Dakota Beacon

Yesterday's post, "Are union bosses and liberal politicians who whine about 'lost jobs' being dishonest or just clueless?" generated an interesting response from a reader who wrote,

Everything that we buy pretty much comes from China with rare exceptions. I suppose Ford is still in business, but computers, televisions, phones, radios, toys, utensils, and pretty much everything else is manufactured overseas and sold back to us.

A curious perspective. The reader was clearly expressing frustration. But let's set the record straight. As the table below shows, China is the number two exporter into the U.S., behind Canada. Furthermore, China imports only 19% of the total goods (in dollar value) that we buy from outside of our borders.

2009 trade figures. All numbers are billions of dollars.

As the table shows, America imports about 50% more than we export. The mistake that our reader might be making is a common one. Exports do not reflect the total manufacturing capacity of a country, but only that portion sold outside its borders. America's manufacturing machine produces far more today than it did in the past. Most of the output is consumed by Americans.

The reader gets to the meat of his concerns over my approving of job destruction.

The way I see it is that in other countries, they treat people like slaves. They work them 80-100 hours a week and pay them next to nothing. If we want to compete with them then we must accept drastically lower standards of living, i.e. our standard must decline to their level. We must accustom ourselves to working longer hours, for less pay, and live in slums. I don't want to do that. Call me lazy, but I would rather have Americans building American goods in America, using American labor, and selling those goods to Americans. How does an American company, using Chinese labor, building televisions to sell in India benefit Americans? It benefits the corporation, but since when did we actually start accepting the legal lie that a corporation is a person? It's a reification: nothing more. The only Americans that outsourcing our manufacturing jobs benefits are the people who own stock in the company, and that stock is internationally fungible, so...if we want to continue to share our wealth internationally, until our money has all drained into India, Singapore, and Taiwan, then let's keep doing what we're doing.
 
... So, what am I missing here?

I have no intention of attacking a reader's position. Let me focus on his question. What is he missing in the way that he has laid out the problem?

The visceral reaction that most people have to seeing local jobs disappear and then reappear in other countries is perfectly understandable. But like it or not, reality is reality. The brand of economics that spurs the strongest long-term growth and produces the most prosperity for everyone is free-market capitalism. In other words, capitalism that is un-tampered with by "protectionist" zealots who want to "save American jobs."

Let's further investigate yesterday's arguments and address the reader's concerns.

There's a critical truth that must be understood in order to have the motivation required to see through the "lost jobs" fallacy. And here is that truth: American manufacturing capacity and output have grown--repeat, GROWN--in the last decade. From economist Mark Perry:

It’s true that the U.S. has lost more than 5.5 million manufacturing jobs in the last ten years, from more than 17 million jobs in 2000 to fewer than 12 million jobs in 2010... And yet during that same period, manufacturing output (data here) actually increased by more than 5%, from $3.1 trillion in 2000 to $3.26 trillion (measured in 2005 dollars) this year...  On a per employee basis, manufacturing output per worker increased by more than 50%, from $182,000 in 2000 to $278,000 this year...

Union bosses and liberal politicians who think that forcing manufacturers to keep 5.5 million unneeded employees would benefit America are using "logic" from an alternate reality. Such an emotional reaction drives American companies out of business. What would be the point?

Presumably to "help" growth along a bit with political meddling.

But economist Don Boudreaux reveals something important by examining America's 19th century economic growth. Boudreaux observes that...

…economic intervention ... was--while not non-existent--quite minimal by today’s standards. The resulting freedom fueled dynamism and creativity and opportunities for investment that, in a country as large and as otherwise open as the United States, resulted in substantial economic growth.

I find another of Boudreaux's arguments particularly convincing.

…if protectionism worked for the U.S., would each U.S. state have grown wealthy—or wealthier—had each state protected its domestic suppliers from not only non-American but from out-of-state competition? Highly doubtful.

Boudreaux's question is devastating to the "lost jobs" fallacy. Then again, it may not be long before some California liberal pushes for tariffs on everything sold inside the state but not manufactured by in-state companies. Boy, that'll solve their problems.

An applicable analogy to the "lost jobs" fallacy appeared in Richard Epstein's blog at Forbes.com. Federal regulations prohibiting lenders from foreclosing on defaulted home mortgagees keeps the "homeowners" in houses that they can never own in the same way that you and I own things--by having fully paid for the things. The idiotic regulations are having horrific side-effects. Epstein points out,

Some economists see a silver lining in this short-term chaos. Their view is that letting debtors remain in their homes will revitalize failing neighborhoods, inducing new buyers to enter that market... It is wishful thinking to believe that deadbeat borrowers can generate a housing renaissance.

The parallel to the "lost jobs" fallacy is stunning. If we rephrase Epstein's last sentence to fit the trade war mess perpetuated by job protection schemes, here's what we get: It is wishful thinking to believe that uncompetitive companies will generate an American manufacturing renaissance.

Putting America's future in the hands of liberals and union bosses who live in denial of the need for manufacturers to improve productivity and reduce costs would be like going into the Louisiana swamp wearing a mosquito net and expecting the alligators to leave you alone.

An American company's decision to close down a domestic operation and moving the operation overseas must be understood for what it is: a healthy business decision that keeps profits in America. What is so hard about this simple truth that liberals can't figure it out?

If companies keep money-losing domestic operations open, then no profits, no growth, and shrinking jobs are the results--guaranteed. If companies close the doors on domestic losers and open overseas winners, then profits flow back to American companies, who plow money back into the American economy. This keeps the doors open on support businesses that would have closed down had the protectionist union bosses and liberal politicians gotten their way.

Also, with the old jobs gone, technology improving, productivity continuing to rise, and inventors inventing--all financed by money flowing into the economy from continued profits--new jobs get created, many of them service sector jobs, to support the inventions.

Since the beginning of this thing which humans call "industry," the natural progression has been for jobs to originate in a high-cost place of origin, usually where the product being built was invented. The jobs eventually end up in a low-cost manufacturing operation somewhere else. This is an economic truth. One can pretend not to see, but one cannot avoid the truth--not for long.

The American free market has been operating with staggering success for two centuries. Over that time, the American economy has been the fastest-growing economy that the world has ever known. We've had the fastest-growing prosperity in the history of civilization. The free market made it all possible. And the darned thing runs best when left free.

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© 2010 Chuck Rogér