GasolineBy Morgan Housel

At a conference in Philadelphia last October, 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 No. 1: 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 a recent article, 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 Walmart (WMT) is made in China?" Because Walmart's $260 billion in U.S. revenue isn't exactly reflective of America's $14.5 trillion economy. Walmart 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. imported $399 billion worth of goods from China last year, which is 2.7% 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 (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 No. 2: We owe most of our debt to China.

Fact: China owns 7.6% of U.S. government debt outstanding.

As of November, China owned $1.13 trillion of Treasuries. Government debt stood at $14.9 trillion that month. That's 7.6%.
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 ($1.13 trillion), followed by Japan ($1 trillion) and the U.K. ($429 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 No. 3: We get most of our oil from the Middle East.

Fact: Just 9.8% 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. Last year, imports from the Persian Gulf region -- which includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates -- made up 9.8% 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.


Motley 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.

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1245 Comments

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bogmire7

This needs to be mandatory reading.

August 03 2014 at 7:50 PM Report abuse rate up rate down Reply
Joe Seydl

I suggest that you practice what you preach and dig into some of the details yourself. You're quote manufacturing output as an overall figure. Of course that figure has continued to rise -- the economy has continued to grow. What matters, rather, is manufacturing output as a percentage of overall output. This figure has declined from above 25 percent in the 1960s to around 10 percent today.

http://www.bea.gov/industry/gdpbyind_data.htm

January 08 2013 at 10:06 PM Report abuse rate up rate down Reply
Charles Manning

I would like to point out one thing that is wrong. The Federal Reserve isn't part of the Federal Government. It's a private institution.

January 07 2013 at 1:21 PM Report abuse rate up rate down Reply
DUTCHBASTARD

BE HAPPY, CELEBRATE..A JUBILEE IS COMING... BE OPTIMISTIC!

March 23 2012 at 1:30 PM Report abuse rate up rate down Reply
Beverly

The article is bogus, as the author doesn't explain how the feds calculate those percentages. Imported goods are only considered imported goods when items are basically made from scratch and sent over. The government doesn't consider parts an import, or an item started in another country for example and sent over to China to be put together an import. It's a good article in attempt and getting people to talk just most people don't do the research and believe everything they read lol. If everything that was put together in China and sent over to the US was considered when the feds calculate that number you would be talking 60%+

February 25 2012 at 9:52 PM Report abuse -1 rate up rate down Reply
1 reply to Beverly's comment
Brady

yea buddy tru dat

May 02 2012 at 11:48 AM Report abuse rate up rate down Reply
Sam Dennis

It is simply insane that the US government and Federal Reserve own over $6 Trillion of US Government Debt. A normal person would say "how can the government owe money to itself?" And the money owed to the FED is simply a fiction...the fed purchased Treasury Bonds using 'electronic (virtual) money', rather than using actual cash funds on hand. We are being scammed by our own government.

February 25 2012 at 5:52 PM Report abuse +1 rate up rate down Reply
Sam Dennis

It is simply insane that the US government and Federal Reserve own over $6 Trillion of US Government Debt. A normal person would say "how can the government owe money to itself?" And the money owed to the FED is simply a fiction...the fed purchased Treasury Bonds using 'electronic (virtual) money', rather than using actual cash funds on hand. We are being scammed by our own government.

February 25 2012 at 5:51 PM Report abuse +1 rate up rate down Reply
Canine730

http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm
Take a look at that. The numbers are pretty clear that 18, yes, 18% of our petroleum consumption comes from the Persian Gulf. This is the same organization where you said you have retrieved your sources from. The Energy Information Administration.

You say: "Fact: Just 9.8% of oil consumed in the U.S. comes from the Middle East... Last year, imports from the Persian Gulf region -- which includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates -- made up 9.8% of total petroleum supplied to the U.S."

I say that is false.
Fact: Just 18% of oil imported to the U.S. is from the Middle East/Persian Gulf."

If your figure from 2001 is correct (14.1%) then we have ultimately increased our imports of Middle Eastern oil.

February 24 2012 at 6:19 PM Report abuse -1 rate up rate down Reply
2 replies to Canine730's comment
kevin

Canine,

The numbers actually say the 18% of our imports come from the Persian Gulf-not of consumption. Have of our consumption is in domestic oil and half is imported. Half of 18 percent is 9 percent, which is actually lower than the 9.8 % that this article states.

I say that you should actually read/think before trying to correct someone.

For reference:
"About 18% of our imports of crude oil and petroleum products come from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates."
http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm

February 25 2012 at 2:12 PM Report abuse +1 rate up rate down Reply
kevin

erjkfeh

February 25 2012 at 2:12 PM Report abuse rate up rate down Reply
lyle Kennedy

You need to look behind any furniture store (at the boxes).
Lyle Kennedy

February 24 2012 at 12:51 PM Report abuse -1 rate up rate down Reply
Sonia

Just FYI on you first point the GNP (Gross National Product) does not apply to non-tangible items such as services, retirement and the other things that youl listed. The economic point I would make is when a product is made in the U.S., then purchased with a U.S. dollar there is a exponential value that occurs with that single purchase. Every single dollar we ship overseas weakens our economy. The "stimulas" that was created by the current government primarily went to social programs and product purchases not based in the U.S. No offense but I questioned the remainder of your article since your first point was very misleading.

February 22 2012 at 5:46 PM Report abuse -3 rate up rate down Reply
1 reply to Sonia's comment
Nicardo Neil

What are you talking about? GNP DOES apply to services? You are an example of people that don't care for details.

March 12 2012 at 10:47 AM Report abuse +1 rate up rate down Reply