28 August 2011

Free Trade Fallacies


I sympathize with the sentiment, but this is a dumb way to analyze free trade:

Decades of outsourcing manufacturing have left U.S. industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy, as noted by Gary Pisano and Willy Shih in a classic article, “Restoring American Competitiveness” (Harvard Business Review, July-August 2009)
The U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products. Amazon’s Kindle 2 couldn’t be made in the U.S., even if Amazon wanted to.

First, how can Gary Pisano and Willy Shih be sure of the keys to the future?  The eight-track used to be the way to the future of music; the laserdisc used to be the future of home movies (as did HD-DVDs).  How can anyone say with any degree of certainty that high tech products are the key to the future, especially in light of diminishing marginal returns?  The simple fact of the matter is that there is no way to predict what people in the future want, and there is no need, then, for this sort of histrionics.

Second, who says manufacturing is the key to future wealth?  What makes Apple products so popular isn’t their manufacturing specs; it’s how they’re marketed.  It may be that marketing is key to the future, especially if consumers become considerably more concerned with status.  As such, focusing on America’s ability (itself a logical fallacy) to manufacture certain products is shortsighted and unnecessary.

Finally, why is the ability to manufacture high-tech products considered a hallmark of American competiveness instead of domestic economic policy?  If one truly wants to understand why American manufacturing has declined, one need look no further than the federal government’s domestic economic policy.  It has become increasingly anti-business and anti-manufacturing over the past decades, and more supportive of foreign trade.  As I have demonstrated many times now, this combination is eventually going to prove fatal to American businesses.

Thus, the problem isn’t that “America can’t manufacture a Kindle,” it’s that American businesses are being increasingly hamstrung by the American government.  The solution, then, is to repeal the economically destructive laws put in place by the government; it is not lamenting over the decline of high-tech manufacturing.

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