I would like to hear an Austrain perspective on the following issues:
How are western workers supposed to compete with cheap slave labour and low environmental standards in e.g. China and India? How can we keep our living standard when we allow the industry to move to China and to subsequently ship the cheaply produced goods back to us?
Is it not short sighted to let the US and Europe get deindustrialized while our industry is prepping up China’s economy and technology? Could this not have been avoided by completely blocking imports from China thus forcing the industry to keep producing in the US?
I think the first question to ask is ‘Why are companies going to China and India?, Why move their production base away from the biggest consumer base in the world?’
It’s a matter of productivity. Western workers will only be able to compete as long as their marginal revenue is higher than that of Chinese workers. In the case of unskilled workers, Western workers can only really compete if their wages were allowed to fall to market levels. Those who did not want to work with reduced nominal wages would have to find another line of employment. However, there is a side-effect to having cheaper goods available to U.S. consumers, and that is that U.S. consumers can now spend their money on buying other products and services, which opens up a myriad of opportunities for employment in the United States.
This is why protectionism tends to make everybody poorer. Imagine that the United States sets up a tariff to raise the prices on Chinese manufactured goods. As a result, people buy what used to be the more expensive domestic manufactured goods (which are now relatively cheaper, thanks to the tariff), and so are forced to spend more of their paycheck on just those goods. Had they been allowed to buy Chinese manufactured goods at the market price, they would have money left over in their paycheck to spend on something else. The people themselves would have been wealthier, and it would have opened opportunities for even more employment (domestic or international).
If we are becoming “deindustrialized” it’s only because our government has hampered entrepreneurs’ ability to restructure their capital and invest in more profitable areas. China, and the capital that flows to China, should have little bearing on our employment if the free-market was allowed to work. Economics is not a zero-sum game. China does not grow by taking opportunities from elsewhere.
The situation parallels that between when the household made it’s own clothes to when it now buys it from others. It is because of this division of labor that both live in better situations. Just as a person wouldn’t try to make all his own clothes so a nation shouldn’t keep its industry from volutarily going aseas.
Labor demand is a function of labor productivity, which is determined by the plentifulness and complexity of capital (capital combination’s as well). America dominates China in this respect, which is why China has a 24% natural rate of unemployment (unofficially), and pathetically low income per worker.
Blocking cheaper imports from China would only increase our prices, lower goods available to consumers, and generally make us poorer. We had strong a manufacturing base until inflation (stagflation in 70s), unions (experimental negotiation act of 73, for example), and absurd government regulations and antitrust destroyed them (IBM, U.S.S, Standard Oil, ect).
The developing world has a lot of cheap labor, but they don’t have a lot of capital. The capital-to-labor ratio is much higher in the United States, which is why many businesses still find it profitable to operate here. If we wanted to make US businesses more competitive, then we would have to go about lowering or eliminating the following taxes: death taxes, capital gains taxes, corporate income taxes, employer payroll taxes, and other, misc. businesses taxes (e.g. state taxes like the Michigan Business Tax). Another way to revitalize US industry would be to reduce regulatory barriers. Lastly, the US industry could be helped if the Fed promoted saving/investment by not keeping interest rates so damn low all the time. By keeping interest rates low, the Fed has subsidized consumption at the expense of saving/investment, thereby destroying a lot of capital creation and promoting capital-consumption and service-sector industries.
This is somewhat of a complex question. What we should be asking instead is why. Why is it that western workers cannot compete with the labor of neighboring countries. Why are ‘illegal’ immigrants coming into our nation finding employment while ‘legal’ residence are unemployed. Why does american labor cost soo much?
These answers are easily outlined in Economics in One Lesson. Someone has already mentioned this and I strongly recommend you read it over a weekend.
Blocking imports from china would have made us overall a poorer nation. Forcing various types of labor to remain inside of this country with it’s heavy regulations, unionizations, and other factors would have made us incredibly poorer as a nation as well. Trade between various bodies of people is essential. You will best comprehend this with an understanding of the Law of Comparative advantage. Is the US most efficient in producing all classes of goods? Believing this makes the argument that the US produces all goods in superior quality and efficiency. Evidence leads to the contrary. Our goods are produced un-economically and other nations are more effeciently able to produce competing products.
Your questions sound that of a nationalist but I tell you my friend, fascism is not the way to economic prosperity or growth for our nation or others. The law of comparative advantage shows that we are worse off by not trading with other bodies of people. The division of labor does not only apply to individuals but to bodies of individuals as well, I.E. nations.
Also if you are concerned about slave labor, terminating our trade with these nations will make those people far worse off. No one cared about those folks when they lived in straw, bug infested, bungalo’s 10-20 years ago. Now that the US has exported some of it’s labor everyone seems to be ‘concerned’. Whats ironic is that they are far better of now than they were before we outsourced. Also, developing nations won’t become rich overnight. It took the US 100+ years to get to the point where we are today. It’s naive to assume that developing nations will just magically become rich over night. It takes a freely moving economy and quiet a bit of time for capital to build up. Outsourcing work from our nation gives them some of these opportunities. We could terminate this ‘slave labor’ and set those countries back decades economically. Putting them back in their straw huts and banana leaf bungalo’s.
Finally, I strongly recommend, and welcome you, to employ your time with economic research. Get the basics down and many of the ridiculous conservative/liberal arguments will become clearly silly to you. Many of the questions you posed are opinionated fairy tales which are highly unsubstantiated but very well espoused amongst the media and other outlets of degeneracy. Their arguments hold little credibility in the apparatus of reality. They are built upon a plethora of formal fallacies and hold no real weight in credibility, they also reveal their ignorance to those who are well read. Concepts such as ‘slave labor’, in principle, are founded not in economics but from ignorance and emotion. I close with Murray’s famous quote.
How is the western worker supposed to survive if his access to affordable Chinese goods is cut and he has to cough up for the expensive American goods?
How are you going to industrialise by driving up costs for the industries? How is a factory supposed to operate when it can not import cheap office supplies from China, cheap computers fom China, cheap work clothes from China etc, etc, etc?
The private industry. There are extensive writings on these topics.
Roads
Schools
Note: In my research for a debate tourney in 06, I found that private schools cost ~ $2000/yr, while public schools spent just under $8000/yr per student. This is currently; the price of private schools would decline further if there were no public schools due to increased competition. Also note that $8000/yr is comparable to most college tuitions…
Would you agree that the US is nearly bankrupt? So how could blocking trade have had a more negative effect???
I’m not questioning that the chinese are better off today than 20 years ago however, to suggest the same applies to us is a bit strange given the economical situation and the unsustainable trade deficit.
the point about slave labour is the following:
A factory worker in the US needs to earn lets say 30.000$/year in order to be able to afford a somewhat comfortable flat, a car, health insurance, and an occational evening at the movies (things i would consider not too much of a luxury!). A Chinese worker on the other hand is doing the same job for lets say 1.000$. The Chinese worker is happy that he doesn’t live in a clay hut anymore but now can afford a 100sqft apartment without running water. He doesn’t have a health insurance, he doesn’t have a car and never has been to the movies. Sure over the years the Chinese workers will also demand more prosperity for themselves but this may take decades. In the meantime the US worker lost his job, flat, car and health insurance and lives in a tent in the park.
a) in the US you cannot survive (or keep a somewhat acceptable living standard) with Chinese wages.
b) what area should a 50 year GM factory worker move to when he has no other qualification than screwing together car parts?
What you guys are saying sounds good from a theoretical standpoint but imo somewhat ignores the fact that people are not computers that can easily be reprogrammed and redeployed in other areas. The Austrian theory require people to be highly flexible, inventive, skillfull etc. which simply doesn’t apply to >50% of the population.
Again, do you think there are a limited number of jobs in the world?
Yes, I think regulations and licensing laws are extremely short-sighted.
No. This would just result in a black market and higher priced goods for people in the U.S., resulting in much more poverty in the U.S. Do you think poverty is a good thing?
The US gunvernment has been bankrupt for a very long time and the FRNs are slowly evolving into toilet paper, blocking trade would quickly turn the FRMs into mulch. International trade isn’t a one way street, for anything bought another thing is sold, there are no real trade imbalances except for cases of aggression, coercion, and fraud.
Are you referring to the trade of unsustainable FRNs for junk goods?
These are not results of free trade, rather they are symptoms of a society which ate its seed corn.