WEBVTT NOTE Where Did the iPhone Come From? 1 00:00:00.000 --> 00:00:03.400 Speaking of straight here, straighten that up with the camera. 2 00:00:03.400 --> 00:00:08.400 Welcome everybody, good morning and welcome to the Ludwig von Mises Institute. 3 00:00:08.400 --> 00:00:16.000 It's a pleasure to have you here today and I think we have a great program for you this morning. 4 00:00:16.000 --> 00:00:18.400 I'm Dr. Mark Thornton. 5 00:00:18.400 --> 00:00:26.000 I'm a senior fellow here at the Mises Institute which says nothing about my age, it's just the name of the position. 6 00:00:26.000 --> 00:00:40.840 Okay, let me tell you about the Mises Institute. The Ludwig von Mises Institute is a non-profit 7 00:00:40.840 --> 00:00:47.360 educational institution and our main mission is to teach economics and to provide economics 8 00:00:47.360 --> 00:00:52.840 materials for people who are interested in the Austrian School version of economics. 9 00:00:52.840 --> 00:00:58.720 It's named after an economist named Ludwig von Mises, who was a student of the original 10 00:00:58.720 --> 00:01:04.160 founders of the Austrian School of Economics in the 19th century. 11 00:01:04.160 --> 00:01:10.600 And Mises was one of the great economists in Europe during the 1920s and 30s. 12 00:01:10.600 --> 00:01:16.880 He was an advocate of free market economics, of private property, and of the gold standard. 13 00:01:16.880 --> 00:01:23.880 And he was really one of the top economists of Europe at the time. 14 00:01:23.880 --> 00:01:31.120 One of his great initial contributions was that as the Soviet Union was founded in 1917 15 00:01:31.120 --> 00:01:37.680 and with the rise of National Socialism or Nazism in Germany and of Fascism in Italy, 16 00:01:37.680 --> 00:01:43.840 Mises discovered a principle which showed that Socialism was economically irrational 17 00:01:43.840 --> 00:01:50.760 and it was really impossible to put it into work in a complete form in a national economy 18 00:01:50.760 --> 00:01:53.480 or in an international economy. 19 00:01:53.480 --> 00:01:59.160 Now Mises fled Austria right before World War II. 20 00:01:59.160 --> 00:02:07.200 He was Jewish and he was a famous free market economist and opponent of socialism and so 21 00:02:07.200 --> 00:02:12.960 he knew he was in trouble and so he left Austria, his native country, went to Switzerland and 22 00:02:12.960 --> 00:02:17.760 and then came to the United States. 23 00:02:17.760 --> 00:02:22.800 Most of what we know about his early days, we didn't really know much for a long period 24 00:02:22.800 --> 00:02:33.800 of time until the Soviet Union fell in the 1980s and we discovered his papers and his 25 00:02:33.800 --> 00:02:38.880 books and various things that he had prior to World War II. 26 00:02:38.880 --> 00:02:44.680 It turns out that when the Nazis invaded Austria, they took all of Mises' stuff and brought 27 00:02:44.680 --> 00:02:51.800 it back to Berlin to try to find out what was the key to making socialism work. 28 00:02:51.800 --> 00:02:56.240 They thought if they could study his papers, they could unlock the key to making their 29 00:02:56.240 --> 00:02:59.880 form of socialism possible. 30 00:02:59.880 --> 00:03:06.040 And then when the Russians took over Berlin, they took all of his papers and brought them 31 00:03:06.040 --> 00:03:23.320 Well, all of these events served to really crush the Austrian school during the 1930s, 32 00:03:23.320 --> 00:03:26.120 40s, 50s and 60s. 33 00:03:26.120 --> 00:03:31.640 But in 1974, Mises' student, F. A. Hayek, won the Nobel Prize and the Austrian school 34 00:03:31.640 --> 00:03:33.920 started to revive. 35 00:03:33.920 --> 00:03:40.640 This institute was founded in 1982 and was brought to Auburn University in 1983 and this 36 00:03:40.640 --> 00:03:44.680 is our 30th year of operation. 37 00:03:44.680 --> 00:03:50.200 We now have the largest and most trafficked website in the world and of course you probably 38 00:03:50.200 --> 00:03:56.480 heard of Ron Paul the presidential candidate and his advocacy of Austrian economics. 39 00:03:56.480 --> 00:04:00.840 He's not the leading contender for president so I get a lot of questions about what's Ron 40 00:04:00.840 --> 00:04:05.680 What is Ron Paul going to do after this election, when he's lost? 41 00:04:05.680 --> 00:04:09.000 I said, he's already won. 42 00:04:09.000 --> 00:04:17.040 All of the young people, the leaders of tomorrow, are all fully in Ron Paul's camp, but also 43 00:04:17.040 --> 00:04:22.440 in the camp of Austrian economics, so that our future is very bright indeed. 44 00:04:22.440 --> 00:04:28.360 Okay, I'm going to start off the program, as you can all have a copy of the program 45 00:04:28.360 --> 00:04:37.360 I'm here in front of us, and my talk this morning is going to be, where did the iPhone come from? 46 00:04:37.360 --> 00:04:45.360 Anybody got an iPhone in here? Smartphone? A few. So there's three or four who have one and everybody else who wants one. 47 00:04:45.360 --> 00:04:56.360 Well, there's a big debate right now in the media about the iPhone and jobs, and I'm not talking Steve Jobs, I'm talking about working jobs. 48 00:04:56.360 --> 00:05:26.360 There are about 70,000 jobs at Apple and in Steve Jobs' biography there's a quote by Steve Jobs that says that Apple has more than 700,000 jobs in China including more than 30,000 engineers and so because we have such high unemployment in the United States there's a lot of concern and debate about you know why doesn't Apple bring some of those jobs back to the United States and so that's what we're going to be finding out this morning. 49 00:05:56.360 --> 00:06:02.360 That's the argument, it's a closed case. 50 00:06:02.360 --> 00:06:08.480 And to highlight the whole thing, USA Today's editorial page is focusing in on that very 51 00:06:08.480 --> 00:06:11.120 issue today. 52 00:06:11.120 --> 00:06:13.120 There are basically two types of economics. 53 00:06:13.120 --> 00:06:18.240 One is the type that you are learning in school and the one that we teach here at the Mises 54 00:06:18.240 --> 00:06:20.180 Institute. 55 00:06:20.180 --> 00:06:25.960 The second type of economics is generally taught at government schools and is used to 56 00:06:25.960 --> 00:06:30.560 to Run the Economy in Washington D.C. 57 00:06:30.560 --> 00:06:36.880 With the first type, the type that we teach here, we study how the economy works and you 58 00:06:36.880 --> 00:06:41.960 try to establish and learn economic laws. 59 00:06:41.960 --> 00:06:45.860 Economic laws to understand how the economy works. 60 00:06:45.860 --> 00:06:50.200 And these are not laws that are written down and enforced by government. 61 00:06:50.200 --> 00:06:52.180 It's not that type of law. 62 00:06:52.180 --> 00:06:57.960 These are laws that are based on natural law, in that they work for everyone, everywhere, 63 00:06:57.960 --> 00:07:01.660 at all times, and you don't need police enforcing these kind of laws. 64 00:07:01.660 --> 00:07:06.580 They're self-enforcing laws. 65 00:07:06.580 --> 00:07:15.220 Societies that work with these laws experience peace and prosperity, harmony and economic 66 00:07:15.220 --> 00:07:17.080 growth over time. 67 00:07:17.080 --> 00:07:24.480 And societies that are ignorant of these laws, or who simply ignore these laws, experience 68 00:07:24.480 --> 00:07:31.900 increasing poverty, conflict, and it can break down into outright chaos. 69 00:07:31.900 --> 00:07:39.200 So within the first type, the type that we teach here, within that framework, you understand 70 00:07:39.200 --> 00:07:47.040 the necessity of private property, the beauty of the marketplace, and the magnificence of 71 00:07:47.040 --> 00:07:53.720 of the Worker and the Saver in the Economy, and most especially the courage and foresight 72 00:07:53.720 --> 00:07:56.480 of the entrepreneur. 73 00:07:56.480 --> 00:08:04.040 If economic problems emerge in society, our first inclination or our first instinct is 74 00:08:04.040 --> 00:08:09.040 to expect or rather to suspect that there's some sort of government intervention in the 75 00:08:09.040 --> 00:08:15.900 economy, a regulation or a tax, that is the cause of that problem. 76 00:08:15.900 --> 00:08:25.180 provides us with a whole toolbox to investigate economic problems and to implement solutions. 77 00:08:25.180 --> 00:08:32.660 For example, why do we have such persistent high unemployment amongst teenagers? 78 00:08:32.660 --> 00:08:37.420 The unemployment rate in the economy is between 8 and 9 percent. 79 00:08:37.420 --> 00:08:43.780 The unemployment rate of teenagers is something like 16, 17 percent. 80 00:08:43.780 --> 00:08:47.300 So why is that persistent unemployment there? 81 00:08:47.300 --> 00:08:48.300 Is it that just... 82 00:08:48.300 --> 00:08:49.300 Yes? 83 00:08:49.300 --> 00:08:53.500 I think for teenagers it would be because they want a more experienced employee rather 84 00:08:53.500 --> 00:08:56.580 than just someone who's never had a job before. 85 00:08:56.580 --> 00:08:57.580 That's correct. 86 00:08:57.580 --> 00:09:02.140 That's a big part of it. 87 00:09:02.140 --> 00:09:05.940 Teenagers don't have the experience. 88 00:09:05.940 --> 00:09:07.340 That's absolutely true. 89 00:09:07.340 --> 00:09:09.580 But it's not that teenagers are lazy, right? 90 00:09:09.580 --> 00:09:11.740 Well, yeah, I guess they are. 91 00:09:11.740 --> 00:09:23.560 But there's actually a roadblock to unemployment because if you wanted a job and you needed 92 00:09:23.560 --> 00:09:31.920 the experience, you could offer your services at a lower rate. 93 00:09:31.920 --> 00:09:39.760 So we have this persistent high unemployment rate of teenagers, which we call a surplus 94 00:09:39.760 --> 00:09:49.960 of Labor in that category, and economists explain such surpluses are usually caused 95 00:09:49.960 --> 00:09:58.280 by price floors, and price floors are prices or wage rates that are mandated by some government 96 00:09:58.280 --> 00:10:01.280 law, in this case, the minimum wage law. 97 00:10:01.280 --> 00:10:06.200 We have a minimum wage law at the federal level that says all employers must pay all 98 00:10:06.200 --> 00:10:18.400 All Employees, at least $7.15, and so when you're going for a job and somebody has more 99 00:10:18.400 --> 00:10:25.400 experience, they're going to pick the more experienced person, but if you could say, 100 00:10:25.400 --> 00:10:31.920 well, I'll work for $6 an hour, and then all of a sudden the employer's got to say, well, 101 00:10:31.920 --> 00:10:33.880 which one do I really want? 102 00:10:33.880 --> 00:10:39.920 So in a free and open marketplace, teenagers could compete on the basis of wage competition 103 00:10:39.920 --> 00:10:47.800 and that if we eliminated the minimum wage law, teenagers could compete and what we'd 104 00:10:47.800 --> 00:10:53.680 see is that that high teenage unemployment rate would come down to a normal level. 105 00:10:53.680 --> 00:10:59.840 In other words, we could get rid of that problem simply by abolishing the law or setting it 106 00:10:59.840 --> 00:11:02.280 at a much lower level. 107 00:11:02.280 --> 00:11:10.280 Now the other type of economics, the type that's favored in government schools and in Washington DC, sees the whole thing differently. 108 00:11:10.280 --> 00:11:16.280 For them, economics is not about laws. It's about theories that may or may not be true. 109 00:11:16.280 --> 00:11:19.280 Things could be different in the future. 110 00:11:19.280 --> 00:11:25.280 There are a lot of special cases for what I call mainstream economics. 111 00:11:25.280 --> 00:11:29.280 There are special cases that are possible, and with this being the case, 112 00:11:29.280 --> 00:11:49.280 Their version of economics calls for a constant monitoring of the marketplace, a constant monitoring of economic data in order to detect these special cases and establish benchmarks in the economy, such as the minimum wage law, and regulating markets on a regular basis. 113 00:11:49.280 --> 00:11:57.280 This type of economics is fixated on what we call market failure, that the market fails to produce. 114 00:11:57.280 --> 00:12:07.280 And the villain here, in their scenarios, is usually the entrepreneur, the person who's leading businesses. 115 00:12:07.280 --> 00:12:13.280 The solution for this mainstream economics is always government intervention. 116 00:12:13.280 --> 00:12:21.280 So the government should regulate markets, the government should control prices, the government should tax away excess profits, 117 00:12:21.280 --> 00:12:31.280 The government should stimulate demand, should bail out failing firms and prohibit certain practices. 118 00:12:31.280 --> 00:12:47.680 So with this case of high teenage unemployment in the market failure approach, what they would argue is that the government should provide employers with subsidies in order to hire more teenagers. 119 00:12:47.680 --> 00:12:52.000 Of course, with subsidies, you have to raise taxes in order to pay for the subsidies and 120 00:12:52.000 --> 00:12:57.120 because some employers might try to cheat and abuse these subsidies, the government 121 00:12:57.120 --> 00:13:03.240 has to write regulations concerning who can receive the subsidy, how many subsidized jobs 122 00:13:03.240 --> 00:13:08.540 can any one employer make, and how long would the subsidy last. 123 00:13:08.540 --> 00:13:13.480 Then you have to hire regulators to make sure all these regulations are being followed, 124 00:13:13.480 --> 00:13:18.280 And then you have to raise taxes again in order to pay for the regulator. 125 00:13:18.280 --> 00:13:23.600 His or her office, the desk, the computer, fringe benefits, etc. 126 00:13:23.600 --> 00:13:29.880 And so this other school, this mainstream of economics, wants to heavily regulate tax 127 00:13:29.880 --> 00:13:33.280 and prohibit economic activities in the economy. 128 00:13:33.280 --> 00:13:38.560 A recent study published out in Birmingham, Alabama, found that for every regulator we 129 00:13:38.560 --> 00:13:47.340 We have at the federal level, it cost the economy $6.2 million and over 100 jobs. 130 00:13:47.340 --> 00:13:54.040 So if we add regulators to the economy, we shrink the productive aspects of the economy. 131 00:13:54.040 --> 00:14:00.040 And if we were to cut regulators, we would see an expansion in the economy. 132 00:14:00.040 --> 00:14:04.320 And so this study out of Birmingham found that if we cut the regulation budget of the 133 00:14:04.320 --> 00:14:12.080 for Government by 5%, it would increase gross domestic product by $75 billion. 134 00:14:12.080 --> 00:14:20.200 In other words, if they gave that money to us, we would all have $3 billion each. 135 00:14:20.200 --> 00:14:26.040 And when I was in college many, many years ago, I actually had a job where I cleaned 136 00:14:26.040 --> 00:14:33.560 classrooms and bathrooms and emptied all the waste baskets in an academic building. 137 00:14:33.560 --> 00:14:38.440 It turned out that my job was one of those subsidized jobs. 138 00:14:38.440 --> 00:14:43.440 The federal government was paying 75% of my wages. 139 00:14:43.440 --> 00:14:46.960 My college had to hire extra people to keep track of us. 140 00:14:46.960 --> 00:14:51.280 They had special time cards to keep track of our hours. 141 00:14:51.280 --> 00:14:55.640 And with this program, things have gotten actually much more complicated over time, 142 00:14:55.640 --> 00:15:02.340 much more cumbersome out there for these subsidized jobs. 143 00:15:02.340 --> 00:15:07.140 So their approach is to subsidize and regulate all of these things, whereas our approach 144 00:15:07.140 --> 00:15:12.800 would be simply to eliminate the minimum wage law or at least bring it down considerably 145 00:15:12.800 --> 00:15:15.700 so that teenagers could compete. 146 00:15:15.700 --> 00:15:20.560 Now I don't want you to think that Austrian economics knows everything about everything 147 00:15:20.560 --> 00:15:22.460 out there in the economy. 148 00:15:22.460 --> 00:15:24.580 We're not all-seeing, all-knowing, all-powerful. 149 00:15:24.580 --> 00:15:32.580 Economics, even good economics can get quite complicated and the real world is very complex. 150 00:15:32.580 --> 00:15:38.280 So therefore we emphasize the fact that we have to remain objective and humble and we 151 00:15:38.280 --> 00:15:43.280 have to remain cautious and conscientious in economic analysis. 152 00:15:43.280 --> 00:15:46.240 So now let's turn to the iPhone. 153 00:15:46.240 --> 00:15:52.520 Obviously the iPhone is the result of a long process of capital accumulation. 154 00:15:52.520 --> 00:15:57.560 You can't have an iPod until you create music. 155 00:15:57.560 --> 00:16:00.720 You can't have an iPhone until you have a phone. 156 00:16:00.720 --> 00:16:06.600 And so there's a lot of technical accomplishments that have accumulated over time that make 157 00:16:06.600 --> 00:16:12.260 the iPhone possible, along with the Internet, the World Wide Web, wireless technology and 158 00:16:12.260 --> 00:16:13.800 so forth. 159 00:16:13.800 --> 00:16:17.380 And capitalism is only about four or five centuries old. 160 00:16:17.380 --> 00:16:21.960 And global capitalism is really only a couple of decades old. 161 00:16:21.960 --> 00:16:30.040 So Steve Jobs and Apple stand on the shoulders of millions of people in addition to the thousands 162 00:16:30.040 --> 00:16:32.960 of people that actually work for Apple. 163 00:16:32.960 --> 00:16:38.680 Now of course, Steve Jobs is really a remarkable entrepreneur, someone who takes risks. 164 00:16:38.680 --> 00:16:43.920 He's made our lives better by providing great products and forcing competitors to compete 165 00:16:43.920 --> 00:16:45.140 better. 166 00:16:45.140 --> 00:16:50.280 He's transformed the way we talk to one another, the way we listen to music, the ways we get 167 00:16:50.280 --> 00:16:58.080 and Transmit Information and Knowledge, sometimes forgotten of the fact that he's made products 168 00:16:58.080 --> 00:17:04.880 that are elegant to possess and to look at in a marketplace of otherwise pretty clunky 169 00:17:04.880 --> 00:17:05.880 products. 170 00:17:05.880 --> 00:17:12.560 And he's made products that are very dependable and easy to use in a market that has long 171 00:17:12.560 --> 00:17:16.520 been dominated by complicated and unreliable products. 172 00:17:16.520 --> 00:17:23.840 When I first bought an iPod a few years ago, I'd never ever used any Apple product before. 173 00:17:23.840 --> 00:17:28.480 And so I open it up, I take it out of the box and plug it in and it starts working. 174 00:17:28.480 --> 00:17:31.240 I don't have to program it, I don't have to do anything. 175 00:17:31.240 --> 00:17:35.200 I couldn't believe it was that simple to use. 176 00:17:35.200 --> 00:17:41.640 I didn't have to look at the directions, not that I ever do anyways, but that's what he's 177 00:17:41.640 --> 00:17:46.300 really done and he's forced others to compete, to follow him. 178 00:17:46.300 --> 00:17:53.920 So now let's take a look at this controversy, the jobs controversy. 179 00:17:53.920 --> 00:17:59.540 Now as I said before, there's this claim out there that Apple has 700,000 jobs in China 180 00:17:59.540 --> 00:18:02.300 and Asia. 181 00:18:02.300 --> 00:18:05.100 That's not really true. 182 00:18:05.100 --> 00:18:10.780 What is true is that Apple contracts with companies, many, many companies in many, many 183 00:18:10.780 --> 00:18:16.280 different countries on several different continents to produce the parts that go into the iPhone 184 00:18:16.280 --> 00:18:19.040 in the iPhone and the iPod. 185 00:18:19.040 --> 00:18:26.240 And so of all the companies that they buy from, all of those companies have 700,000 186 00:18:26.240 --> 00:18:27.960 jobs. 187 00:18:27.960 --> 00:18:38.720 So the iPhone has parts from Taiwan, from Germany, from Korea, Japan, and even the US. 188 00:18:38.720 --> 00:18:45.040 And of course, these companies produce these same parts for other companies that compete 189 00:18:45.040 --> 00:18:46.040 with Apple. 190 00:18:46.040 --> 00:18:52.420 And they produce other parts that are used in other completely different product lines. 191 00:18:52.420 --> 00:18:57.440 So the idea that Apple has 700,000 jobs that it might bring back to the United States is 192 00:18:57.440 --> 00:18:59.640 really very misleading. 193 00:18:59.640 --> 00:19:07.400 It makes contracts with companies to provide Apple with parts. 194 00:19:07.400 --> 00:19:12.880 And the idea that Apple should bring these jobs back from China to the United States, 195 00:19:12.880 --> 00:19:21.720 The fact that we need more good high paying jobs back in the United States ignores the 196 00:19:21.720 --> 00:19:26.720 idea or the principle or the law of comparative advantage. 197 00:19:26.720 --> 00:19:33.280 The law of comparative advantage says that everyone has a comparative advantage and that 198 00:19:33.280 --> 00:19:40.000 you are potentially the lowest cost provider of a good or service and that if we follow 199 00:19:40.000 --> 00:19:42.800 Follow the Principle of Comparative Advantage. 200 00:19:42.800 --> 00:19:49.840 What we end up doing is buying products at the lowest possible price, and the end result 201 00:19:49.840 --> 00:19:56.560 is that more goods and services are ultimately produced, and on the consumption side, more 202 00:19:56.560 --> 00:20:07.600 products are ultimately consumed. 203 00:20:07.600 --> 00:20:12.160 But that's just the parts. 204 00:20:12.160 --> 00:20:16.640 The actual assembly of the iPhones does take place in China. 205 00:20:16.640 --> 00:20:22.200 That's what China does, is assemble the iPhone. 206 00:20:22.200 --> 00:20:26.440 If you look at all the parts that go into the iPhone and you added up the cost of all 207 00:20:26.440 --> 00:20:34.040 the parts, it would come to about $200. 208 00:20:34.040 --> 00:20:49.100 So the parts equal $200, the assembly is only about $10. 209 00:20:49.100 --> 00:20:58.840 The iPhone, if you look at its undiscounted price, is $600. 210 00:20:58.840 --> 00:21:07.760 So we're missing $390 per iPhone. 211 00:21:07.760 --> 00:21:22.680 And that brings me to this clever diagram here, which is the smile curve. 212 00:21:22.680 --> 00:21:33.680 It really helps unravel the mystery of the iPhone and its manufacturing and all that kind of stuff. 213 00:21:33.680 --> 00:21:40.680 The smile curve has two axes. 214 00:21:40.680 --> 00:21:49.680 On the vertical axis, we're measuring value added. 215 00:21:49.680 --> 00:22:03.720 This is higher value added, this is lower value added, and on the horizontal axis, we're 216 00:22:03.720 --> 00:22:13.640 measuring time. In the production chain, we're starting at the very beginning of a product, 217 00:22:13.640 --> 00:22:17.720 and then ultimately we're getting over here to the other end, where the consumer actually 218 00:22:17.720 --> 00:22:24.720 actually gets the product. 219 00:22:24.720 --> 00:22:34.720 In this structure of production or time of production, we have parts and we have assembly. 220 00:22:34.720 --> 00:22:39.720 That's what we typically think of in terms of a product, right? 221 00:22:39.720 --> 00:22:43.720 But there's a lot more to it than that. 222 00:22:43.720 --> 00:22:47.560 First of all, a product starts with a concept. 223 00:22:51.320 --> 00:22:56.840 Someone's got to have a vision of a product that consumers might want 224 00:22:56.840 --> 00:23:01.640 and might be willing to pay a lot of money for. That's Steve Jobs. That's his role. 225 00:23:04.360 --> 00:23:09.560 And then from Steve Jobs, then he hands that off to all of his managers, his engineers, right? 226 00:23:09.560 --> 00:23:23.280 So, there's got to be a lot of research and development for R&D. 227 00:23:23.280 --> 00:23:28.440 So there's got to be a lot of thought processes, you've got to write a lot of code, software 228 00:23:28.440 --> 00:23:35.160 for this, and then you've got to send all that information to designers. 229 00:23:35.160 --> 00:23:47.640 And then the designers turn it over to the fabricators, people who make up initial versions 230 00:23:47.640 --> 00:23:51.920 of the product so that it can be tested. 231 00:23:51.920 --> 00:24:02.040 These are all roles in the production chain that have high value added. 232 00:24:02.040 --> 00:24:07.860 And if you're adding a lot of value, it means your rewards, your wages and your salaries 233 00:24:07.860 --> 00:24:11.080 are going to be really high. 234 00:24:11.080 --> 00:24:14.800 Once the product, you've got a concept, you've done the research and development, you've 235 00:24:14.800 --> 00:24:25.680 designed the product and then you've fabricated the product, what comes next? 236 00:24:25.680 --> 00:24:29.800 Constructing the product, manufacturing. 237 00:24:29.800 --> 00:24:51.560 So all that stuff that's done by other companies, the making of the parts, and then it's all shipped to China and assembled, these are all now in the modern world low-value added aspects of the process of production. 238 00:24:51.560 --> 00:24:59.760 Manufacturing which once was a very complicated process, nobody really understood how Henry Ford could make so many things in the world. 239 00:24:59.760 --> 00:25:07.040 Money Cars. He could make them so fast, thousands a day. Steel would go in one end of the factory 240 00:25:07.040 --> 00:25:15.280 and out popped cars out the other. Nowadays, in terms of making a manufacturing plant, 241 00:25:15.280 --> 00:25:20.680 it's much easier. I mean, they can design a factory on a computer, send out all the 242 00:25:20.680 --> 00:25:27.480 information in the specs, and voila, the Kia plant can magically emerge down at West 243 00:25:27.480 --> 00:25:36.480 point Georgia, the robots are installed, workers come in and cars start going out. It's a well-known, 244 00:25:36.480 --> 00:25:43.200 well-established part of the game. So it's a low value added and as a result it's generally 245 00:25:43.200 --> 00:25:51.840 lower wage jobs. Okay, so at this point we actually have products for sale. What comes 246 00:25:51.840 --> 00:26:01.480 Next, well, after we get the manufacturing process established, well, what do we have 247 00:26:01.480 --> 00:26:02.480 to do? 248 00:26:02.480 --> 00:26:06.880 Well, we have to distribute the product, we have to advertise the product, it has to be 249 00:26:06.880 --> 00:26:14.840 sold and services, in this case, apps have to be designed and implemented. 250 00:26:14.840 --> 00:26:22.560 And so after the product has been manufacturing, there's distribution, you have to set up 251 00:26:22.560 --> 00:26:33.240 a worldwide distribution network, you have to do marketing and advertising, and then 252 00:26:33.240 --> 00:26:40.240 ultimately there's sales and after sales. 253 00:26:40.240 --> 00:26:50.240 What does after sales mean? In the case of the iPhone. You've sold the product to the customer. What comes after? 254 00:26:50.240 --> 00:27:06.240 Music and apps and service. You break your iPhone. It's got to be serviced. Somebody comes in and presses a couple buttons, and if it's not under warranty, it's going to cost you $75. 255 00:27:06.240 --> 00:27:09.120 Another big one is data usage. 256 00:27:09.120 --> 00:27:11.160 And yeah, all that kind of stuff. 257 00:27:11.160 --> 00:27:12.160 Yeah. 258 00:27:12.160 --> 00:27:15.360 All of that means money that's coming in. 259 00:27:15.360 --> 00:27:20.000 Data usage, apps, you make an app, they sell it for 99 cents. 260 00:27:20.000 --> 00:27:23.760 Apple gets probably more than half of that. 261 00:27:23.760 --> 00:27:27.840 So all of these are high value added aspects 262 00:27:27.840 --> 00:27:31.400 of the production chain. 263 00:27:31.400 --> 00:27:42.360 and it also means that those are all high-paying jobs and so all the high-paying jobs are here at Apple 264 00:27:45.080 --> 00:27:51.240 and all these jobs which are a combination of Apple and outside providers people who make the 265 00:27:51.240 --> 00:27:57.400 apps for example don't necessarily work for Apple data usage not necessarily Apple but Apple's 266 00:27:57.400 --> 00:28:18.040 In the United States, Apple is taking advantage of comparative advantage and using these outside 267 00:28:18.040 --> 00:28:26.520 Suppliers and Low Cost Assemblers in China, and by the way, all of that process is now 268 00:28:26.520 --> 00:28:34.260 managed by the current CEO of Apple, Tim Cook, who was a 1982 graduate of Auburn University. 269 00:28:34.260 --> 00:28:39.760 And this has been a really a magical transformation of our lives and it's because of capitalism, 270 00:28:39.760 --> 00:28:44.240 relatively free markets where entrepreneurs can serve and take advantage of comparative 271 00:28:44.240 --> 00:28:47.440 Advantage on a Global Scale. 272 00:28:47.440 --> 00:28:52.440 We don't want to just trust the newspapers and the TVs for our economics. 273 00:28:52.440 --> 00:28:57.920 It's very hard to be a bi-American type of person. 274 00:28:57.920 --> 00:29:02.480 You shouldn't really base your decisions on those type of arguments. 275 00:29:02.480 --> 00:29:07.280 For example, if you wanted to go out and buy an SUV and you were a patriotic American, 276 00:29:07.280 --> 00:29:10.240 you could go out and buy the Jeep Patriot. 277 00:29:10.240 --> 00:29:15.240 66% of its parts in the Jeep Patriot are made in America. 278 00:29:15.240 --> 00:29:22.240 Or you could buy one of its competitors, foreign competitors, like the Toyota Sequoia, 279 00:29:22.240 --> 00:29:28.240 where you'd be getting 80% of the parts made in America. 280 00:29:28.240 --> 00:29:32.240 So you can't really trust that stuff in a global marketplace. 281 00:29:32.240 --> 00:29:36.240 You can't really buy American products anymore. 282 00:29:36.240 --> 00:29:45.800 and more. It's too integrated of a marketplace. If you really want to buy American, then you 283 00:29:45.800 --> 00:29:50.520 should buy what is truly and uniquely American, and that's freedom.