Trouble-Maker on the Charles?

by Don Boudreaux on September 2, 2011

in Myths and Fallacies, Trade

Here’s a letter sent a few days ago to the New York Times:

MIT President Susan Hockfield lists America’s “trade deficit in manufactured goods” as one of our “problems” (“Manufacturing a Recovery,” August 30).

I disagree that specializing in producing services such as neurosurgery, web design, and education – and then exchanging some of these for manufactured goods produced by people who specialize in producing such things as MP3 players, kitchen flatware, and snow domes and other trinkets – is a problem.  But if I’m mistaken and Dr. Hockfield is correct, I wonder if she’s aware of her role in worsening this problem.

Every non-American student who enrolls at MIT spends dollars purchasing, not American manufactured goods, but American-produced educational services.  In consequence, the U.S. trade deficit in manufactured goods rises with every non-American student enrolled at MIT.

If Dr. Hockfield truly worries about America’s trade deficit in manufactured goods, she should impose a moratorium on the admission of foreign students to MIT.

In addition, she can move to close MIT’s Sloan School of Management (whose graduates regularly export their services as business and professional advisors – thereby increasing America’s trade deficit in manufactured goods) and to close MIT’s School of Architecture and Planning (whose graduates produce no manufactured goods and who also sell their services to foreigners and, hence, also intensify the “problem” of America’s trade deficit in manufactured goods).

If Dr. Hockfield is right, then a significant portion of America’s problems are being created right there on the Charles.

Sincerely,
Donald J. Boudreaux

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{ 95 comments }

T Rich September 2, 2011 at 8:59 am

I am guessing that she had never thought of the problem in this way before, because, of course, she and MIT are providing a valuable service – as are their graduates. It is the others that feed themselves and their families by providing services rather than manufactured goods who are the real problem.

Invisible Backhand September 2, 2011 at 4:46 pm
Dan H September 2, 2011 at 4:55 pm

You have way too much time on your hands.

Anderson September 2, 2011 at 9:27 pm

I actually took the time to go to his blog. He is trying to expose the tentacles of the Kochtapus.

Methinks1776 September 2, 2011 at 9:45 pm

Congratulations, Anderson. You’ve finally found a way to work “Kochtapus” into a sentence.

Dan J September 2, 2011 at 11:30 pm

I am guessing that if there is some semblance of truth to her assertion that her solution would be govt interventionism and spending.

Seth September 2, 2011 at 9:21 am

I’m worried that the US doesn’t have enough neuroscientists and college presidents. We need more!

Dave September 2, 2011 at 9:52 am

My first thought after reading this was “this is brilliant.” But after second thought, I’d say it misses the mark. She’s not necessarily arguing against producing services. She just thinks we need more manufacturing as well. She may be wrong, but nonetheless I think this is an unfair critique.

Economiser September 2, 2011 at 9:58 am

Yes, Dr. Hockfield probably would respond that we don’t need fewer services; we need more manufacturing. The nautral response is the classic economics question: “As compared to what?” Economics is the study of trade-offs and opportunity cost. All else equa, we can’t have our current level of services AND more manufacturing. Any increase in manufacturing must come at the expense of something else. Perhals Dr. Hockfield should take the lead and leave her job for a factory position.

Krishnan September 2, 2011 at 10:53 am

Re: Dave – “unfair”? Not at all. She talks about as if there is a crisis in manufacturing without reminding the readers of how we have benefited by doing what we can do best and let the others do what THEY can do best …

As an aside – it is also NOT true that “we do not make anything anymore” – Mark Perry reminds us of how we continue to manufacture all sorts of goods … (mjperry.blogspot.com, “carpe diem”)

JS September 2, 2011 at 11:36 am

I’m not sure what word to use here, Vain? Arrogant? for one person to opine on what one country needs. With all due respect Dave, you miss the mark. The consumers decide what will be manufactured here and abroad, not some academic. Her remark is not only anti-consumer, but illiberal, since in order to realize her desire, the government would have to use compulsion.

If she wants more manufacturing, she should open up a manufacturing company herself.

Ben Hughes September 2, 2011 at 4:32 pm

Setting aside the previously-addressed issue with economics being about trade-offs and not “let’s just have more of everything!” kind of thinking, even along these lines she’s still wrong.

As Don has shown many times before, manufacturing output *is* rising, not just as fast as service-sector output. Any manufacturing trade-deficit reflects this difference, and hence I think Don’s point is spot-on.

Economic Freedom September 2, 2011 at 10:58 pm

@ Dave:

Actually, we need more agriculture — wouldn’t you agree? I mean, back in 1711, 98% of the working population had jobs in agriculture; today in 2011, only 2.7% have such jobs.

Wouldn’t you agree that the loss of so many agricultural jobs from the U.S. has been disastrous for our economy? Wouldn’t a Susan Hockfield in 1911 have written a “brilliant” article for The New York Times exhorting us to produce and export more agricultural goods?

vidyohs September 2, 2011 at 9:58 am

I am surprised that some one as uneducated as I am can see and understand that complete irreversible globalization happened at a minimum of a few decades ago; yet people as educated as Dr. Hockfield and other protectionist, think they can stuff that genie back in the bottle instead of putting their energies into learning how best to live with him.

For someone in Massachusetts, dealing with Indonesia is no more difficult than dealing with Canada or California, and people will naturally go where the deal is the most attractive. Dr. Hockfield, et. al., are dreaming pipe dreams if they think they can reverse that bit of human character.

EDG reppin' LBC September 2, 2011 at 11:13 am

I would like to hear exactly what products these experts think we should manufacture in the US. I mean really specific products. Do they think we should make more autos in the US? Or should we start to manufacture more TV’s, guitars, desk chairs, tennis shoes, and coffee makers? The experts will never get specific, because any product they chose, a foreign country likely has a comparative advantage in manufacturing it. So then rational people are obligated to point out that it is a bad idea to make like products in the US that cost more than foreign made products. It’s bad for consumers, bad for manufacturers, and bad for the US economy. Instead of specifics, we get generalizations. We get experts who want the government to throw (our) money at those generalizations in hopes that it will create manufacturing jobs.

vidyohs September 2, 2011 at 11:37 am

LOL, no you don’t want to make guitars here, ask the CEO of the Guitar Center, who was told he wouldn’t have problems are be raided by the FEDS (family doncha know) if his company just made the guitars in Madagascar.

So many people just can not get their heads around the fact that Don’s favorite theory, comparative advantage, works globally (see comments on global in my above post) as well as locally. If it makes no common sense on the micro level to make something because it can be bought cheaper, then it will never make sense for the macro believers to try and distort common sense through the use of compulsion.

I equate the believers that macro is the more important view with being statist, and when did common sense enter into their equations.

I am the invisible hand, you can not make decisions for me from a foreign base such as Washington D.D.!

brotio September 5, 2011 at 2:51 am

It is worth noting that Gibson is being singled out, while Martin, their chief American rival (whose CEO is a big Democrat contributor) is being left alone.

I’ve always wanted a Les Paul. I just never thought I’d be buying one as a political statement.

kyle8 September 2, 2011 at 2:27 pm

Right! And if somehow increasing American manufacturing were an all important goal as so many of these people claim it is, then there is some things we could do that would help American manufacturing enormously. For instance, get rid of the minimum wage, make all areas of the USA open shop, get rid of prevailing wage laws, get rid of many government regulations, get rid of capital gains and other business taxes.

Something tells me that they would not be in favor of these things.

Matthew September 2, 2011 at 10:04 am

Between Summers and Hockfield, there seems to be a lot of misguided economic views leading the noble educational institutions of Cambridge.

Krishnan September 2, 2011 at 11:21 am

Re: Matthew – Fundamental economic ignorance OR wilfull disregard of facts that contradict opinions is not confined to journalists or even academicians turned politicians.

ccresci September 2, 2011 at 10:41 am

The debate over the worth of services vs. manufacturing seems to miss the the much larger point of economic planning vs. freedom with regard to job creation. This is especially true of Japan who has a large surplus in manufacturing exports but no economic growth due to government interference and the same subsidies that Dr. Hockfield is implicitly championing. The problem in the US is not in manufacturing per se. Rather, it is due to our dysfunctional immigration system that trains engineers, and other high-skill people that are important to the competitiveness of the manufacturing sector, and promptly sends them back whence they came. Combine with this the recent “brain-drain” of engineers going into the finance industry, the subsequent bailout of the banks and the diversion of manufacturing capital to unprofitable “green” energy endeavors and you have a recipe for a hobbled domestic manufacturing sector courtesy of our government.

Invisible Backhand September 2, 2011 at 10:58 am

Every non-American student who enrolls at MIT spends dollars purchasing, not American manufactured goods, but American-produced educational services. In consequence, the U.S. trade deficit in manufactured goods rises with every non-American student enrolled at MIT.

If Dr. Hockfield truly worries about America’s trade deficit in manufactured goods, she should impose a moratorium on the admission of foreign students to MIT.

http://en.wikipedia.org/wiki/Reductio_ad_absurdum

“Rebuilding our manufacturing capacity requires the demolition of the idea that the United States can thrive on its service sector alone. We need to create at least 20 million jobs in the next decade to offset the effects of the recession and to address our $500 billion trade deficit in manufactured goods. These problems are related, given that the service sector accounts for only 20 percent of world trade.” – Susan Hockfield

Seen side by side, Hockfield makes the more compelling argument.

Methinks1776 September 2, 2011 at 11:28 am

If you find it compelling, why are still sitting in your parents’ basement?

Go find capital and invest it in your very own factory. How compelling do you really find her argument if you’re not doing that?

Invisible Backhand September 2, 2011 at 11:38 am

Another witless retort.

Methinks1776 September 2, 2011 at 12:07 pm

You might consider that the reason you’re a fat, middle-aged twit still living his parents’ basement is that you consider the suggestion to engage in productive activity a “witless retort”.

Invisible Backhand September 2, 2011 at 12:44 pm

Steve Martin (comedian) used to have a bit that went:

You can be a MILLIONAIRE and never pay taxes!

Yes, YOU can be a MILLIONAIRE and NEVER PAY TAXES!

First, get a million dollars, then—

Methinks1776 September 2, 2011 at 1:00 pm

Yes, we already know you’re waste of perfectly good oxygen. There’s no need to provide more evidence.

vidyohs September 2, 2011 at 1:32 pm

Other than she makes an assumption about you that could quite likely be true, Methinks1776 is right on the money.

I will paraphrase Ayn Rand this time, “The best thing you can do for the poor and unemployed is don’t be one”.

How about it Dip Stick, are you doing something for the poor and unemployed?

vidyohs September 2, 2011 at 1:33 pm

Other than making a bunch of us here feel really really good about our own individual intellectual ability, I don’t see you as being worth a whole lot or contributing much to the advancement of mankind.

Economic Freedom September 2, 2011 at 11:39 pm

I will paraphrase Ayn Rand this time, “The best thing you can do for the poor and unemployed is don’t be one”.

That’s actually a very profound quip.

*Like.*

ArrowSmith September 2, 2011 at 4:16 pm

Listen dipshit, you just got PWNED. Now you kindly leave and don’t let the door hit your FATASS on the way out.

Stone Glasgow September 2, 2011 at 5:39 pm

If something “needs” to be done, go do it. There is no “we,” except in the imaginations of delusional narcissists who are ignorant of how little they know about what they imagine they can design.

EDG reppin' LBC September 2, 2011 at 11:28 am

So what exactly should we start to manufacture? What is the gaping hole in the US market that is not being fulfilled by domestic manufacturing? Is there a worldwide demand for US products that we are ignoring? Please be specific. If there really is this unsatisfied demand, I would like to know. I would like to put together some VC and make millions. So what product should I look to invest in?

Invisible Backhand September 2, 2011 at 11:36 am

How about domestically produced energy?

EDG reppin' LBC September 2, 2011 at 11:58 am

Domestically produced energy is too general. It is a very large and diverse manufacturing sector. Please be more specific, at the product level.

Invisible Backhand September 2, 2011 at 12:23 pm

What is the gaping hole in the US market that is not being fulfilled by domestic manufacturing?

Domestically produced energy.

EDG reppin' LBC September 2, 2011 at 12:31 pm

Perhaps my original query was a little obtuse. Instead of looking for general manufacturing sectors, I was looking for a more specific, product-level item to manufacture.

HaywoodU September 2, 2011 at 6:17 pm

I think he meant to say domestically produced solar energy imported from the Sun.

Dan J September 5, 2011 at 4:23 am

Domestic energy? Yes! Remove the barriers for harvesting raw materials such as natural gas, petroleum, coal, etc.,.. And then remove barriers for building of plants. No govt billions needed. Done… Case closed…. Next issue.

Bill September 2, 2011 at 12:17 pm

Is energy a product, or a service? I mean you don’t “create” any more electrons. You just move them from point A to point B.

Or are you talking about some specific product that moves/stores energy? If so, what product?

EDG reppin' LBC September 2, 2011 at 12:35 pm

I was thinking that the majority of activity involved in “energy manufacturing” took place in the service industry as well. I am definitely not knowledgeable enough, but I would ball park an 80/20 split between knowledge workers, and “energy factory” workers.

Invisible Backhand September 2, 2011 at 12:39 pm

Is energy a product, or a service?

Your question is too simple to answer- “Is blue a color or a feeling?”

But you can look up the NAICS code for energy here:

http://www.naics.com/search.htm

and see lots of manufacturing.

Here are 10 products not made in the USA

http://www.buzzfeed.com/ashleybaccam/10-iconic-american-products-that-are-not-made-in-t

and here are technologies not available in the USA

http://www.entrepreneur.com/article/179440

I don’t think you care though, you’re just going for the amateur rhetoric.

Krishnan September 2, 2011 at 12:32 pm

Re: Invisible backhand: “domestic energy” – it is always an issue of whether it is cheaper to buy or produce – of course today, the Obama administration has made it all but impossible to drill – Watch Exxon going to Russia to drill for oil because Alaska and the Gulf is effectively closed (please, I do not buy the argument for “pollution” or “leakage”)

Iran, Venezuela and other countries may have oil in their ground – but they rely on us for technology to get it out, refine it … We do what we can do best and get the most for our resources (time, money)

if indeed it makes sense to produce “domestic energy” someone would do it – Why would they deliberately pay MORE to someone else? No businessperson would pay more to someone else just so he/she would not manufacture in this country …

Boeing makes planes in Washington – If we leave it to the Obama administration (NLRB) they would force Boeing to make planes in say China or India (because they cannot make it in South Carolina) – so yea, politics plays a big role

If the Obama administration (EPA) insists on demands that the emissions from coal plants produce no CO2 and ever vanishing levels of A,B, C, D (whatever they may be) – we can then export our coal to china and stop producing power here because it could be very expensive

We do what makes sense – except when distorted by politics and cronyism

Ken September 2, 2011 at 12:54 pm

IB,

You mean the industry that democrats have actively been sabotaging for the last seven decades?

But as always you never fail to not answer the question being asked. What SPECIFIC energy product? Your suggestion is just as vague and no-nothing as Susan Hockfield’s.

Regards,
Ken

Invisible Backhand September 2, 2011 at 1:43 pm

That comment is being ‘held for moderation’. Why don’t you continue this over at my blog?

Ken September 2, 2011 at 2:55 pm

Because I value my time and brain cells. Both of which, no doubt, will be wasted on your blog.

Regards,
Ken

T Rich September 2, 2011 at 4:21 pm

Ken,
Don’t go over there. I made that mistake. There is nothing to continue over there as there is no organization – it appears to be the rantings of a lunatic who is simply documenting the blog posts that he makes but giving them “I kicked ass” titles.

I feel dumber for the visit.

T Rich

And, really, I don’t think comments are held for moderation at this site. Unless there is a stupid meter that goes off on IB’s comments so that someone can decide whether the comment is merely dumb or dangerously stupid.

Ken September 2, 2011 at 5:41 pm

T Rich,

I assumed as much. Have you seen the rabbit hole muirgeo calls his blog. Alice and the Queen of Hearts hang out over there a lot.

Regards,
Ken

Ken September 4, 2011 at 12:40 am

What’s the matter, IB? Cat got your tongue? Are you unable to answer a simple question?

Regards,
Ken

yet another Dave September 2, 2011 at 1:59 pm

You think producing 78% of energy consumption domestically is a gaping hole???????

2003 data from this report:
http://www.energysolution.us/US_overview.html

Invisible Backhand September 2, 2011 at 2:30 pm

Petroleum Imports Drive the Trade Defict:

America’s dependence on foreign oil drives the trade deficit., In 2010, the U.S. imported $252 billion in petroleum-related products, compared to $188 billion in 2009. The number of barrels was about the same, but oil prices jumped from an average of $57/barrel to $75/barrel.

http://useconomy.about.com/od/tradepolicy/p/Trade_Deficit.htm

Slappy McFee September 2, 2011 at 3:06 pm

Looks like we better make it easier for oil drillers to drill and bring crude to market. I don’t think that’s the solution you’re aiming for tho.

yet another Dave September 2, 2011 at 5:33 pm

IB, You didn’t answer the question.

Petroleum Imports Drive the Trade Defict

OK, petroleum products account for most of the 22% of domestic energy usage not produced domestically. Not exactly front page news.

Your previous answer to this question: “What is the gaping hole in the US market that is not being fulfilled by domestic manufacturing?” was: “domestically produced energy”

I then asked you if you thought producing 78% of US energy consumption domestically was a “gaping hole.”

So, do you?

Methinks1776 September 2, 2011 at 6:13 pm

YaDave,

Click on that psycho’s name and you’ll be transported to an electronic version of a schizophrenic stalker’s shrine room. If after getting a disturbing eyeful of that mess you think he’s capable of a single rational thought, please explain to me why you think so.

He is a psychotic loser wallowing in the irrational belief that he is owed something and that Nancy Pelosi is going to extract it from you to give it him. Since you are against enserfing yourself, you are the enemy. He obviously can’t show his face on the street, so he’s desperate to waste your time and energy online.

the wards of prison mental hospitals are filled with deranged slobs like him.

Slappy McFee September 2, 2011 at 11:35 am

Don has noted many times that manufacturing as a percent of world GDP has been steadily decreasing over time. If I remember correctly, his most recent figure was about 16%. That would directly refute Ms Hockfield’s assertion that the service sector only accounts for 20% of world trade.

kyle8 September 2, 2011 at 2:31 pm

“Seen side by side, Hockfield makes the more compelling argument.”

Only if you are economically illiterate.

Invisible Backhand September 2, 2011 at 4:04 pm

How’s your blog doing? Made any posts lately?

kyle8 September 3, 2011 at 8:11 am

how does my blog help the quality of your ignorant argument?

SweetLiberty September 2, 2011 at 3:25 pm

“Rebuilding our manufacturing capacity requires the demolition of the idea that the United States can thrive on its service sector alone.”

Talk about your Reductio ad absurdum! No one I know has even proposed the idea that the U.S. can thrive on its service sector ALONE. This is an ultra-flammable strawman. The idea that we need to create 20 million jobs begs the question – who is this “we”? If you mean government, then I disagree – 20 million public sector jobs is the last thing we need. If you mean manufacturing jobs, then what, pray tell, should they manufacturer other than what the market demands? And should factories ignore technological efficiencies just to employ more people in manufacturing? Do we ignore the fact that manufacturing OUTPUT is up even though fewer people are needed to do those jobs?

Greedy capitalist entrepreneurs would jump at the opportunity to manufacture new products that can make a profit – do you and Ms. Hockfield have special insight into what these products might be? If so, please enlighten the rest of us poor slobs. Better yet, invest your own money and get rich helping to solve the “problem”. Otherwise, clear the playing field, tell the ref to shut up and stop calling plays, and let entrepreneurs do what they do best – fill market demand where ever it should arise whether in the service sector or manufacturing.

LowcountryJoe September 3, 2011 at 9:54 am

You damned well better work in the manufacturing sector or are aspiring to do just that. And any children you may have; I damned sure hope you steered them away from the service sector! If you, yourself, aren’t doing these things; why not?

Jameson September 2, 2011 at 11:24 am

“A new era of advanced manufacturing also requires more graduates with greater proficiency in science, technology, engineering and mathematics.”

The real critique here should be this: if our immigration laws weren’t so absurd, we could have more of those international students who come to MIT actually work here in the US. The idea that government spending is going to miraculously make our workforce more technologically sophisticated is absurd. The most important capital is human capital, and we’re shooting ourselves in the foot with our immigration controls.

Methinks1776 September 2, 2011 at 11:26 am

So, what’s stopping her? If she knows exactly what “we” need, then let her crawl out of her ivory tower, raise capital and invest in a better snow globe factory.

The beauty of capitalism is that if you know just what needs to be done, then you can profit from doing it.

ArrowSmith September 2, 2011 at 4:18 pm

No she wants to use the force of big government to pick winners and losers. That way she can stay in her government funded ivory tower and pronounce judgments on the rest of us.

Stone Glasgow September 2, 2011 at 5:16 pm

It’s obvious that the lack of snow globes in America is an externality that must be corrected government as per her instructions. The key to a healthy economy is wicked smaht people in tall buildings figuring stuff out. Duh.

brotio September 3, 2011 at 5:10 pm

I posed a similar challenge to Yasafi when he proposed that the path to prosperity was 32-hour work-weeks for 40-hour pay. I haven’t heard any updates from our Dear, stupid Ducktor on the progress he’s made in opening a medical (mal)practice group – where all of the staff work 32 hours, and get 40-hour pay.

If this is such a sure-fire path to prosperity, I expected him to jump at the opportunity to prove it to us, but it’s been Yasafi-as-usual:

Quack… Quack… Quack…

tdp September 2, 2011 at 11:33 am

Bastiat’s “Balance of Trade” is appropriate here. For God’s sake, every person in the US should be required to read all of Bastiat’s works and anyone wishing to open their mouth about economics should be made to take a test demonstrating thorough knowledge of his works. It continually astounds me both how brilliantly accurate he is and how so many allegedly educated people can go on believing the deluded fallacies he deflated 160 years ago. Why he is so ignored in modern times is beyond me.

JS September 2, 2011 at 12:13 pm

People were ignorant then too. Most were too illiterate to read Bastiat.

Free trade was originally argued for by merchants who gained from it and, in most cases then, protectionist policies would hinder nations from being able to acquire goods that they weren’t making for themselves. But two factors emerged that changed the course of the debate. As domestic economies advanced to the point where more people were working in factories instead of on farms, and as voting rights expanded to include the general masses, the political demand to protect ‘labor’ from foreign competition increased. The manufacturers knew that in promoting protectionism as beneficial for their own fortunes, they would appear as greedy, so they camouflaged their ambitions by presenting the argument as one on behalf of protecting the working man, etc.

kyle8 September 2, 2011 at 2:37 pm

That is exactly right and is the explanation for why so many people on the political left, who say they distrust big corporations. Are always ready to give those corporations protection and other handouts and benefits.

Stone Glasgow September 2, 2011 at 5:22 pm

No no, we need regulations to keep those evil greedy corporations in line and protect innocent consumers from the cheap stuff they don’t need. Oh and imports are always made in slave-labor sweat shops that abuse innocent workers too.

JS September 2, 2011 at 11:56 am

The Chinese economy is run by and for the benefit of a privledged elite. Currency manipulation and other methods of export subsidy benefit their ruling merchant class at the expense of their underclass. Those policies also benefit their customers who buy their exports, of which we are one. Their elite needs us in order for them to monopolize the wealth of their country, so they share some of he proceeds with us with low prices.

It is absurd to think that because we are freed from manufacturing labor intensive goods, we are economically harmed as a result. Those of you who buy this type of claptrap are ignorant as to how the division of labor works toward the creation of wealth.

Methinks1776 September 2, 2011 at 12:15 pm

Nice.

Creating an ignorant and illiterate population seems to be the goal of the teachers’ unions so that said population is primed for swallowing hook, line and sinker claptrap doled out by our overlords in government. The same Overlords to whom the teachers are beholden.

Slappy McFee September 2, 2011 at 12:41 pm

While at the same time claiming that the private sector is the entity that desires an uneducated populace so they can be better exploited by the greedy capitalists.

JS September 2, 2011 at 2:01 pm

I like the fact that you don’t refer to yourself as “wethinks”.

Methinks1776 September 2, 2011 at 2:46 pm

I’ve considered using the royal “we”, but I figured I’m obnoxious enough as it is.

JS September 2, 2011 at 3:24 pm

I didn’t want you to construe my remark the wrong way. The last topic was about the fallacy of “we” thinking, so it was meant as a compliment.

Methinks1776 September 2, 2011 at 3:39 pm

Sorry about that, JS. I knew what you meant. I was kidding :)

Methinks1776 September 2, 2011 at 3:47 pm

Sorry, JS. I knew what you meant. I was just kidding.

Methinks1776 September 2, 2011 at 9:50 pm

Huh. That’s the first time I’ve ever seen a comment come out of moderation…to create a double comment. Oh well.

kyle8 September 2, 2011 at 2:43 pm

In regards to China, that particular combination of protection of domestic manufacturing along with an artificially depressed currency is very effective if your only goal is growth and you are beginning as a mostly agricultural nation.

They have not been the only ones to use that formula, and for an emerging industrializing nation it does work.

Of course it is unsustainable. When you first get people moving off of farms in large numbers they are happy just to be earning a wage. The manufacturing wages might not be high but they are higher than agriculture.

But after time the wages begin to rise and the people begin to move into the middle class, that is when they begin to notice that their wages never seem to keep up with their buying power. Some begin to notice the perverse situation where the emerging middle class of a poor nation is subsidizing the purchase of products by citizens of an affluent nation.

I predict that China will face so many problems they will be forced to change this policy.

JS September 2, 2011 at 3:28 pm

I agree. They have/had an oversupply of labor. It won’t last forever. Agricultural life there must not have been that rewarding to cause millions to flee to the southern coastal manufacturing regions.

I haven’t studied the reasons for their migration, but I’d bet it had to do with the fact that the peasants weren’t the owners of the lands they tilled.

kyle8 September 3, 2011 at 8:14 am

Perhaps, but China is not unique. Other nations have used this formula when they began to industrialize. Agriculture has been increasing in efficiency since the middle ages therefore it requires an ever decreasing supply of workers for the same output.

Bob Apjok September 2, 2011 at 1:18 pm

shouldnt i be worried about my trade deficit with the grocery store then? they have never bought a single thing from me. I have a deficit of 250/month with them.

JS September 2, 2011 at 2:10 pm

No, according to their logic, the jobs of feeding you are done here, not outside of our borders.

In order to expose the fallacy of their logic, you can take the extreme position and say that if a foreign country gave us all our food for free, would it create massive unemployment and poverty, or merely free up labor and capital to be employed elsewhere, in order to increase the goods and services available to us for consumption?

If your adversary continues to disagree, they expose themselves as hateful misanthropes, longing to bring people down a notch or so until they appear better.

Bob Apjok September 2, 2011 at 2:39 pm

Right, all that is true, but i guess i was just referring to the fact that any 2 people trading, whether individuals or countries, does not create a trade deficit anyway. If i get a good from you and you get money it is not fair to say i have a deficit to begin with. It’s just free markets working to satisfy both sets of people.

JS September 2, 2011 at 3:30 pm

I was in agreement with you, but was just pointing out what your opponents would say.

Bob Apjok September 5, 2011 at 8:52 am

Ah, I got it now. Thank you.

ArrowSmith September 2, 2011 at 4:25 pm

Adverseries being muirbot and Invisible Backhand. Whenever you point out the fallacies in their arguments, they just keep shifting the goalposts.

Methinks1776 September 2, 2011 at 5:20 pm

Arrowsmith, they’re not your adversaries. They’re idiots you toy with to kill time. The can’t move the goalpost. They have no idea where it is.

EDG reppin' LBC September 2, 2011 at 5:48 pm

I’m still pretty new here at this site, so I don’t really know who’s who. But is Invisible Backhand always like this? He hasn’t answered a few honest queries that have been posed here. I just don’t understand what he gets out of coming to a libertarian website if he hates freedom so much? I would understand if he was arguing his side in good faith with cogent arguments. However, based on my observations, I’m writing him off as troll. Backhand, if you read this, please try to bring a higher level of discourse and argumentation. Who knows, we may both learn something?

Stone Glasgow September 2, 2011 at 6:46 pm

There are a few people who seem literally incapable rational thought who have been posting here for years. They don’t seem to care about discussion; they are mostly interested in proselytizing.

Invisible Backhand September 3, 2011 at 12:08 am

I did answer, but the comment was ‘disappeared’. I started saving screencaps after the first time it happened. You can see it here: http://i.imgur.com/gu9yL.png

Come to my blog if you want to discuss it further.

Ken September 3, 2011 at 1:04 am

IB,

Typing in “manufacturing” as a common word on the NAICS webpage yields 7000 results. Of those, which deals with energy and which specific energy products should be manufactured in the US? Are you dumb enough to say “All of them”? If so, what should Americans stop producing? Are you aware, at all, of comparative advantage? Search through the Cafe’s history and you’ll see dozens of posts on it, explained so well that even someone in elementary school can understand it.

None of the products Ashley Baccam mentions have anything to do with energy production or service. You were the on that brought up the energy sector and how Americans should be manufacturing more things geared towards energy. Someone asks you to give specific examples of what you are talking about and you give a list that has baseballs and canned sardines? Are you serious about this discussion or not?

And the third link contains this statement: “But because the profit margins in America are slimmer and the patent laws more complex, some companies decide not to release items here at all.” In other words government interference, AGAIN, makes it unprofitable to build and sell in the US. Why would anyone build and sell anything if they were just going to lose money?

It’s like you don’t understand anything at all.

Regards,
Ken

Brian Vree September 2, 2011 at 10:25 pm

I do not like it when economists talk about needing more or less services, manufacturing, etc. in terms of the USA. The US is one huge free-trade zone of 50 states. Some states will do more manufacturing, some services, some tourism, etc. It would be more intelligent to break down the expressed need to a state or county level. For example, Jefferson County needs more manufacturing. Or Florida needs more tourism. States and counties need to think more like nations when addressing economic development — and the federal government needs to get back to the few powers allowed under the constitution.

Airplane Man September 5, 2011 at 12:08 am

I believe it helps to view the decline of manufacturing in America in terms of Arnold Kling’s concept of Patterns of Sustainable Specialization and Trade. Much of our manufacturing has been lost, not to market competition, but to market distortions. An example from my own industry: With American banks eagerly investing in the distorted housing market, Boeing couldn’t convince it’s board of directors to invest in the design and construction of a revolutionary new airplane, the 787, an airplane that went on to take customer orders faster than any wide-body in history. Instead, Boeing had to partner with companies in Japan, Italy, and, yes, South Carolina, and those partners went on to convince their governments and banks to invest the money necessary to design, industrialize and build the new airplane.
While other Boeing models continue to compete successfully manufactured largely in places like Wichita and Seattle, (the 777 dominates its class and the 737 holds its own against an Airbus design that’s 20-years newer), the 787 program suffered a long delay in certification and delivery due in large part to the comparative *disadvantage* of the global supply chain–a supply chain dictated by the inability to get capital, not superior labor costs, education, or material availability.

Dan J September 5, 2011 at 4:28 am

US Govt. Policies are thee main driving factor behind US companies foreign investments.

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