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Originally posted by Skeks in the city
Homeland Insecurity
By STAN D. DONNELLY
Barron's Editorial
March 28, 2005

HOW MANY TIMES HAVE YOU HEARD an economist say that he believes in free trade, because "if you produce what you're good at producing and another country produces what it's good at producing, both countries will be better off?" This distillation of David Ricardo is an economic article of faith, but it's a shortsighted policy for our country.

The free traders would have us believe that China is good at work that requires a content of manual labor. But is that so? The fact is that they aren't good at manual labor, they're just cheap. The economists are misusing Ricardo's theory of comparative advantage.

This article is so stupid I don't know where to start. The first stupid thing he says is that when it comes to economics, economists don't know what they are talking about. It is kind of like someone saying: “when it comes to architecture, architects don’t know what they are talking about. Let me tell you how to build a building.” If this idiot knew anything, he would know that one of the comparative advantages Ricardo’s cites is access to cheap labor.

Originally posted by Skeks in the city China's cheap labor has nothing to do with China's manufacturing expertise, nor with any innate natural resource blessings.

This is the classic straw man argument. No one economist I know has every made this argument. China’s comparative advantage for now, is that it has cheap labor. However, that will change as the economy grows. Then it will gain other comparative advantages and will develop and then they will have to turn to other countries for cheap labor.

Originally posted by Skeks in the city Instead it has everything to do with a bloated population starved for work. At a wage rate of less than 50 cents an hour, with no benefits or social protections of the sort that we have evolved, there is nothing free about this trade on either side of the ocean.

There is no doubt that the Chinese benefit from this. The worker that has no job, now gets fifty cents an hour. That places him way above the rest of the Chinese. In America consumers get products for cheaper, freeing up more money that can be used in other parts of the economy creating more jobs other places. In our case more service jobs. Both countries experience more economic growth and the standard of living in both countries increases.

Originally posted by Skeks in the city Free traders heartlessly assert that costs are costs, however they are derived. So ask them this: "If free trade means that a society is better off by sourcing its manufactures in low wage areas, regardless of the reasons why the wages are so low, what is wrong with trading with a nation who can offer the cheapest labor of all, slave labor? At those prices, wouldn't we be even more better off?"

WRONG. The point of free trade is that both sides benefit. Slave labor is a market distortion. A slave laborer’s wages don’t increase when we buy products created by them. When we buy products from China, the demand for labor increases, thereby increasing the wages for the laborers, thereby increasing their standard of living.

Originally posted by Skeks in the city the free traders would reply -- with justifiable indignation -- that such a thing would be immoral. Of course, they are right. Except that they now have admitted that costs are not just costs. Morality does have something to do with the equation after all. So let us ask the question again: "Is it moral (or even wise) to eliminate the manual-labor jobs of an evolved nation and disrupt its vital economic balance and social health?"

Yes - if elimination of the manufacturing jobs leads to a higher standard of living for the nation, and makes our economy more efficient. The reduction of manufacturing jobs does not disrupt its economic balance and social health. When the US started like 95% of the jobs were in Agriculture. As our economy evolved, these people switched to manufacturing, but when that happened everyone said “hey the loss of Agricultural jobs is bankrupting the nation”. No it led to a more prosperous nation and a higher standard of living. In addition, there is no such thing as an “economic balance”. Economies are constantly changing and reshaping. There is no balance. You either adapt or die.

Originally posted by Skeks in the city At its distilled essence, the wealth of a society is created by those people and corporations that make something from nothing. You've got to mine it, make it, or grow it.

Most of the new wealth is created by organizations that create nothing tangible. They just create or organize information. That is why our society is called an information society.

Originally posted by Skeks in the city Manufacturing is directly about 20% of our economy; the other 80% depends on that wealth-generator. Some today scoff that our new "service economy" doesn't need this 20%. A caution: Even though your bones are only 20% of your body mass, without your skeleton, you're a puddle.

WRONG – The two sectors of our economy that are growing the fastest are entertainment and software. In reality, these businesses make nothing tangible. All they produce is information that can be reduced to bits and transferred across a wire. Our economy no more depends on the 20% manufacturing jobs, than it depends on the now, 3% of workers who are in Agriculture.

Originally posted by Skeks in the city we must not fool ourselves that the bargains that we are seeing in China are any bargain at all.

Last time I was in Costco I saw a lot of bargains.

Originally posted by Skeks in the city nor should we fool ourselves that we can innovate and educate our way out of it. We already have a generation of millions that have flunked in our government schools. Whatever the reason is, they're here now, and more are on the way. What are we to do with them if their minds cannot be their salvation? What is wrong with letting their hands do the job instead?

Nothing is wrong with letting them use their hands, but if the means of saving manufacturing jobs for these people is depressing the Standard of living for the average American and the average Chinese, the cost just isn’t worth it. We could have kept this country a 95% Agricultural country, saving all those farming jobs, but would the country really have been better off?

Originally posted by Skeks in the city Manufacturing today may be in much the same position as agriculture a century ago, when more than half of Americans worked on the land, making food. Today, it's about 3%. Most of that reduction was justifiably due to agricultural and mechanical innovation. But where did all those farmers go? They and their descendents were absorbed by a growing industrial economy that made things. So as farming went out, fortunately, new maker industries were coming in. The farmers and their descendants took up jobs that were in a known but unexpanded sector: Industry and manufacturing.

Exactly – and now all those jobs are moving into the service economy.

Originally posted by Skeks in the city interestingly and ominously, in the ensuing century Americans have not discovered any radically new methods to make things.

What about software? Biotech? Are you kidding me?

Originally posted by Skeks in the city Whether it's metal molecules or plastic polymers or a tree's timber, for all of the improvements and refinements we've made, we're still making things in essentially the same ways as we always have. But today, unlike in the days when the farmers left the fields, there are no new emerging and substantial maker-methods realistically in sight. So when their jobs are transferred to foreigners, where will our current makers go and what will they do?

We keep losing manufacturing jobs yet we have the lowest unemployment rate in the world and the highest standard of living for a country our size. The current “makers” will go into the growing sectors of our economy.

Originally posted by Skeks in the city This is the gamble at the heart of free trade policies: Free traders are betting with a blind faith that because in the past a burgeoning maker industry took up the slack during another maker-segment's contraction, a new one will somehow appear in this time of need and save the day. But 2.1 million manufacturing jobs have been lost in America in about three years.

We have been losing manufacturing jobs every since the end of WW II. The economy has prospered. What makes this idiot think things won’t continue the way they are. The less we depend on manufacturing jobs, the better off our economy is.

Originally posted by Skeks in the city what is the definition of a successful society? The business of business isn't everything. But it can effect everything. Can we honestly say that a society is successful that has driven its working-class folks' wages down to developing-nation levels? This is where we are heading. And we are all to blame. It is insidious.

Where before we drove everyone away from farming, into higher paying manufacturing jobs, we are pushing everyone into higher paying service jobs.

Originally posted by Skeks in the city Unemployment is not spiking up suddenly: The laid-off makers have generally taken lower wage service jobs.

Low wage service jobs? This is such the old stupid mantra. As if service jobs only came at McDonalds. Most of the service jobs are information service jobs – consulting, advising, etc.

Originally posted by Skeks in the city But as we enjoy those low China-made prices, like the slowly boiled frog, we do not feel the gathering danger. And while our leaders should see it, explain it, and lead us from temptation, the workers of America who are snapping up those China-made Wal-Mart prices are just as guilty. It's an awful circle that is slowly tightening into an unseen spiral.

Luckily many of our leaders, at least in the Republican party, see that free trade always brings short term pains to a few, but brings long term permanent gains to the country as a whole.

Originally posted by Skeks in the city Efficient and cost-effective organizations are forged on the crucible of good, hard competition. Competition is the mother of invention and the sister of efficiency -- but 50 cents an hour above slave wages has nothing to do with either.

Wrong – 50 cents an hour is exactly what the whole system depends on .

Originally posted by Skeks in the city Redressing unfair competition is not new, un-American, or anti-capitalistic. Standard Oil and Ma Bell were predatory and Americans used the power of government to restrain them. Is the militaristic dictatorship in China something less?

Monopolies were distorting markets. The overwhelming majority of Chinese labor is free and paid, and therefore not distorting markets.

Originally posted by Skeks in the city There are two ways to deal with the problem. First, recognizing the inherently impossible nature of the United Nations, where all sovereign nations -- including brutal dictatorships like China -- are considered legitimate, we must form a free-trade union of only the truly democratic nations.

Here the focus should be on free market nations not Democratic nations. There are Democratic nation that do not have free markets. India was that way for over forty years after WWII. We need institutions that insure that economies remain free. Like I don’t know, say the WORLD TRADE ORGANIZATION.

Originally posted by Skeks in the city And for those outside of that union who wish to do business with us, we need to create a simple and transparent tariff system that is adjustable.

Those countries outside of the World Trade Organization have to deal with higher tariffs. The TWO multilaterally enforces free trade policies.

Originally posted by Skeks in the city It would be like a golf handicap system. As you get better, your handicap goes down. What's par for the course? Here in the United States shooting par includes paid holidays and vacations, OSHA and EPA regulations, worker compensation and unemployment state-mandated insurances, hefty business, personal, and property taxes, 14.5% social security tax, time and a half over 40 hours per week, and a $5.15 minimum hourly wage. That's par for the course in America. And on our course, China should have a 36 handicap and accompanying duty. But as China develops, then, like an improving golfer, its handicap will drop. This is a handicap-tariff system that is fair, flexible, and feasible.

Yes – a unilateral system is really going to be fair. I really want the US Congress to decide what other countries are doing is fair. Wouldn’t a multilateral institution be better, one like, maybe - THE WTO.

Originally posted by Skeks in the city We are living in a lull. At present, the former makers are taking lower wage jobs, which is only masking the coming unemployment and disposable earnings problems. In time, people will be unable to afford even those cheap Asian prices Wal-Mart offers, and when that day arrives, so will the whirlwind.

This free trade is not free: Sooner or later, it will cost us dearly.

Yes – Free trade will lead to a higher standard of living for China and us. Thirty years from now some idiot in China will be talking about not sending their manufacturing jobs to Myanmar and Vietnam.

It is articles like these that remind me why I am such a staunch Republican. I would much rather be in a Party with all the arch Social Conservatives than with the moron that wrote this piece.