New free trade agreement = new production technology
First, watch this short video: “Make Progress, Not Work”
…
A new free trade agreement allowing more automobile imports causes
· total yearly wages lost is $500 million
But the new free trade agreement allows per year
· 1,000,000 consumers in the U.S. to save $1000 per car
· total money saved (and spent on other products) $1 billion
Which group would loudly complain about the situation? Workers.
Which group would smile and consider it a nice situation? Consumers.
Which group would politicians and the media focus on? Workers.
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Now, substitute “new production technology” for “new free trade agreement.”
The effect and results are the same if the trade agreement has gone into effect or a new production technology is implemented.
Neither workers nor politicians would complain, instead saying “we cannot be against technological progress.”
Studies show, of manufacturing jobs lost:
· about 90% are lost due to productivity increases from new technologies
· about 10% are lost due to increased lower-cost imports
Yet more attention is paid to jobs lost to imports, largely because of the “us against them” nativist-tribalist instinct.
Throughout history people move up to better and higher-paying jobs and become better off because of both new technologies and increasingly freer trade.
… …
A parable summarized from the Mankiw Economics Principles textbook:
Suppose the government of the country “Isoland” ignores the pro-free trade advice of the country’s economists and decides not to allow imports of textiles.
This decision is made because it would result in imports of low-cost textiles reducing Isoland’s textiles companies’ sales and their needed number of workers.
Soon after, an Isoland inventor discovers a new way to make textiles at very low cost and is able to keep his method a secret.
Surprisingly, the inventor doesn't need regular inputs such as cotton or wool, the only material input is wheat.
He needs little labor to manufacture textiles from wheat with this new method, in fact he can do everything himself.
The inventor is celebrated as a genius.
With the new lower cost of textiles prices of clothing go down, and all Isolandians enjoy a higher standard of living because they have extra money to buy other things.
Many textile workers lose jobs when their factories close but eventually find employment in other industries, often at higher wages.
Some become farmers and grow the wheat the inventor turns into textiles.
Others find jobs in new industries that emerge as a result of the higher Isoland living standards.
Several years later a newspaper reporter investigates this mysterious new textile production process.
She uncovers the truth: the inventor is a fraud.
His method does not involve making textiles.
Instead, he has been smuggling wheat out of the country and smuggling textiles in from other countries.
The inventor’s only discovery: the gains from international trade.
The Isoland government then shuts down the inventor's operation.
The price of textiles and clothing rise, and workers return to textile jobs.
Isoland living standards fall back to their previous lower levels.
The inventor is jailed and publicly ridiculed, “he is no inventor, he’s just an economist!”
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