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.
U.S. RAISES TARIFF FOR MOTORCYCLES
By CLYDE H. FARNSWORTH, Special to the New York Times
Published: April 2, 1983
WASHINGTON, April 1— In an unusually strong protectionist action, President Reagan today ordered a tenfold increase in tariffs for imported heavyweight motorycles.
Reagan and tariffs save Harley-Davidson.
That is a very good point - I'm sure I get them mixed up as the message is free trade is capitalism has been the mantra from the right for as long as I've been paying attention. GATT, NAFTA and it would have been TPP if not for President Trump.
Something have changed that change the dynamic of market and that has been the gains in productivity and access to technological and other knowledge at almost no cost due to the internet.
With automation and the cloud JIT scaling in both physical and financial dimensions dynamically dramatically increases manufacturing flexibility in terms of variety of products and quantity.
As time goes on more and more micro factories are coming on line (you should see my garage), allowing local producers to potential displace outsiders. Specialization in local production will occur - all over the world coops will form
Instead of the state having the means of production or the trader in the form of corporations it will be small groups of individuals controlling the factories in most cases families - people with garages/outbuildings/barns.
The way we make a market based economy should increase liberty by empowering citizens if the government protects the borders and interests of citizens - it all starts there. Until we have secure borders we will have:
“Calling people luddites for recognizing our national borders and interests is a Democrat/communist tactic. “
Yup.
And it’s kinda funny how conservatives are for “a strong defense” yet refuse to defend our economy, which, is under vicious attack from OPEC, China, Mexico, the Koreas, etc, etc.
“That is a very good point - I’m sure I get them mixed up as the message is free trade is capitalism has been the mantra from the right for as long as I’ve been paying attention. GATT, NAFTA and it would have been TPP if not for President Trump. “
Totally agree, back in the day, I fell for NAFTA hook line and sinker: Free Trade=Capitalism=Good.
I was wrong, Ross Perot (the nutcase) was right
“The way we make a market based economy should increase liberty by empowering citizens if the government protects the borders and interests of citizens - it all starts there.”
Totally agree.
And Tariffs are “government protecting...interests of
citizens.”
“Instead of the state having the means of production or the trader in the form of corporations it will be small groups of individuals controlling the factories in most cases families - people with garages/outbuildings/barns.”
Sounds good to me. Tariffs don’t interfere with any of those free enterprise scenarios you put forward, they probably they would enhance.
This year [1988], we have it within our power to take a major step toward a growing global economy and an expanding cycle of prosperity: the historic free trade agreement negotiated between our country and Canada. And I can also tell you that we're determined to expand this concept, south as well as north. Our goal must be a day when the free flow of trade, from the tip of Tierra del Fuego to the Arctic Circle, unites the people of the Western Hemisphere in a bond of mutually beneficial exchange.In any case, raising a tariff on a product does not make one a protectionist . . . unless you consider George W. Bush (steel), and Barack Obama (Chinese tires) both protectionists. You don't want to go down that path.
--Ronald Reagan
Well, if one is clamoring for the government to "protect" them, one has difficulty admitting that the government is a large part of the problem.
“In any case, raising a tariff on a product does not make one a protectionist . “
Two points:
1. Reagan put tariffs on Cars, motorcycles, sugar, steel, textiles, lumber, computer chips...nevermind all the quotas he forced on machine tools even clothespins....
2. What’s wrong with being a Protectionist?
I think Protectionism is Great!
Strong military, strong Border Wall, strong tariffs.
Yet, NAFTA was Reagan’s idea (and he even was in favor of a FTAA), and he was instrumental in the formation of the WTO. Like I said . . . you can’t be so selective with your examples.
Fair trade not free trade. If you charge me a 10% tax on every car I export to your country and I charge you 2% for cars we import from your country that is not free trade or fair trade that is us getting screwed over-—again.
Dollar for dollar, even-Steven trade deals and let us beat them through productivity and innovation. But to hamstring yourself right out of the gate is just self-defeating stupidity in which out trade negotiators are PHD’s!
“Like I said . . . you can’t be so selective with your examples.”
Neither can you.
Reagan spoke very highly of Free Trade but as I’ve shown, at times acted like a Protectionist.
Well, at least you admit that Ronald Reagan spoke “very highly” of “Marxism.” [snort]
“Well, at least you admit that Ronald Reagan spoke “very highly” of “Marxism.” [snort]”
Lol, Context is your friend:
I think there’s a yuge difference between Reagan’s idea of promoting free markets (capitalism) around the world during our Cold War with Communism, and Marx’s idea of using Free Trade as a tool to disrupt cultures and speed up the global workers revolution.
Yes, context is my friend! I simply was drawn to your comment that, “Free Traders are essentially Marxists.” LOLOL
“Yes, context is my friend! I simply was drawn to your comment that, “Free Traders are essentially Marxists.” LOLOL”
Ok here’s the context:
“But, generally speaking, the Protective system in these days is conservative, while the Free Trade system works destructively. It breaks up old nationalities and carries antagonism of proletariat and bourgeoisie to the uttermost point. In a word, the Free Trade system hastens the Social Revolution. In this revolutionary sense alone, gentlemen, I am in favor of Free Trade.” -Karl Marx January 9 1848, Brussels
So Marx was in favor of Free Trade.
LOLOL
If only that were true. It has the potential but unfortunately there are humans involved, and they more often than not have no connection to the country the business resides in. Believe it or not cultures seem to be self interested.
Consider that the administration has done the following:
-- Forced Japan to accept restraints on auto exports. The agreement set total Japanese auto exports at 1.68 million vehicles in 1981-82, 8 percent below 1980 exports. Two years later the level was permitted to rise to 1.85 million.(33) Clifford Winston of the Brookings Institution found that the import limits have actually cost jobs in the U.S. auto industry by making it possible for the sheltered American automakers to raise prices and limit production. In 1984, Winston writes in Blind Intersection? Policy and the Automobile Industry, 32,000 jobs were lost, U.S. production fell by 300,000 units, and profits for U.S. firms increased $8.9 billion. The quotas have also made the Japanese firms potentially more formidable rivals because they have begun building assembly plants in the United States.(34) They also shifted production to larger cars, introducing to American firms competition they did not have before the quotas were created. In 1984, it was estimated that higher prices for domestic and imported cars cost consumers $2.2 billion a year.(35) At the height of the dollar's exchange rate with the yen in 1984-85, the quotas were costing American consumers the equivalent of $11 billion a year.(36)
-- Tightened up considerably the quotas on imported sugar. Imports fell from an annual average of 4.85 million tons in 1979-81 to an annual average of 2.86 million tons in 1982-86. Not only did this continued practice force Americans to spend more than other consumers for sugar, but it created hardships for Latin American countries and the Philippines, which depend on sugar exports for economic development. The quota program undermined President Reagan's Caribbean Basin Initiative and intensified the international debt crisis.(37)
-- Negotiated to increase restrictiveness of the Multifiber Arrangement and extended restrictions to previously unrestricted textiles. The administration unilaterally changed the rule of origin in order to restrict textile and apparel imports further and imposed a special ceiling on textiles from the People's Republic of China.(38) Finally, it pressured Hong Kong, Taiwan, and South Korea, the largest exporters of textiles and apparel to the United States, into highly restrictive bilateral agreements. All told, textile and apparel restrictions cost Americans more than $20 billion a year.(39) The Reagan administration has stated several times that textile and apparel imports should grow no faster than the domestic market.(40)
-- Required 18 countries--including Brazil, Spain, South Korea, Japan, Mexico, South Africa, Finland, and Australia, as well as the European Community--to accept "voluntary restraint agreements" to reduce steel imports, guaranteeing domestic producers a share of the American market. When 3 countries not included in the 18--Canada, Sweden, and Taiwan-- increased steel exports to the United States, the administration demanded talks to check the increase. The administration also imposed tariffs and quotas on specialty steel. These policies, with their resulting shortages, have severely squeezed American steel-using firms, making them less competitive in world markets and eliminating more than 52,000 jobs.(41)
-- Imposed a five-year duty, beginning at 45 percent, on Japanese motorcycles for the benefit of Harley Davidson, which admitted that superior Japanese management was the cause of its problems.(42) -- Raised tariffs on Canadian lumber and cedar shingles. -- Forced the Japanese into an agreement to control the price of computer memory-chip exports and increase Japanese purchases of American-made chips. When the agreement was allegedly broken, the administration imposed a 100 percent tariff on $300 million worth of electronics goods. This episode teaches a classic lesson in how protectionism comes back to haunt a country's producers. The quotas established as a result of the agreement have created a severe shortage of memory chips and higher prices for American computer makers, putting them at a disadvantage with foreign competitors. Only two American firms are still making these chips, accounting for a small percentage of the world market.(43)
-- Removed Third World countries from the duty-free import program for developing nations on several occasions.
-- Pressed Japan to force its automakers to buy more American-made parts.(44)
-- Demanded that Taiwan, West Germany, Japan, and Switzerland restrain their exports of machine tools, with some market shares rolled back to 1981 levels. Other countries were warned not to increase their shares of the U.S. market.
-- Accused the Japanese of dumping roller bearings, because the price did not rise to cover a fall in the value of the yen. The U.S. Customs Service was ordered to collect duties equal to the so-called dumping margins.(45)
-- Accused the Japanese of dumping forklift trucks and color picture tubes.(46)
-- Failed to ask Congress to end the ban on the export of Alaskan oil and of timber cut from federal lands, a measure that could substantially increase U.S. exports to Japan.
-- Redefined "dumping" in order "to make it easier to bring charges of unfair trade practices against certain competitors."(47)
-- Beefed up the Export-Import Bank, an institution dedicated to promoting the exports of a handful of large companies at the expense of everyone else.(48)
-- Extended quotas on imported clothespins
“I also find it hard to believe that slaughtered animals are really among the country’s top manufactured products.”
It IS hard to believe, until you drive around the US and see all the empty office buildings, condemned factories and multitudes of people hanging out on street corners, then it becomes a bit more believable... and frightening.
Well maybe not for the taxpayer but..........
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