In my last post, I promised to expand a bit on an idea I raised in my closing paragraph. There I argued that when we send a job overseas, we do not "lose jobs", but instead gain the opportunity to satisfy another want that was going unfulfilled. I am sure many were somewhat skeptical of that claim, so allow me to explain with an example.

Let us start on the most simple level, the desert island. I live on a desert island. Half the day I fish, the other half I gather water to drink from the various tiny springs on the island. I have full employment just gathering water and food. So if my shelter collapses or I need to mend my clothes, to the degree they take me from these tasks I will go hungry and thirsty.

Suppose at some point there is a tiny tremor and, as a result, a huge new spring opens up near my shelter. Suddenly I don't have to search fro water half the day. In terms used by opponents of outsourcing, I have "lost my job". I am being deprived of this task, no longer have to expend labor on it, and so, by protectionist logic, I am now poorer.

In truth, I have been deprived of a burden, and the time I spent on gathering water can now be spent on a new task. Perhaps I can gather fruit to supplement my fish, or upgrade my clothing or shelter without having to go hungry to do it. Or I can simply fish more and create a reserve of food against hard times. Whatever I do, I will be richer than I was, a, being freed of the need to gather water, I now have time to dedicate to other tasks.

Now, some will say this is unfair, as it does not compare directly to outsourcing. So let me create a better example.

Let us say there is a village on a desert island. There are one hundred adults who do all the work. Ninety gather food of one sort or another. Five make cloth for various purposes, two work in wood, two work stone, and one performs basic medical tasks. The specialists all trade their goods or services for food and thus are freed from performing gathering tasks, while freeing the food gatherers from having to expend time and effort making tools, clothes or shelter, as well as providing healing services that would not be possible at all but for the presence of the healer.

Now, let us suppose that some foreign nation discovers our little island, and traders set up a trading post, exchanging metal tools, pre-cut lumber and other goods for fish and cloth. In cases where the goods replicate native goods (eg. wood), the costs are lower, and in many cases they offer superior substitutes for the native goods (eg. metal knives to replace flint knives). As a result, the four natives who once made wood and stone implements are now out of work.

However, there is an immediate plus. The other natives now can get wood and tools at a much lower cost, either allowing them to gather less food, or else to gather the same amount of food and lay up stores against future bad times, or maybe they could use that additional food to otherwise improve their lot, by having more children, who are now cheaper to support, or to buy more goods than they did, or perhaps to pay for more medical treatment. Whatever they choose, they will be, in absolutely terms, much more wealthy due tot he lower costs. In addition, they also now have access to items they would not otherwise have had, or at least a quality of goods they would not have had. In general, their standard of living rises.

But what about our four unemployed workers? I suppose they could all become gatherers themselves, adding tot he overall wealth of the community, but that would be the simple explanation. Let us look at a few alternatives.

Perhaps, thanks tot he greater wealth, the other natives decide to buy more cloth. After all, they now have more income, so perhaps they want a few more items of clothing, or perhaps just fancier clothing. Or maybe they can now afford to use cloth to add dividers to their homes, or doors and curtains. Whatever the reason, the demand for cloth could easily rise, which would normally cause cloth to become more expensive. However, we also have four unemployed workers.So, maybe, one of our workers responds to this rising demand by joining the five current weavers in the cloth making trade.

And perhaps this rising demand for cloth can absorb yet another worker. One fo our three remaining workers notes that the cloth makers, while pretty efficient, lose a lot of time going out to gather the fibers they weave and the raw materials used to make dyes. As the transition form gathering to preparing to weaving to dyeing take sup so much time, maybe he decides he can make a living by gathering fibers and dye components and then trading them to the weavers for finished cloth. He can then trade that cloth for his necessities. The weavers benefit by being bale to spend all their time weaving and dyeing, without having to stop to gather materials, while he can support himself quite well. And so a second unemployed individual is employed by improving the overall wealth of the community, though this time by providing a novel improvement to the production process.

A third unemployed worker, noting that the overall increase in wealth has caused a demand for new, larger homes, for warehouses to hold the additional goods and stored food, and for new boats and so on, takes his old wood cutting skills and applies them in a novel way. Where before each native made his own home and his own canoe form the wood the cutters dressed for them, he decides he will specialize as a carpenter. Trading with the foreigners, he will buy wood and then make items to order for the other natives, allowing them to concentrate on their own jobs while he can specialize in matters related to carpentry. Again, the overall wealth of the community will increase, this time by creating a new profession which did not previously exist.

Finally, our last unemployed man, a former stone cutter, decides that he will try his hand at something completely new. While his stone tools are no longer needed thanks to the imported metal tools, he will try his old profession, but for purely decorative ends. He cannot compete with the foreigners in terms of utilitarian goods, but he can compete in terms of decoration. And so he starts to carve decorative stone objects. Simple statues, as well as decorative bowls, pots and other items. And, thanks to the increasing wealth, the natives find they do have disposable income to spend on such decorative goods. And so, the final displaced worker is employed by creating an entirely new category of goods, satisfying a want no one recognized until then, generally improving life by providing something that did not exist in the past.

And that, in somewhat simplified terms, is what I meant when I said that transferring tasks to other nations allows us to fulfill other wants. Labor is the most universal productive input, it is used for every task. And when labor is freed, it doe snot mean it will sit idle, instead it means that we now have the labor to fulfill yet another want that we did not previously fulfill. As my example shows, the labor is not idle, simply shifted to new uses.

Of course some will argue my overly simple example does not describe the real world with money and employers and so on, but it does. It is simplified to make the process more obvious, but, with the exception of some distortions caused by inflation, processes with money work identically without money, and vice versa. My description would be no different were money included rather than barter, it would just make it more difficult to follow.

Think about what happens in our complex economy when a job goes overseas. Let us say a factory which cut out ans stitched mittens moves overseas. Well, first the price of mittens declines slightly, and the profits of the company rises slightly. The workers are also put out of a job.

However, those workers were not just wanted by the mitten maker. When they were hired there were others bidding for their labor, and now that they are free, those other bidders may be able to employ some of them, either increasing the number of goods available or else creating goods and services not presently possible to obtain. And the money will be available for these new tasks, as the general savings will allow an increase in investment throughout the economy.

Of course the adjustment takes time, and it may not be perfect. Some individuals may find it difficult to move to another job. But that si true with any change in the economy. When buggies were replaced by cars some could not adjust and, for a time, many were put out fo work. Any change displaces workers for a time. It does not matter if it because of a factory moving to Boston or Bombay. So why do we focus on "outsourcing"?

And the answer there is simple. We focus on outsourcing because it is easy for demagogues to work up their audience. No one will get up in arms about economic progress. You can't say you want stagnation by keeping all jobs form changing. But once you raise the specter of "losing jobs to foreigners", suddenly you can campaign for stagnation with broad support.

And that is why I have wasted so much time on this. Sadly, many conservatives have followed the liberals in this foolishness, thinking that it is tantamount to treason to trade with foreign lands, or to employ workers outside the borders of the US. And so I am trying as best I can to make it clear that there is nothing wrong, and everything to be gained, by open up trade as broadly as possible, not just within the US, but across the globe.