Trade Adjustment Assistance?

by Don Boudreaux on May 17, 2011

in Other People's Money, Seen and Unseen, Trade

The Washington Post today reports that

The White House is threatening to hold up final passage of three coveted free trade agreements unless lawmakers agree to expand retraining assistance for American workers who lose their jobs because of foreign competition.

Pres. Obama here seeks to subsidize certain workers against the downside of being part of an open, competitive, and dynamic market economy.  Preventing consumers from dealing more freely with foreigners until and unless Congress authorizes such subsidies, however, is economically unjustified because there’s nothing unique about international trade in ‘destroying’ jobs.  Market activity of all sorts destroys some jobs and replaces them with other, usually better jobs.  More generally, any time consumers change their spending patterns, some jobs are ‘destroyed’ while other jobs – often far more difficult to identify than are the jobs that are destroyed – are created.

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s?  Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers?  Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

Or maybe Uncle Sam should have kept the Beatles and their recordings out of America until and unless Congress obliged American taxpayers to pay to retrain second-rate rockers from places such as Tennessee, Texas, and Illinois (not to mention the many poor barbers who lost their jobs!).

Fact is, the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed.

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{ 72 comments }

txslr May 17, 2011 at 2:00 pm

Second rate rockers from Texas? It is to laugh.

save_the_rustbelt May 17, 2011 at 2:10 pm

So Don, you will give up tenure and let a cheaper Asian prof take your job?

Nah. Who would flack for the Koch brothers?

tms May 17, 2011 at 2:14 pm

Give me a break. Universities can already hire professors from anywhere on the planet. As Bryan Caplan points out, it is one of the few industries that has open immigration and full competition.

Pfloyd May 17, 2011 at 2:46 pm

And Bingo was his name-o!

Sam Grove May 17, 2011 at 2:26 pm

Sound argument…NOT.

Everybody with a discerning mind will learn all they need to know about you from your cheap shot.

Don Boudreaux May 17, 2011 at 2:44 pm

Do you have only cheap shots? I’ve spoken in favor of – and written in favor of – unconditional free trade since I was an 18-year-old student at Nicholls State University. Do you suspect that I was being paid then to speak out in favor of free trade? Do you think that, say, the Koch brothers (or their 18th-century Scottish equivalents) are the reason that Adam Smith wrote so powerfully in favor of free trade?

For the record, I believe that I have NO right to have my job protected against competition from anyone, whether they be from Asia or from Arkansas.

I welcome reason objections from you, but will – after this reply – ignore you if all you have to offer in response to what I write are baseless, cheap accusations that contain not substance but ignorant innuendo.

W.E. Heasley May 17, 2011 at 3:20 pm

Googled “ignorant innuendo”. Sure enough, 1,267 matches to Sam Grove. Ah, the evil of it all!

Dan May 18, 2011 at 2:39 am

Rust belt is the problem………Ha……how uncanny…….in the US the rust belt is the tether tied to the US economic growth……holding it down.

Ken May 17, 2011 at 2:52 pm

Rust,

Ah yes, the gratuitous invocation of the Kochs. What evil sons of bitches they are to support:

1. decriminalize drugs,
2. legalize gay marriage,
3. repeal the Patriot Act,
4. end the police state,
5. cut defense spending.

All positions which have been defended here at the Cafe. More importantly, why don’t you flack for these positions?

Regards,
Ken

Don Boudreaux May 17, 2011 at 2:57 pm

Ken,

Indeed. Protectionists – having no intellectual (or moral) arguments that withstand the slightest intelligent scrutiny – must resort to name-calling, innuendo, half-truths, and special-pleading in order to get heard.

Joshua May 17, 2011 at 4:09 pm

I find it odd that economists generally don’t support a free unencumbered labour market. Those with intelectual property and capital can take advantage of free trade, those who seek rent from the sweat of their brow are confined to a geographical area.

Joshua May 17, 2011 at 4:12 pm

The beatles find a way to ply their trade anywhere, a machinist can’t generally take a job in Toronto.

Ken May 17, 2011 at 5:10 pm

Joshua,

This comment makes no sense. A machinist can do his job in Toronto as well as he can in Dallas, the same way the Beatles could play in London just as well as in Tokyo.

Regards,
Ken

Joshua May 17, 2011 at 5:18 pm

It makes no sense? I have no legal right to move to another country unless that country gives special permission and I pass through their immigration system, which takes years and years IF permitted in most cases. Toronto is in Canada. If you don’t have Canadian citizenship, you are not welcome to work there.

Ken May 17, 2011 at 5:30 pm

Joshua,

“It makes no sense?”

No. You claimed that “The beatles find a way to ply their trade anywhere, a machinist can’t generally take a job in Toronto.”

Are you claiming musicians don’t have to follow the same rules as machinists?

Regards,
Ken

Joshua May 17, 2011 at 5:38 pm

Unsure. I would doubt if the same rules apply to someone performing as someone who would like to take a permanent job. In fact I’m sure you don’t need citizenship to perform in any country, so some careers, like being a university professor, are more mobile than others. Therfore there is no free labour market for workers to enjoy.

Ken May 17, 2011 at 6:06 pm

Joshua,

“I would doubt if the same rules apply to someone performing as someone who would like to take a permanent job. ”

Being a musician isn’t a permanent job? I’m sure Paul McCartney would disagree.

Also, I don’t think you know what you mean when you say permanent. Reading over this thread, I get the impression that you think there are a fixed number jobs per sector. For example you think there are X number of machinist jobs in Toronto and for a new machinist to get a job in Toronto another machinist must lose his job, i.e., you think there are a fixed number of jobs and they are zero sum. This is completely wrong.

“In fact I’m sure you don’t need citizenship to perform in any country, so some careers, like being a university professor, are more mobile than others. Therfore there is no free labour market for workers to enjoy.”

I don’t know of any job (except for government or gov contractor work) where citizenship is required. Hell, even in the Navy you don’t need to be a US citizen. On my ship, there was a Canadian citizen, an Irish citizen, and five or six Philippine citizens. And no, not dual citizens and not integrees (a person in a foreign military being stationed in the US military to acquaint them with the inner workings of the US military) from other countries. I’m talking about actual US naval personnel who are NOT US citizens.

Regards,
Ken

Joshua May 17, 2011 at 6:58 pm

How would the US not be flooded with foreign workers like from Haiti or wherever if it were legal? Is it merely to reside in the US that one needs citizenship? I think you are wrong. And the machinist thing, no, that is not what I mean. I mean a vacant job in Canada must be filled by a Canadian unless the company has a temporary worker permit. They must advertise the job for a set period of time before applying for this. I know this is the case.

Ken May 17, 2011 at 10:08 pm

“How would the US not be flooded with foreign workers like from Haiti or wherever if it were legal?”

If what were legal? Hiring non-citizens? Of course it happens all the time, as you point out calling it a “temporary worker permit”. In fact, it is possible to be a PERMANENT resident of the US and NOT be a citizen. This what a green card is.

“Is it merely to reside in the US that one needs citizenship?”

No. You do not need to be a US citizen to reside in the US as I stated above.

“They must advertise the job for a set period of time before applying for this. I know this is the case.”

I don’t know too much about Canada, but I would be shocked if they didn’t have the equivalent of a green card system, meaning there are permanent Canadian residents who are not Canadian citizens. The “case” you seem to “know” is likely a figment of your imagination.

Now if you’re trying to argue that it should be easier to move in and out of the country for purposes of work, I agree, as I’m sure Don and Russ would because you are wrong that “economists generally don’t support a free unencumbered labour market” when the majority of economists argue for just that. In fact, Robert Whaples showed that “90.1 percent DISAGREE with the position that ‘the U.S. should restrict employers from outsourcing work to foreign countries.’” [emphasis mine].

In other words, you are woefully ignorant.

Regards,
Ken

Joshua May 17, 2011 at 11:12 pm

I’m not arguing againt outsourcing. Nor am I advocating open borders, just pointing out that perhaps this whole notion of freedom and the efficiency of markets is a bit of an idological construct that suits certain individuals with their own agendas.

Ken May 17, 2011 at 11:52 pm

Joshua,

“… this whole notion of freedom and the efficiency of markets is a bit of an idological construct that suits certain individuals with their own agendas.”

Freedom and liberty are by and large taken as self-evidently good. Would you rather be in chains, a slave to someone who would deny you freedom? How do you define good? Do you define it through coercion or through cooperative acts done by free men and women, i.e., freedom? Or do you see yourself as a slave owner, thereby hurt by the fact that you cannot own men or women, but are forced to deal with them as equals and thus cooperate towards common ends, rather than force them towards only your own?

What is efficiency, but being able to do more with less? Is it bad that the majority of humans now have more food than ever before rather than living at subsistence levels as humankind has done for most of its existence? Is it bad that it now takes 2 men to feed 100, whereas before it used to take 98?

Who does freedom serve? It serves the common man and releases those who lived under the boot of government force, or the force of other institutionalized by government, for much of humankinds existence. In other words, those “certain individuals” who are served by the “notion of freedom and efficiency of markes” are those who used to be serfs and slaves, the majority of mankind.

What kind of sick and depraved person are you who derides the notion of freedom? What kind of pervert are you who wishes that mankind would toil away their lives working harder for less?

You are a disgusting person.

Regards,
Ken

Joshua May 18, 2011 at 6:00 pm

Give me a break, I’m a democrat, not Hitler.

Tom May 17, 2011 at 8:17 pm

Let’s not overlook something though Don….Ken does his fair share of name-calling!

Methinks1776 May 17, 2011 at 8:24 pm

Yes, but that’s not Ken’s argument. He actually puts forth arguments which stand up to moral and intelligent scrutiny. That he is also pretty good at identifying idiocy when faced with it just indicates he’s paying attention.

Ken May 17, 2011 at 10:16 pm

Tom,

I don’t see Don defending my name calling. And I call it like I see it. You’re an idiot. You’re an idiot for putting forth idiotic arguments.

That is NOT what ad hominem is. Since you seem confused as to what ad hominem is, allow me to explain. Ad hominem is attacking the person, not the argument. In other words saying your arguments can be discounted because you are an idiot is ad hominem.

Let me know if I’m going too fast for you. I know it’s tough for someone as stupid as you. It’s okay to ask questions. I know you don’t know too much or understand logic too much based on your foolish comments here at the Cafe, but I’m more than willing to point out your idiocy. I take pleasure in it. Idiocy like you displayed in the comments of “If Only Wal-Mart Would Start Supplying K-12 Schooling!”

If all I did was call people names, I would get more flack from people here than I do.

Regards,
Ken

PS: Grow up and get thicker skin. It’s time to act like an adult if you are going to address the adults.

Peter McIlhon May 18, 2011 at 1:25 am

To be fair, there are better ( albeit less fun) ways of pointing out that someone is wrong other than calling them an idiot. It’s like how swearing in a rated ‘R’ movie is supposed to make the dialogue more intense. It’s sort of shameless.

Ken May 18, 2011 at 2:33 am

Peter,

When dealing with obvious trolls who aren’t interested in learning or even the content of the blog, I am shameless in abusing them any way I can. I usually don’t cuss, but am pretty liberal with abusive terms, which they deserve.

Tom is a proven troll, equating government action with compassion and declaring the markets heartless. Both assertions are obviously and provably false.

Then there is Joshua, a special person who thinks that the idea of freedom is “idological [sic] construct that suits certain individuals with their own agendas.” Only a depraved person wouldn’t recognize freedom as the primary driver of man’s climb to prosperity, shedding the shackles of poverty.

Regards,
Ken

John V May 17, 2011 at 5:22 pm

Bad answer. Try again.

You made no argument….just a snide idiotic comment that makes you feel good while avoiding the point.

John V May 17, 2011 at 5:27 pm

BTW, Rusty,

I would gladly respond to your tripe more at Econ View but I sometimes get my comments deleted for pushing issues in a civil manner…let alone for making any comments that come even close to your tone here.

Consider yourself lucky that you can post BS like this here and still be able to read it within a few minutes.

Dan May 18, 2011 at 2:36 am

Give up??? Let???

They would have to out compete him or out bid. And, if they did, Don would seek employment elsewhere, or become self employed…I am sure. THE STUDENTS WOULD BE BETTER OFF SHOULD SOMEONE FROM ASIA OUTCOMPETE DON (I don’t need to preface this with explanation do I?) . IS BASIC ECONOMICS SO HARD TO UNDERSTAND??????

tms May 17, 2011 at 2:11 pm

I seem to remember that one of Russ’s guests on Econtalk suggested the need for this kind of program, arguing that it is much better than the alternative of cutting off trade completely. Does anyone remember who that was?

tms May 17, 2011 at 6:30 pm

It was Robert Frank, but he wasn’t necessarily advocating trade adjustment assistance, just saying that it hasn’t worked.

“Start thinking then: I’d like to pinpoint particular people and ease the pain for them–very difficult to do in a public policy setting. We’ve done a terrible job of that in the trade area–trade adjustment assistance hasn’t helped very many people, and trade clearly has effects on individuals’ lives. Either for political or practical reasons, we’ve not made everybody winners.”

http://www.econtalk.org/archives/2010/11/robert_frank_on_1.html

Chance May 17, 2011 at 2:15 pm

Just so long as the good citizens of the world are ok knowing that they may in fact have to move globally to find work, I find no reason to see having this type of social safety net.

That is, information and knowledge may easily transport across many thousands of miles but manual labor certainly doesn’t.

Joshua May 17, 2011 at 4:05 pm

People aren’t free to leave the country to seek work except under rare circumstances. Anti immigration Americans are making sure of that.

Ken May 17, 2011 at 5:39 pm

Joshua,

What does immigration have to do with leaving the country? I think you are confusing emigration with immigration.

Regards,
Ken

Joshua May 17, 2011 at 6:02 pm

People aren’t legaly free to leave Mexico to seek work in America except under rare circumstances. The reverse is also true. Anti immigration Americans and Mexicans are making sure of that.

Ken May 17, 2011 at 6:26 pm

Joshua,

You said “People aren’t free to leave the country to seek work except under rare circumstances. Anti immigration Americans are making sure of that.” and now have changed it to “Anti immigration Americans and Mexicans are making sure of that.”

Glad you recognized you were wrong to say anti-immigration Americans are responsible for keeping people from leaving the US.

Regards,
Ken

Sam Grove May 17, 2011 at 2:29 pm

That is, information and knowledge may easily transport across many thousands of miles but manual labor certainly doesn’t.

Except for location specific services such as digging holes, framing houses, and other personal services, assembly labor doesn’t NEED to travel; that’s what trade enables.

Chance May 17, 2011 at 4:03 pm

You highlight a great point, I don’t know what to do about a society where it’s certainly not possible to have everyone employed in knowledge based endeavors because sadly, not everyone is knowledgable and not everyone could be even if they wanted. Maybe I’m over-thinking it and in a proper free market world there would forever and always be enough manual labor jobs located where someone wanted to be for the “non thinkers” such that their lives too can be meaningful.

I guess what I am getting at is somewhere in here it seems like we (the United States) are forcing either by accident or by purpose those that aren’t in the knowledge/information side of the economy to go where their manual labor is valuable, and if that just so happens to be under a dictatorial regime or a society that isn’t as great as our own, oh well, they should learn to be more intelligent.

Dan May 18, 2011 at 2:43 am

Rigorous Manual labor should be in decline in the US. That is one way to measure a higher standard of living. The machines or tools do the heavy lifting for us. Thank you Washing Machine. Thank you Fork lift…..conveyor belts….. cars……..pickup trucks……. hammers…..electric saws…..ect,….etc.,……..etc.,……

We now have more time for other endeavors or leisure……

Dan May 18, 2011 at 2:45 am

Maybe we should legislate away the automatic elevator operations…. Thats a job for someon to operate the elevator……. someone to put gas in the vehicle…..legislate away the legality of pumping your own gas……….Oh, wait…..Oregon has done that.

DG Lesvic May 17, 2011 at 2:35 pm

Another of your tape-measure jobs.

yet another Dave May 17, 2011 at 2:39 pm

…the many poor barbers who lost their jobs!

:-)

Matt May 17, 2011 at 2:45 pm

I almost accepted a position at a trade adjustment consulting firm, which helped guide companies through the process of applying assistance funds. The pay was incredible, but I’m not sure if I would have been able to sleep at night. Talk about a rent seeking activity.

W.E. Heasley May 17, 2011 at 3:14 pm

“Fact is, the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed.”

Apparently, it always before-breakfast with the White Queen at this particular White House.

The particular standards of a particular group [the daily six impossible things] creates an increasingly determined enemy of the current political order (paraphrased from The Road to Serfdom, F.A. Hayek).

BonnieBlueFlag May 17, 2011 at 3:23 pm

Don’t feed trolls like Rustbelt.

The federal government has no constitutional authority to subsidize the “retraining” of displaced employees. Exercising such authority gives the federal government power over the reallocation of economic resources, specifically where Americans are employed. Whatever the federal government decides the temporarily employed should learn – knowing Barack’s priorities, probably “green-collar” nonsense – will be less efficient than what the market would demand they learn in the process of creative destruction. Without these subsidies, the market – meaning the multitude of individuals making decisions to produce, consume, save, and invest – would have reallocated the temporarily unemployed to their new most productive endeavor. As trade opens between economies, comparative advantage presents new opportunities for all sides. With the subsidies, Washington D.C. will distort the reallocation to suit political rather than economic ends.

Joshua May 17, 2011 at 4:02 pm

There are 8 million fewer jobs since Dec 08 and a larger population and (potential) work force. If jobs destroyed are replaced by better ones (I’d disagree citing the rise of the starbucks and massages economy) it seems to take an awfully long time to do so. Older folks with few skills and, I’d say a somewhat more limited capacity to learn new skills, aren’t finding any work at all.

Methinks1776 May 17, 2011 at 4:35 pm

The sun is hot. Snow is cold. Chocolate is various shades of brown. Florida tends to be warm. What do these things have in common with your comment? All are true or mostly true and none of them have anything to do with anything in Don’s post.

Joshua May 17, 2011 at 4:41 pm

I’m saying job training and if necessary retraining is as necessary as primary and seconday education. Also, I’d say when the economy is in this type of shape there simply won’t be enough jobs to go around so a) more stimulus and b) more jobless benefits

Methinks1776 May 17, 2011 at 4:49 pm

Oh, I see. So, you’ve put the full force of your light intellect behind not only the idiocy Don already addressed but also behind a whole set of other stupid things based on a list of non sequiturs. Thanks for clearing that up.

Don Boudreaux May 17, 2011 at 4:55 pm

There are always enough jobs to go around. (Wanna paint my house?) What aren’t sufficiently abundant are opportunities to earn income – an insufficiency caused not by the fact that people have no demands to satisfy but, instead, by (1) the time it takes for entrepreneurs to adjust their employment of productive inputs (including labor) to new, more sustainable uses – that is, uses more in line with genuine consumer preferences and underlying resource scarcities; and (2) government policies (and expectations of such policies) that obstruct entrepreneurs’ capacity to read market signals correctly and entrepreneurs’ willingness to take risks.

Restricting international trade is an imbecilic means of promoting jobs; it’s one of the first responses that strikes those who are most unschooled in economics. Such a response makes no more sense than would, say, a policy of preventing people from buying used cars or forcing each family to eat out at a restaurant at least twice daily or requiring every household to buy a new American-made air-conditioning/heating unit every six months.

Jobs are easy to create by diktat; prosperity isn’t.

John V May 17, 2011 at 5:28 pm

So what happens when people lose their jobs to domestic competition and jobs leave the area?

Joshua May 17, 2011 at 5:31 pm

They get jobless benefits and retraining until they find another job.

Methinks1776 May 17, 2011 at 5:36 pm

Josh, you make less sense with every senseless comment.

Who do you think pays jobless benefits? They people who create jobs. So, you effectively want them to pay for people to be unemployed. Such a great plan I can hardly stand it.

If they haven’t yet found another job what the hell are you retraining them for? What if you train someone to be a receptionist and the only jobs open are for auto mechanics? Ooops. Another planning failure.

The news flash is that if I find a person intellectually suited for the job an he’s willing to learn, I’ll train that person as part of the cost of doing business. I don’t need you to retrain (read: “mistrain”) them for me.

Joshua May 17, 2011 at 5:41 pm

Can I please, please, please work for you? I’m just playing devils advocate on here. What would my politics have to do with you hiring me anyway? I’m in school for finance. PLEASE? How about when I graduate? I’m not dumb, I can learn I promise…

Joshua May 17, 2011 at 5:42 pm

I’m being serious, I work at a restaurant. Please?

John V May 17, 2011 at 5:51 pm

How many people actually go through some jobs retraining? I have never witnessed it myself or known anyone who goes through this tax-paid retraining.

People lose jobs every day for a variety of reasons. They obviously all aren’t “retraining” through some public assistance program. Most just pull out the classified and find another job.

Mind you, of all the things government could do on free trade, jobs retraining is the least that worries me. If more for jobs retraining were part of a radical unilateral free trade agreement with the world that abolished tariffs on imports and got rid of underhanded ploys to keep capital from moving overseas, I’d take it.

Joshua May 17, 2011 at 6:00 pm

I’m not sure how it works, but it isn’t planning anyway I’d assume. If I got a bursary or loan for school, I’d decide how to use it, and what skills to learn.

Methinks1776 May 17, 2011 at 6:02 pm

Well, it’s impossible to tell if you’re serious, but I’d rather take a chance on you being serious and be played for a fool than tread on you if you actually are.

Josh, your politics would have nothing to do with anything. If they did, I would have fired my FINOP ages ago. In fact, if you were a Marxist drag queen with questionable hygiene habits I would hire you and keep you as long as you were smart and made me money. But, I’ve fired, not hired people over the past two years. We have no professional track entry positions available while we wait to see what fresh hell the SEC will crash on our heads and which businesses it will kill next. Our business has been contracting – and not because of competition but because of politically motivated regulation.

I feel for the folks coming out of school now. If you’re interested in trading and you’re good at math, I can suggest a few places that might be interesting to you – they are always recruiting.

Joshua May 17, 2011 at 6:23 pm

Please suggest. jljoshlee3@gmail.com if you like. It would be very, very apreciated. I have 2 years to go, but I would definately hold on to that and maybe do some research on them. :)

Dan May 18, 2011 at 2:47 am

MeThinks is brilliant……what a lucky man your husband is…….or unlucky.depending on how you use that brilliance……… evil manipulator………..

Frank33328 May 17, 2011 at 4:36 pm

So is a tariff better (less bad) than a subsidy for retraining. If the subsidy is time bounded, then it would seem the lesser of the evils.

Don Boudreaux May 17, 2011 at 4:40 pm

Neither is appropriate or justified.

Dan May 18, 2011 at 2:49 am

Why would any be needed?

Frank33328 May 18, 2011 at 9:19 am

I am not claiming that either is appropriate, justified or needed. But unfortunately, the lever marked “perfect candidate” is missing from my voting booth. So my question was one of degrees of bad. I read many years ago, I believe in a book by Henry Hazlitt, that it would preferable to put people on relief than to pass bad policy that would keep them employed. (I am paraphrasing so please pardon the translation.) So since a subsidy for training is a form of relief, is it preferable (though still bad) versus the alternative of a tariff? Or was Hazlitt wrong? Or did I misread or misremember what I read? Or am I just in water too deep for my knowledge?

dsylexic May 18, 2011 at 2:40 am

retraining is necessary.but it cannot happen by fiat.the govt has no clue,in general,what jobs are going to be in demand tomorow. such shallow thinking seems justified when people think in terms of aggregates as “worker”.there is no generic worker.there is a pizza delivery boy,or magician or used car salesman or bond trader.those who lose their jobs should,like any of us who has lost jobs, network,search on the internet,be flexible about moving to different states (alas,one of my weaknesses which kept me unemployed for a few months when i was 25).your family or friends will surely help you.dont hope or expect the govt to train you .they dont know what to train you for any more than you or me.

juan carlos vera May 18, 2011 at 7:31 am

I think every madness that Obama President do, leads him to an inexorable defeat in 2012… In good time so be it…

Kendall May 18, 2011 at 12:21 pm

This is a general question on the benefit of trade. All of the examples I have seen on comparative advantage show how even if China has an absolute advantage in shoes and t-shirts (assuming those are the only two products available) the USA would have a comparative advantage in one of them and both countries would have a larger combination of shoes and t-shirts by specializing in the item they have a comparative advantage in and trading. Doesn’t this assume there is always a need for more items? What if China can produce enough shoes and t-shirts for every person in both countries to have 50 pairs of shoes and 50 t-shirts. Specialization might allow them to have 60 of each but who needs 60 t-shirts? Wouldn’t it be cheaper to just have China make all the t-shirts and shoes at their absolute advantage? Thanks for any help.

dsylexic May 18, 2011 at 10:54 pm

who needs 60 t shirts? next what? who needs 1000 shoes? ask my wife. point is:demand and supply will be in sync,if the market is allowed to work .you dont have to worry if 50 is too much or too less.choices are individual.what housing is enough for me is barely the size of the garage of a billionaire.or i spend 100 times a day what some poor people earn in an entire year.

Kendall May 19, 2011 at 1:48 pm

dsylexic,
I don’t think I made my question clear. The demand for an item doesn’t go to infinity if the price is zero. If you give away free water at a park you will have some left at the end of the day if you start with enough. If China has enough labor to make all the t-shirts and shoes demanded at a price of zero does comparative advantage still work?

Eric Hammer May 19, 2011 at 7:17 pm

I think your confusion stems from the fact that you simplified in one spot in your example, the number of goods, without simplifying in another, the amount of goods demanded.

In practice, there are effectively limitless goods and services to be demanded, even if any set of goods has finite demand even at price zero. So while people might top out at 4 pairs of shoes and 10 shirts a year, any money they save due to low price will shift to buying cars, books, food or whatever.

So yes, more IS always better, but more of what is the question. Comparative advantage still works, as workers shift to make other things, possibly entirely new things. To bring it back to your example, if China is the best at making both shoes and t-shirts they can make both, and the US can make something else like electronics, cars or movies.

Bennett M May 19, 2011 at 6:59 am

What happens when a Korean losses his or her job because of cheaper manufacturing in China? Same question with regards to Colombians and Panamanians? Have we heard of urban blight (as in Detroit) happening in Korea? How ’bout a tour of the slums of Bogota?

Frankly, I’ve got no interest in living in any of those locales, given the way human life is treated.

But I did think of America differently. Until corporate greed permeated and corrupted every institution in America.

We must retain programs that allow transitions when corporations turn their back on their workers.

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