Thursday, January 06, 2011

Trade is Good

More trade is more good. Restricting trade is bad. It's not complicated. And even unilateral movements toward free trade are good. Reminds me of the way I introduce my talks on free trade: a matching exercise.

China ... USA

1. Which country has the largest amount of manufacturing, by value, in the world?
2. Which country lost the most manufacturing jobs, gross, between 1990 and 2005?

The answers surprise people who know nothing about economics. The answer to 1 is "USA," by a lot.

The answer to 2 is China, again by a lot. Think of it this way: Here is a Chinese manufacturing facility, in 1990...
Here is a Chinese manufacturing facility in 2005...
China lost tens of millions of manufacturing jobs. Just compare the two pictures above, and you know it is true. The automated facility can produce 100 times, or 1000 times, as much output, and do it with fewer workers. But only if trade is possible. Because as Adam Smith brilliantly noted, "The Division of Labor is Limited by the Extent of the Market."

The point is that all factories, all over the world, are "losing" jobs to productivity. Adam Smith called it "division of labor." So while China has increased manufacturing OUTPUT (though not as much as the US!), China is rapidly losing manurfacturing JOBS.

So, to be clear, total US manufacturing is NOT falling. It's going up. Yes, up. We are losing jobs, sure, because we are becoming more productive. Check Mark Perry's graph:

UPDATE: Yes, I recognize that the idea of "gross jobs" is nonsense. I don't disagree with the comments. But when US protectionists talk about "shipping jobs to China" that is exactly what they are referring to. I'll stop when that idiot Lou Dobbs stops talking that way.

Further, remember this: In the Stone Age, unemployment was zero. Our goal is to be wealthy, not employed. Employment is often a means to wealth, but it is not the same thing. As my man Alan A says, "jobs are a COST." Cool.


jeremy h. said...

I'm in full agreement with the sentiment of this post. But the claim that manufacturing employment has declined in China from 1990-2005 is not accurate:

There was a slight increase from 1990-2005, though employment is down from the peak in the mid-90s.

But like the US, the main story in China is increasing output per worker (which is visible in the photos above). Total manufacturing output in China has increased roughly 20-fold from 1990 to the present:

Mungowitz said...

Jeremy, I never said employment fell in China. What I said was that they "lost jobs," the way we count "lost jobs" in the U.S. If a factory automates, then a bunch of jobs are "lost," by that logic.

Sure, of course the total went up. What I'm doing is adding up the total number of gross jobs lost, ignoring the jobs that were created. That's what the anti-free trade folks do in the US: they say look at all the jobs lost to free trade. They don't stack that up against the job increases throughout the rest of the economy.

So, yes, my point is bullshit, from an economic perspective. But I'm just accepting the Lou Dobbs definition of "jobs lost." By that definition, China "lost" tens of millions of jobs by automating.


BR said...

I love this post, especially the "An Inconvenient Truth"-esque pictures and the use of "jobs lost". However, if word gets out that robots er tekin er jobs, we'll be in real trouble.

John said...

Yeah, I was counting on some anonymous commenter busting out the Curse of the Machine fallacy.