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January 15, 2004

Since you're all so disappointed my last post wasn't political, I've posted one that is a bit more so :). I read this article on global economic policy at the NY Times, and thought it worthy of a post. I liked it, not because a NY Times columnist hounds on the Democratic candidates (though that's what first got my attention), but because it defends free trade, something I'm a big fan of. One of the most important principles of Adam Smith-ian economics is that things tend to work themselves out without intervention when people pursue what is in their greatest good. It's the principle of the invisible hand. There is another good link here on how minimum wages violate this principle. This can be a somewhat cold truth, but a truth nonetheless. Fortunately, people still feel the need to be charitable, but charity generally doesn't fuel prosperity or economic growth. The invisible hand principle lets cost rise or drop until its equal to the marginal utility (benefit) of the additional cost. Often, government will intervene to try to speed things up, or prevent a free market from taking its course. But in numerous cases, from pollution control (yes this is a market -- you can trade pollution rights) to the simple cost of a hamburger, free market trade has successfully found the balance. Sometimes people don't like to face the fact that something is worth more than they're getting it for, so they intervene. This often causes a mess (look at rent controls in NYC). Sometimes it works out. However, many opponents of global trade argue that it makes people work in awful situations. Nicholas Kristof talks about the conditions in those "sweatshops." I would suggest you also view his slideshow at his column. There's no denying that sometimes the conditions are very poor, but he points out that the conditions are often worse without these "sweatshops." Try scrounging through the dump. I put the word “sweatshops” in quotes because ironically, as he says, many look to the factories as places where they don't have to sweat all day. For many, the factory is a dream job.So come back to the US for a second. We're all rich. We wouldn't dream of working all day in a miserable factory for $2 a day. But that's one of the best jobs around in Phnom Penh. The candidates are saying (along with many anti-free trade advocates) that they should be treated better, even going so far as to say there should be a global minimum wage. Kristof tells them they're wrong, and I agree. Another economic principle I love is that everything has a cost; even human life. Having a global minimum wage would raise the cost in those factories. That would raise the cost of the products, but it would also limit the number of people able to work in the factories. Higher wages always means fewer workers because there is always a finite amount of money. So, with fewer working people making money, fewer are able to help build up the local economy. While I’m certainly not a fan of mistreating workers, I would also say that having a low cost work environment is a necessary evil of growing up. Every modern nation has gone through a similar stage. Sure they work a lot for a little, but that little is a lot more than nothing. As they prosper, they will demand more, which will raise costs. As factory owners resist rises in cost, the workers, who become increasingly educated as they make money, will move on to more upscale jobs, allowing others to take their places. When no one is willing to take those bad jobs, they move to an area where people are willing, or in the case of the US, people from other places will come to take those jobs. A balance is created between the price people are willing to pay and the wages the workers receive.

Posted by charr at 12:01 PM
Reader Comments

I've still got my mind wrapped around the second amendment and you want me to switch to economics? Oy.Here it is, briefly: - minimum wage is mostly bad.
- Smith is a bit naive.
- tarrifs are bad.
- free trade is great.Don't ask for more just now, my brain is still bean dip from the book I wrote this week.

Posted by Jan at January 15, 2004 12:14 PM

:) That's exactly it Jan. The book ended, but people are still reading (or writing), so I'm trying to help them move on. And yes, I'm not saying Smith was God, but his principles have a lot of truth and have been widely accepted for centuries, at least by Americans.

Posted by Cameron at January 15, 2004 12:22 PM

>things tend to work themselves out without intervention when people pursue what is in their greatest good. Well, duh. :) Too bad people are short-sighted when it comes to what is really in their greatest good. That night of 16 wine coolers when I was 18 comes to mind. Clearly, bowing to the porcelain god all night was not to my benefit. But I wasn't thinking about the consequences until they started happening. :^/

Posted by Renee at January 15, 2004 1:26 PM

On a serious note, it is a big concern that our higher paying jobs are being shipped overseas.

Posted by Renee at January 15, 2004 1:31 PM

Oh, I won't argue that Smith was mostly good and that he shouldn't be ignored. The thing about Smith, from what I remember from college, is that he didn't take into account politics in market forces. As long as your country has more of a free market than others then you have a competitive edge over the other countries. When your country, hoever, is not the free-est on the block, then you are at a great disadvantage. That's what I meant by naive. And that's pretty much happened to us with US steel tarrifs hurting the steel industry here in the US. Politics got in the way of free trade.Something interesting from that article: "Jefferson knew that America couldn't escape industrialization, but he hoped that American factories could be placed in the countryside and worked by farm families with strong democratic values. That way we could industrialize without endangering our republican institutions and creating an entrenched urban proletariat." This is what's happened to our cities. They are overwhelmingly liberal for just this reason. The last presidential election showed the great difference in rural and urban citizens quite well, just as Jefferson feared. And I like that word, proletariat.

Posted by Jan at January 15, 2004 1:40 PM

I'm mostly for free-market economy, as far as I understand it at least. I want to study it some more at some point, but where's the time? I'd have to go back to school or something. Anyway, opposition to these factories based on their wages is pretty naive, as is the concept of a global minimum wage. I think it's reasonable to keep an eye on the behavior of multinational corporations in third-world countries, but unless you consider Western culture to be a bad influence, having factories over there is certainly not making things worse for them.I am skeptical, however, about the wisdom of over-reliance on economic theory when it comes to government. Your statement that human life has a cost (by which I assume you mean it can be given a monetary value) troubles me. Maybe this sort of reasoning is required in warfare, but I think it's a horrible concept for government in general to espouse, if it really means what it sounds like. You really can't buy some things with money, and indeed these are some of the most important things to human happiness. And, as the whole point of our government (and our existence itself, if we are to believe Nephi) is to protect our right to pursue happiness, I think it's unwise to place too much emphasis on economics in some areas of government.

Posted by Levi at January 15, 2004 5:43 PM

Yes, the sending of high-paying jobs overseas is a bit of a problem. It doesn't fit the norm in that they have highly educated people in a poor economy. That messes things up.Levi, I didn't realize I loved economics until I took a class at BYU. I then had a roommate who was an econ major and we talked all the time about economics. As for the human life thing, I figured that would bother a bunch of people. It would bother me too, given the "...worth of a soul is great in the sight of God" scripture. But I'm not talking about souls. The fact is, we (people/the government) could save a lot of lives, but at an unacceptable cost. We could make the speed limit be 5 mph. We could put a railroad crossing at every conceivable intersection. We could dress everyone in armor, but the fact is these "life-saving" measures have a very high cost -- both in money and in personal freedom and time. Personally, I'd rather take my chance going 80 mph on the freeway (which I often do) and have a slightly higher chance of dying. I'd rather trust myself to be able to spot a train at a crossing in the middle of nowhere. And I sure as heck don't want to wear armor everywhere. These are costs, but to the majority, they are not worth it. I realize this may be a different way of viewing things, but I see a cost to everything.

Posted by Cameron at January 15, 2004 8:34 PM

Well, in that sense I agree with you. One can substitute consequence for cost, though, and then it doesn't sound like economics at all anymore. The issue I have with onerous regulations is that they they're often ill-conceived and don't really do what they aim to. You can consider it from the viewpoint of economics, or you can look at it as a question of the bounds of government, or any number of other ways. I suppose they're all interesting and useful ways to analyze things.Boy, I'm rambling tonight. :)

Posted by Levi at January 15, 2004 10:35 PM

Levi, you are rambling? I gotta laugh at that.

Posted by Jan at January 16, 2004 5:34 AM

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