This is inarguably the worst description of economics ever expressed in any language. It is exactly as inaccurate as criticizing physics for “the imaginary bottomlessness of matter and energy that I see in most physics theory.”
I’m beginning to despair for the future of free market economies.
Why, in your estimation, is there a shrinking pool of industries? What evidence is there that there is less diversity in industries today than there was in the past, or that a modern, wealthy Western nation has a meaningful lack of industries?
What’s the unemployment rate today? What was it thirty years ago?
History has fairly well proven that mechanization, at least, never cut into employment. It just let people get out of the cotton pickin business and into the iPod manufacturing business.
This is a theoretical problem. The idea that all blue collar labor can be off-shored and have the US be all white collar is dependent on the majority of Americans being capable of handling white collar jobs.
It’s only theoretical though. At some distant point in the future it might be a worry that only management jobs will be left or even thinkable, but at the time we come to that, it would also mean that US workers will work for so cheap that blue collar jobs will end up coming back since, after all, people have to eat and the government isn’t going to enforce a minimum wage that is keeping people from being able to make a living.
Despair away, for, as practiced now, they were designed for a long-dead world where the population was small and the world seemed infinite, and the only people to sell things to were the landed aristocracy.
Henry Ford is not remembered for inventing the car or the assembly line. He is remembered because he proved that you can make more money selling to the masses than selling only to the rich. But he forever connected the worker to the consumer with this move.
athelas entire premise is that you can reduce the number of highly-paid workers and not reduce the number of wealthy consumers. From a global business standpoint this might be said to be true, because shifting of labor overseas increases the wealth of consumers there. But from a strictly US standpoint, which US citizens must see things from, that’s not necessarily true. There is not a bottomless well of wealthy American consumers that will continue to exist if you reduce the wages of American workers, because the workers and consumers are the same. Of what interest is it to me that t-shirts are cheaper for consumers if my lack of worker status prevents me from being one?
athelas tosses off the comment that “he workers can find jobs in industries in which the US does well.” So the old industry is smart enough to lay me off, but the new one is guaranteed to pay just as much, because for some reason, they’re too stupid to seek out cheap foreign labor? If they’re so dumb, how can they be successful enough to have a job for me? And if the reason they’re not seeking cheap foreign labor is that they’re too small to effectively exploit it, how are they going to pay me enough to make up for the loss of my previous job and keep in the t-shirt consumer pool? The statement, if proffered as a sustainable model for the future American worker, assumes an endless supply of companies dumb enough to keep paying too much for labor to replace the ones that wise up and outsource. I don’t see evidence of this happening.
**RickJay** addressed the second half of your post. Allow me to address this part. **Athelas** example is an academic one, which works for purposes of this discussion. If you want real world examples, your counter-example is more than lacking. You're assuming that the economy is a zero-sum game. As workers become displaced, as the more efficient industries prosper, they too can either expand or move into other industries. The re-training can easily take just as long as it takes for the industry to correct itself and allocate resources to more efficient position. In the meantime, barriers to trade will keep afloat the more inefficient businesses until they too decide to re-tool or close up and move shop or leave the market all together. In addition, new industries can enter the market and compete or create new markets themselves. Just because an industry loses workers, or a country is identified as being less efficient in producing a certain product, it doesn't mean that that industry should discontinue competition. The point is your example is less realistic because it portends a pure decrease in jobs to the point where only higher paying jobs are left around (which that in of itself doesn't make any sense -- I can tell you first hand that if you are a manager, and don't have anyone to manage, then the reason for your job existing will quickly evaporate).
Actually, it seems your premise is that you can maintain the number of highly-paid workers and not reduce the number of wealthy consumers, or at least consumers who can afford your product
No, it increases the wealth of consumers in the US too, because more people can afford the cheaper goods.
I can sell a widgit for a dollar if I produce it in the US. I can sell it for .80 if I produce it in Mexico, because of lower labor costs. Thus the available wealth for widgit consumers is increased by .20 per widgit.
Certainly not - there are no guarantees. That’s the point.
If your labor, bidding in a global market, is worth less than that in some Third World shit hole, you are SOL. But that is true even if we don’t have free trade. It is not possible to revoke the law of supply and demand by legislation. Attempting to do so on a large scale tends to create the Soviet Union in the 70s.
The US has much lower unemployment than most of Europe for a bunch of reasons, but much of it is due to the fact that we out-compete the rest of the world in stuff that Americans are good at - productivity, innovation, and the like, coupled with a huge national market.
You seem to be assuming that all jobs are the same, and that all workers are the same. They are not.
Guys…I don’t want to insult or frustrate you…that is not my intent.
However, you have a guy here that is truely on the fence. I like economics but have little training. I have an extensive math background. I WANT to believe in free trade.
…and you are not convincing me. Now you may insult me…question my IQ…despair the state of econ knowledge in society…
…it is all irrelevant.
The point is if you cannot convince me…YOU WILL NOT CONVINCE ANYONE. If you cannot convince someone wanting to believe, then the free traders are facing an extreme risk of backlash. If free trade is truely ‘good’ then this backlash could hurt many people. The arguments must be made more compelling.
Athelas’s argument using the diagram was excellent. I understand and value that type of argument. However, I asked a simple question…what is to stop line ‘D’ from going lower if jobs are outsourced? This seems very much like scottandrsn’s question where he stated it in real world terms.
D is the amount that people value a t-shirt, if I’m reading it right. A few people really want a new shirt and will pay a lot for it, and a few wouldn’t take it if you gave it to them.
Now if jobs are outsourced, D will lower on average for a short period of time since, obviously, there are a few people out of a job. But the amount that it lowers is infitesimal. If one t-shirt factory shuts down in the US and puts 100 employees out of a job. So out of the 300,000,000+ population of the US, the buying power will have been lowered by 100 salaries. That’s not a whole lot. Assuming an average wage of $30,000, the US has $250,000 less per month that it can spend on anything. BUT, if the factory in China can produce shirts for 50% of the cost of the original t-shirts–say $5 instead of $10–and can produce 1 million shirts per year[sup]1[/sup], then per month the American populace will be spared $416,666.67 per month.
It will be a bit wending, but that spared money will eventually make its way to a few of the larger banks. And note that the key point is that from the moment production costs halved, you’re already making enough money to hire back your 100 American workers plus. And frankly, where else could that money go? A bank doesn’t profit off of money surplusses, it profits off of speculation.
With a surplus of money, a bank will feel more largesse in granting loans. This might be housing loans, startup loans, or investing in a rising industry, but any way you cut it that loan will first go to Americans and it will be for a sum total of $416,666.67 per month. If it goes to housing loans then the construction industry will get a sudden demand and need to take on more employees. If it goes to a startup, then it will definitely go towards taking on new, local employees. And if it’s investing in an industry, then it will end up giving that industry the money it needed to expand operations, increase advertising, start selling oversees, etc. which means taking on more people.
[sup]1[/sup] A quick Googling seems to indicate that a million t-shirts per year production is fairly average going from this page.
Instead of trying to describe the benefits of free trade, try looking at the disadvantages of protectionism.
Protected industries, because they are less efficient, increase the costs that the end users pay. (Industries that are more efficient don’t need protection.) Take something basic, say clothing. Let’s imagine the U.S. was to protect domestic clothing industry. Maybe it’d generate one million jobs, and the cost of clothing would increase 10%. Who would be most affected by this? Those one million workers would have good jobs. Middle class Americans can afford to pay 10% more for shoes. But the American poor? That 10% will mean less for food, shelter and medicine. Protectionism hurts the poor far more than the middle and upper classes.
And I pulled those numbers out of the air. They’re probably a best case scenario. I’d think 100,000 shoe jobs and 100% more expensive shoes is more likely. That’s even less benefit and more harm.
The economy is not zero sum and it’s not fair. Protectionism hurts the poor the most and free trade helps them the most. Because the poor are most affected by changes in the prices of commodities.
Do you not see a potential benefit to American workers to there being more wealthy consumers overseas?
Let’s break this down to a more local example; suppose that by some magical power I were to make it so that beginning tomorrow, all of the United States, except for the state of Ohio, were to suddenly become as impoverished as Bangladesh. Only Ohio is left alone, and its economy will go on from its current point, to rise or fall as the new conditions of the USA might affect it. Do you think this will be good or bad for Ohio, now that there’s a sudden drop in the number of out-of-state consumers who can afford Ohio’s goods?
Surely it is the case that richer foreigners will simply provide more opportunities to U.S. exporters, give them more business, and allow them to hire more workers at better wages?
That’s a ridiculous misrepresentation of what athelas said.
The point is not that anyone is “Stupid,” but that some industries will rise while others fall. Nobody in the United States works for the whale oil business anymore, but somehow life went on because other businesses rose to take its place. Jobs are constantly replaced by other jobs; that’s not something invented by foreign trade.
The transfer of labour from one industry to another isn’t a reflection on the stupidity of the employers, it’s a function of what industries are becoming efficient to do in the United States and which ones aren’t. Making T-shirts or simple machining work is simply not as efficient a use of U.S. labour as it used to be. On the other hand, there’s still unfilled demand for certified welders and truck drivers. Plastic injection molding is (I believe) on the decline; pharmaceutical work, however, is up. One effect of outsourcing I’ve noticed in my job is that more U.S. and Canadian companies are moving away from the manufacture of simple parts and into precision machining; you can have your parts stamped in China, but the dies and machines to stamp them usually come from the USA or Japan, because those countries are much better and more economical at making complicated dies, tools, and machines. It’s not that the drug companies are stupid and the plastic injection molding companies are smart; it’s that there are some things China can do better than the USA, and there are some things the USA can do better than China, and it makes sense to shift your labour and investment to what you do well.
Take an extreme example; should Canada grow its own bananas? Coffee? It would be insanely expensive to do those things. The only way to make them economically competitive would be to raise trade barriers or provide government subsidies to protect Canadian banana growers; otherwise they’ll invariably be beaten on price and/or quality by foreign competition. But of what possible benefit would this be to anyone in Canada BUT the banana and coffee farmers? None; we’d all be out a lot of money, buying $9 coffees and paying three bucks a pound for bananas. We seem to have gotten along just fine without our own industries in those areas.
But wouldn’t those workers who are not now working ADD to the poor?
I understand enough economics to know that you can’t just ‘make’ wealth that way. I also understand that overall, free trade is probably a good thing from terms of ‘wealth’. What I’m not convinced of is that free trade is good for the U.S.
Let’s use an example close to home for me. I work as a statistician. My job is (probably) safe…I’m in my 40’s, I have experience. I am good at explaining and relating my analytics to clients that are not stat savy.
However, my company has not hired a ‘young’ person like me in several years…but the’ve hired over 20 in India. These Indian are smart. They LIKE math. They also work for $16K a year and no benefits.
The reason I haven’t been canned is that I add value by my experience and by being able to relate results to clients. How did I get this ability?
Experience.
When I retire, who will replace me?
Now…join with me on a thought experiment. Suppose my experience is common…it’s not outlandish/way out there.
My job is about as high as you can get and still do what I do. Now, again, who will replace us?
You could say that me/we are inefficient and that India is more efficient at this ‘math stuff’ so this is a “good thing”. After all, companies that employ my types will have lower costs and be able to lower their prices etc.
But what happens to the youth growing up? People chosing Math type careers is falling (and also non-forensic sciences)…this will add to it. Any job that comes along primarily math related…well Indians can do for $16K a year…so what replaces it?
Now go forward 200 years…
What about lawyers? Engineers? etc etc etc.
DOES ANYONE see a possible danger in this??? IS there a real danger?
First of all, you’re assuming that your particular company is representative of all similar roles filled throughout the United States. That is of course not true; U.S. statisticians still find jobs.
There are companies whose unique needs will dictate that hiring Indian labour is not economical. Statistics is a broad discipline with many applications that, in a lot of places, can’t be practically outsourced. And - and this is usually the most important factor - small startup companies with statistical needs, maybe ever started by statisticians, will be founded, and grow, and some will survive and become bigger companies, and the experience will be built as they go.
The other factor is of course that as India grows, it will become richer, and the demands of Indian workers will increase in terms of both pay and their desire to buy things - thereby reducing the value of outsourcing from the USA to India solely for cost, AND creating more markets for U.S. goods. This effect is already being seen. Lots of Indians are buying iPods; that’s money right into American coffers.
I have to go back to my example of rich Ohio, poor everywhere else. Would you want to live in a USA where your state was cut off from the rest of them and they were all poor?
Again - and I’m sorry if I’m repeating myself but it appears I have to - there’s all kinds of jobs in high demand in the USA. And no, they’re not all McJobs. There’s a huge demand for scientific expertise (I don’t know what you mean by “forensic,” but it you mean “related to legal issues,” there’s still a huge demand.) Companies I know that engage in environmental science can’t find scientists and engineers quickly enough; they’re hiring kids out of school just as fast as they can be interviewed. There’s an enormous unfilled demand for truck drivers, asd I mentioned before; long haul drivers are in particular shortage, and that’s a job that can pay huge bucks. There’s tremendous ongoing demand for heath care workers - doctors, nurses, administration staff, everything. Skilled industrial work remains an area where companies have trouble finding good help… I’ve done a lot of work with network and phone interconnect providers and they’re always short of skilled people. There aren’t nearly enough teachers, especially with speciality qualifications like special education or speech therapy and stuff like that. The schools don’t pump them out fast enough.
Is that enough? I could name a dozen more. How many jobs do you want to see that are growing in demand before you’ll be convinced that they aren’t all going to Bangalore? That’s an honest question; you say you want to be convinced, but I’m having trouble understanding what would convince you. Economic theory doesn’t work. The simple observation that the U.S. still enjoys a very low unemployment rate, as compared to almost anywhere else, despite engaging in more free trade agreements, has not convinced you. What would convince you?
To an economy as large and diversified as the United States? No, there isn’t. I’d be way more concerned about the enormous government debt and propensity for engaging in unnecessary wars as things that could negatively impact the economy.
If you want to make the U.S. a better place, you need to make the world a better place. Higher walls don’t do that.
Historical examples never seem to work either. I think this is one of those things that people know what they (think they) know. Its a gut level reaction for most of the anti-free trade crowd. When you give them the excellent examples you guys have once again used in this thread they remain unconvinced because their ‘gut’ is telling them it can’t possibly work that way. They are perhaps focused at the micro-level (‘well, what about when MY job gets shipped out to India???’) instead of the macro-level (‘if jobs in X vertical market shift to India that doesn’t mean that jobs in Y have also shifted. Labor will simply move to other markets’).
Personlly I find the historical examples the most compelling as arguments against the anti-free trade crowd. The negative impacts of protectionism are pretty plain, for instance. The way labor shifts when vertical markets close (say, the ever present buggy whips example…or another good one is mining in the UK in the 70’s) is pretty appearent. I suppose there is a tendency to think that WE are unique, and that this is all something new…but it’s really not.
At the turn of the 20th century, about 60% of all the jobs in the U.S. were in the agriculture industry. Today it’s a small fraction of that, and there’s 120 million more people to boot. Where did all the jobs go?
If the jobs had been lost for no reason, then it would have been a net hit to the economy. But the jobs went away because we found better, cheaper ways to grow and make food. The mechanization of agriculture destroyed the vast majority of agricultural jobs. But in the process, it made everyone wealthier. In 1929, people spent 29% of their disposable income on food. Today, they spend about 10%. Food has declined in price dramatically compared to other products and income. That extra disposable income was used to buy other goods and services, which made those industries grow more than they would have had agriculture been ‘protected’ from mechanization.
In addition, labor is a valuable resource, and mechanization freed up tens of millions of people to work in other areas.
Now pretend that the mechanization is a machine called ‘Japan’. What’s the difference?
How much do you think we would be paying for TVs and cars today if we had blocked the importation of those from other countries? What do you think the quality of them would be like? Now, the domestic TV industry has been virtually wiped out by foreign competition. Do you wish for the days when the only TV you could buy was an RCA Victor or a Motorola?
If we employed a lot of our engineers and factory workers to make substandard TVs, do you understand that that would leave fewer to work in industries where we do things better? And if we can expend the same labor to make a high-quality computer rather than a mediocre TV, don’t you think it might be smarter to make the computers, sell them, and use the money to buy a TV from someone who’s better at it while pocketing the difference?
It’s hard to imagine how it could be bad, given its recent history. On the other hand, studies of past tariff actions have shown that they have poor economic outcomes. The Smoot-Hawley tariff is credited with deepening the depression or even causing it. It caused a large contraction of U.S. trade, and resulting reduction in GDP - exactly the opposite of what its proponents said would happen. 1028 economists signed a petition to the government pleading with it to not implement the tariff, but the forces of protectionism were too strong. The result was an economic disaster.
There’s a myth here that the foreigners taking jobs are ‘just as good’ as Americans, and therefore the fear is that ALL the jobs will go to them. Why not? If you can pay $16K instead of $80K, why wouldn’t you move all your jobs to India?
The thing is, an Indian statistician is NOT worth what you are. It’s not that he’s less of a mathematician, but there are costs associated with hiring Indian people for American work. Communication problems, time zone issues, additional travel costs for management and training, difficulty in forming a team, etc.
In a free market, people who are paid low wages are paid those wages because they are less valuable than the people who are paid more. Ask yourself what makes an American factory worker worth $20/hr when a a Vietnamese factory worker is worth $20/week? The answer is that the American is worth more because he or she has millions of dollars of capital invested in leveraging his labor. He’s worth more because the factory he works in gets reliable power, has access to myriad skilled trades and businesses and materials to keep the factory running at peak efficiency. His factory has access to good roads and rail to move goods, and efficient shipping infrastructures. His health is probably pretty good, and he’s got a better education. Training costs are lower, and living in a country with a vast supply of educated workers means the factory is more efficient because it can replace lost labor faster.
There are a zillion things about living in a first-world country that magnify the value of the labor of its citizens. THAT is why they have first-world incomes. Not trade barriers. All trade barriers do is limit the market for your products and limit your ability to import cheaper or better goods and services to make your industry more efficient and your life better.
Of course there is localized dislocation. When telephone switching was automated, an entire class of employees lost their jobs. Employees who made a good living and had no training to do anything else. Mostly women, at a time when employment for women was not easy to come by. And yet, that huge labor pool got absorbed into the economy, and the percentage of women working today is higher than it’s ever been. The same thing happened to secretaries when the computer revolution hit. Demand for secretaries dropped dramatically. People went back to school, retrained, and went back to work.
If the scaremongering about all the jobs leaving was even remotely true, we would have seen permanent dislocations from technological advances. But it never happens. The economy adapts, and people continue working. Only now, the economy is more efficient, overall wages and standards of living increase, and everyone is better off.
Maybe lawyers will be gone, or engineers will be gone. Who knows? But we’ll have quantum technologists and robot trainers and a zillion other jobs that don’t exist today. I guarantee you that hundreds of job categories will vanish in the next hundred years, representing millions of workers. Whether you close the borders or not. But other new job categories will be created. Economies adapt. Life goes on.
Don’t be so afraid. Have the courage to stand up and be willing to compete against the world instead of hiding behind walls. You’ll be better for it.