Protection Does Not Create Jobs

My wife keeps getting e-mails forwarded by her friends urging everybody to buy American to keep our jobs at home. Some have suggested giving gift cards for services rather than merchandize on the grounds that most merchandize is made in China. I’ve resisted the temptation to dictate a response for her to send to her well-meaning friends on the grounds that we need all the friends we can get. However, if I did give in, my response would be something like what’s written below.

Sluggish employment growth and high unemployment rates naturally add to new calls for protection that would do more harm than good. Rising imports do create jobs abroad rather than here, but rising exports create jobs here rather than abroad. Imports and exports tend to move together with little net impact on domestic jobs over time. The problem is one of perception: jobs lost to imports or outsourcing are more visible to the lay public than the jobs created by exports and insourcing, even though they do tend to balance out.

Free trade raises our standard of living, not by adding jobs, but by increasing what Adam Smith called the division and specialization of labor, making jobs more productive. Trade moves labor and other resources from areas of our comparative disadvantage to areas of our comparative advantage and thus increases production available for consumption by all.

The impact of trade on our standard of living is similar to the impact of advances in technology. Both increase productivity, which is higher output per unit of labor input. Technology, like trade, frees up labor in some areas for production in other areas. To limit trade to save jobs would be similar to limiting technological progress to save jobs. Any net jobs saved would be temporary, but the foregone increases in living standards would be permanent.

Job losses through trade and technology look worse up close and personal than they do with the perspective of time. For example, from today’s perspective would we be better off had we “protected” the jobs of telephone and elevator operators? Decades ago 90 percent of our population was required on the farm to grow our food. Now, about 2 percent is all that is required. This represents an enormous increase in productivity, output per hour worked on the farm. The same has been going on in manufacturing for decades: more manufacturing output per hour worked. More output, fewer workers. Of course, for this to work without undue hardship on those not needed in the old industries, we need dynamic growth so that the new industries can absorb the excess labor. What we don’t need is a decline in progress brought about by a desire to keep all the old jobs.

One of my heroes is Frederic Bastiat (1801-1850), a French advocate of free trade and free enterprise. He communicated with wit, wisdom and satire and made many of his points by carrying arguments to their logical extreme. The best known example of that was his fictitious petition to the French Parliament on behalf of the French candle makers seeking a law requiring everyone to shut their blinds and shutters to shut out the sunlight. The sun, you see, was unfair competition to the candle makers in the provision of light. Bastiat pointed out all the jobs that would be created in the candle and related industries, including multiplier effects, if this unfair competition were eliminated.

Henry George also captured the essence of protectionism by pointing out that protectionists want to do to their own country during peace time what the country’s enemies would want to do to it during war time—close its borders to imports.

My own favorite rhetorical device—not original to me—is to point out that we can create lots of jobs by replacing heavy equipment on construction sites with shovels. If that isn’t sufficient, you could always replace the shovels with spoons.

No, we don’t want to create jobs by deliberately creating inefficiencies. That’s exactly what we would be doing if we tried to create jobs by restricting trade.

 

 

Comments (3)

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  1. John B says:

    We don’t know what “the new industries” are that will “absorb the excess labor.” What happens if we can’t “absorb the excess labor?”

  2. RSS Ronald Reagan says:

    Points well made! I think that John’s question is what motivates a lot of protectionism. Fear of the unknown precludes a lot of things. Sometimes it may be good (e.g., we don’t start down the road of human cloning lest that result in a world of cloning people simply to harvest organs from them) but other times bad (e.g., where would be today if humanity had been too fearful to try and send people into space?)

    At the end of the day, however, it seems to me that history favors the courageous.

  3. EHRosen says:

    Really helpful explanation of why trade is essential to our future. Your writing is a role model for mine.

    Bravo!