Source of Desirable Jobs

by Don Boudreaux on June 13, 2009

in Complexity & Emergence, Trade, Work

Here’s a letter that I sent a few days ago to the Washington Times:

Peter Leitner wants Uncle Sam to stop G.M. from selling its Hummer division to China-based Sichuan Tengzhong, LTD., in part because this sale allegedly would be a practice in “forever hijacking scores of U.S. jobs” (“Hummer sale to China,” June 5).  Mr. Leitner is blind to the full scope of the modern economy.

Most U.S. jobs today depend critically on economic openness of the sort that Mr. Leitner decries. Capital from abroad; inputs from abroad; customers abroad; and consumer goods from abroad (that lower prices in the U.S. and so raise Americans’ real wages) – each of these consequences of economic openness plays a large role in creating countless jobs in the U.S. and, ironically, in imparting to all jobs in America much of the attractiveness that makes the prospect of losing these jobs so difficult.

Making America more closed to trade would indeed keep fewer U.S. jobs from ‘moving abroad,’ but it would also make these jobs less worth keeping.

Sincerely,
Donald J. Boudreaux

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{ 29 comments }

dg lesvic June 13, 2009 at 2:28 pm

Prof Boudreaux,

You wrote,

"Making America more closed to trade would indeed keep fewer U.S. jobs from 'moving abroad…"

By raising the cost of doing business in America, it would force more US jobs to move abroad.

Don Boudreaux June 13, 2009 at 3:22 pm

Dear dg –

Thanks, but my point is the straightforward one that less free trade means less foreign competition. The result is indeed fewer existing jobs being 'destroyed' by commerce from abroad.

Consider the extreme case of absolutely no foreign trade. In that case, no job in the U.S. would be 'lost' to a foreign country.

Don Boudreaux June 13, 2009 at 3:22 pm

Dear dg –

Thanks, but my point is the straightforward one that less free trade means less foreign competition. The result is indeed fewer existing jobs being 'destroyed' by commerce from abroad.

Consider the extreme case of absolutely no foreign trade. In that case, no job in the U.S. would be 'lost' to a foreign country.

JPIrving June 13, 2009 at 3:47 pm

These battles never end….

American socialists still have a lot to learn. European social democrat types have known for a while that free trade and foreign ownership simply results in more output from which to steal and buy votes.

Does anyone foresee new protectionist measures in the U.S.? Have any new explicitly protectionist laws been announced?

dg lesvic June 13, 2009 at 4:37 pm

Prof Boudreaux,

Saying that without foreign competition there would be no foreign competition destroying US jobs is like saying that without machinery there would be no machinery destroying US jobs.

Cheap foreign labor is just like machinery, a labor saver and cost cutter, and, in a free market, every job lost to labor and cost saving progress would instantly be replaced by an even better one.

Foreign competition cannot be the cause of unemployment in America, for the foreigners could not tell Americans not to work, not to better, house, cloth, feed, and employ one another.

There is only one logical explanation for unemployment in the US, its own "progressive" policies pricing its own labor out of the market, with or without foreign competition.

But, by reducing the cost of doing business in America, the cheap foreign labor prices American labor back into the market, and not costing but saving American jobs.

point is that in a free market every job lost to

Gil June 13, 2009 at 10:04 pm

Why should better jobs be 'cheaper' dgl? Lower paid work doesn't mean higher standards of living. The only way a low-paid job could be replaced by a high-paid job is if the worker had learnt new and better skills. Besides why should one job necessarily be replaced by another? Why can't workers find themselves scratching their heads as to what to do now as their jobs have been made redundant?

vidyohs June 13, 2009 at 11:02 pm

"The only way a low-paid job could be replaced by a high-paid job is if the worker had learnt(sic) new and better skills.
Posted by: Gil | Jun 13, 2009 10:04:33 PM"

Being ticky tacky about the word high, as in high-paid, Gilhuahua, we only have to look at the minimum wage to see that you are coming in from left field again.

Minimum wage workers do occasionaly get higher pay for the same job, and even new jobs, without learning new skills or becoming better at the old ones.

But, the point is, Gilhuahua, you should not say "the only way" without stopping to think about what you are saying. Sloppy thinking, no kudos on this one.

TrUmPiT June 14, 2009 at 1:56 am

I read somewhere that the major U.S. export to China was trash. I'm glad our trash has a place to go other than into an overflowing, reeking, landfill. Man's desire to turn water into gold has evidently been accomplished by the Chinese in a manner of speaking. They turn U.S. trash into new goods for export. Then the efficient recyling process starts all over again with another infusion of trash into their smoking, polluting factories. They export their smog gratis when it drifts across the Pacific to the California coast. We absord their "free" pollution into our lungs and bodies at incomputable cost. The science of economics used to describe the cost and benefits of free trade is still in flux. And those economists who can only see the benefits of free trade and not the costs, hidden or apparent, are flummoxed and boxed inside the confines of their preconceived ideas and prejudices. An economics redux is needed to prevent more acid reflux on the part of the gullible vox populi. Meanwhile, the influx of trash and trashy foreign made products will continue unabated because money, sex. and 4×4's are all that matters to some of us. The crux of free trade is that it will surely end in a hex placed on humanity and a pall, and unremitting miasma of dreck upon our beloved Gaia.

TrUmPiT June 14, 2009 at 2:15 am

This (follow the link) is what the Indonesians think that their national parks should best be used for: turning them all into capitalist Hong Kongs. Milton Friedman would be proud of them.

http://www.nytimes.com/2009/06/14/world/asia/14borneo.html?hp

dg lesvic June 14, 2009 at 2:18 am

Gil,

You wrote,

"Why should better jobs be 'cheaper' dgl?"

I don't know what you mean by that.

You wrote,

"Lower paid work doesn't mean higher standards of living."

Obviously.

You wrote,

"The only way a low-paid job could be replaced by a high-paid job is if the worker had learnt new and better skills.

Besides why should one job necessarily be replaced by another?"

The one job would tend to be replaced by another because the free market, always tending toward equilibrium per se, always tends toward equilibrium between the supply of and demand for labor.

The new job replacing the lost one would be higher paying, in real terms, because the cheap imports have increased the purchasing power of the dollar and of all wages.

dg lesvic June 14, 2009 at 2:30 am

Outsourcing Saves American Jobs

Cheap foreign labor is not the downfall but salvation of American labor, not the cause but cure for its unemployment.

Foreigners could have nothing to do with it, for they couldn’t tell Americans not to work, not to better house, cloth, feed, and employ one another. Only the law could do that. When it doesn’t protect but leads the attack upon private property, there’s that much less incentive to create it, to invest in business and job formation. When it forces wages above free market, equilibrium, full employment levels, there must be unemployment, with or without foreign competition.

But while America’s own policies price its labor out of the market, cheap imports, reducing the cost of doing business in America, price it back in. So, without them, there would not be more but fewer jobs in America, and lower paying, for they boost the purchasing power of our money and real wages.

From the beginning, industrial labor saving progress has been viewed with alarm. But despite all of the progress since the first warnings, there are many times more people employed today. And, the lesson is still the same, that there is no shortage of work, such that more for machines is less for men, or more for foreigners less for ourselves, but that there is work for all, and that the more help from men or machines, the better for all. Could you imagine ourselves as well off today with the populations of the past, with such a varied abundance from so much smaller a workforce; or, supporting yourself on a desert island, with no help from other men or machines?

Foreigners’ taking work away from Americans is like Friday’s taking it away from Robinson Crusoe, or washing-machines’ from housewives. Should Crusoe have thrown Friday off the island? Should we throw out the washing machines, or “retrain” the housewives?

Such palliatives can only make matters worse. The greater taxation to pay for them adds to the cost of doing business, and the problem, and distracts us from the real cause of it, and the only real cure.

For full employment, there is no substitute for repealing our high cost wishful thinking “welfare” policies and bringing the cost of our labor back down to the levels at which it could all be profitably employed.

K Ackermann June 14, 2009 at 2:40 am

each of these consequences of economic openness plays a large role in creating countless jobs in the U.S.

But we know that is not true. The number isn't countless.

As best as I can tell, it creates jobs mainly that support capital flight. It's one of the reasons why total debt is 330% of GDP.

Some of the new industries that have resulted from globalization are very damaging. Entire corporations have formed which market and facilitate outsourcing. The only way they grow is because they are successful in shipping a far greater number of jobs overseas.

There is a certain core base of jobs that have to remain local. Doctors, cooks, farmers, etc.

Beyond that, where is growth going to come from? Please be specific and tell me what jobs will replace engineering, for instance.

dg lesvic June 14, 2009 at 2:51 am

An excerpt from Sir James Goldsmith and The Trap of Freedom

We do everything we can to cripple the market, and, when we succeed, blame the market, and the usual suspects, the capitalists, Jews, and foreigners.

Why blame the market for the inevitable consequences of interfering with it? And why look abroad for the source of our troubles when it’s right under our very noses? With everything but an outright ban on employment, and “unemployment by choice," how can we blame others for it? Foreign competition is a distraction from the real cause of it, our own war on the market, employers, and employment, and “general agreement" to price labor out of the market.

The problem is not just the nominal price of labor but all the other costs of employing it as well; and not just that American labor costs more than foreign labor, but more than it's worth, with or without foreign competition.

The only limit on America's capacity to consume is its capacity to produce. And the limitations on that are not from anywhere abroad but right here at home, not from “cheap foreign labor” but costly American policies.

Without them, could you imagine unemployed Americans not employing one another, just sitting around starving, without even trying to help themselves?

There is no shortage of land, and certainly not of work. It is not a scarce good such that more for foreigners is less for ourselves. For with everything we get from the foreigners, and ourselves, we still want more. Do you have everything you want? Can't you think of anything the unemployed could do for you, or for one another? If any are actually satiated, it certainly isn’t the millions in poverty or on the brink of it, much less the unemployed, homeless, and starving.

Nobody is dragging the restrictionists kicking and screaming into voluntary, market exchange, social cooperation according to the division and specialization of labor, and the best products and services their money could buy. So, our freedom for it is not their trap. But their restrictions of it are certainly ours.

Sir James and the impassioned opponents of global capitalism might better consider the alternatives, national socialism and global war.

Gil June 14, 2009 at 3:53 am

Why couldn't you two, vidyohs and dg lesvic, not go for utilitarianism? Why should American factory workers who lose their jobs to Chinese workers who will do the same job for less necessarily find mystical better jobs? Or, why should the real income of the average American necessarily be higher than the real income of the Chinese? Is an American necessarily more productive more than the average Chinese? Or did American workers get protection from the global markets that allowed them to stay in low-skilled jobs with artificially-high pay? Should not in an idyllic world the average person's wage be relatively the same across the world? Has not the West had protectionist policies against other nations whereby the West was artficially wealthy in many areas and nations were relatively artificially poor in some areas? If so then when the world become closer to the natural equilibrium then certain Western wages and incomes should fall to their natural places whilst the real wages and incomes should rise in the other nations.

Daniel Kuehn June 14, 2009 at 7:37 am

Not only do I agree completely with your post, but I'm also a little shocked that the person you're responding to is upset that the job losses will be "scores of jobs". It's been a while since I've used such antiquated language, but "scores" still means "20" right??? Haha. Doesn't seem like something worth preventing the sale of the Hummer for! I'm personally wondering why we would even want to keep the division. Does anyone really believe we'll be driving Hummers ten years from now? And if we're not driving them, I doubt anyone else will.

That having been said – it is worth noting that the long term beneficial job effects of trade come with sometimes sharp disruptions in the labor market in the short run. That's no reason for protectionism, but it IS a reason not to pretend that the transition will be smooth and painless.

mandeville June 14, 2009 at 9:25 am

The poorest countries have the highest employment rates as everyone is out in the fields working. This proves that having a job is meaningless in relation to one's standard of living, or a society's overall wealth. Wealth is created by the division of labor. Losing jobs is a sign that less and less labor is required to provide a given product to society. People who lose jobs become free to find new jobs that offer new and better products that didn't exist before and that wouldn't exist if consumers weren't free to ruhtlessly decide who makes what for them and how much they are willing to pay, etc.

If Americans had to make everything they consume, they'd run out of money about have way through the day. They would have to decide what not to buy! Those industries would shut down immediately. Those losing jobs would be re-employed to make the things that we were importing for less money–such as textiles and manufactured goods. Everybody would have a job, but little else.

A father losing a high paid union job discovers that he can't replace his income doing something else, but he's proud of the fact that his nerd son finds computer consulting work for several times what he could make. A soceity can't have it both ways. Consumers decide who gets what.

dg lesvic June 14, 2009 at 10:21 am

The market, always tending toward equilibrium per se, always tends toward full employment, equilibrium between the supply of and demand for labor.

So, when there is chronic, massive unemployment, it could only be because of chronic, massive interference with the market.

Given full employment in the unhampered market, would the fully employed Americans be better or worse off within a world-wide division of labor?

How about within a nation or state or city-wide-division of labor? How about with no division of labor at all, but everyone working in complete isolation from everyone else, like Robinson Crusoe? Could you imagine supporting yourself on a desert island with no help from other men or machines? Wouldn't you be glad to get back to civilization and the help of other men and machines? And if to a city-wide, why not even more so to a state-wide, and, more than that, a nation-wide, and ultimately, a world-wide division of labor?

Jeff June 14, 2009 at 12:03 pm

I just don't agree with this. I understand the theory, but I don't see it reflected in real life. People form governments for some of the same reasons that people form corporations – to advocate for their collective interests.

Foreign markets are largely closed to US labor. The US imports huge numbers of foreign service workers, displacing US workers or driving down wages. US workers are trapped in their domestic market. US workers, especially in the STEM fields, have been decimated by H1b and outsourcing.

Now, outsourcing may be better for everyone in the aggregate. But apparently, it is not good for US workers.

dg lesvic June 14, 2009 at 12:36 pm

Jeff,

Economics is not about what is apparent, but hidden, not the visible but invisible hand, not visible events but the invisible cause and effect relations among them.

dg lesvic June 14, 2009 at 12:47 pm

Jeff,

What is apparent to you is what has occurred within a hampered market, but unapparent what would have occurred within an unhampered one.

Jeff June 14, 2009 at 2:07 pm

What is apparent to you is what has occurred within a hampered market, but unapparent what would have occurred within an unhampered one. (dg lesvic)

I agree. Then outsourcing can hurt American workers trapped in a "hampered market." I'm for free markets, but we're not in a free market. The employment market is arguably one of the most the most regulated and least free.

So, shouldn't we examine the real economic effects in a "hampered market." It's easy to see that US workers, even highly educated ones, even highly skilled ones, suffer tremendously from outsourcing and H1b.

dg lesvic June 14, 2009 at 4:08 pm

Jeff,

I tried to post an answer to you about an hour ago, and, apparently, it didn't take, so, I'll try again.

If you'll reread my comments above, you'll see that my point, whether you agree with it or not, was that cheap foreign imports and outsourcing save American jobs, in a hampered market

Jeff June 14, 2009 at 10:40 pm

dg lesvic, here's what I thought was the main point.

The only limit on America's capacity to consume is its capacity to produce. And the limitations on that are not from anywhere abroad but right here at home, not from “cheap foreign labor” but costly American policies.

Without them, could you imagine unemployed Americans not employing one another, just sitting around starving, without even trying to help themselves?

I thought you were arguing that "costly American policies" hamper American workers in the hampered American market. I suppose you aren't.

I can't see how workers can be unhampered in a hampered market. Please explain. This could help me out a lot. It's an honest problem I've had for some time, and no one here has ever really addressed it.

It could also help me better understand the suffering of my friends and even myself.

[Suffering is a bad word, but I couldn't think of a better one. No one in the US really suffers from economic displacement. If you have a cr, air conditioning, food, a television, a computer --- you ain't really suffering.]

dg lesvic June 14, 2009 at 11:20 pm

Jeff,

All I can do is repeat my main point:

But while America’s own policies price its labor out of the market, cheap imports, reducing the cost of doing business in America, price it back in. So, without them, there would not be more but fewer jobs in America…

What part of that don't you understand?

Gil June 15, 2009 at 2:01 am

"What part of that don't you understand?"

Well, dgl, mandeville hits the nail on the head:

"The poorest countries have the highest employment rates as everyone is out in the fields working. This proves that having a job is meaningless in relation to one's standard of living, or a society's overall wealth."

If U.S. policy is causing "prices to be too high" that means "employers want to pay less than the minimum wage and have to find a country that will provide workers who will work for less than minimum wage". "Bring the jobs back in" – scrap U.S. labour laws and let U.S. workers work for a pittance if they are to make their labour seem cost-effective relative to poorer nations. "There's going to be more jobs" – hooray, people are working for a dollar a day just like in the poor parts of the world!

Eric Hammer June 15, 2009 at 10:15 am

A dollar a day is better than no dollar a day.
Remeber that a 7$ minimum wage really says "It is illegal for you to work if you can't do anything worth 7$ an hour."

Besides, a dollar a day is great when you can live on 3$ a week. The number next to the currency symbol only has relevance when compared to what can be purchased with it.

sethstorm June 15, 2009 at 11:01 pm

Posted by: Eric Hammer | Jun 15, 2009 10:15:09 AM

That's the Third World. It encourages abject and wage slavery, and conditions that were removed from First World nations. Attempting to bring such back would be a net loss.

It does not obligate us to assist them at the cost to us.

Jeff June 16, 2009 at 2:36 am

But while America’s own policies price its labor out of the market, cheap imports, reducing the cost of doing business in America, price it back in. So, without them, there would not be more but fewer jobs in America…

But labor doesn't get priced back in. We import mainly cheap consumer goods, not capital goods. These cheap consumer goods do not reduce the cost of doing business.

In the case of service work, we import both capital goods and consumer goods. Outsourcing returns consumer services. Insourced labor, like H1b workers, displace US workers.

That's why skilled service workers are getting creamed. They have been priced out of the labor market at every level of goods production. Even for the few who remain, they are forced to seek lower paying jobs as the overall supply of labor increases.

This is a bad thing. It's not the fault of free markets. The problem results from:

  • direct and intentional government policies to reduce the wages of STEM workers and reduce R&D costs for US companies
  • the unintended effects of the H1b visa which reduces the bargaining power of foreign workers
  • identity politics that favor hiring "minority workers" over white workers and male workers
  • US monetary policy

That's my take, anyway.

I must admit, my own experiences – for example seeing a talented engineer deliver pizzas for the last two years, something like this (skip to 2:30)- has made me a confirmed socialist on this issue.

Government intervention isn't going to end, so I want government intervention to be on behalf of US citizens not foreign labor.

I also must say, with all respect, how can y'all miss the massive unemployment in the STEM fields? How have you missed it for the last ten years? I don't get it.

dg lesvic June 16, 2009 at 8:44 pm

Jeff,

You wrote,

"cheap consumer goods do not reduce the cost of doing business."

How could they not do so? Supporting yourself is part of the cost of doing business. If you're a business owner, and can support yourself on $100/day without cheap foreign imports and on $50/cay with them, that part of the cost of doing business in America, the cost of supporting yourself, has gone down. And you can now afford to pay that $50 saved to your workers.

Gil,

You wrote,

"There's going to be more jobs" – hooray, people are working for a dollar a day just like in the poor parts of the world!

You're missing the point. Cheap foreign imports increase the purchasing power of the dollar and real wages.

There is no getting away from the fact that the market tends toward equilibrium, and that the market wage is the equilibrium wage, the wage at which there will be equilibrium between the supply of and demand for labor. At any wage level under that, there will be a shortage of labor.
At any wage level over that, there will be a surplus of labor. You cannot wish that away. Ultimately, the market rules, and you either conform to it or suffer the consequences.

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