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Explaining why Capitalism and Free Markets are good despite outsourcing and job losses

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Agamentus posted on Mon, Dec 20 2010 7:29 PM

I've been trying to pick debates with friends who go on facebook or some other outlet and post links to nonsense articles explaining how "capitalism" or "free-markets' or "big business" are destroying America, exploiting the masses, and responsible for all things odious and vile. It's usually a futile endeavor to convince such people otherwise, you can't add to a cup that's already full, but the debate forces me to sharpen my arguments and understand the theories involved. People also need to learn about this stuff, even if it's from me, because change will never happen otherwise.

Anyways, I understand the basic premise to free-markets. It enables people with better access to trade, enables resources to go to more efficient uses, lowers the costs for consumer goods, and helps raise millions around the world out of poverty by growing the global economy. That's all fine and swell, say the objectors, but look at America! Our (low-skill manufacturing) jobs have been sent to China, businesses are trying to cut wages, or already have, and the middle class as we know it is rapidly becoming a relic of the past! Woe to the honest American worker!

My instinctual counter is that the loss of these jobs is only part of the story, that there is also growth in other sectors of the American economy that made up for the loss until our government-fed housing bubble finally burst. I try to argue that jobs are not being sent to China because companies are evil, but are reacting to the demands of the American consumers who are buying all the cheaply manufactured garbage to begin with! Lastly, I argue that the emergence of new technology, of new markets, of cheap labor, all of it causes some jobs in some area to vanish, but that creative destruction is a necessary and natural process that has occurred since time immemorial. As long as the economy grows, jobs will necessarily have to increase, too. The nature of WHAT jobs are available to us and the wage we're offered is determined by our education, skills, talents, and productivity. Free-market capitalism was not designed and manufactured by man, and therefore not beholden to your concept of "social justice." Despite this, it is fair because everyone has the freedom to fulfill their destiny according to their own wishes. 

And so it ends. I would be greatly appreciative if you could help me identify talking points that are particularly efficacious at converting the heathen masses, or argumentative strategies to gain the upper hand against an intractable foe. I did some digging through the forums and couldn't find much on this subject - if you know a past thread covering this, please link it and tell me to go on my way.

"I am certain that nothing has done so much to destroy the juridical safeguards of individual freedom as the striving after this mirage of social justice." F.A. Hayek
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Agamentus:

 Our (low-skill manufacturing) jobs have been sent to China,

In a free market the reason such a thing happens is that Americans have found ways to make more money doing something else, so they let the Chinese do the low skill manufacturing for them. Nobody would lose their job to become unemployed in such a case, but would have a better paying one. It's called the Law of Comparative Advantage.

In an unfree market, such as the one we have, it happens because of taxes and regulations and violently imposed unions make it impossible to make a profit. When the problem is local taxes and unions, a solution has been found: Move to a state with no taxes and right to work laws, like Texas. If the problem is from Federal taxes and reglations, the solution found was move beyond the reach of the Federal govt, overseas. When that won't work anymore, as the govt extends its tentacles, the only solution will be to close down the business altogether.

businesses are trying to cut wages, or already have,

Businesses are always trying to cut wages [just as the worker is always trying to raise his wages]. So why have they not succeeded in doing it all these years? How did they finally manage to turn the screws? The answer is, of course, because the Law of Supply and Demand, a force as strong as gravity itself, stepped in. With so many unemployed the supply of workers rose, thus lowering their price [=wages].

Did Capitalism and the free market and big business cause the rise in unemployment? No, it was the housing crisis, caused by govt meddling, as one can learn from this site.

and the middle class as we know it is rapidly becoming a relic of the past!

Because of govt meddling, as explained on this site.

Woe to the honest American worker!

Because of govt meddling, as explained on this site.

My instinctual counter is that the loss of these jobs is only part of the story, that there is also growth in other sectors of the American economy that made up for the loss until our government-fed housing bubble finally burst.

See the above why this is only partly true, and the rest of the story.

I try to argue that jobs are not being sent to China because companies are evil, but are reacting to the demands of the American consumers who are buying all the cheaply manufactured garbage to begin with!

See above for what I think is the right explanation.

Free-market capitalism was not designed and manufactured by man, and therefore not beholden to your concept of "social justice."

I would argue that "social justice" usually means social injustice. It is usually a code word for taking someones money by force [=taxes].

Good Luck to you mate, fight the good fight.

 

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filc replied on Mon, Dec 20 2010 9:37 PM

This may come off accross as somewhat condescending, but I would suggest expanding your own knowledge of markets and capitalism before engaging anyone into discussion. And even after that, I'd still recommend prudent behavior when engaging in a facebook argument.

 

Things to contemplate

  1. Outsourcing is good.
  2. No one steals jobs. You are not robbed from that which you did not own.
  3. You are better off by trading with those around you, not by walling yourself off.

Two principles to research

  1. Division of Labor
  2. Comparative Advantage
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My instinctual counter is that the loss of these jobs is only part of the story,

The jobs don't "belong" to anyone in the first place. As for outsourcing, the people in third world countries can either be paid very little for doing some work, or they can be paid nothing for doing nothing. You have to remember that $1 (USD) is worth much more in some places other than the United States. Even if companies exported every single job to third world countries, it would only be a short time before Americans ran out of money and couldn't buy products anymore. Then the demand would be down, and prices would surely follow. It's basically the same argument against minimum wage laws, too.

"Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats." - H.L. Mencken.

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Smiling Dave:
In an unfree market, such as the one we have, it happens because of taxes and regulations and violently imposed unions make it impossible to make a profit. When the problem is local taxes and unions, a solution has been found: Move to a state with no taxes and right to work laws, like Texas. If the problem is from Federal taxes and reglations, the solution found was move beyond the reach of the Federal govt, overseas. When that won't work anymore, as the govt extends its tentacles, the only solution will be to close down the business altogether.

That's a great point

Smiling Dave:
I would argue that "social justice" usually means social injustice. It is usually a code word for taking someones money by force [=taxes].

Most of the people I know aren't that subliminal. Their concept of Social Justice is, "Look! That guy's job went to China and we should do something about it." That something invariably is to demand government protect that worker. Because it results in taxes is an often ignored or, at best, an unavoidable consequence.

filc:
This may come off accross as somewhat condescending, but I would suggest expanding your own knowledge of markets and capitalism before engaging anyone into discussion. And even after that, I'd still recommend prudent behavior when engaging in a facebook argument.

Oh trust me, I've been doing a fair amount of reading and I have about two-dozen more books to go through. My copy of Human Action is also on the way! I appreciate your candor, so don't worry about sounding condescending. Between the books, all of your terrific contributions (and those of everyone else!) on this forum, and the plethora of materials on this website, I'm flooded with info to learn. I am determined to become as fluent in these subjects many of you are, so thank you for your input and suggestions!

"I am certain that nothing has done so much to destroy the juridical safeguards of individual freedom as the striving after this mirage of social justice." F.A. Hayek
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JH2011 replied on Tue, Dec 21 2010 10:18 AM

Agamentus,

I would suggest this short article by Walter Williams. http://www.lewrockwell.com/williams-w/w-williams51.1.html

It is called "Profit vs Nonprofit" and attempts to bash the idea that non-proft enterprises are someone righteous and good while profit motivated enterprises are greedy and bad for society/America.

Here's another point.  When people argue against capitalism, they love to compare capitalism to perfection (more specifically their idea of perfection), and then think itsomehow makes them correct when it falls short.  And they make statements like "Look, capitalism allowed that person to move his business to China and he fired all the American workers and hired Chinese workers."  In their ideal world, the person would have somehow had an equally successful business by staying in America and keeping American labor.  We need to ask in repsonse "Ok, what is the alternative to capitalism?"  The answer is some form of governement central planning, whether it be heavy taxes and regulations or full socialism with government ownership of all property.  Now the following is a loaded statement, but history has shown that capitalism is FAR BETTER than socialism at allowing the masses to rise out of poverty, allow people access to trade, lower costs, and increase the overall standard of living of a population.

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JH2011:
When people argue against capitalism, they love to compare capitalism to perfection (more specifically their idea of perfection), and then think itsomehow makes them correct when it falls short.

This is an example of a logical fallacy called the nirvana fallacy.

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JH2011:
We need to ask in repsonse "Ok, what is the alternative to capitalism?"  The answer is some form of governement central planning, whether it be heavy taxes and regulations or full socialism with government ownership of all property. 
 

Right - I have many friends on both the right and left who argue therefore that a "Mixed Economy" is therefore the best solution because government regulation somehow curbs the vices of capitalism. I understand that pure capitalism is essentially millions of people voluntarily exchanging one thing for another, which begs the question of where the "vices" are coming from. One friend posted a link of Newport Cigarettes allegedly marketing to kids. I know there's a post here about Arachno Cap and children, and I need to re-read sections to brush up on it, but I argued that there are already laws in place designed to stop this. Since they're not stoping Newport, the best solution is obviously better parental supervision. It's one thing to rail against a company for marketing cigarettes to your kids , and it's an entirely different matter that you either (a) didn't know your kids were smoking (which is just an epic fail on good parenting, period), or (b) knew about it but did nothing. I generally think this reasoning applies to all attacks at "capitalism" or "big business" for exploiting kids, minorities, poor, etc. It all boils down to the choices of the individual.

I guess the real job is proving that government regulations don't work, and that the Law of Unintended Consequences reigns supreme.

"I am certain that nothing has done so much to destroy the juridical safeguards of individual freedom as the striving after this mirage of social justice." F.A. Hayek
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Answered (Not Verified) DD5 replied on Tue, Dec 21 2010 10:37 AM
Suggested by Lewis S.

The attack against outsourcing is the same attack going on against imported goods and labor, immigration, etc....  The differences between them are all superficial with no economic significance.   It is an attack against the division of labor and the benefits of exchange in general.  

If interstate trade can be harmful, then intercity trade must also be harmful.    What is the difference other then the mythical significance attributed to arbitrary artificial borders created by governments?  Social cooperation by the division of labor and knowledge sees no such artificial borders.

Going further down, inter-household and finally, interpersonal trade must also be harmful.  Outsourcing bread making  to the baker must be harmful in some way.    

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DD5:
The attack against outsourcing is the same attack going on against imported goods and labor, immigration, etc....  The differences between them are all superficial with no economic significance.   It is an attack against the division of labor and the benefits of exchange in general. 

Yes - but what's the best rebuttal when someone argues that it's just "not possible" for an American to compete with the [insert foreign worker], who will work for pennies to the dollar? I'd be tempted to say this is exactly why we need immigration - if cheap labor came here, then at least displaced Americans could work at management positions, or the plethora of additional businesses that must be created to service the immigrants.

But aside from this, what else is there to say? Go back to school, or learn how make up the wage difference through productivity? As Smiling Dave said, some Americans found it more productive to send aspects of their business overseas, but that's generally not the average worker. Likewise, taxes and regulations do make up sizeable percentage of the difference in wages / costs of doing business, but is it really enough to make up the difference between your typical American worker and your typical foreign equivalent?

What I'm trying to ask is, are there any other palatable arguments besides the consequences of gov't meddling that will keep people who have been displaced from retreating from the economic principles that made their jobs possible in the first place? You guys can clearly win an argument based on principle and fact, but what I'm trying to do is win hearts and minds. When push comes to shove, if an idea sounds good in principle, but also explains why you can't put food on the table (as in your job has been outsourced due to X, Y, and Z reasons), it's not going to fly. They're instead going to get pissed, vote for politicians who cater to their ignorant views, and waa-laa! We're exactly where we are now.
 

"I am certain that nothing has done so much to destroy the juridical safeguards of individual freedom as the striving after this mirage of social justice." F.A. Hayek
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filc replied on Tue, Dec 21 2010 11:28 AM

Agamentus:
Oh trust me, I've been doing a fair amount of reading and I have about two-dozen more books to go through. My copy of Human Action is also on the way! I appreciate your candor, so don't worry about sounding condescending. Between the books, all of your terrific contributions (and those of everyone else!) on this forum, and the plethora of materials on this website, I'm flooded with info to learn. I am determined to become as fluent in these subjects many of you are, so thank you for your input and suggestions!

The first 20 chapters of HA will give you so much firepower for your friend, that it won't even be fair.

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filc replied on Tue, Dec 21 2010 11:30 AM

Agamentus:
Yes - but what's the best rebuttal when someone argues that it's just "not possible" for an American to compete with the [insert foreign worker], who will work for pennies to the dolla

The response is that we should not be competing and producing things that we are not good at. We should instead find something else that we have a more comparative advantage with.

Why is GM still around? Why is GM producing cars?

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filc:
Why is GM still around? Why is GM producing cars?

GM makes a lot of cars overseas. So does Ford. It's ironic that you have a better chance of buying an all-American made car from Toyota than any of the "Big Three." Toyota also pays its workers much less than UAW employees when you factor in benefits and pensions.

Bailouts are also handy. Speaking of which, I'm still waiting for mine ...

filc:
The first 20 chapters of HA will give you so much firepower for your friend, that it won't even be fair.

Then I really can't wait for it to arrive!

"I am certain that nothing has done so much to destroy the juridical safeguards of individual freedom as the striving after this mirage of social justice." F.A. Hayek
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Yes - but what's the best rebuttal when someone argues that it's just "not possible" for an American to compete with the [insert foreign worker], who will work for pennies to the dollar?

We enjoy an essentially limitless demand for wealth.  We are always looking to satiate our desires, and when one desire is sated then we move on to the next.  If we outsource industry X and that much labor is freed, then that much labor can be applied to the production of a new product (a new product which can be produced because of the volume of accumulated capital).  So, not only do Americans enjoy higher real wages as a result of a falling price for whatever product which production was outsourced, but we also enjoy the ability to purchase all new products thanks to the extension of the division of labor and greater productivity.

This assumes a healthy, growing economy, and of course government interventionism can depress a market to the point where it will take time to respond to these changes.  But, a lack of dynamism shouldn't be blamed on the market, only on government which hampers the market.

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Agamentus:
Anyways, I understand the basic premise to free-markets. It enables people with better access to trade, enables resources to go to more efficient uses, lowers the costs for consumer goods, and helps raise millions around the world out of poverty by growing the global economy. That's all fine and swell, say the objectors, but look at America! Our (low-skill manufacturing) jobs have been sent to China, businesses are trying to cut wages, or already have, and the middle class as we know it is rapidly becoming a relic of the past! Woe to the honest American worker!

I think the best bet might be to explain that the US economy is hardly a free-market economy.  There are many, many ways the US government at all levels imposes restrictions on (legal) economic activity.  Here is an example.  So how can one blame the free market when it's not even around?

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