10 April 2012

Coming Home to Roost


Master Lock, which has made locks in Milwaukee since 1921, has brought 100 jobs back from China over the last year and a half. And Mr. Bink, who has worked at the plant for 33 years and heads the United Auto Workers local, is sure more will follow. “They are making a lot of capital investment; buying a lot of new equipment,” he said. “That will create more jobs.”
Master Lock’s story dovetails nicely with the budding upturn in manufacturing employment, which has rekindled hope across a Rust Belt pummeled by 30 years of job loss. Nationwide, factories have added 400,000 jobs in the last two years, the first sustained bout of growth since the 1990s, replacing about a fifth of the positions lost during the recession. Other companies, from Otis to General Electric, are bringing home jobs once thought lost for good.

While more domestic jobs are a welcome development, it is sad that they are only now returning because the transfer of wealth is reaching completion.  The price of American labor has now begun to decline to the point where domestic production is feasible.  This also means that foreign labor’s price has increased to the point where foreign production is no longer feasible.  What happened?

In brief, the federal government decided it would be a good idea to hamstring domestic businesses in a variety of ways, including price floors for labor, costly regulations, high corporate taxes, and a large number of other impediments.  While doing this, the federal government decided that it was simultaneously a good idea to open up the market to foreign producers, especially those who did not have the same regulatory burdens as domestic businesses.

This caused upheaval in labor markets.  It also caused some capital flight.  Some Americans lost their jobs, but at least they had cheap goods, most of which the federal government prohibited them from manufacturing.  Now, foreign workers have the capital (including intellectual capital) that would have otherwise belonged to US citizens had not the government taken it from them.  Now, US citizens have jobs again, only they don’t have all the capital that generally goes with these jobs because the government effectively taxed it away from them and gave it to non-citizens.  The kicker of this story is the federal government is nominally a representative democracy, and acts on behalf of its citizens.

7 comments:

  1. Simon, you put these somewhat obvious and not as complex as "they" want us to think abstractions into concrete realities that can be grasped by those with a high school education.

    I am a bear of little brain, and often the vocabulary of the highly economically and politically literate escapes me on the first pass. But I wonder sometimes that when I read the publications of professional economists I see the wisdom of my blue-collar grandfathers and uncles shine through; that all they taught me was right while all I was taught in school told me my family's "jingoistic, protectionist" ideals was wrong. That globalism cannot be attained, expansion cannot continue forever, that NAFTA was perhaps not the best thing since sliced bread as far as the US economy goes, and that a country with a solid manufacturing base will always have a strong economy that resists outside influence.

    Everything you wrote about is stuff my grandfather, may God rest his hardworking soul, told us at many a dinner table discussion over the first 22 years of my life. He grew up the poor son of Czech immigrants in Wisconsin, dropped out of school at 17 to join the Navy and fought in the Pacific Theatre of WWII, married, had a 37 year long career as a machinist at Revlon, retired to fish and hunt at leisure, and died of lung cancer. And he knew as much, back then, as our enlightened economists do today.

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  2. Making way too big a deal about master lock. 100 employees in an economy of 300 million people is unmeasurably small and lost in the noise of daily hiring and firing. But this was an Obama administration photo-op.

    Show some real manufacturing improvements like the number of extra people hired to manufacture guns and ammunition since Obama took office.

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  3. Importing Chinese construction companies and workers for infrastructure jobs in the USA.
    http://abcnews.go.com/WNT/video/us-bridges-roads-built-chinese-firms-14594513?

    Hard to tell what's all behind it given the liars in the MSM. However, the premise is we are bring Chinese workers to the US for the jobs that supposedly can't be outsourced.

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  4. Don't disagree with the post but another important factor to consider is the price of oil.

    When oil gets over $100 per barrel it starts to effect the economics of the global economy. It takes a lot of oil and energy to dig up iron ore in australia send it to china, turn it into steel, and then ship it to the US. At some point the extra energy cost outweighs the labour advantage in China meaning that its cheaper to produce goods in the US closer to where they are consumed despite the higher labour cost.

    Jeff Rubin is fond of saying with triple digit oil prices "distance costs money".

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  5. @Cranberry- It's amazing how knowing a little abstract math can distract people from the underlying reality of trade. Your grandfather was able to cut through all the nonsense because he wasn't educated to the point of being conceited.

    @Prof. Hale- Unless I'm mistaken about this being part of a larger trend (i.e. the first data point of an eventual data set), this news is huge, and signals the beginning stage of economic decline.

    @Carnivore- Well, I've noted before that free trade of philosophical necessity demands free labor. http://cygne-gris.blogspot.com/2011/11/free-trade-needs-free-labor.html)

    @john- I'm not sure how important a factor that is since some ships are powered by small nuclear reactors. From what I recall about manufacturing, the largest portion of costs is pretty much always labor.

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  6. That is what the Obama administration would like you to believe. but it is nothing of the kind. thousands of businesses every year make relocation decisions. Some from state to state, others internationally. pointing at one moving a mere 100 employees is in the noise. it isn't a trend until you see thousands of companies doing it.

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  7. @Prof. Hale- Not to be pedantic, but trends have to start somewhere.

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