One of us doesn't get it.
I'm watching commentators discuss executive pay caps and I am reading a forum where posters are talking about how great it would be if companies were legally banned from outsourcing jobs or taxed for doing so.
Now I assume that the posters believe that the result would be that we would all be employed with nice high paying jobs.
As best I can tell folks, that simply does not work. Well it does not work as long as we are working a basically capitalism framework. Maybe it works in some other; say socialist, economic framework, but not capitalism.
How come?
Because for the exact same product made to the same high quality, who in their right mind is going to buy the more expensive one? Oh, because of service. No deal. I'm talking about the same product, same service, same everything other than price.
So OK, maybe we have the government pass laws to force us to buy American? That doesn't help either. The rest of the world will buy the cheaper product made elsewhere. So they have more money to buy other stuff. Money we now don't have because we bought those government mandated higher priced products. So the rest of the world becomes just a little bit richer compared to us and we become just a little bit poorer.
So how did that buy American law benefit us? Well it did save those jobs, but the reason was that we all contributed to those workers employment by paying higher than market prices.
So you say, "OK, but you assume we're all greedy. What if we are generous and agree to buy our neighbor's product rather than some foreign product?" Unfortunately Virginia, it still doesn't work.
Let's take a very simplistic example. The only products are shoes and shirts. Assuming all the workers produce a single product, workers in CountryA can make 100 shoes per year, but only 50 shirts. Conversely, workers in CountryB can make 100 shirts per year, but only 50 shoes. We all want to just get along so we agree to make our own stuff. So we put 1/2 the workers in each country to work making shoes and 1/2 making shirts. CountryA produces 50 shoes and 25 shirts. CountryB produces 50 shirts and 25 shoes. So the world GDP is 75 shirts + 75 shoes. If we let the workers do what they do best, CountryA produces 100 shoes and CountryB produces 100 shirts. Under this plan the world GDP is now 100 shirts + 100 shoes. The world is simply richer when the products and services are done by the workers who do the job best.
What about the argument that says our national security requires a steel industry or fighter airplane industry? A society may certainly decide that those things are so important that they need the security of keeping that industry at home. The only thing we need to remember is that protecting industries or jobs is no free ride. We have to pay for it. If we are not the most efficient producers of these products, if we artificially subsidize them, we all become a little poorer than we would be otherwise. Maybe that is the right decision. But it is a decision we need to make with our eyes open as well as our hearts.
