The Nation That Lost Its Jobs, But Got Them Back

Once upon a time, there were two hippies, Jerry and Sarah. Tired of the rat race of modern life, they found a deserted valley in a remote region of the world. They moved there, with their four children. They declared that the area was now the independent kingdom of Lost Valley and seceded from the surrounding nation. Amazingly, it let them go.

The family lived a harsh life at the margin of subsistence. Everything that they needed, besides the few tools and amenities they brought in with them, they had to produce themselves. Having shovels, rakes, wheelbarrows, quality seeds, and so on made their life a good bit easier than it would have been otherwise, but it was hardly comfortable. Things did ease a bit as the children grew and did more work.

One winter, their youngest son fell sick. Unable to leave Lost Valley on foot or to bring treatment for him into the valley, they watched in sorrow as he died of a treatable illness.

Yet they stayed in the valley, wanting to make a go of the life they had chosen. And their life did have its pleasures. The valley was wild and beautiful. The family members were all very close to each other. And though they had little spare time, they enjoyed what leisure they had. For example, when work was done for the day, Jerry would spend the evening making charming little woodcarvings. As the years passed he became quite skilled at doing this.

After the family had been in Lost Valley for many years, a hiker happened by. Jerry was sitting outside his cabin carving when the hiker emerged from the woods. He introduced himself as David. After an exchange of pleasantries, David remarked on how much he admired Jerry's woodwork. He asked Jerry if he had any similar carvings.

Jerry took him into the cabin and showed him a shelf with several hundred of the little pieces. David asked if he could buy a dozen of them. He offered a good price, but Jerry and Sarah had no use for money. So David suggested he simply leave them some as a sign of his good faith, promising to return later with other goods that they could use.

When David returned in a month, he had two more fellows with him. They were all carrying heavy packs filled with seeds, new tools, medicine kits, silverware, clothing, soap, and other household goods. The man told Jerry he'd like to take one hundred more of the carvings.

Jerry was happy to sell his carvings to David. The new goods made his family's life significantly easier. Employing them to boost their productivity, the rest of Jerry's family could raise enough food for all of them, leaving him more time to work on his art. The more he specialized in that one task the more his skill improved.

David and his two friends returned in the winter, riding three snowmobiles that were full of goods. Besides staples, they also brought a computer and a satellite dish. They taught Jerry how to retrieve e-mail, and told him they would send him custom orders.

In the spring they arrived again. Jerry's carvings were a fantastic success. David asked Jerry if they could cut a road in to his cabin, to facilitate their trade. He noted that since Lost Valley was Jerry and Sarah's sovereign country, they would have complete control over who could use the road.

Jerry said yes, and soon he was making monthly deliveries, in exchange for more supplies. The family now had enough free time that the children could concentrate on their education. David and his friends had brought another computer, and the kids used it to surf the Internet, learning more about the outside world. Soon, they created a website advertising Jerry's statues.

Orders flooded in. The next time David arrived, Jerry told him he wanted to set up his own company, using David as his distributor and as a marketing consultant. David was happy to oblige. Sarah became interested in the details of fulfilling orders. She also began keeping books for the company, an activity that made sense now that they were using money.

Within a few years, there was a thriving business in the woodcarvings located just over the mountains from Jerry and Sarah's valley. It included sales, marketing, and distribution departments. There was also a manufacturing division producing copies of Jerry's work, since many people liked it but could not afford originals. Sarah was the CEO of the company, traveling out of the valley three days a week to work on site. The children, who no longer had to work, were thinking of heading off to college soon. The oldest, Jerry Jr., seemed to have his father's artistic streak, and was showing tremendous promise as a painter.

The original rustic cabin had been expanded several times. The family now had three wood stoves, which they fed with logs split with their gas-powered wood splitter, an electric generator, a hot tub, and a deck with a view of the mountains. Everyone had his own bedroom. If someone in the family got sick, they could afford to have a doctor flown in to treat him.

However, they were altogether too complacent. Unbeknownst to them, Lost Valley was on the verge of disaster. Luckily another hiker was about to wander into it.

His name was Professor Mercantilio, and he taught labor studies at a major university. When Jerry met him on a trail near the cabin, he was immediately impressed by the man's erudition and his concern for the well-being of his fellow man. He invited the professor back to the cabin for lunch.

While they ate, Jerry told Mercantilio the story of his family's sojourn in the woods. As he described the events of the last few years, his guest's countenance darkened, although more in sorrow than in anger. When Jerry had finished, Mercantilio looked at him gravely and said, "I've just arrived in the nick of time."

"Don't you understand? Your country's economy is on the verge of collapse. You've been exporting all of your jobs to other nations!"

"Just think back to before you met this David and the other foreigners who beguiled you into shipping your nation's jobs overseas."

Jerry nodded slowly, but, frankly, he still did not quite getting the professor's drift. Mercantilio sensed this and explained further.

"Didn't you once have dozens of different jobs performed in this valley? Farmer, weaver, carpenter, soap maker, cook, lumberjack, butter manufacturer, herder, shoemaker, hunter, fisherman, butcher, and more?"

"To foreigners! They're all still being done, just not within this valley any more. Why today, you are down to your last two jobs—company director and sculptor. Tell me, how can an economy thrive with only two jobs in it, without any manufacturing or agricultural base?"

"Trust me, that's just an illusion. Your economy is being hollowed out. Your percentage of your agricultural consumption that you import has soared from 0% to 98% over the last five years. Your imports of manufactured products have gone from 2% to 99% of total consumption over the same time period. Apparel imports have gone from 1% to 97%. Obviously, this trend can't continue. Without any production, how will you pay for your imports? Your economic role as consumers is undermining your role as producers."

Jerry thought these remarks over. It was strange to think that his family's newfound prosperity was merely an illusion. But he knew little about economics, and, after all, this was the area Professor Mercantilio had studied for many years. He must know what he was talking about.

"It's not going to be easy," the professor confessed. "Initially, it will require some sacrifice: your level of consumption will have to drop for a while. But better some sacrifice now than a complete economic collapse later. In the long run, your economy will be much healthier for it."

Over the next several days, Professor Mercantilio developed some sophisticated mathematical models of Lost Valley's economy, and worked out a program of import substitution that would get it back on its feet again. The labor and manufacturing sectors, the heart of any flourishing economy, would be revitalized. It would mean less attention to management and design activities, but these, after all, are only the icing on the economic cake.

Jerry and Sarah agreed to implement the professor's program. Mercantilio returned to his university, and the residents of Lost Valley returned to jobs they had neglected for too long. They weeded and tilled the vegetable garden, cleaned their hunting rifles, and took the old sewing machine out of the attic. The children's study time was cut and they resumed many of their old chores. Sarah had much less time to devote to running their company, and Jerry could not spend as much time creating carvings, but Mercantilio had convinced them it would be worth it.

On his summer vacation a year later, Mercantilio came back to Lost Valley. The nation had become more self-sufficient, producing a far greater percentage of its own food and manufactured goods. But there was a serious difficulty: the kids were still buying the better-quality, imported food, clothing, and cosmetics. As a result, much of the domestic production was going to waste.

Mercantilio analyzed the situation for Jerry. "You see," he said, "it's low-wage foreign workers that are your problem. You and Sarah have each been making several hundred thousand dollars a year. How can you expect to compete with farm workers paid a mere $12 an hour? They have an unfair advantage."

"If you can't get foreign governments to sign trade pacts guaranteeing their nation's workers incomes of at least several hundred thousand dollars per year, you'll just have to impose a tariff, raising the price of their products to the level of yours. That will ensure trade that is not only free, but fair as well."

So Jerry and Sarah imposed high tariffs on most foreign goods. Left with little choice, the kids turned to the domestic products they had previously disdained. With fewer imported tools to aid the family members in their work, it took more and more time for them to produce the necessities of life.

A year later, the company selling Jerry's woodcarvings went into bankruptcy and was purchased for a song by Warren Buffett. Soon enough, the money Jerry and Sarah had received from the sale was gone. The road into Lost Valley gradually became impassable. Jerry and Sarah's SUV broke down, and they had no idea how to repair it. Over time, the house began to fall apart, the hot tub stopped working, and the computers became useless. The children abandoned their plans to attend college. Jerry Jr. stopped painting, as he had no time for it. Anyway, the family could no longer afford paint or canvas for him. One day, while cutting wood, Jerry Sr. lopped off a finger from his right hand with an errant axe blow. He could no longer carve wood as he used to, and he lost his interest in the art.

Eventually, the medicine kits were empty. Doctors could no longer reach Lost Valley by road and Jerry and Sarah could not afford to fly them in. When their daughter caught pneumonia, there was little they could do but watch in sorrow as her condition worsened and she eventually died.

The above information, up to the time of Professor Mercantilio's second visit to the valley, is largely drawn from his groundbreaking paper, "The Disappearance of Work in the Late Capitalist Economy: The Case of Lost Valley," published in Sociological Perspectives on Labor Rights, Vol. XII, No. 3. Just last year, Professor Mercantilio returned to the valley to perform some econometric studies to help determine the success of his program. Unfortunately, we can't report on the outcome of this most recent visit, as he has not been heard from since.

Gene Callahan is author of Economics for Real People. Send him MAIL, and see his Mises.org Daily Articles Archive.

So the von Mises Institute can concoct a fairy tale where a utopian economy arises from the efforts of two hippies, and the Big Bad Wolf who huffs and puffs is named "Professor Mercantilio". Cripes, anybody can fabricate an imaginary boogeyman to demonize whoever they want.

Gene Callahan is author of Economics for Real People.

Yeah, yeah, yeah... must be part of the "XXXXXXXX for Dummies" series.

Not so excellent, for it ignores the amount of cheap labor that could copy the nice little carvings.

This false story assumes that Jerry is the only one making quality carvings for ever, even with the little knock-offs.

We are not a nation of wood carvers, we are a nation of Computer controlled machines, where illiterate unlearned people make the same quality product for less than 10% of the original price

This story does not mention the realities of local competition copying or making similar products that Jerry has to compete with in a normal world, also.

Totally bogus story, making fun of those who see the real risks of exporting jobs that DO exist

I dont have time to study this proposal, but I am going to state that progress in technology, created and supported by PRIVATE enterprise when considering industrial competition, is what is fair.

Foreign government supporting of industry, controlling wages and prices and living standards of workers and mid-level management is not fair competition.

While the article makes a feeble attempt to encourage people to work harder, it makes false allusions to our present state of affairs concerning trade and work being exported.

Totally bogus story, making fun of those who see the real risks of exporting jobs that DO exist

Yeah, Callahan even naively postulates that Jerry and Sarah have sovereign jurisdiction over their own country and can control access to their utopian valley.

It'd be slightly more realistic if they were subjects of a compassionate ogre whose mignons dictated what type of wood Jerry was permitted to carve and how he was to dispose of his wood shavings. And since the ogre controlled the highway, he entered into agreements with the neighboring ogres that whenever Jerry and Sarah began to prosper, they would transport wood carvings from another region to undermine their efforts, and distribute the profits among all the talentless dukes and duchesses.

Yeah, Callahan's little venture into allegorical fiction is quite amateurish.

I'm torn on which way to go on this. I do like Free trade and it has many benefits. If someone can produce something cheaper than that's good. Why have a bunch of over-educated farmers tilling a field?

However, if that means China can use forced labor and have little children making shoes for me, then I don't like Free trade.

I think there's a balance that needs to be reached. Some common standards for all Nations to play by. For example, no one under the age of 14 is allowed to work in the production of goods. No one is allowed to work more than a 70 work week. I know 70 hours is a lot, but it has to allow nations to go through their growing pains (just like we did).

With some minor improvements, I think Free trade could be a lot better.

But there is one thing missing...National Defense. A nation that can't build its own tanks will lose in any extended war. Just like the South losing to the North. Everyone knows the South out fought, out thought, and simply just kicked ass. But they were worn down because all they could make is uniforms. All the industry was in the North and this industry is what allowed the North to keep producing the weapons to kill the southerners.

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