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.
We certainly had MORE Protections/tariffs for our economy by 1988 than we had in 1980.
Biggest peacetime economic boom in history.
Taxation does not lead to prosperity.
“Well maybe not for the taxpayer but.......... “
Tariffs could replace taxation:
Prior to 1913 and the implementation of the “income tax” most if not all of fedgov revenue came from tariffs.
With all the tariffs on the books you’d think we raked it in “big time” into the US Treasury. Not true. Tariffs bring in <2 cents on the dollar of imports. 2% big whoop.
“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.”
Strawman argument.
That’s not the claim at all.
The claim is that manufacturing jobs have been lost due to entire plants and industries being relocated outside of the US, taking advantage of what economist Paul Craig Roberts describes as international labor arbitrage.
Not due to “increased American trade with non-Americans”
Sad to see FEE using an argument that has the smell of the Left’s “xenophobia” canard.
““labor-saving innovation rather than trade is overwhelmingly responsible for the loss of manufacturing jobs.”
That would be a great argument if American workers were being laid off as their old jobs were being automated.
But that isn’t what has been happening.
Companies have been closing their American plants and transferring that manufacturing to new plants in China and Mexico. This isn’t automation-caused job loss.
Keep in mind that the trade statistics referenced here are measured in dollars, not tonnage -- and the manufacturing we do in this country involves far more expensive products than dead animals. Just look a typical Wal-Mart store -- filled with imported merchandise -- as a perfect case in point ...
1. A Honda Accord manufactured in Marysville, Ohio has more value than all of the merchandise in any aisle in the store.
2. A John Deere harvester manufactured in East Moline, Illinois is worth more than all of the merchandise in the entire store.
3. A Boeing passenger jet manufactured in Everett, Washington is worth more than the entire Wal-Mart store, all of the infrastructure around it and underneath it, and the land on which it sits.
How many animals do you have to slaughter to surpass numbers like those?
"If President Reagan has a devotion to free trade, it surely must be blind because he has been off of the mark most of the time. Only short memories and a refusal to believe one's own eyes would account for the view that President Reagan is a free trader. Calling oneself a free trader is not the same thing as being a free trader. Nor does a free-trade position mean that the President, but not Congress, should have the power to impose trade sanctions. Instead, a president deserves the title of free trader only if his efforts demonstrate an attempt to remove trade barriers at home and prevent the imposition of new ones."
"By this standard, the Reagan administration has failed to promote free trade. Ronald Reagan by his actions has become the most protectionist President since Herbert Hoover, the heavyweight champion of protectionists."
from the executive summary of a Cato policy paper by Sheldon Richman, May 30, 1988
Teddy Roosevelt promoted the income tax during his presidency. The theory being that it would be “more just” than tariffs (there’s a lesson there, somewhere).
His successor Taft supported a Constitutional amendment authorizing federal income taxes. The amendment was ratified in February 1913, before Wilson took office.
Wilson signed the bill which included the income tax in October, 1913. The top rate being an exorbitant 1%.
The camel got its nose inside the tent.
It's a neat trick: agree with someone (Marx), while accusing those who disagree with you of being Marxists. I blame public schooling.
Is it because they no longer teach economics, or because they do?
Probably because it counters the quotes that you love to post that give the impression that Reagan was a dedicated free trader.
As Sheldon Richman demonstrates in his Cato paper, Reagan’s actions didn’t match his rhetoric. Reagan governed as a nationalist rather than a free trade zealot.
The majority of examples that Richman cites concern Japan, the main problematic trade partner/rival during Reagan’s administration. Reagan wasn’t shy about enacting limits on them. Those who like to cite Reagan’s record would do well to read Clyde Prestowitz, Reagan’s trade negotiator.
Yeah, sure it “counters.” Do you really want me to post more snippets from the Cato paper? And yes, the Democrat majority in Congress during the 1980’s was stridently protectionist. It’s kinda’ funny that folks argue that Reagan was a pragmatist, and then proceed to ignore that he was a pragmatist.
I wish I knew what goes on in our high schools these days. I can only guess that any econ class is taught by a Bernie Sanders supporter arguing that NAFTA has destroyed the U.S.
“Do you really want me to post more snippets from the Cato paper? “
You posted snippets? I could have sworn I was the one who had posted from the Cato paper. Go figure.
Well I certainly don’t have a problem with you posting the report. Dunno if Cato would. Post the whole thing.
” And yes, the Democrat majority in Congress during the 1980’s was stridently protectionist. “
Which had nothing to do with Reagan’s own policies on trade. His policies were in response to industrial targeting, non-tariff barriers, keiretsus, and other anti-competitive policies of Japan. Prestowitz wrote about all this stuff, he was Reagan’s main trade negotiator.
In any case, I'll see your Prestowitz, and raise you Buchanan.
In 1985, Roger had come to the White House to persuade me to convince the president to sign a bill to slow the flood of textiles into the country. No way, I told Mr. Milliken. I'm the biggest free-trader in the building, except for the fellow down the hall, who was Ronald Reagan. Roger went away disappointed. Reagan vetoed the bill. And I supervised the writing of the veto message.
--Patrick Buchanan.
If that’s the case why does China produce twice as many motor vehicles as the United States?
Existing taxes and duties already push up the cost of US imports by 25%, and the new levies make it even more expensive for Chinese consumers to buy American.
Your ChiCom buddies BF us and you go on smiling. One day you may become an American.
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