Columnist Davidson not accurate on global economics theory

June 30, 2009

Anonymous The Laurel Leader-Call Tue Jun 30, 2009, 09:32 AM CDT

To the editor:

This is in response to Jim Davidson’s editorial in the Sunday, June 28th edition entitled “What happened to the Union Label?” While I don’t disagree with the main point of Jim’s editorial, Jim makes a common economic blunder when he says that, when U.S. manufacturers move overseas, America loses jobs. He glibly says this is just “common sense” and is “a given.” I disagree. Here’s why.

Yes, in the short run, some people here will lose their jobs when U.S. factories and plants shut down. But then those same products return to our shores at a cheaper price. So when people here buy those products, they have money left over which they then take and spend somewhere else, or invest it, or put it in savings (where it may be loaned out again 9 or 10 times). So that left over money is still circulating in the economy – it’s just being spent on a different basket of goods and services. So other businesses are seeing an increase in income, and those businesses add jobs to compensate for the increased demand (or buy more goods and/or services, which creates more jobs).

Furthermore, when plants and factories move overseas, a host of other new jobs are directly created, many of them available to Americans. Perhaps it’s a U.S. shipping company that’s hired to bring all those goods back to the U.S. (so not only do they staff up, but perhaps new ships will be built, and new containers, and all the other things that go on ships like ropes and radars and a host of other items). The foreign manufacturer may need translators to facilitate their interaction with U.S. markets, or consultants in the U.S. to help them negotiate the regulatory environment here. The U.S. based parent company might send Americans to oversee the construction of the new manufacturing plant, and may permanently assign Americans to work in quality control at those plants. This is just scratching the surface of all the new opportunities that present themselves when a manufacturer moves overseas.

Jim states that he’s not an economist, and he is certainly right. Economists know that when goods and services become cheaper here in the U.S. we all prosper, in spite of the immediate pain of job losses. Jim complains about the millions of American jobs lost in the last decade or two, but how many new jobs were created during that same time from all the money we saved on clothing, clocks, skillets, coffee pots, etc., and subsequently spent on something else? How many of those new jobs were higher-paying, higher-skilled jobs than the manufacturing jobs that were lost? He doesn’t say, and that’s typical of folks who only want to focus on the negatives. But economists know this process as “creative destruction” and they know that it leads to a more efficient allocation of scarce resources, and when that happens, we are all more prosperous.

In today’s global economy, this “creative destruction” is taking place at a faster rate than ever before, and so it’s easy to focus on the “destruction” part of it. But instead of licking our wounds and complaining about all the disappearing jobs, we need to get busy and go find the opportunities that are being created all around us. And hopefully, Jim will leave some of his “common sense” behind and consult an economist before he next weighs in on global economics.

— Steve Moffett

Ellisville

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