Sweatshops and Zero Sum Games

Ezra Klein, responding to Nick Kristof's NYT column on sweatshops, gets this close to an actual free market position. Kristof raises a familiar point: Sweatshops seem like a terrible thing right up until you realize that people work in them because the sweatshops are less bad than the alternative (namely, subsistence farming for the lucky and outright starvation for the less fortunate). Klein, however, finds Kristof's argument "troubling":

The implication is that labor standards are zero sum. Keeping them high means fewer children offend our conscience by working in sweatshops and more children spend their days in the stench of the landfills. Lowering them means the American working class loses jobs and the Burmese poor gain them.

That's close, but not quite right.

See, lowering labor standards actually means that the American working class loses jobs and the Burmese poor gain them and the shirts produced in those factories get slightly less expensive.

And that, of course, means that the American working class has slightly more money to either spend on other stuff or (gasp!) invest somewhere. And either of those things ultimately spur growth and thus more jobs.

Economics is not (by and large) zero sum. It's a bit surprising that Klein doesn't seemed to recognize that basic fact.

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In theory . . .

OK, shirts, I understand. But what sort of mass produced consumer item would NOT be cheaper to produce under sweat shop conditions? Ignoring human nature, I can't think of any. What happens when all production goes off shore?

Don't psychological factors apply? Such as a regional work ethic? For example, some say that the War of Northern Aggression was fought because the North tried to legislate against shipping cotton to England instead of to New England. But no one asks why the Southerners didn't build their own cotton mills? Why did they all conclude that they had to ship their cotton out of the South?

OK, shirts, I understand.

OK, shirts, I understand. But what sort of mass produced consumer item would NOT be cheaper to produce under sweat shop conditions? Ignoring human nature, I can't think of any. What happens when all production goes off shore?

Work condition become better as labor become scarcer and capital more abundant. Demand for products is infinite, labor isn't. The ratio of labor to capital is what drive wages.

In the long run

In the long run, when we have a unified government, money and labor system the world as a whole might be in better shape but in the short run the American middle class is being dissolved and we will have a reducing standard of living as it is being raised in China and India.

It is a new world out there. WW2 produced freak economic conditions which will never return in my grandkids' lifetime. In the western nations the old rules of race, nationality, and religion are about finished. How will the young people choose to mate now that the field is wide open?

I propose that we are self-segregating on the basis of IQ, education, and ambition. Another 50 years and we will have a large labor class, maybe 20% middle class and 5% very rich. Just like the "good old days" that everyone wants.