Out of a job yet? Keep buying foreign

Economics Economics Questions
21

Chapter 11 covers this pretty well, with one weakness: Hazlitt focuses on the money - not on the production. Namely, Hazlitt compares two transactions:

Case A: Without a tariff: A consumer with $30 spends, $25 on a English made sweater and $5 on other US products. The exchange is completed when the $25 spent in England is eventually used to buy $25 is US products. Thus, a total of $30 is, in the long run, spent on US products.

Case B: With a tariff: A consumer with $30 spends, $30 on a US made sweater, and $0 on other US products.

The consumer is worse off in Case B because he only gets a sweater, whereas in Case A he gets the sweater and something else too. But producers in the aggregate are better off in Case B because they have to deliver only a sweater, rather than a sweater and other goods. Of course, exception must be granted to the fact that we can infer the lower price in England means that less labor was required to make the sweater in England rather than in the US.

However, In either case A or Case B, US producers in the aggregate receive $30. Thus, we cannot say the nominal income of producers is reduced in anyway by a tariff. The only way I see to complete Hazlitt’s argument is to realize that production was less in Case B than in Case A. Prices are higher so the real income is less. For with the same amount of money spend, fewer goods were produced.

Is this correct reasoning, or have I made an error?

Thanks

Peter

22

Thanks for your reply. I didn’t so much have in mind the idea of evaluating specific government policies as good or bad in regards to this question. I have been looking for a well written response to the often “moral” argument that US citizens ought to voluntarily choose to buy higher price US goods over foreign goods (e.g. to not buy Chinese goods at WalMart, or to buy a US made vehicle over one that is made in Asia). I regularly encounter those who favor buying more expensive American products over less expensive foreign alternatives - despite the absence of a tariff which compels them to do so. These individuals believe they are being patriotic and doing something valuable for the US economy. I think they are mistaken, but this is a complex issue. As far as I am aware there is no concise article which exists which addresses this topic. If someone were willing to create it, this would be a great topic for a Mises Daily article and a handy reference to share in the future with others.

Peter

P.S. Nevertheless, such voluntary behavior is probably equivalent to a tariff from an analysis point of view.

23

Finally found an answer to my original question. I think a stronger argument could be made, but this is sufficient.

http://www.econlib.org/library/Columns/y2008/Selicklocal.html

24

Economics, Trade Deficit, Government Spending Deficit, Jobs for Americans, and the Buying Power or value of the US Dollar are all interrelated. Each of these principles affect each of the others, and each is very important. These subjects need to be understood by the General Public. Economics is not that complicated. It is interlocked with understandable cause and affect principals of various economic action options that can be totally understood by almost any High School Graduate, and/or most High School Drop outs.

Real wealth and real monetary value is created and/or acquired ONLY when the members of a family (or a nation, tribe, city-state, etc.) plant, grow and/or harvest something of commercial value from the earth, extract something of commercial value from the earth, provide professional services (medical, legal, dental, engineering, architecture, accounting, land surveying, technology, etc.) to others outside of that family, and/or manufactures or constructs something of commercial value that is consumable (or permanently useful for income or rent) and then SELLS, LEASES OR RENTS these items and/or services to parties outside of their family, IN RETURN FOR A NET TRANSFER OF GOLD, CURRENCY OR COMMODITIES from other parties outside of their family into their own family. The members of that family can reflect their real wealth with the accumulation of grain, gold, cattle, jewels, land, buildings, commodities and/or other marketable products for reserve use in times of emergency and/or also to raise the standard of living for the members of that family. US government policies encouraged the US companies to cease making things for US consumption and export in order to generate national wealth, and instead to import these consumer items in exchange for titles to existing US wealth such as privately owned land, hotels, farms, businesses, casinos and other assets located in the USA that were created by previous generations of US citizens transferred to the foreign nations that elected to industrialize and generate wealth by making and exporting consumer items to the USA.

Did the Biblical Jacob squander his assets unwisely and then became hungry when a famine occurred? Did Jacob sacrifice all of his cattle to his god? Or sell his assets for food & wine to have a bunch of parties? Did Jacob burn his tents, grain and other assets as sacrifice to his god? When the Jacob’s family faced starvation, Jacob took his family to Egypt where there was grain stored and hoarded by the greedy Egyptians to insure the survival of Egyptians during times of drought and famine. Jacob and his descendants probably submitted themselves to be slaves of the Egyptians in return for food and shelter. Is the US government repeating these actions?

The US Government only has $11B of gold left in Ft. Knox according to the AP Dec. 21, 2009, 3:44PM, and the US government is continuously allowing our freshly printed US T-Bills, US Bonds, US Dollars and other Securities owned by foreigners to be redeemed by purchasing privately owned land, hotels, farms, businesses, casinos and other assets located in the USA that were created by previous generations of US citizens, before the de-industrialization of the USA, instead of redeeming these currencies for gold from Ft. Knox as other nations do to support the value of their currencies. These existing US located assets are finite, and the industrial nations will stop “loaning back” the US government more and more of their US dollars after the foreigners own (almost) all of the assets that are located in the USA.

The value of the outstanding US debt of 12Trillion in Bonds and T-bills plus $829B in currency equals very little buying power of the US dollar if foreign nations stopped buying our freshly printed US T-Bills, US Bonds, or other US Securities and/or wanted the US government to redeem our currency in gold (just like other nations).

Any family, tribe, country, etc. and its individual members can prosper or become debt ridden in accordance with their industrial behavior, government spending behavior, and/or other economic actions of the leaders of that family.

If any family or nation purchased imported things from outside of their family of less monetary value than the monetary (or otherwise useful value) of the items that they sold and exported to others outside of their family, then that family would have a net positive foreign trade balance of gold, grain, cattle, etc. into that family. Only a net positive foreign trade balance will increase the value of the accumulated real wealth of privately owned assets within that family.

25

Why does the US worker have a job to begin with? That’s the key question. There is no such thing as “American Jobs” because jobs are not something that are owned. They are opportunities. The advantage a company receives by ‘shipping American jobs overseas’ is no different than the advantage they get by shipping ‘Nebraska jobs’ to Arkansas, or ‘New York City jobs’ to Philadelphia, or ‘your’ job to a guy named Jim from the next town over. Your employment isn’t something you own or guaranteed in stone, and moving jobs to those able to do them at a marginal advantage only disemployes labor to the extent that the government acts to stop its reemployment by regulating it into inefficiency. Assuming that a job ‘ships overseas’ and the American worker finds himself finding difficulty getting another gig, a lot of questions come up: what’s he charging wage-wise? What do the local, state, and feds add to that via regulation? Has the well of human want for goods or services which he may be of use in producing run dry?

The answer to the latter question is no, it hasn’t. A job is the opportunity to do something for someone else in exchange for something they’ll give you, usually pay of some kind. There is no shortage of such opportunities, so a foreign worker doing something a US worker used to do may mean the US worker won’t be employed in that specific task and/or by that specific company anymore, but it by no means follows that he must remain unemployed period. The only reason he would remain unemployed period is if he can’t connect with the available opportunities out there for some reason, or because he’s charging way more than his true market value to anyone, either by choice or because the government is lumping a massive premium on his monetary pay in order to ‘protect’ him.

So basically follow these points: a job is not owned and therefore can’t be ‘taken’ by anyone; there is no fundamental difference between losing your job to your neighbor as opposed to a person in another country; what are the reasons then behind the delay in reemployment of labor? Basically people who argue against foreign workers are arguing against the division of labor and conveniently ignoring the many nonmonetary costs of domestic labor that the government creates. And if someone you’re talking with honestly thinks they have some kind of right to sit on their ass and do one thing for the rest of their lives for an ever increasing salary regardless of what anyone else is willing to pay, which many do, they’re probably not worth trying to explain this to anyway. But in the end, there’s no reason why any recently disemployed domestic worker shouldn’t be able to find agreeable work for a similar salary assuming a similar value of product, and thus enjoy the lower cost of goods that resulted from their previously ‘lost’ job.

No reason besides the government of course.

26

Dear Peter:

There is nothing more saddening or devastating than mass unemployment such as existed in countries such as Mexico or Asia in the last century. I have visited Asia several times on Business in the last part of the 20th century. Crime, family abandonment, divorce, selling your own 12 year old (and younger) daughters for the equivalent of about $45 in the 1990’s for 10 years of indentured servitude to the brothels, selling your 12 year old sons to the rug weavers for about the same price, and other bad things increase during these periods of economic difficulty. Our basic industries such as steel, computer chip manufacturing, petrochemical refining, appliance manufacturing, tire manufacturing, automobile parts manufacturing, aircraft manufacturing, textiles, and etc. have been decimated and/or totally eliminated from this country by US government environmental laws and trade treaties.

27

What you say is true. Nevertheless, consumers on a daily basis elect those who will provide the goods and services he purchases. Consumers purchase from competing sellers who may be either domestic or foreign. Their choice of one seller over the other yields an immediate benefit the seller they choose, and the detriment of a “lost sale” to the one they do not choose.

The increase in competence of foreign workers (e.g. via technical knowedge transfer to China/India) increases the value of purchasing from foreign sellers relative to domestic sellers. When consumers turn to foreign business, domestic workers face the prospect of being unemployed or accepting a reduction in income.

But it would, I believe, be an error to jump to the conclusion that domestic workers are made worse off by the increase in productivity of foreign workers.

First, It is the magnitude of production that determines real wealth. Is not the division of labor improved, and the magnitude of production enhanced overall by the gains made in foreign countries? Granted, a domestic work may no longer have a particular job because a foreign worker no fulfills that function. However, the needs of domestic consumers are not less satisfied, and the domestic worker is no alleviated of the burden of working towards a more urgent need, and can engage in a undertaking the work of satisfying a less urgent need of consumers. Now someone will object that the domestic worker now must work for a lower wage, however, this is a symptom of the increased purchasing power of money that Mises well described, and it is not a symptom of a decrease in average real wages of domestic workers.

Second, foreign purchaser obtain domestic currency, and in the long run the domestic currency will return to the country of its origin. The long run effect should be a balance of payments (which may include transfer of ownership of property - e.g. Gerald Spencer’s post). The foreign business ends up purchasing domestic goods, just as well as the domestic business does.

Third, ceritas peribus, the consumer who incurs some marginal cost by purchasing a more expensive domestic product over a less costly foreign product has benefit by the domestic seller at best by the magnitude of the price difference. However, the domestic seller may use the profit thus attained, I do not see how he could ‘amplify’ the gain and in any sequence of long run events benefit the seller by more than marginal cost he incurred. The seller at best could only recover a portion of the marginal expense incurred through indirect effects.

Indeed, the government tax burden destroys domestic wealth, and business is shifted from domestic to foreign in response.

Agreed, I have been a bit redundant above. Mises well pointed out that the wages of a worker rise to the marginal value of his labor.

28

Thanks for your reply Gerald, I agree the government is very much to blame for the loss of domestic industry in the US.

29

Yup. So the question really is not why is X unemployed, but why X is not quickly reemployed, and why his and everyone else’s wages seem to be stagnating. The overall issue that you may be dealing with though is that a lot of people still have this notion that they are somehow entitled to a job, and on their terms only. To such people, explaining to them that they don’t have some sort of ‘right’ to go through life as a drone endlessly doing the same job for the same company for an ever increasing salary, well that isn’t going to fly. 'Cause their daddy and grand daddy did just that. Of course daddy and grand daddy probably were some sort of tradesmen for which there was a relatively inelastic demand in the past, and they probably saved a lot more than they spent, the opposite of most people today, and that’s the real reason why daddy and grand daddy seemed to get progressively better off while junior, surrounded by flat screen TVs and credit card bills, doesn’t seem to be quite as close to realizing The American Dream.