Iowa Autos

From Tim Harford’s The Undercover Economist, via QuantLogic:

Economist David Friedman observes… that there are two ways for the United States to produce automobiles: they can build them in Detroit, or they can grow them in Iowa. Growing them in Iowa makes use of a special technology that turns wheat into Toyotas: simply put the wheat onto ships and send them out into the Pacific Ocean. The ships come back a short while later with Toyotas on them. The technology used to turn wheat into Toyotas out in the Pacific Ocean is called “Japan,” but it could just as easily be a futuristic biofactory floating off the coast of Hawaii. Either way, auto workers in Detroit are in direct competition with farmers in Iowa.

I think Paul Krugman in Peddling Prosperity was the first to come up with this one. But Tim’s version is cuter.

This entry was posted in Economics Generally. Bookmark the permalink.

5 Responses to Iowa Autos

  1. Except the wheat got subsidised to the tune of Australia’s GDP a few years ago. 450 billion USD IIRC.

    America does cars ok, GM is having to deal with loss of marketshare, but others are thriving in the US.

  2. Patrick says:

    The validity of your point, Cameron, in no way detracts from the validity of the post. So why ‘except’?

    America does cars ok – er, well, American workers companies do cars ok, if they have foreign bosses!

    or maybe, America does cars ok, socialists don’t!

    The interesting part, imo, is the implications for trade policy.

  3. Patrick, your comment is confusing, I cant understand it.

    Friedman is wrong IMO. Agriculture is America’s uncompetitive industry. It is subsidised to the tune of Australia’s productive output. If you look at the bilateral FTAs they are full of language of quotas for different agricultural products. It is a protected and uncompetitive industry.

    Compare the US auto industry. American engines are in Australian cars. GM and Ford have a global reach. I got a laugh seeing a Pontaic GTO in an American car lot the other day, it had 50% Australia manufacture on it and then a line underneat saying American engine and transmission.

    GM is going through some restructuring pains but that is mainly because their market share is 20% now, rather than 60%. But even with that, America revolutionised the car industry twenty years ago with the SUV. It has only been in the last five years or so that Japanese and European (even Australian) manufacturers have started putting those products on the market.

    Overseas auto companies know the value of the American auto industry too. Toyota, Suburu, Hyundai etc etc all have plants and design studios in the US.

    Friedman has it back-to-front. America should be importing wheat and exporting cars.

  4. Peter says:

    I think it is increasingly hard to claim that any manufactured product is the product of an individual country. Detroit’s “futuristic biofactory floating off the coast of Hawaii” may actually only be nominally Japanese.

    The Japanese firm Mazda is now run by expatriates, mostly Americans, from Ford. Even before this managerial take-over, one of Mazda’s design teams was based in California and the other in Britain. If, as some argue, car performance and operation in the consumer mid-range is increasingly a commodity, then marketing and design will be the elements of car manufacturing where the most value is added. Is Mazda still Japanese (or even American) when its design team recruits its graduate-intake from London’s fine-art colleges?

  5. Andrew Leigh says:

    Cameron, I don’t think the quote was meant to be normative — as I understand it, it’s just a way of showing that trade and technology can be viewed as similar.

Comments are closed.