Looking for Victims

Would you give up your washing machine in order to create jobs? Most people would be puzzled by such a silly question. Prior to the invention of the washing machine, women and children spent several days a week on household laundry. But think about it, if the washing machine was banned, teenagers who are having trouble finding summer jobs could find work doing their neighbors’ laundry by hand. Similarly, adults who have found economic conditions tough could begin hand laundry businesses. Yes, banning the washing machine might create jobs; but does anybody think we would be better off for doing so?

Some politicians might. Recently, on the floor of Congress, Rep. Jesse Jackson, Jr. said:

A few short weeks ago I came to the House floor after having purchased an iPad and said that I happened to believe, Mr. Speaker, that at some point in time this new device, which is now probably responsible for eliminating thousands of American jobs. Now Borders is closing stores because, why do you need to go to Borders anymore? Why do you need to go to Barnes & Noble? Buy an iPad and download your newspaper, download your book, download your magazine.

Please listen to Jackson’s speech here as he attacks both technological advancement and China. Jackson claims that Steve Jobs and the Chinese (where the iPad is assembled) are doing well, while others are suffering because of the iPad. Incidentally most of the iPad parts are not manufactured in China, but the final assembly takes place in China. So what would Jackson propose? Ban the iPad? Tax iPad users? Ban Chinese imports? Subsidize Borders? Of course, in Jackson’s world, it could be any or all of the above. Listening to Jackson, one is struck with the elegance and assuredness with which he utters his inanities.

Jackson asked, “What becomes of the jobs associated with paper?” Answering his own question, he declares, “In the not-too-distant future such jobs will simply not exist.” All new technologies create disruptions. In the 1800s there were many individuals employed by firms who annually harvested millions of tons ice for refrigeration. An ice harvester in 1893 earned approximately a $1.75 a day for his difficult labor. In the 20th century, widespread use of refrigeration ended the careers of ice harvesters. No doubt most simply found employment in new emerging industries, often at a higher pay.  The children and grandchildren of ice harvesters, if they too worked as manual laborers, found their income had increased many fold as a result of technological progress. Regardless of whether or not they went to college, they enjoyed a standard of living that their father or grandfather could not have dreamed of.

To be sure, some workers having specialized skills may have trouble making a transition after technological changes disrupt their livelihood. By the late 1920s Hollywood was transiting from silent movies to talkies. Francesca Miller observes that: “There were many silent directors who, after attempts at talkies, couldn’t or wouldn’t make the adjustment, D.W. Griffith being the most notable but there were others: Rex Ingram, actor/directors like Charlie Chaplin and Buster Keaton and Victor Sjöström being the most notable cases.”

At the time there was no Congressman Jackson railing against talkies, looking for victims instead of focusing on progress. Of course, the choice to channel ignorance is bipartisan. Donald Trump has been threatening to impose a 25% tariff on Chinese imports if they don’t meet his conditions. In late March, appearing on O’Reilly Factor on Fox News, Trump said: “If I decide to run, we are not going to have the kinds of problems we have now because I won’t be taken advantage of by the rest of the world…Twenty-five percent tax on China, unless they behave.”

Appearing with Poppy Harlow on CNN Money, Trump opined that China is stealing all our jobs. Listen to Trump as he belligerently threatens China “as an abuser of the United States.”

Imagine a small town in the United States in 1893; a town perhaps in which ice harvesters lived. Your shopping is limited to the few merchants in the town. Suddenly there is a 532-page catalog from Sears and Roebuck featuring a virtual cornucopia of products at prices you never dreamed of. No doubt that Sears and Roebuck put many a local merchant out of business and seemingly cost the small town economy jobs.

But Sears and Roebuck, like the iPad, created wealth and did not destroy wealth. By making available a wide variety of goods at lower prices, Sears and Roebuck effectively made a given level of income go farther. Now a household could save more, spend more on education, and spend more on other goods of value. This process both increased current wealth and future wealth.

Of course, what was immediately visible was that the local merchant struggled to compete with Sears and Roebuck. The money saved, the money invested, the jobs created because of shifting spending patterns were not as immediately visible.

Would America be better off if iPads were assembled in the United States? Would American workers be driven to suicide by these tedious factory jobs as have many Chinese workers at the Foxconn plant that assembles the iPad? Or, are we better off pursuing careers to develop the technology and software behind the iPad?

Unfortunately, in the days to come, populist rhetoric like we are hearing from Trump and Jackson will become more commonplace. The policies they advocate are dangerous, as they are filled with hate and ignorance.

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11 Responses to Looking for Victims

  1. Mike L. says:

    Overall I am a proponent of free trade; I do feel that the U.S. should take a more mercantile trade policy to increase both our manufacturing base and savings rate. I fail to see how running a continuous current account deficit (along with a continuous budget deficit) will benefit America in the long-run. I’m not a macro-economist by a long shot but I would propose an ‘eye for an eye’ policy with our trading partners. If the South Koreans want to put tariffs on US exports, we should do the same for Korean imports. Professor, thoughts?

    In regards to Representative Jackson’s comments, I believe the only constant in this world is constant change. The progress made in the last 100 years has been profound. It has increased our ability to learn, travel and communicate as well as dramatically increased our life expectancy. A commoner today with high speed internet has access to more knowledge than all of the industrialists of the gilded era combined. The scary thing for me is that Congressman Jackson and many like-minded politicians (from both parties) are able to get elected. I would conclude that although we have access to vast amounts of information, our electorate is remarkably uniformed.

  2. Chris C. says:

    Mike: if the US government follows your prescription for an “eye for an eye” trade policy, soon we will all be blind. The only people hurt by such policies are consumers. The manufacturers who lobby Congress and the congresscritters themselves will gain. “Ordinary folks” will not. If other governments want to harm their populace by limiting their choices, why should we demand to be equally harmed?

    Also, the government plays games with the figures of the trade “imbalance” in that it counts physical products, but not much in the way of services. And, given the propensity of congresscritters to create artificial hobgoblins (thank you, H.L. Mencken) for them to legislate “solutions” to, do you really trust the government’s numbers? Even if they were really able to do so in an accurate and timely manner? The job of an econometrician never ends, because they must not only keep constructing ever more elaborate models, but find ways to convince us that the failure of all the previous models is the fault of insufficient money, computing power, or whatever, and they will get it right *this* time.

  3. Mike L. says:

    I realize that our government plays games with various economic statistics as well as conducts policies that could be described as mercantile (i.e. artificially weakening the dollar, subsidizing certain industries, tariffs, etc). I also understand the concept of comparative advantage and in a perfect theoretical world as described in economics 101, free trade makes sense. However, the world seldom resembles textbooks. Like I said, I’m not an economist but I do know that we cannot continue to consume more than we produce. All I’m saying is if said county wants unfettered access to our market, we expect the same access to theirs.

  4. Lyn says:

    Barry, thanks for your keen insights, once again.

    I fear for the nation, as a former math major, knowing the abysmal quality of math, science, and technology education received by our last several generations of students in US public schools. Don’t get me wrong–it’s possible to rise above what’s presented so badly in textbooks and classrooms–but doing so requires a combination of pretty fierce intellectual independence and some guidance. So we should be creating the technologies that you suggest, but are hamstrung by a broad incidence of functional illiteracy in these fundamental subjects. (There is even a significant gap between the technical understanding of current university graduates in Computer Science and IT, compared to past generations.)

    As a closing thought, the divisive nature of Trump’s and Jackson’s comments and worldviews just perpetuates the “divided and conquered” process that keeps us pointing fingers at each other–across the political aisle, or world geography. In addition to looking for victims, we’re also looking for bogeymen, when we should be tending to making ourselves more skilled, productive and competitive, to the ultimate benefit of all.

    • Lyn,

      I agree with you about our education system and not just in the math and sciences.

      “In addition to looking for victims, we’re also looking for bogeymen, when we should be tending to making ourselves more skilled, productive and competitive, to the ultimate benefit of all.” –Exactly! A student quoted my leadership book this week:

      Our institutions, our organizations, our governments, and indeed, our sport teams can only be external manifestations of what is already in our minds. Many of us live our lives as though we are trying to run out the clock. Instead of using our strengths and risking failure, we employ our weaknesses in a vain attempt to prevent failure. Rather than living through the initial anxiety of accepting the polarities of existence and experiencing an authentic life, we instead employ our own personal prevent defenses.

  5. Chris C. says:

    Mike, being an economist or not isn’t the deciding factor. (I will not present an argument from authority, in any case.) As you have noted, free trade makes sense; your exception, however, is not valid. It always makes sense, as all who take part will gain from free trade.

    If a country, for whatever reason, restrains free trade, that country’s consumers pay the price, literally. Prices on imported goods will be higher. Producers in that country will be able to charge higher prices as well, and will have less reason to improve their products, as competition has been partially restrained. Are you old enought to remember the situation in the 1970s vis a vis the American car companies? They had enjoyed such protection from Japanese competition until the oil crises made lower mileage cars more attractive to Americans. The American steel industry went through the same situation. Protectionist (mercantilist) policies always end up crippling, if not destroying, the industies they are meant to prop up.

    If American consumers can get lower prices on better goods, thus having more disposable income for other purposes, through free trade (which, by the way, doesn’t exist here: the US is still quite protectionist; check out what Americans pay for sugar – about twice the world market price), that is a good thing. If other countries harm their people by forcing them to pay more for domestically-produced goods that may or may not be as good as imports, why does that cause you pain?

    In the final analysis, the restraint of trade is one of the major evils of governments. It was one of the main causes of the first American revolution. And, as the eminent philosopher, Ringo Starr, once remarked, “Everything government touches turns to shit.”

  6. Mike L. says:

    Chris, I was born in 1977 and do not remember the oil crisis. I have purchased 3 cars in my life, all were Hondas. I appreciate and enjoy the low prices on high quality goods that international trade has provided. My concern is with our balance of payment deficit. Sooner or later, the U.S. dollar will fall out of favor as the de facto global currency. When that happens, investors will stop subsidizing our deficits. Either the dollar will depreciate and/or interest rates will rise dramatically. Neither would be good for the American consumer.

  7. Chris C. says:

    Mike, compared to the amount of phony-baloney currency that the Federal Reserve is pouring into the economy, the alleged balance of payments deficit is chump change. It is not a real worry. It is a hobgoblin. I don’t know of any more succinct way of stating this. The government uses this false fear to whip up popular, and uninformed, sentiment for tariffs and other trade restrictions that will benefit their corporate sponsors and harm the consumer. If you choose to not believe this, I have pity for you, but not respect.

  8. Mike L. says:

    Chris, I need neither your pity nor respect, I receive enough of the latter from family, friends and co-workers. I hope you’re right and that our extended current account deficit is ‘chump change’ and not to be worried about. As to calling me ‘uninformed’, there are many prominent economists who share my concern. Lastly, I do not resort to name calling and blanket insults with those I disagree with, I suggest you do the same.

  9. Mike and Chris,

    Thanks for creating a very valuable thread that helps to stimulate our thinking.

    I do agree that an eye for an eye in trade simply impoverishes both sides.

    A few purely rhetorical questions: If you friend is an alcoholic do you help him by drinking too?

    If my doctor has no interest in hiring me to provide leadership training for his staff should I find another doctor?

    Does destroying the value of the dollar to increase exports generate prosperity?

    If we look at domestic spending, I agree that we can’t continue to consume more than we produce but trade restrictions will reduce both how much we consume and how much we produce.

    Don Boudreaux recently wrote in the WSJ:

    Prosperity comes only to societies that welcome entrepreneurial-driven economic change, only to societies steeped in the realization that better tomorrows are impossible if everyone is protected from every economic disappointment today. Societies that reject this reality seal themselves in the awful amber of poverty.

  10. Chris C. says:

    Mike, if you choose to interpret my indictment of the general populace as a personal insult, please be assured that it was not directed at you in particular. Do you believe that the general populace is well-informed about economics, geography, international (or national) politics, or similar topics? My experience is that they are not. And that, for most people, the amount of time that would need to be spent to do so is not economical for them.

    As for some economists touting the government line about the balance of payments being a major problem, offer lots of money and one can get many professionals to toe whatever line the payer chooses. One can see the same effect in academia, where grant money often drives not only the areas of research, but the expected results as well. And you may remember that I did not stoop to argument from authority, but rather tried to present examples.

    If you would like to see some good economic analysis, try http://www.mises.org

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