Wednesday, July 26, 2006

A lot of things are worth paying others to do

The Star Stage Deli, on 55th Street just west of 6th Avenue, has quite good food. They make a very good cheeseburger, and their french fries are cut nice and thick, though I find their grilled panini lacking. Today, they had an excellent pepper steak that made quite a good lunch. I could have cooked some beef myself, cooked peppers and onions, and whipped some mashed potatoes, but at what cost? Paying $8.62 or so was quite a bargain considering how it freed me to do what I consider more valuable things.

That's the beauty of purely voluntary trade: everyone benefits. The deli workers earn more than if they simply produced food for themselves, leaving them that much more prosperous. I benefit by having much more free time, not to mention the convenience of not having to bring Tupperware containers from home, and of course the better taste of freshly cooked food.

I wrote last night about my intensive method of polishing shoes, which is an exception because no one else can do the job as I desire. However, when my shoes need new heels, it's much like buying lunch: I suppose I could order replacement Vibrams and appropriate nails, sand things, and do an overall job as well as any cobbler. However, someone did it for me for $16, and I'd have used far more than $16 worth of my time to do it myself. So at lunchtime, I dropped off my favorite dress shoes at the shoe-repair shop next door to the Star Stage Deli. They have a very fast turnaround; my shoes were ready by 5 o'clock, and if they weren't busy, maybe 10-15 minutes. Since I was in the vicinity anyway to buy lunch, and the shop is along the way to my usual subway station, the cost in terms of my time was minimal.

Believe it or not, there's a valuable economics lesson here. Today, I had a trade deficit of $8.62 with the deli, and $16 with the cobbler. Am I exporting my income to others? Did I really lose $24.62? Is my family being deprived of the opportunity to do that work for me? Wouldn't it be better if my family charged me $10 to cook my lunch, and $20 to put new heels on my shoes? After all, that would give them so much more money, and if they're restricted to buying things from me (at higher prices than others charge), I'll be better off too...right?

As my patron saint might have said, "Absurd!" The problem with restricting trade is that it may force higher wages, but it does not create higher wealth. So then why do Americans fear trading with China, or any other nation that offers us the same (even higher-quality) products and services for cheaper prices? If it's not a bad thing for me to run a "trade deficit" with a business, why is it so different when it's between nations? Also, why do so many Americans believe that we must keep our currency between ourselves? Do any of us worry about keeping money between ourselves and our friends, refraining from buying from anyone outside our circle? Whether it's buying more from China than the Chinese do from us, or immigrants mailing money to their families, the dollars will come back to us in one way or another.

Should government force delis to lower their prices, and force my employer to raise it, to "equalize" each transaction? That's completely absurd, of course. It's also absurd to think that anyone at the deli, or all people at the deli, should buy exactly as much from me as I do from them. Then why do people like Warren Buffett think the U.S. should force imports to be no more than our exports? And why do people, generally pseudo-economists and publicity-seeking politicians like Chuck Schumer, think it's economically sound to "correct" the trade deficit via currency manipulation?

Real economics does not recognize borders, and real economics is very scalar. Like two triangles of the same shape but different sizes, the principles behind transactions have the same shape, whether we're talking about two people or two nations.

Walter Williams on the trade deficit
Worrying about the trade deficit
So you wanna revalue the yuan?
A lesson for Warren Buffett on international investment


Anonymous Brad Warbiany said...

I completely agree.

But there's one thing I always like to point out when people bring up this point. It's true that running a trade deficit is not inherently a bad thing. But too many people use that as an apology for a trade deficit, without similarly pointing out that our own policies make our products less competitive on a global market.

Fixing the problems of high taxes and high regulation certainly won't bring the textile markets back from China, but it just might bring back some of the tech support jobs from India. Outsourcing and trade deficits aren't necessarily bad, but just like the broken window fallacy, if our own fiscal policies are causing those things to happen, it's not a good thing. Outsourcing and trade deficits are problematic in that they highlight anti-competitive tax and regulatory practices by the US.

Wednesday, July 26, 2006 10:31:00 PM  
Blogger Perry Eidelbus said...

There's actually no need for anyone to be a critic or an apologist, since calling trade deficits "good" or "bad" implies a value judgment. Trade and current account deficits simply are, and even their underlying causes may not necessarily be describable as "good" or "bad."

The vast majority of the U.S. trade deficit with the rest of the world doesn't come from our artificially higher employment costs. It's primarily the difference between capital-rich and labor-rich nations, whose distinctions are sharpened by higher capital mobility. Some complain that improved capital mobility hurts our domestic industries, but in fact it allows us to focus on our own capital-rich industries.

For the portion that does result from shooting ourselves in the foot with regulation, it's easier to outsource than to fix our own internal structure. The alternative is to waste our efforts repealing this and that, which, barring a revolution like what started in 1775, will never happen in your or my lifetime. And like any good, competitive business would do, American companies choose the best route for profit. Oddly enough, it's also the best route for the consumer.

Textiles, plastics and mass-produced electronics will probably never come back, and that's fine. Americans are more than capable of producing far more advanced items than cotton T-shirts, bolts and toys. For the same reason, I don't want a lot of tech jobs to return from India. Most of them are so low-grade that American programmers ought to want to be more than basic code jockeys. Besides, you're not going to get an American company to hire a domestic programmer, no matter how low we can get our regulations, to compete with someone in Bangaloore who'll work for $10,000 a year with no benefits.

Thursday, July 27, 2006 12:15:00 AM  

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