Sunday, January 22, 2012

The Dumb Conversation at the Obama-Silicon Valley Dinner Table

Remember that dinner meeting President Obama had last year with Silicon Valley's top executives? Did you wonder what they discussed?

It turns out that it was dumb conversation led by a president who clearly doesn't understand basic economics. NYT informs:
When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?...Why can’t that work come home? Mr. Obama asked.
In other words, Obama, with this comment, demonstrates no understanding of comparative advantage and no understanding of the marginal productivity of labor.

This is something even mainstream economists get.

Greg Mankiw in his best selling text, Principles of Macroeconomics, writes (italics in original):
The gains from specialization and trade are based not on absolute advantage, but on comparative advantage. When each person specializes in producing the good by which he or she has a comparative advantage, total production in the economy rises....Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
It's really dumb to ask how can work done in Asia be brought back home.

If work is being done in Asia, it simply means that Asia has a competitive advantage in doing that type of work. Given that wages are higher in the United States, to bring that "work home" would mean that people would have to somehow be taken from their higher paying jobs and put into lower paying jobs. How nuts is that?

And, yet, this was the question posed by the President of the United States to Silicon Valley executives. It's a president, like most presidents, so caught up in thinking he can central plan parts of the economy that he asks a question that would put him well on his way to getting a failing grade in a Mankiw Econ 101 class.


  1. What if minimum wage was removed and unemployed people could choose to work for less - would that be enough allow iPhones to be built in us?

  2. Oh, I don't know, maybe start with abolishing minimum wage and personal federal income tax and cut corporate tax rates substantially. Maybe even abolish SS and Medicare tax. Then cut more at the state level. No, that would never work! :LOL:

  3. Steve Jobs' time was worth way too much to be explaining such things to an idiot. Why do we have idiots running our country?

  4. This comment has been removed by the author.

    1. I too, would love to know how Jobs responded. I'm leaning to believe he responded in a way similar to the town councilman of Cupertino, CA. Jobs met with the city gov. to seek "approval" for the new Apple headquarters. The councilman lauded Jobs over the new Ipad, and then proceeded to ask Jobs for free wi-fi (I believe) for the city. Jobs responded that if Apple didn't have to pay taxes, he could provide free wi-fi.

  5. Isnt the problem that we print money pushing up labor and commodity costs so that pushes jobs overseas ? I thought that was part of ATBC.

  6. "Yes, yes! Nuts! Obama is sooo stoopid! He doesn't even know that he would confiscate less total income tax by forcing people into lower wage jobs. Nuts!"

    It seems like the essence of Obama's question - as paraphrased by a mainstream media outlet for lay readership is - "what is China's comparative advantage in producing iPhones?" That the article subsequently addressed that question lends credibility to that understanding.

    Granted, that "charitable" interpretation is not verifiable. And hence the most superficial, face-value reading may be valid, in which case, Obama is a slack-jawed, drooling fool unable to tie his economic shoes: "Look! He doesn't know that some people do some things better and cheaper than other people!"

    Scandalous and mania inducing, indeed.

    Though, for comparison, EJP's analysis concerning wage and job substitution is pretty well in the kiddie pool. Especially given that the thrust of - well - the entire article is that East Asia's (ie, China++) comparative advantage emerges from a unique array of attributes, of which low labor costs are only one.

    Other factors include: proximity to partners and related suppliers, extent and speed of labor scaling, specialization and knowledge asymmetries in operations, adaptability as a result thereof, etc.

    The advantages are, thus, broad and systemic and not reducible to a single variable like labor costs.

    Though, for kicks, suppose it were.

    It would not necessarily follow, as EJP implies, that high wage earners would be forced into low wage jobs. Currently, the labor market does not clear, as evidenced by the labor surplus. Surplus American labor may accept a Low Wage Job in preference to No Job. Low Wage Jobs could come into greater supply by a) minimum wage roll backs and/or b) currency devaluation. (Fed pursuing b). Leg and Exec doing c) police state construction.)

    But, in any case, even with a labor market clearing at lower cost, that alone may be insufficient to change the comparative advantage calculus.

    So much good stuff on EJP.

    The misses are painful.

    1. ...And during the few moments that we have left, we want to have just an off-the-cuff chat between you and me -- us. We want to talk right down to earth in a language that everybody here can easily understand.

      Funny enough, it isn't the jargon that is your failing but the more common syntax in between that doesn't communicate your intent.

  7. That's old textbook just got quoted by a blogger i read every day. The easy answer for Obama: $1500 iPhones

  8. I'm really more interested in the Silicon Valley guys' response to the president. Was the response recorded, or did they just laugh off the stupidity?

  9. A question like that at a meeting like that has nothing to do with economics. It's a veiled threat meant to convey "I'm about to play some serious politics if you're not willing to 'toss me a bone'."

  10. Could Asia's comparative advantage be slave labor?

  11. Instead of being pompous about it....why not answer the question. He's the president and deserves the best answer. What Steve-O didn't want to tell our first black president was that it would require re-institution of slavery in the US. Expose Steve-O is a no-no so no-go.


    Suggest writer get head out of own pompous ass first -- would make you a better writer (maybe). A truthful answer, no doubt would have also made Obama a better president.

    1. The president got an answer. An answer that's vastly more complex that anything mentioned in this post to a question with vast ramifications regardless of how simply it was presented...

      I know you guys don't like the NYP, or contrarian viewpoints, or nuance in general, but here's the info you probably won't read: