Hello everyone,
This is my first post but I have been studying Austrian economics for a while now. I have a specific question to ask. Whenever the idea is brought up that if we could lower taxes and regulations and free up the market it would make corporations want to produce things domestically, people frequently say that it would ALWAYS be cheaper for them to produce things in China because workers are willing to work for nearly nothing. How can we compete with that? Maybe the regulatory system and tax system could be made friendlier to business but in a globalized economy, wouldn't it generate greater profits for most large corporations to always produce things in third world countries or emerging markets where workers are happy to work for much less than Americans would?
I hope someone here can help me with this question because it comes up a lot is conversations with liberals and others who scoff at the idea that reducing regulations and lowering taxes will mean more domestic production. I don't have a good answer yet, perhaps someone here could provide one?
Thanks.
I have a related question:
If we de-mercantilise, wouldn't our standard of living decrease? We will be improving the economies of other countries, which means that we will now compete with them for products as well. Is this too shallow of an analysis? Would there be a crazy amount of innovation if other countries suddenly shoot up in economic power?
That is a very shallow analysis. Getting rid of tarriffs would make goods enormously cheaper. The same would be true of food if we got rid of farm subsidies. Nominal wages may go down, true, but we're concerned with real wages.
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You ever hired anyone before Johnny Doe? Canada has roughly the same GDP per year as India, yet India has a much greater population than Canada. That means that averaged out, a single Canadian could be as productive as even a thousand Indians. This also exists within countries (Steve Jobs is thousands of times more productive than I am). It doesn't matter if you can hire a whole army of "labour", what matters is the productivity of the money you spend on the labour. Wages per person don't matter, money input per product produced matters.
A lot of people have started hiring personal digital assistants from the Phillipines, but found they preferred someone who could actually follow instructions from Canada or the US even though they cost 4x as much per hour.
Wheylous, Who would you rather be stranded on an island with, you and an illiterate retard, or you and someone who is as productive as you? Which society would make you better off? I find if you think about it that way, it helps. You can see that it actually benefits you to be with more productive, richer people. You wouldn't want to send all of the geniuses in our society to the gulags would you, even if they compete with you for products? Don't forget that they also create products, and they create more products per person the more capital there is available to them.
http://mises.org/daily/2361 Reisman says that globalization can be deceiving because it results in progressively lower nominal wages but it serves to progressively increase the standard of living of all.
I also think any argument against expanding the division of labour worldwide results in disasterous logical consequences. If we shouldn't allow people in China to industrialize and compete with us for products, how about them yokels in Alabama? Surely we should restrict trade to people within our own richer state (say, New York) or else we will de-industrialize. And why should a Manhattanite let his money flow to Harlem if it will cause a reduction in his standard of living? And why should I trade with my neighbour across the street if it will reduce my standard of living? Everyone in my house should have to work together to grow some food and hopefully if we have extra time, sew some shirts (if we don't die due to lack of medicine the next time we get sick).
Another question would be, why are all these people idiotically engaging in trades in which they lose? Well, the mercantilists say that they aren't actually losing, those trades are in their self-interest on an individual level--it's just that when you compound a million wins on a micro level is results in a loss on a macro level. Funny how that should work. Millions of people individually bettering themselves works to hurt them. I guess we should throw the lessons from The Wealth of Nations out the window then. Since these questions obviously lead one to endorsing free trade, the division of labour society, and comparative advantage, most in the economics profession are free traders. Even economists like Paul Krugman are supportive of free trade and globalization. It is only non-economists, politicians, rent seekers, and "economic historians" like Ha-Joon Chang who seem to be in favour of mercantilism.
Who would you rather be stranded on an island with, you and an illiterate retard, or you and someone who is as productive as you
That is a straw man of my question. The better question is "would you rather be stranded on the island with an illiterate retard who makes tons of stuff for cheap or some pretentious person who will want some high standard of living?"
Morally I am against what I am discussing - of course we should help (or at least stop hurting) people from Africa, but from the perspective of someone who doesn't want his own standard of living to go down, you want to retain a cheap labor source from abroad. Thus, the idea behind tariffs becomes not to help your own businesses at home but to prevent foreign businesses to rise from poverty, ensuring a cheap labor source for yourself. If Africa doesn't evolve beyond an extremely cheap labor source, that is convenient for us, no?
Getting rid of tarriffs would make goods enormously cheaper. The same would be true of food if we got rid of farm subsidies.
That itself is a shallow analysis. I am saying that Africa might become as wealthy as, say, Italy, and then demand union wages, regulations, etc. which would hurt our imports more than tariffs currently hurt them. Even if current tariff rates are 30%, labor might become 6-7x more expensive than it is right now. Tariffs appear to be a tool of the West to get cheap labor from Africa.
I would rather be stranded on an island with the person who makes the most goods. In other words, the most productive person. If the person who "wants a high standard of living" does the requisite work required to create a high standard of living, then he might be nice to live with. What he "wishes" isn't important though.
Would you rather be in a society that produces more total wealth per person or less total wealth per person?
If the person who "wants a high standard of living" does the requisite work required to create a high standard of living
Big "If." Why do we have union shops, minimum wage, consumer "protection," etc? I'll place my bet of higher productivity on oppressed Africans rather than the average Westerner.
Would you rather be in a society that produces more total wealth per person or less total wealth per person
You mean average? Such statistics are meaningless anyway. It doesn't speak much to income inequality. Not that I mind the income inequality in the US.
I am not arguing on normative terms. I am arguing positive analysis. My argument: "you wanna live on the expense of others? Keep the tariffs." As I said, I prefer the moral society without tariffs, but if you simply wanna oppress the rest of the world while keeping yourself wealthy, keep tariffs. If my argument is correct, it would be a beautiful way to pain liberals. Be like "I support tariffs because we need cheap labor!"
A better critique of my argument would be that as other countries become wealthy they will demand more of our products.
What people demand does not matter. If you are not worth what you are demanding, then you will not be hired. In the end, real wages tend toward marginal productivity. Africa is only going to get 6-7 X higher wages when they become 6-7 X more productive.
"Big "If." Why do we have union shops, minimum wage, consumer "protection," etc? I'll place my bet of higher productivity on oppressed Africans rather than the average Westerner."
Okay then, go ahead. Buy your goods from Africa. Instead of buying your wheat from an American farmer who is apparently not productive according to you, buy your wheat for 100x more from an African. lol. Oh wait you can't because it's so expensive that it's not even exported. Who would have thought that a crop duster and a combine allow one to be more productive than a man with an ox plow? "You mean average?"
No, I mean answer my question. Would you rather live in a society with less wealth, or more wealth? A world in which Africa (and everyone) is industrialized and the people produce 100x more wealth per person because of education and capital equipment, has more total prosperity than a world in which only half of the people have access to capital equipment. The latter is going to have half (or even less than half, because of the deepening of the division of labour and knowledge advancements from specialization) of the former's total wealth. So would you rather be as rich as you are now, or 2+ times richer?
Or think about it this way: Would you be richer if 25 of the 50 states in the US were starving and lacked any industrial equipment? Would be enjoying oranges if California and Florida had no modern farming and refrigerated trucking equipment, and were preindustrial? If you had to grow those oranges with 3x the time and resources in a greenhouse in Maine? Do you think you would "benefit" from the cheap wages you could pay those people in the 25 states compared to if they were industrialized and vastly more productive? Do you like more economic efficiency thanks to tools or less economics efficiency thanks to lack of tools? Do you like more productivity overall or less productivity? Africans don't have low wages. They have wages at their marginal productivity rate. We pay people wages so they produce stuff. If someone gets a "high" wage its because he produces way more stuff--but he is still just earning a wage based on what he produces. Therefore his wage is neither high nor low. Divide the wage rate by the amount of product produced.
"I'll place my bet of higher productivity on oppressed Africans rather than the average Westerner."
Go ahead, please, place your bet!
Here are the top trading partners of France, a country right next to Africa:
Country (Im%, Ex%)
Germany (19.1, 14.9) Belgium (9.4, 7.2) Italy (9.0, 9.3) Spain (7.4, 9.6) Netherlands (7.0, ---) UK (7.0, 9.4) US (5.4, 6.8) You are free to place your bet on Africans, as an entrepreneur. Hire them. But it seems like most of the entrepreneurs of France disagree with you. These people, who live right next to Africa, seem to buy most of their products from other European countries and the US. You may say they're idiots, and that they are better off hiring African workers who are more productive. Exploit their misjudgement and hire Africans who are more productive than Europeans and native Frenchmen according to you (in what industries, we don't know).