At an economics convention I attended some time ago, one of the attendees attempted to convince me that the primary reason for the decline in the aggregate U.S. economy was a reduction in domestic manufacturing. “We don’t make anything anymore,” he told me. This is a very common fallacy which seems to be enjoying a resurgence ever since the crash in ’08. Truth be told, with exception to the slight decline since early 2008, the U.S. has enjoyed a larger manufacturing industry than ever before.
But this begs the question, why do so many people believe the economy is in trouble because of manufacturing? Furthermore, why are so many people hostile to the idea of “foreign” goods? There has always been a push for protectionism to one degree or another but the opinion streams have been full of it lately. The only excuse for this thought process, of course, is due to a lack of understanding and/or education with regards to commerce and market operations.
Take, for instance, the recently released song by country singer Toby Keith called “Made in America.” It becomes patently obvious that Mr. Keith has no economics education (or at the very best he has flawed training) when he spouts off such lines as, “It breaks his heart seein’ foreign cars, filled with fuel that isn’t ours, and wearin’ cotton we didn’t grow. He ain’t prejudiced; he’s just made in America.” A full understanding of economics makes us realize that the division and specialization of labor creates wealth and more opportunities for everyone.
Meanwhile, mainstream media outlets run stories which further popularize these fallacies. Just recently ABC published an article about an alleged “economist turned builder” who is showcasing the construction of a house made completely from products purchased within the U.S. Of course he acknowledges that using American products “can be more expensive” than foreign goods but insists it would only be 1 to 2-percent higher. I find this figure highly underrated but it makes little difference in the end.
The self-proclaimed goal of protectionists is complete self-sufficiency (or at the very least, no dependency on foreign sourced goods). Is this possible? Is it even a good idea? To make this matter easier to understand let us begin at the individual level. I would be willing to bet every penny I own that not a single person on the face of the planet is completely self-sufficient. We “import” clothing from clothes stores, food from grocery stores, electricity from power plants, and money from employers. We are all dependent on foreign entities for our continual survival.
Continuing on to the family level, then, we find much of the same thing. We import all of the items discussed previously. However, we do begin to find areas in which we have limited self-sufficiency. The labor for mowing the lawn can be performed “domestically” by the family members. Various household cleaning and maintenance jobs, performing vehicle maintenance, and other menial tasks are often performed by members of the family rather than “outsourced”. But in the end, they are very much dependent upon outside assistance.
This same logic applies to the local neighborhood, city, and county levels. The only method available to define “foreign” versus “domestic” entities is based upon the arbitrary political boundaries assigned to the unit. Let us further investigate issues at the state level. Virtually every state within the United States imports at least a portion of its electrical power. Furniture, vehicles, food, electronics, and virtually every other good are all imported from foreign sources. Not a single state enjoys self-sufficiency but this never seems to be at issue for anyone. The fact that California must import water from surrounding states doesn’t appear to cause anyone to picket the governor’s mansion with signs reading “No dependence on foreign water”. Does this concern no one?
All of a sudden this becomes a grave issue on the national level. Cheap toys from China, electronics from Japan, clothing from India, and wood from Canada all spell disaster for the political entity collectively known as the United States simply because they were produced elsewhere. Why? The truth is, the division and specialization of labor allows free markets to naturally take advantage of cheaper goods from various parts of the world. Certain goods may be manufactured in specific locations around the world on a less costly basis due to specialization and the random placement of natural resources. It would be ludicrous to demand that all diamonds purchased in America be mined in American mines; already excessive prices would multiply many times over. By demanding that other goods – such as oil – only be produced “domestically” would only increase the cost of living for every person within the nation.
Therefore, rather than demand that all goods be produced “domestically”, every individual who desires freedom and an increased standard of living should emphatically demand that all barriers to free trade be removed. Only with genuine free trade will Americans – and every other member of the human race – enjoy wealth and prosperity. You’re right Toby, he’s not prejudiced; he’s simply uninformed.
Great writing on this one! This is my favorite blog of yours to date. I thoroughly enjoyed it!