“Comparative advantage” states that a country should make what it produces most efficiently and buy from other countries that which the other country makes most efficiently. The idea is to concentrate the country’s resources, people and raw materials on what it makes most efficiently, thus increasing the country’s standard of living. While generally true, this principle has been distorted to mean that if a country can buy something from another country at a cheaper price, the country should always buy it from the other country rather than producing it domestically. However, price alone does not determine whether a good is cheap or expensive. Thus, price alone does not determine whether a country should produce something or have another country produce it. What matters most is whether the country has enough remaining jobs paying at least an equal amount for those whose jobs were sent oversees.
A key assumption underpinning the merits of comparative advantage is that countries have the luxury of letting other countries produce goods they could make. This situation requires the countries sending production overseas to have enough remaining jobs of equal pay and, importantly, requiring the same skills for those whose jobs were sent overseas. Is that the case in the U.S.? Ask Flint, MI, Gary, IN or any of a number of other former manufacturing powerhouses. We not only didn’t have equal-paying jobs to replace those lost overseas, sometimes we had no jobs of equal pay for those who lost their jobs to overseas competitors.
Sending jobs overseas when a country doesn’t have enough good paying jobs to replace the jobs lost is illogical and is not the goal of comparative advantage. How illogical is it? Imagine you are the shareholder of a domestic company and the C.E.O. sends out a letter giving notice that the company is going to stop producing one of their products domestically and instead buy the product from another company. The C.E.O. goes on to explain that this makes sense because the other company can make the goods more efficiently. Sounds good, right? There is a catch; the domestic company does not have work for the employees who used to produce what will now be produced overseas and, critically, the company has agreed to continue paying the workers a minimum standard of living for life. So, the company is paying to have the goods produced overseas while still paying the domestic workers who are no longer producing the goods here in America. In this example, America is the company and you and I are shareholders paying the laid-off employees through welfare. As a result, we are subsidizing the company’s profits, generating more profits for the company, and providing fewer jobs for Americans.
This is what blind faith in comparative advantage has led to in this country: We are paying other countries to make things that our working-age citizens could be making, all while paying the laid-off workers in the form of welfare checks and other forms of government assistance. We are trading wages for welfare checks. No C.E.O. would pay another company to make things when it has spare capacity AND that it has to continue paying for. Yet, that is often what is happening when jobs are sent overseas: The other country increases its employment levels producing goods they often sell back to us while we pay for the welfare of those who lost their jobs when production was moved overseas.
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