Thursday, November 15, 2007

International Trade: Good or Bad?

I recently had the pleasure of reading Basic Economics: A Citizen's Guide to the Economy by Thomas Sowell. It was a very well written and eye-opening book. If I ran a school system, a course based on that book would be a requirement for graduation. The section on international trade was especially revealing and helped me to better understand why, for example, we import more oil then produce domestically here in the United States (see comparative advantage).

Yesterday, Ben Shapiro wrote an article about how Pat Buchanan and his myrmidons believe that we should be detached from the rest of the world when it comes to foreign trade. At the very least we should be imposing tariffs so that more jobs are available here in the United States. Mr. Shapiro deconstructed this belief to a degree, but I'd like to take it a little further.

The fact of the matter, there is a limit to the amount of labor that America can produce. Latest estimates place the population of the United States at 300 million. This number, however, includes children and people who don't work (aka welfare junkies) and may exclude illegal aliens. So we have to assume that at most half that number is reflective of the American workforce. In any case, this illustrates a very important point: there is a finite number of workers in America. This is the basic cornerstone to economics. According to Thomas Sowell, economics is the study of the use of scarce resources that have alternative uses. Labor, like everything else material, is a scarce resource.

That being said, labor in America has never been better. What other country lets you succeed and provide you a nice, high-powered salary for excellence? The fact is, most people in America are the envy of the rest of the world, even Europe. So when people like Pat Buchanan complain about how manufacturing jobs are being "exported" to other nations, it makes me wonder: who the hell are these people whose goal in life is to work on an assembly line?

Seriously, I don't think the man who is getting the springs set correctly on a recliner or the guy attaching a bumper to a car had this in mind when he was a kid. This doesn't mean that either of them don't enjoy their work or their life, but it seems to me that if they could have a better job, they'd take it.

Now consider this: given that a nation has a finite labor supply, shouldn't it focus its efforts on producing the products and services that would net more supply of that product or service and let some other nation use its labor supply to work on the other things? Even though the United States could probably dominate every industry imaginable why should we? If China is willing to focus more of its labor on furniture, while the United States produces more food (which accounts for 60% of the world's food supply) then maybe we should focus more of our resources on producing food and less on furniture. After all, both China and the United States would have more food and more places to sit down and eat it as a result. This is just an example, but it demonstrates the idea behind comparative advantage. This means that even though a country could produce more resources of a certain product, it instead has its resources used to produce another kind of product while trading with the nation that produces the original product.

Professor Sowell goes into much more detail then this in his book, just understand that international trade does not hinder the United States economy and that Pat Buchanan is nothing more than an economic scaremonger. When it comes to economic issues, I would rather listen to a seasoned economics professor like Thomas Sowell rather then a politician like Pat Buchanan.