with brilliance, the baffle them with BS."

    With the preponderance of "disinformation" out there, and I mean the "WWW" as well as the popular media, which insists upon quoting this "stuff" as fact, it's becoming very difficult to separate the wheat from the chaff.

    But let's get real for a moment. Too many people are in search of "quick answers" and too many lack "critical thinking skills" which combined, means a lack of ability to make rational decisions.

    Instead, we wait for "Cramer" or someone else, be it "Obama" or "Bush" to tell us what we want to hear.

    Remember, the popular refrain is that this is a "service economy." So I always ask, "when was the last time you could eat "service" or drive "service" or power your house from "service" or even wear something called "service?"

    Is it any reason that darn near not a single product can be made completely of content, including material and labor, here in the USA???

  • Report this Comment On October 26, 2011, at 7:41 PM, hbofbyu wrote:

    One more misconception that needs to die:

    The United States no longer makes anything.

    The United States remains the largest manufacturing economy in the world by a healthy margin. The U.S. accounts for more than a fifth (21%) of worldwide manufacturing output, far ahead of the next two leading manufacturing economies of Japan (13%) and China (12%).

  • Report this Comment On October 26, 2011, at 7:43 PM, TMFHousel wrote:

    ^ "The United States remains the largest manufacturing economy in the world by a healthy margin."

    Not sure where those figures came from. There's this:

    http://www.huffingtonpost.com/2011/03/14/china-us-manufactur...

  • Report this Comment On October 26, 2011, at 7:44 PM, hbofbyu wrote:

    And one more:

    You can stop Global Warming by reducing your carbon footprint.

    There is no escaping the fact that the main drivers of global warming and climate change are population growth and the emergence of an energy-guzzling middle class in developing and formerly poor countries. These are irreversible economic processes and only at their inception.

  • Report this Comment On October 26, 2011, at 7:49 PM, hbofbyu wrote:

    I guess it depends on who you believe:

    "The National Association of Manufacturers contend that the U.S. is still the world's biggest manufacturer. In a post on Shopfloor, a manufacturing industry blog, Fank Varago, vice president of international economic affairs at the NAM criticized the data used by IHS Global Insight:

    "First, the report did not measure the physical quantity or volume of manufacturing, but rather measured current dollar output which is impractical due to price changes and exchange rate changes. Real Gross Domestic Product (GDP), and its manufacturing component, Real Manufacturing Value-Added, are the correct ways to measure economic output, because they are adjusted to remove the effect of price and exchange rate changes and measure real output."

  • Report this Comment On October 26, 2011, at 9:56 PM, cheezin wrote:

    Eye opening information for me. Thank you

  • Report this Comment On October 27, 2011, at 10:30 AM, ShaunConnell wrote:

    Love it. About time you said something that's right. ;-p

  • Report this Comment On October 27, 2011, at 3:51 PM, devoish wrote:

    In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA).

    The us median income in 2010 was about 26,000.

    26,0000x .34 = 8800. 26000x .13 = 3380 26,000x .11 = 2860 26000x .07 = 1820.

    So my healthcare cost is 1820?

    The us mean income is 49000 or so. 49000x .07 = 3430, so my healthcare cost is 3430? As it turns out the us average is 3600 plus a 2500 deductible according to AHIP. So not attending to details (not including deductibles and averaging costs) paints an inaccurate picture of what percentage (24%) of their income is spent on healthcare costs for most Americans. 26000x .24 = 6240 or pretty close to 3600 plus 2500, not counting gaps in coverage or what is not covered at all.

    Going back to that half of America that is making 26000 or less and not buying services like personal trainers or landscapers (they are the pt's and landscapers?) if they seem to think that they spend a much higher percentage than 1.2%of their income on things labled made in china, they are probably correct even if macroeconomic averages doesn't agree.

    '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.'

    Great post and I am glad you made me think about the subject matter.

    Best wishes,

    Steven

  • Report this Comment On October 27, 2011, at 9:45 PM, slpmn wrote:

    ^Excellent point, Devoish.

  • Report this Comment On October 28, 2011, at 9:23 AM, njbk wrote:

    Not sure about this guy’s numbers. Per the US statistical abstract (http://www.census.gov/compendia/statab/) in 2010 we had 11.38 Trillion in disposable income and spent 2.34 trillion on imports = over 20% spent on foreign products and services.

    Of that, about 1.93 trillion was spent on imported goods, and the remainder on services. Of that 1.93 trillion, 296 billion in goods came from China = 15% (see https://www.uschina.org/statistics/tradetable.html table# 3.)

  • Report this Comment On October 28, 2011, at 9:39 AM, TMFHousel wrote:

    ^ Not all of the imports went to consumer spending. Some were on public goods/business expenditures. (China, for example, is building the majority of a new bridge in San Francisco right now.)

    The proper denominator for that calc is total GDP, not consumer spending. $2.34 trillion is 15% of our economy, which is consistent with 88% of consumer spending being produced domestically.

  • Report this Comment On October 28, 2011, at 9:58 AM, TMFHousel wrote:

    Furthermore, I'll add that the figures in this article are not "my numbers." They come from the Federal Reserve.

  • Report this Comment On October 28, 2011, at 12:13 PM, PostScience wrote:

    First off, I accept all the numbers in this article, as any reasonable person will.

    But secondly, it's a mistake to think that the overall trade deficit doesn't matter.

    It has been estimated that if the US had no trade deficit, employment would increase between 3-5%, basically solving our unemployment problem.

  • Report this Comment On October 28, 2011, at 12:21 PM, njbk wrote:

    I used personal consumer spending because your article is about personal expenditures: "Just 2.7% of personal consumption expenditures go to Chinese-made goods and services."

    GDP and personal income are entirely different - your article was about personal consumption, not governmental expenditures as in the case of the Bay area bridge.

    I didn't even add services to the talley - if I had the figures would have been even higher for personal consumption of products from China.

    Additionally, I have sited and provided links to my sources.

  • Report this Comment On October 28, 2011, at 12:31 PM, njbk wrote:

    I invite everyone to check figures that are posted on the web and not just accept them as true. We have been drip-fed misleading information at an ever accelerating pace, and have been basing decisions on them. This is a prescription for disaster.

  • Report this Comment On October 28, 2011, at 12:34 PM, TMFHousel wrote:

    <<I used personal consumer spending because your article is about personal expenditures:>>

    But your numerator is total imports. The correct denominator for that is GDP. If you use the share of imports that go toward consumer spending, then consumer spending is the proper denominator.

    <<GDP and personal income are entirely different - your article was about personal consumption, not governmental expenditures as in the case of the Bay area bridge>>

    Exactly. That's why using total imports against consumer spending, as your first post shows, is misleading.

  • Report this Comment On October 28, 2011, at 1:28 PM, njbk wrote:

    If using 2010 GDP at 14.66 trillion and gross imports from China at 364 billion the amount spent by is indeed about 2.4%.

    However something that needs to be factored in is that the cost of goods imported is only a fraction of what consumers actually pay for them.

    "More typically, the cost of goods to the final purchaser is roughly about double the producer value. " :

    http://seekingalpha.com/article/211306-what-is-chinas-share-...

    The suggestion is that the imported measure of $364b could be less than half that paid by the American consumer.

  • Report this Comment On October 28, 2011, at 3:09 PM, DJDynamicNC wrote:

    ^^ However, the additional money paid is collected by American firms and becomes a part of American GDP. The initial importation pricing is what defines the trade deficit with China, as that's the money that's actually being sent overseas.

  • Report this Comment On October 28, 2011, at 3:23 PM, njbk wrote:

    Yes, but the article is about personal dollars being spent on goods made in China, and suggests that represents only 2.7% of personal expenditure.

    Federal funds going to China would be appropriate if GDP is being considered, but the article is not about trade deficits. Another misleading characteristic of the article is that the metric should cover only those monies that were available for the purchase of certain goods.

    If we subtract housing, transportation, domestic services and insurance from disposable income, for example, the reduced amount of disposable cash spent on importable goods raises the percentages going to China dramatically higher than first suggested.

  • Report this Comment On October 28, 2011, at 5:09 PM, TMFHousel wrote:

    <<Yes, but the article is about personal dollars being spent on goods made in China, and suggests that represents only 2.7% of personal expenditure.>>

    It is 2.7%. That's Chinese goods that go toward consumer spending as a % of US consumer spending.

    <<Another misleading characteristic of the article is that the metric should cover only those monies that were available for the purchase of certain goods. If we subtract housing, transportation, domestic services and insurance from disposable income, for example, the reduced amount of disposable cash spent on importable goods raises the percentages going to China dramatically higher than first suggested.>>

    The article addresses this point. "Even when looking at physical goods alone, ...."

  • Report this Comment On October 28, 2011, at 9:06 PM, Sunny7039 wrote:

    I agree that people are generally sloppy with statistics -- if they cite hard numbers at all -- but this article is misleading. Nowhere do you define "housing costs." Are you referring to rents? Taxes and insurance? Mortgage payments? What exactly do you mean by "housing costs?"

    Do you deny that an ever-growing proportion of everything from basic building materials to home furnishings is imported? And, more to the point, do you deny that the proportion is, indeed, growing? This is what translates into closed factories stateside.

    As for China owning 7.8% of our total debt, and their being our largest bondholder among foreign holders -- uh, since when is 7.8% a small number? What do you call a 7.8% equity holder in a corporation? Certainly he's an insider -- and maybe he's the chairman of the board.

    My point is that taking 7.8% out of context is misleading. What would happen if the Chinese were to abruptly reduce their holdings by, say 20%, to roughly 6.2% or so? Given the state of the global economy and our present need to maintain a sizable deficit, do you think such a reduction would be enough to rattle markets and send interest rates up? I sort-of think that's possible.

    Economics isn't mostly about a snapshot of the state of affairs at this very minute. It is about the margin, and the trend. Isn't that the information you need to know to the greatest extent possible before you invest?

  • Report this Comment On October 28, 2011, at 9:22 PM, Sunny7039 wrote:

    I just took a closer look at the linked article. It is measuring Personal Consumption Expenditures. Of course this will include a hefty "local markup." Based on this, I'm not sure what the article proves at all. Maybe it proves that local purveyors of this imported stuff are making out like bandits?

    I don't know. I'm asking.

    At any rate, I don't know a soul who believes Misconception #1. We all know what insurance, medical care, and groceries cost.

  • Report this Comment On October 29, 2011, at 9:41 AM, njbk wrote:

    Morgan - Your article seems to have piqued a lot of peoples' interest. Could you please provide links to your data sources at the Federal Reserve? I've gone to:

    http://www.federalreserve.gov/econresdata/releases/statistic...

    and am not quite sure where to find supporting data.

    Thanks in advance

  • Report this Comment On October 29, 2011, at 10:11 AM, njbk wrote:

    I think I found your source: http://www.frbsf.org/publications/economics/letter/2011/el20...

    What seems so incongruous is that a stroll through Sears, Home Depot, Lowes, Walmart, etc. looking for consumer goods made in America doesn't appear to satisfy the 88.5% claim.

  • Report this Comment On October 31, 2011, at 10:16 AM, maazzoo69 wrote:

    Amazing Article!!!. My question is; why has the 3 misconceptions became so MAINSTREAM?

  • Report this Comment On October 31, 2011, at 3:32 PM, Piddlepuppy wrote:

    I read an article recently where the author stated that the Chinese bought a large quantity of gold bullion in England and paid for it with US funds. His contention was that China doesn't want to hold US dollars or dollar denominated instruments. Makes sense to me.

    If I were queen for a day, I'd send all the Chinese graduate students home. A graduate student is a student being trained to be a scientist, and almost all of them are fully supported. That means we are paying them to come here. We should be training Americans.

  • Report this Comment On November 01, 2011, at 11:31 AM, DJDynamicNC wrote:

    It is shocking to me that other countries will pay for their students to become scientists, but we don't do the same and indeed simply continue to dramatically inflate the cost of higher education. Apparently there isn't enough money for proper education assistance.

    Still plenty for freedom bombs in Afghanistan, though.

  • Report this Comment On November 01, 2011, at 5:19 PM, GtownRJ wrote:

    Funny that you mentioned Wal-Mart in an article about a misconception imports from China, Wal-Mart is about the only place I can find things Made In America, and they are usually cheaper (but my brother tells me this is a regional thing). Wal-Mart also seems to take the blame for starting the whole made in China thing, when they were one of the last to jump on board.

  • Report this Comment On November 02, 2011, at 2:40 PM, cattywampus wrote:

    @ Darwood11, best laugh today, If you can't dazzle them with brilliance, baffle them with BS.

    I tried to post on this article, but had some technical difficulty, so I was just re-reading the posts.

  • Report this Comment On November 03, 2011, at 11:50 PM, Testing54321 wrote:

    These comments all look like they were written by the same person.

  • Report this Comment On November 04, 2011, at 9:41 AM, TrademarkMan wrote:

    So 1/3rd of our durable goods are imported, and China represents 1/3rd of those imports, and 1/4th of our non-durable goods are imported, and China represents 1/4th of those imports. Looks like Chinese goods are a significant share of our imports, disproportional to imports from all other countries. I clicked through to the Fed report and noted some facts that seemed to escape Mr. Housel and would contribute to the common perception that our purchases of imported goods are being dominated by China: Chinese imports to the US have doubled over the past decade, and "The fact that the overall import content of U.S. consumer goods has remained relatively constant while the Chinese share has doubled indicates that Chinese gains have come, in large part, at the expense of other exporting nations. "

    Mr. Housel states that Wal-Mart's $260 billion in US revenue "isn't exactly reflective of America's $14.5 trillion economy." - Actually that's 1.8 percent of the entire economy, and if consumer spending is 61% of the economy according to estimates, then WalMart's portion is actually nearly 3 percent of all consumer spending. That's huge! And between their Chinese goods, their unfair labor practices, and their downward pressure on retail wages in general, I have enough reasons to avoid shopping there.

    It was very reassuring to learn from the article that the Social Security Trust fund is actually "funded" by federal securities (IOU's). So when Social Security has to pay someone like me who wants to collect in 30 years, the government will have to borrow a greater amount (including interest) to do so. With ever-increasing federal debt, that 7.8% of US securities held by China could be enough to destabilize our economy and impact our ability to sell future debt, if they decide to use it that way. But I guess if we keep buying knick knacks at Wal-Mart they will hold off for a while :).

    On the oil imports figures, no matter who we are importing it from it seems at least a few parties in the pipeline are involved in price fixing and price hikes, because the price at the pump jumps immediately based on world events and oil industry events that do not have a short-term impact on supply. So even if the culprits are my fellow North Americans (including Canada and Mexico), it doesn't make me feel any more independent.

    Just my two cents before all of the good conceptions die with the misconceptions :).

  • Report this Comment On November 04, 2011, at 3:14 PM, amrica1776 wrote:

    This is bull. Obama is changing the numbers. I know the government changes numbers all the time. this here study don't prove nothing. Chinese people are our enemy and they are taking our jobs just like them Mexicans. If we don't act now and increase military spending we won't be able to strike back. I don't want them owning 7% or 0.0000000000001% of our debt.

  • Report this Comment On November 04, 2011, at 7:13 PM, Vikingv wrote:

    Facts are not all they are cracked up to be. Some facts are meaningless but used as if they are important. The fact that we do not get that much oil from the Middle East is one of those meaningless facts.

    Oil is a world market and the price of oil is inordinately influenced by what happens in the Middle East. So no matter what portion of our oil usage is domestic or foreign is immaterial. It is all the same price in the world market.

    True, we could survive with the oil being withheld from a Middle Eastern country, but the price of all oil would rise, so the bad effects would still be still economically severe as intended if done intentionally..

  • Report this Comment On November 05, 2011, at 1:27 AM, tulowitzki wrote:

    Morgan, you are drawing distinctions that do not make a difference.

    Oil is a global market. It doesn't matter that we domestically produce 49% of the oil that we use. If there is a disruption to the 9% of the oil that we import from the Middle East, we will be in massive trouble, and _all_ of the oil that we use (both domestically- and foreign-produced oil) will spike up in price immediately.

    If the Chinese decide to dump the 7.8% of U.S. government debt that they hold, we will be in massive trouble. They've got us over a barrel as a result. (They've got themselves over a barrel too, but that's a different kettle of fish.)

    You are attempting to label as 'misconceptions' things that are both true and very significant to our American way of life. You are being essentially dishonest in doing so.

  • Report this Comment On November 06, 2011, at 1:25 PM, PoppaFred wrote:

    Excellent article as far as it went. I know space limit.

    What the "average" American is spending may not be what we should be spending. 11% for insurance and retirement is WAY WAY to little. Perhaps 10% for insurance, but we really need to be putting more than 15% away for retirement if we expect to retire in our mid 60s and live another 20 plus years. And nothing was said about saving for short and mid-term needs.

    What happens when Social Security needs to start cashing in the US Bonds it holds to pay the Boomers who are now retiring in droves? Where will that cash come from?

    There needs to be a follow-on series of articles.

  • Report this Comment On November 19, 2011, at 12:24 PM, unremarkable wrote:

    Morgan - you could have been a little more precise when talking about the social security trust. If you include what the US treasury owes the trust, social security would run a surplus of cash for the next 100 years. Why do we never hear this ?

  • Report this Comment On January 13, 2012, at 10:23 PM, jeremyf280 wrote:

    this is bull...i had no idea that necessities of life were consumer expenditures that measure the wealth of a nation...i hope you really are that stupid, im gonna go change my insurance to shanghi state farm so that i dont give anymore money to the us...i need a good ole brain scrubbing after i read this garbage

  • Report this Comment On January 13, 2012, at 11:44 PM, navanax1 wrote:

    Does the percent of stuff 'made in China' take into account all the stuff that is made in the US and worldwide, out of Chinese parts?

    Last year I had to do some research into this, and found a surprising number of durable items that are Assembled in the US but not made with US parts.

    If you buy leather, snaps and a belt buckle from china, and have a Guatamalan living in TX assemble it, lo, it's made in the US. How magical.

    Having done the research, and knowing just how full of bull the gov't and it's statistics really are, I'm not buying it.

    If the state and federal gov't can consistently be off by 10% (or more) when it comes to unemployment rates, I certainly can't believe these numbers either.

  • Report this Comment On January 14, 2012, at 4:59 PM, MandyA wrote:

    How much does our oil industry make in the ME selling oil to the rest of the world?

  • Report this Comment On January 16, 2012, at 1:04 PM, Cherryoaktree wrote:

    Some of the assumptions are a stretch, like housing industry...so many building components are imported. Remember Chinese drywall? "Cheap Chinese" is, in fact, hurting our labor scene.

    And no matter where our oil comes from, we have enought oil and gas here to be totally energy independent--and we should be--if we could only drill for it.

  • Report this Comment On January 17, 2012, at 3:26 AM, EuropeanAmerican wrote:

    No disrespect, Morgan but I don't buy what you are selling. (what exactly are you selling?)

    Are they really considered "Misconceptions"? Who say's these are "misconceptions"? Who? And why would "they" say they "need to die?"

    The first "misconception", most Americans spend their money on products from China, is based on a report by the "Federal Reserve". Now the generator of that report, is the biggest misconception of all, i.e. The Federal Reserve. See here:

    How much do you know about the Federal Reserve?

    http://www.rense.com/politics6/fedres.htm

    and

    The Federal Reserve Racket

    http://www.rense.com/general82/fedrex.htm

    If the majority of Americans really knew what the Fed is and what it isn't, it's life expectancy would come to an abrupt end, almost over night. That's why the Fed will do everything in it's power to keep Ron Paul from becoming President. He wants to audit AND abolish them and they are terrified of that.

    Anything that comes out of a Fed report is an integral part of a corrupt system designed by the bankers, for the bankers, to keep the masses in Debt. That's their game and they're very skilled at it. One has to ask "What is their motive with that report?" "What is the primary objective?"

    Personally, it's rare to see any product that doesn't say "Made in China" on it, at least the things that I buy. The misconception of "Most of what Americans spend their money on is made in China" is certainly not true, unless it's a product. You seem to be spinning this one, for what reason?

    Is the second misconception really a misconception? China is clearly owed the greatest amount of money, period. That is the case and that can not be denied. That's common knowledge.

    And the third one regarding 9.2% of our oil from the Middle East, misconception? No. Old news. So what?

    The question is, do most Americans really care? I think not. They're too busy being busy doing absolutely nothing with their lives to promote well being in this country. Now that is not a misconception, that's fact.

    There is something fishy with this article. Not sure why you even wrote it. Why did you write it?

  • Report this Comment On January 18, 2012, at 11:14 AM, mountainmanzach wrote:

    @EuropeanAmerican ...Are you kidding?

    Yes, the Fed could be milking the numbers. But then the 1000s of economists in this country would have a FIELD DAY refuting the data. Most people who know about these things agree that the numbers are pretty much right on.

    Which brings me to your "citations." They are suspect at best, and intentionally misleading, at worst. E.g. "The Fed sets interest rates." "FALSE," the implication being we don't know what's going on. But we do. I suppose technically, it's not the puppeteer that controls the marionette, but the strings. And not even the strings, it's the glue that holds the strings to the puppet! No wait, the chemical bonds in the glue! No wait, can we go another step?

    I particularly enjoy your refutation of facts with personal experience. I'd like to play too. I say that nothing we buy is from China, the Chinese don't hold any of our debt and none of our oil comes from the Middle East. I've never been to any of those places, so I have no reason to believe they exist.

  • Report this Comment On January 20, 2012, at 3:56 PM, bizshop wrote:

    It is indeed misleading to take GDP and other macroeconomic data and try to determine the percentage being spent by consumers on Chinese goods. You may be right perhaps that a percentage of total consumer spending is low, but that is not the misconception. The complaint is that most GOODS we consumers buy are made overseas, predominantly in China.

    It would be a lot more realistic just to walk into any major retailer and tally up the goods available made in the USA and those made in other countries. Publish those numbers, and you'll see China at the top.

    I guarantee you'd have a hard time finding much made in the USA, and an extremely high percentage made in China.

  • Report this Comment On February 07, 2012, at 10:21 AM, TMFHousel wrote:

    <<The complaint is that most GOODS we consumers buy are made overseas, predominantly in China.>>

    But they aren't. From the article:

    Even when looking at physical goods alone, Chinese imports still account for just a small fraction of U.S. spending. Just 6.4% of nondurable goods -- things like food, clothing and toys -- purchased in the U.S. are made in China; 76.2% are made in America. For durable goods -- things like cars and furniture -- 12% are made in China; 66.6% are made in America.

  • Report this Comment On March 15, 2012, at 7:26 PM, williamandhill wrote:

    The article correctly points out and addresses the misconceptions. When a family unit spends a dollar, where does it go or stay. According to the statistics the overwhelming percentage of our family spending stays right here in the United States.

    More importantly, the well over 70% of our budget that stays in the USA goes to need based items like food, clothing, and shelter in addition to healthcare and education.

  • Report this Comment On September 06, 2012, at 2:44 PM, Raederle wrote:

    Love that quote at the end. People generally WILL NOT accept things that don't agree with what they already believe.

    There is a lot behind that statement.

    As a nutritionist it is really tough working with folks who have really ingrained notions about food that are completely false. It is a topic blog topic of mine.

    ~ Raederle Phoenix

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