China, technology, and progress

In response to my recent post about a China-bashing campaign ad, several  commenters replied that I was ignoring the fact that many American lose out as a result of trade with China, and that the ad is okay because it’s criticizing policies that encourage or fail to prevent that trade. And it’s true, trade does create losers. Furthermore, we can certainly argue about trade policies on the margins, which is what the ad starts off doing. But to move from there to implying that we shouldn’t praise the economic growth and modernization in China that has been called an “economic miracle” shows wild indifference to the welfare of the hundreds of millions who have been lifted out of poverty. Heaping stupid stereotypes like gong sounds and fortune cookies on top of that adds even more offensiveness. Honestly, I’m surprised they didn’t use the Oriental riff.

Ads like this beg the question of why we only get angry when jobs are lost to trade. Yes, there have been many manufacturing jobs lost as companies increasingly produce and assemble manufactured goods in China, Vietnam, and many other areas of Asia. But the destruction of jobs not a byproduct of trade alone, but a byproduct of progress in general. Technology, for instance, is easily as a powerful a job killer as trade. You can see this in the fact that while manufacturing employment has decreased in this country, total manufacturing output and output per worker has gone up. The following graphs, courtesy of Mark Perry, display these facts nicely:

The massive increase in productivity, with output increasing even as jobs decrease, demonstrates that trade is not the only thing that destroys jobs; so too does technology, and the productivity it creates. Yet could you imagine a campaign ad criticizing a politician because he supported technology? Or productivity?

It’s important to recognize that there are very few forms of progress that don’t make some people worse off. Imagine if the growth in China’s economy had come solely from the production of some good that we didn’t make in the U.S., and in fact wasn’t made anywhere else in the world. Still, the huge increases in wealth would drive commodity prices higher, which means we would pay more for things like copper and oil. Sure some people who purchase and enjoy the brand new products that our hypothetical China makes would be better off, so too would those employed in the industries making goods China imports. But some people would only be made worse off by higher commodity prices, both directly and indirectly, as higher input prices make some production unprofitable and thus jobs are lost. Should this diminish the fact that millions of people in China were lifted out of poverty?

The industrial revolution produced winners and losers too. Blacksmiths and buggy whip makers were put out of business by the automobile. Does this diminish the invention of the automobile? Greater agricultural productivity put many farmers out of business.  Do people demonize the industrial revolution for making them worse off?

This isn’t just true for big, economy-wide shifts in technology, but individual inventions as well. The success of the iPod has destroyed jobs at Walkmen assembly plants. A quick, easy, and cheap cure for cancer would put many specialized healthcare workers out of a job. This is creative destruction, and it would be wrong to argue that’s it’s not a great thing.

If you think the difference between trade and technology is that our trade policies gives China an edge, consider the many ways in which we subsidize technology, innovation, R&D, and capital in this country. These subsidies, like the trade distortions, mostly just exaggerate an unstoppable trend. Take a look again at the output per manufacturing worker in the graph above, clearly it would be ridiculous to assume that absent those subsidies to technology and capital the state of manufacturing would be as it was in the 1970s. Sometimes progress is inevitable.

Likewise a massive shifting of manufacturing to China and other parts of Asia was inevitable once certain developments took hold. What happened was the China government began easing it’s boot off the throat of it’s people by gradually moving from Moaism to a mixed economy. Once that transformation had begun there’s only so much that trade or exchange rate policies can or could have done to prevent massive amounts of manufacturing from moving to China. By maligning China’s economic success, by attacking someone for saying it is a great thing, you can only be defending the boot upon China’s throat, because there’s nothing short of autarky we could have done to stop much of what has occurred.

Just as manufacturing jobs inevitably shifted from here to China, rising wages in China have begun the inevitable shift of some manufacturing from China to poorer countries like Bangladesh.

I believe in a social safety net. We should help workers whose jobs are destroyed and who are facing hardship. But there is no reason to privilege workers whose jobs were destroyed by China’s growing economy over those whose jobs were destroyed by technology. Likewise we should no more demonize China than we would demonize inventors and the technologies they produce.

UPDATE: Via Matt Yglesias comes an important reminder that the Democrats are not the only ones bashing China with xenophobic ads. The following video is even more egregious and disgusting than the anti-Toomey ad.

Cats and Dogs Living Together

Paul Krugman is at it again with his calls, using a model based on what I believe to be an entirely flawed conception of monetary policy at the zero bound, to argue that China’s currency policy is harming the US:

So again, the Fed is moving in the right direction, both for US interests and for the sake of the world as a whole. China is beggaring its neighbors, which in this case means everyone else.

Krugman is continuing his call that we begin threatening to engage in protectionism through legislation aimed at Chinese products. Of course, this is wholly unnecessary. Matt Yglesias has the money quote:

The Chinese government’s discomfort with monetary stimulus is understandable. Monetary stimulus plus Chinese currency policy will equal an undesirably large amount of inflation in China. That means that in order to avoid an undesirably large amount of inflation, Chinese leaders will need to engage in a more rapid currency readjustment than they want to. That, however, merely underscores that unilateral monetary action is the right way for the US government to handle our concerns about China’s currency policy. We don’t need to threaten them, or bribe them, or cajole them, or go to “currency war” or anything. What we need to do is to adopt monetary policies that are appropriate for our economic situation. The Chinese will learn to deal with it, and in the longer term we’ll all be better off.

Which highlights the idea that beggar-thy-neighbor policies are anything but zero-sum games when it comes to money. All currencies can’t devalue against each other simultaneously, but all currencies can depreciate relative to goods and services…and that has a stimulative effect. Depending on the relative slope of your economy’s SRAS curve that either means higher inflation or higher real output. Monetary easing in the United States would likely mean higher real output in the US…but it would likely mean higher inflation in China.

What exactly does that do? It gives China cover to adjust their exchange rate policy. A policy of easy money in the US actually benefits both the US and China (assuming that China will follow an optimal policy regime).

What is embarrassing is that we live in a rich country, with a fiat currency, and we are still having a conversation about how to get the economy off the ground…and furthermore contemplating highly detrimental policies in order to do so.

Castro, Unrepentant.

Yesterday I posted about Castro’s sudden change-of-heart regarding communism in Cuba, within the confines of criticizing the characterization of big government as the problem that plagues Cuba.

However, today we learn that Castro remains unrepentant:

Since July 2006, when serious intestinal illness nearly killed Fidel Castro and forced him to cede power to Raul, Cuba has implemented reforms such as allowing the unrestricted sale of cell phones, privatizing some state-run barbershops, licensing more private taxis and distributing fallow government land to private farmers in hopes they could put it to better use.

Still, Cuba’s former “Maximum Leader” maintained Friday that wasn’t what he meant at all.

“My idea, as the whole world knows, is that the capitalist system no long works — neither for the United States nor the world, which it steers from crisis to crisis, which are ever more serious, global and repetitive, and from which there is no escape,” Castro said. “How could such a system work for a socialist country like Cuba?“

Sadly, it is not the Castro’s who will suffer for their idiocy. However, the United States has not helped matters by allowing the US-Cuban embargo to stand for 50 years. Isolating these types of ideas allows them to incubate, and become more resonant. It gives people like Castro and Chavez an enemy to point to. Liberalizing trade with Cuba would go further than any other action in speeding up the opening of markets in Cuba, and benefiting the Cuban people.

So lets start with US policy.