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I know none of you will believe this, but I have a team of elves who built me this Ford Escort out of nothing but lawn mower clippings. |
Posted on 10/05/2004 12:38:02 PM PDT by LowCountryJoe
Suppose a housewife one day accidentally discovers that a gallon of tap water combined with a dash of salt, a pinch of flour, a drop of ammonia, a splash of cooking oil, and tiny bits of several other ordinary kitchen ingredients will produce a concoction that cleans and sanitizes dishes, clothing, countertops, sinks, windows, automobile exteriors and interiors, household pets, and infant children. It also is astonishingly effective at fighting cavities, whitening teeth, and keeping gums healthy – and it keeps breath fresh for 24 hours. This remarkable all-purpose cleaner is 100% safe and totally effective. The cost of producing each gallon of this stuff is $0.02.
Further, in a fit of magnanimity, this resourceful woman publishes her finding on the Net, free of charge.
Several large corporations are devastated, for no longer will families spend money buying laundry and dish detergent, window cleaner, baby wash, toothpaste, and breath fresheners. Thousands of workers who “played by the rules” lose their jobs with the firms that produced now-obsolete products such as Windex, Tide, Cascade, Fantastik, Gleem, and Listerine.
……
Now change the example just a bit. This housewife makes this discovery but, in a fit of self-interestedness, she keeps the concoction secret and starts producing it herself, selling it retail at, say, $5.00 per gallon. Its popularity is immediate and immense. She makes a fortune – and in the process devastates the likes of Colgate-Palmolive, Lever Brothers, and Johnson & Johnson no less than these firms would have been devastated had she given her secret away free of charge on the Internet.
Which scenario is the better one, judged from the perspective of “social” welfare? In my view, the first scenario is much better than the second. But surprisingly, judging from discussions of international trade, lots of people think that the second scenario is better – indeed, many people think that the first scenario is catastrophic.
When I discuss international trade with my students, I point out that foreigners sell things to Americans only because and insofar as they want to buy things (including financial assets) from Americans. I’m easily able to demonstrate that the dollars Americans spend on imports return to the U.S. economy as demand by foreigners for U.S. exports and assets. Upon seeing this full picture, my students breathe a sigh of relief, aware that, ultimately, no jobs are lost because of foreign trade.
“But suppose,” I then ask, “that foreigners start sending valuable goods and services to us free of charge.” I emphasize that this hypothetical won’t happen in practice, but I ask “would it be good if it did?”
I’m always disappointed in the consensus answer of the class: NO!
“Why ‘NO’?” I ask, with undisguised horror.
The answers all come down to this: students can see that dollars used by consumers to buy things will be spent by the sellers on some other dollar-denominated goods, services, and assets. But students do not readily see that the dollars that consumers do not have to spend now on free goods and services shipped from abroad will be spent elsewhere. If I no longer have to spend the approximately $70 per year that I now spend on dishwasher detergent, I'll spend that $70 per year buying other goods, services, or assets.
When I explain this fact to my students, they eventually get it (or so I fancy). But the very need to have to explain carefully that valuable goods and services offered free – or at lower and lower prices – are a benefit to society and not a problem reveals the challenge that right-thinking people confront when debating protectionist demagogues.
Well, as a housewife with not a lot of extra time-I would rather purchase most of my cleaners than try to make them on my own! :-)
What if you lose your job at the dishwahing detergent plant? You won't have the money you just saved to spend then regardless.
Assuming that I had worked at such a plant then I would look for another job while applying for unemployment benefits. Hopefully I'd find something even better and pretty quickly too. Or, I could play the whinny game and exclaim that life isn't fair; maybe resort to asking for some federal law that does not allow the woman the freedom to engage in activities that indirectly led to my job loss - activities that had an obvious benefit for everyone else that doesn't work in the cleanser producing plant.
Seems to me that if I take $70 out of one market and put it into another that is neither a net gain or a net loss. Some companies go out of business-others grow. Am I missing something here?
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I know none of you will believe this, but I have a team of elves who built me this Ford Escort out of nothing but lawn mower clippings. |
Like I keep saying - this issue will be proven moot if new jobs are created that employ the population laid off and those entering the jobs market at equal to or greater than past compensation. Right now I am on the fence and I am not seeing this happen.
What about the free cleanser? Did you forget about that or were you purposely ignoring it because it didn't fit your view of the topic?
Nope, you're just supposed to post some dumb-ass picture and ignorant, incoherent commentary to match it. Don't get me wrong though, I do appreciate your input.
This is the first time I have ever seen you write something like this - in past debates I have not seen you "on the fence". It is certainly an opinion I can understand better and can have respect for.
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Was that a back-handed compliment? |
(Obligatory Dumb-Ass Picture.)
At first I was wondering what this anecdote had to do with international trade. I still am.
I have always said it if not in those words - but my position in past posts on this subject was the same with same words more or less.
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