Posted on 02/07/2017 4:56:55 AM PST by Tolerance Sucks Rocks
It’s well-known among people who bother to learn the facts that U.S. manufacturing output continues to rise despite the reality that the number of Americans employed in jobs classified as being in the manufacturing sector peaked in June 1977 and has fallen, with very few interruptions, ever since.
Nevertheless, some people – for example, the Economic Policy Institute’s Robert Scott – continue to insist that the loss of manufacturing jobs in the U.S. is largely due to increased American trade with non-Americans. Other studies find empirical evidence that labor-saving innovation rather than trade is overwhelmingly responsible for the loss of manufacturing jobs.
Were I forced to choose between these two alleged competing sources of manufacturing-job losses – trade versus labor-saving innovation – I’d go unhesitatingly with the latter. If trade were the main source of American manufacturing-job losses, it would be very difficult to explain the continuing rise in American manufacturing output. But I believe that asking “Are most American manufacturing-job losses due to trade or to labor-saving innovation?” misses the bigger, or a more fundamental, point – namely, the answer to this question doesn’t matter because trade and labor-saving innovation are, economically speaking, identical to each other.
Trade is Innovation
Trade by its very nature is labor-saving. I could bake my own bread with my own hands and my own pans in my own kitchen. But to do so would take more of my own time than is required for me to earn, by teaching economics, enough income to buy bread from a baker. My specializing in teaching economics and then trading for bread saves me some of my labor.
Or I could bake my own bread by using a fancy bread-making machine that sits on my kitchen counter. But I can’t make such a machine myself; I must trade for such a machine, as well as for the inputs – including the electricity – that it requires to produce yummy bread. So it might fairly be said that any bread that I produce in my own home with my incredible bread machine is the result of trade.
Either way – trade with a baker, or my use of the incredible bread machine – I get bread in exchange for less labor than I would have to use to supply myself with bread were I unable to trade with a baker or to use this machine.
What difference does it make if labor is saved by dealing directly with a machine or with another human being?
Recall David Friedman’s report of car production in Iowa (here as related by Steve Landsburg, with emphasis added by Don Boudreaux):
There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.
International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars. Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.
The task of producing a given fleet of cars can be allocated between Detroit and Iowa in a variety of ways. A competitive price system selects that allocation that minimizes the total production cost. It would be unnecessarily expensive to manufacture all cars in Detroit, unnecessarily expensive to grow all cars in Iowa, and unnecessarily expensive to use the two production processes in anything other than the natural ratio that emerges as a result of competition.
That means that protection for Detroit does more than just transfer income from farmers to autoworkers. It also raises the total cost of providing Americans with a given number of automobiles. The efficiency loss comes with no offsetting gain; it impoverishes the nation as a whole.
There is much talk about improving the efficiency of American car manufacturing. When you have two ways to make a car, the road to efficiency is to use both in optimal proportions. The last thing you should want to do is to artificially hobble one of your production technologies. It is sheer superstition to think that an Iowa-grown Camry is any less “American” than a Detroit-built Taurus. Policies rooted in superstition do not frequently bear efficient fruit.
In 1817, David Ricardo—the first economist to think with the precision, though not the language, of pure mathematics—laid the foundation for all future thought about international trade. In the intervening 150 years his theory has been much elaborated but its foundations remain as firmly established as anything in economics.
Trade theory predicts first that if you protect American producers in one industry from foreign competition, then you must damage American producers in other industries. It predicts second that if you protect American producers in one industry from foreign competition, there must be a net loss in economic efficiency. Ordinarily, textbooks establish these propositions through graphs, equations, and intricate reasoning. The little story above that I learned from David Friedman makes the same propositions blindingly obvious with a single compelling metaphor. That is economics at its best."
To repeat an especially important insight: “International trade is nothing but a form of technology.” That is, trade – intranational and international – itself is an innovation. Finding specialists with whom we can profitably trade requires transportation and communication – both of which today are, as it happens, greatly facilitated by advanced machinery. Yet other, less obvious innovations are involved – for example, the supermarket. The organizational form of the supermarket lowers consumers’ costs of learning about and acquiring groceries. (Superstores, such as Walmart, lower those costs even further.) In international trade, the seemingly simple box that we know today as the shipping container is a labor-saving innovation that dramatically reduced the costs of ordinary men and women from around the globe to trade with each other. Ditto the giant, magnificent modern cargo ship.
Our ability to trade is enhanced by technological innovations. Thus, innovations help us to save labor both directly (as with an incredible bread machine on my kitchen counter) and indirect (as with the shipping container that better enables me to acquire goods assembled by workers who live thousands of miles distant from me).
The bottom line is that trying to measure what proportion of some number of job losses is due to innovation and what proportion of those job losses is due to trade is rather pointless: from one valid perspective, all of the job losses are due to innovation; from another valid perspective, all of the job losses are due to trade. But from any perspective, the very fact that particular jobs are lost means that labor is saved.
Republished from Cafe Hayek.
When dealing with protectionist nations, leverage is needed to even the playing field. This can work as a threat or if the nation is not budging on their stance, then real action is necessary.
“Trade by its very nature is labor-saving. I could bake my own bread with my own hands and my own pans in my own kitchen. “
No you can’t. This article conveniently leaves out all the ridiculous regulations, fees, and taxes that shut down thousands of factories and prevents new ones from forming.
Free Traders are essentially Marxists.
Precisely! Trump is using it as a threat more than anything. Take NO option off of the table. That's negotiating in a nutshell.
Have you been to China lately?
I agree with you. The author is talking apples and oranges.
I guess the founders and every generation that followed them until 1945 were Luddites.
Protectionism is not as simple a debate as the purists would like it to be. In theory, free trade is good, but consider steel as just one example:
Suppose the rest of the world modernizes their steel foundries, so that Chinese steel is not competitive, but China can subsidize steel workers for a lower net cost than they can support unemployed former steel workers. China then dumps this cheap steel on the global market to recoup some of the costs of subsidizing those workers to keep their jobs. Ignoring the quality issues with most Chinese steel, should we take advantage of the cheap Chinese steel, to lower consumer costs here, and accept the lost steel jobs in America?
I see some manufacturing jobs, particularly the low-end garment industry, as permanently gone, as they should be. I see other manufacturing jobs as recoverable, and some of those should be returned to the United States. Protectionism is a tricky question based on practical considerations and sometimes subtle details, not just abstract theory.
“Luddites” Way to go Mr. Boudreaux! How to win friends and influence people. He is partially right about advances in technology and innovation leading to increased production but that isn’t the whole of the story.
Further, his analogy of two means of auto production - Detroit (simplistically) and Iowa (grain) - where the grain goes out on ships and comes back on cars is also rather Ludd-ish in nature. It neglects taxpayer subsidies to corporations, entitlement payments to displaced potential autoworkers, and a host of other things.
It’s nice to sit on your keester in a college or university and wax professorially about how the manufacturing world works but the waxing would carry more weight if he ever manufactured anything but words and papers published.
“No, I personally don’t believe protectionists are Luddites, unlike the author, but I do believe protectionist policies will hurt small businesses and consumers by making imports more expensive.”
Let’s just get it out in the open - this is just another article trying to underscore the “Trump is soooo stupid” meme.
Let’s define “Fair Trade”. In my opinion, this is where two countries trade with roughly similar bilateral regulations/limitations.
Sanctions on countries with whom we do not have “Fair Trade” are the only lever we have to achieve “fair trade”, so - let’s remove the “Luddite” moniker from policy with that aim. That’s my read on Trumps trade objective.
Now, lets accept that US regulators put unreasonable demands on domestic production - and lets, for the sake of argument/discussion posit that the regulations are for the “good” of everyone. Shouldn’t foreign producers also be subject to such “goodness”? If not, remove the “goodness” from domestic producers.
No, this article is all about proclaiming the intellectual superiority of all things anti-Trump. Labeling Free, fair trade as the stuff of Luddites is all about the “Stupid Trump” meme that is the last rampart of globalist/big government types that are the only Luddites to be seen on trade, and just about every other issue.
“Free Traders are essentially Marxists.”
So true. Why do they think the dems are all for it? They figured if they crashed the economy hard enough, all the blue collar workers would rise up and take out their enemies for them.
I’m with you on the fungibility of mundane labor.
But, the jobs that are lost that are worth protecting, or phasing out slowly, aren’t (or weren’t) mundane labor—they were skilled.
Clearly the work can move, but the comparative advantage argument says that both sides are better off switching and specializing. But that assumes there aren’t any hidden costs. Look at the deindustrialized parts of the Midwest. Clearly there are some costs that aren’t accounted for in the prices of the various products that have shifted production locale.
“It’s nice to sit on your keester in a college or university and wax professorially about how the manufacturing world works but the waxing would carry more weight if he ever manufactured anything but words and papers published.”
Bravo!
When dealing with complex topics - the easiest (and laziest) thing to do is to simply “remove all variables” and simply declare that your model is correct.
Free, fair trade is a simple concept. It doesn’t require complexity, or name-calling.
” He is partially right about advances in technology and innovation leading to increased production but that isn’t the whole of the story.”
That’s an understatement.
He completely ignores unlimited, unbridled immigration, for one.
Indeed. I was being too kind, actually, and simplified my response as much as he simplified his argument and conclusions.
“...but I do believe protectionist policies will hurt small businesses and consumers by making imports more expensive.”
But it is nice to have a job in order to purchase anything. And you will notice there is no reduction is cost for most items by American companies for items made overseas.
The author still cannot find it within himself to factor into his delusions the fact that American factories have moved out of the country and taken jobs with them.
Ford had intended to take a factory out of the country, which requires employees to operate.
Mexico did not like the fact that Ford canceled its plans for the plant in Mexico. Wonder why, since, in the professor’s world, where the jobs and factories are located matters not one wit. Maybe he should go to Mexico and tell the upset people down there to chill.
Colleges have professors that teach on the internet now. I wonder what he would think if his job were outsourced to an economics professor, say, in India.
Yeah that the thing this is the same argument we’ve been buying for the last 40 years. The world has changed and the other countries cheat and immoral Americans sell out their nations sovereignty and fellow citizens. Free market enterprise is not community killing globalism. Economies serve humanity that have constructed them, otherwise what is the point. This idea that we can either organize the economy around the interests of corporations or the state seems like two sides of the same coin. There are other ways to have free enterprise. I have heard the concepts of a corperation are not even mentioned in Adam Smith’s wealth of nations
The author is committing journalistic malpractice. Luddites are against automation, protectionist are against off shoring. The two things are not related. In the former case jobs are lost to robotics which is good thing in the long run but as long as the factory remains in the USA. In the latter case, jobs are lost due to transfer across international borders which in fact prevents automation because cheap 3rd world labor is still better than spend millions on robotics.
Basically the author is full of < expletive deleted >
A Free Trader is the “useful idiot” of the Marxist.
And yet, manufacturing jobs have exploded in Mexico and China some 1977, and their products are sent here, deflating his globalist argument.
These "professional" economists just throw things against the wall and see what sticks. They are all full of excrement.
Economists are students that couldn't hack engineering....Pseudo science.
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