Jobs Created By Exports

In a comment to my story on Walmart vs Boeing,

Kevin writes :

Your analysis makes sense, except you forgot to put in there the part about Jobs. Exports create more jobs internally to the US while import create more jobs in the country they come from. While exports bring in more money to the country, thereby lowering the over-all value of the Dollar, it does create more jobs.

While this is technically true, it doesn't really mean what it seems to.

When Boeing sets up a new factory in Seattle to build 747s for export, the jobs that it creates are new, but virtually all the workers have been bid away from other employment all over the country. When those new Boeing workers assemble copper wire into the fuselages, that copper has been bid away from other lower-valued uses elsewhere.

Both the copper and the workers have been redeployed in order to satisfy the Chinese desire for 747s, and away from satisfying the desire of US consumers for consumer goods (in part). This results in a lower supply of US consumer goods and higher prices due to scarcer production factors even before we worry about the increase in US money supply from Chinese payments for the 747s.

In order for the export of 747s to improve the general standard of living In the US, as opposed to only the standards of living of the Boeing workers and shareholders at the expense of everyone else, the sale proceeds of the 747s must be effectively used to import more consumer goods at low prices in order to offset the loss in domestic consumer good production due to the redeployment of labor and materials to the 747 export production.

In summary, it is the import of inexpensive consumer goods by Walmart that keeps the export of 747s by Boeing from resulting in an overall reduction of the standard of living in the US.

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Extreme Example

The Martians come to Earth and employ 95% of the US population for one ounce of gold per hour in their newly constructed airdocks and saucerwashes used to service the Martian Intergalactic battle fleet.

It should be clear that the US standard of living will collapse unless other countries are willing to take the gold in return for food and other consumer goods. And even then the remaining 5% of the population will be even worse off with no gold income to use to import from abroad.

Regards, Don

It should be clear that the

It should be clear that the US population employed by the martians will accept this job in the first place only if they value ounces of gold, that is propably only if they can exchange it in return for food or other consumer goods. If that happens it means the remaining 5% of the population value gold and thus they will also be better of.

productivity bad?

Maybe I understand less about economics than I thought, but you're just describing the division of labor. If Boeing chooses to make airplanes, it's because that's the most efficient use of their capital resources in the market. While some individuals may be worse off, the end result should be a slightly higher standard of living for most everyone.

Isn't the division of labor a big reason for our increased standard of living? Of course if someone's building airplanes, someone else has to make bread, or sneakers, or whatever it is the market wants. Only if China can produce a good more efficiently than we care to domestically would it be in our interest to import it.

If China can't make trinkets cheaper than us, than maybe Lockheed starts making trinkets. The price may rise due to higher commodity prices and labor wage pressure, but all those wages go to American citizens who are making consumer goods for us, and airplanes for the rest of the world.

Oh no! What do we do? We're too efficient! We're so rich, we're bidding up the prices of toilet paper! We need to limit the work week to three days a week! Or more likely, we bid up the prices of luxury items such as Cuban cigars, Champagne, Italian-made shoes, etc. while consumer goods stay relatively cheap.

I don't see how being productive hurts the economy as a whole.

Unfortunately. the problem is we're not very productive... hence the trade imbalance.

Productivity

Joe K,

I don't see how being productive hurts the economy as a whole.

The problem is not productivity, but just who determines what ends society's scarce means are allocated to accomplish.

If the King of Siam (or Bill Gates) wants to pay $10000 per hour for workers to alternately dig and fill holes on his palace grounds, he will have little difficulty in attracting the workers to do so, but less consumer goods will result and those that remain will cost more and the hole digger/fillers will have the first crack at them. This will all be qualitatively true no matter how productively holes are dug and filled.

Regards, Don

monetary inflation vs. increased production

So now adding high paying jobs to the economy is potentially bad, as well as productivity?

The problem is not productivity, but just who determines what ends society's scarce means are allocated to accomplish.

Isn't that what the free market does? It may not be perfect, but the free market has proven to be the most efficient determinant of the best uses for scarce means. You don't want something, don't buy it. Supply and demand.

To pay the exhorbitant wages for hole-building, Gates or the King of Siam had to get the money from somewhere. If it was through commerce and trade, I don't see a problem. On the other hand, if the King of Siam just printed the money, then there is a problem. That money didn't exist before and has just been added to the system. The first people to spend the newly created money definitely have an advantage over those who receive it later. However, if the money was already in circulation, the pricing of consumer goods should already reflect this amount of liquidity(no increase in price inflation). Sure there may be localized variations of the cost of living, but the increased wages of the hole diggers and those around them should more than make up for that. If it doesn't, then we have to re-examine the value of the division of labor.

All else being equal, increased productivity and higher efficiency should lead to lower prices. Production of items nobody wants, no matter how efficient, should lead to a failed business, and those resources going towards more highly valued purposes as determined by the free market.

[By the way, digging holes only to be refilled would be an obvious misallocation of resources and would obviously not lead to any profits for Bill Gates. His hole-digging project would basically be a form of charity. But the market already rewarded him for his previous productivity so he can do what he wants with his money. He's part of the free market. Government pork projects are not the same as they divert resources outside of the market forces Gates had to deal with.]