So I have like an hour before next class, since Friday is the low-load day, and I just got done with Macro Economics and I'm going to tell you what I learned and have been learning since I started. I'm telling you... If our government leaders would have only taken an intro economics class, we would be far, far better off than we are right now. I'm, what? A week into classes and we've already covered the benefits of unrestricted free trade and the problems you face when you restrict it.
Basically, there's this thing called COMPARATIVE ADVANTAGE. It's the only thing you need to trade with someone and benefit. Basically, it's the idea that you can produce something cheaper than anyone else even if someone can make more than you can. When someone can make more of something than you, that's called ABSOLUTE ADVANTAGE. Say we, the US, can make more lightbulbs than anyone else in the world. We have an absolute advantage. If France can make lightbulbs cheaper than we can, even if they make a total of less lightbulbs than we can, they have the comparative advantage, and that's all you need to trade. Say we can make glass plates cheaper than France can make plates and cheaper than we can make lightbulbs... It is in everyone's best interest for us to focus more on glass plates and France to focus more on lightbulbs and then we trade with each other. Being able to make these things cheaper, we can make A LOT MORE of them and trade with each other for the other thing we need and still have a major surplus. Our economics grow.
So here our economy book shows example after example of how this works and makes everyone vastly better off, but they use stupid examples like lightbulbs and glass plates. (Even though I made up that example, the idea is the same, and the principles are the same.) My professor, on the other hand, keeps going "does that sound like something we could use in anything today?" And generally goes HINT HINT THE AUTOMOTIVE INDUSTRY???
Seriously. The two major examples that we can apply this idea to RIGHT NOW is the massively failing auto industry and the ethanol industry. First, I'll explain the auto industry... I mean, it's incredibly sad that I, a week into an introductory economics class, know exactly what is best for the country and the 25 year Democrats in Congress are doing everything but this. Anyway...
We know the story. The auto industry is failing. Sales are too low and costs are too high. As with most industries, there comes a point where the OPPORTUNITY COST exceeds the income you make selling that good. Opportunity cost is the idea that, since we have finite resources, if we make Thing A, we HAVE to make Thing B. A resource can be anything from a worker to a plastics compound. You think "resource" as material of some kind... Nah. It could even be money. Anything and everything you need to make something is a "resource". The opportunity cost for us to make automobiles is waaay too high. Why is it high? All kinds of things... I mean, it didn't help that the price of a COMPLIMENT to automobiles (gasoline) went through the roof last year, but I'm going to go out on a limb and say that the cost of workers in the automotive industry is WAY TOO HIGH. Those stupid unions keep demanding more and more money for petty factory work and nobody can afford them anymore, but they have to have them to make anything, so they keep trying... So now the industry is failing because the costs outweigh the benefits.
Now, the kneejerk reaction is to prop up the industry because, if it closes, then we've "lost" an amazing number of jobs. Now, in economics, the term "lost" is misconception of what actually happens. When an industry fails, does the economy lose jobs? No! The industry loses jobs in that particular market, but the employees will always migrate to another industry. The jobs aren't "lost", but instead have a transition period of downtime while the resources shift to another cheaper industry. The idea of losing a job on a national economic scale is a fallacy. Now a depression is another story entirely, but we're not talking about that... We're talking about a single industry collapsing under its own costs.
Using textbook capitalist economic principles of free trade that have been proven countless times over the years, what should happen is this: The automotive industry needs to shrink and we need to import vehicles from countries who can make them cheaper. That makes people incredibly upset. HOW DARE WE BUY A FOREIGN PRODUCT! How dare we send jobs overseas! The crying goes on and on... Hold your horses, I'll explain imports in a minute. Using the idea of free trade and comparative advantage, if we can import cars cheaper from outside the country, and we DO IT, what will happen? Well, cars will be cheaper! The domestic production will scale back and lower prices and resources (workers and materials) will be released as a result. What can then happen is these new resources (workers and materials) can be reallocated to other industries that are cheaper to maintain. We can make more of something else and trade it with countries who give us cheaper cars and BOTH ECONOMIES GROW. Sure, there's a period of downtime as resources are reallocated, but it's always far better in the end. Is there really a good argument against making things cheaper? I'm not talking about lowering the price for consumers so that producers lose money, this is "cheaper for everyone, period."
Now, one of the things that ALWAYS comes up, especially from the liberals, is that we're sending American jobs overseas, as if that's somehow a bad thing. No, we're not sending American jobs overseas, we're redistributing the resources from a high cost industry to a low cost industry, and someone else who can make cheaper what's expensive for us to make will pick up the extra slack. We'll still get the same amount of vehicles if domestic plants close, they'll just be from another country instead of from here. BUT THEY'LL BE CHEAPER, and the resources can be used in an industry that we do MUCH BETTER, too.
But okay... Here's what the average person (and Democrats in Congress for 25 years) sees. They go to a store and buy, well, pretty much anything and see the sticker "made in China" and they freak out and wonder where all the American jobs are since "everything" is being made overseas. Well, I'll tell you what... How do you think we pay for imports? How do products get from China to the United States so you can pay for it at Wal-Mart with American Dollars? What someone, somewhere, has to do is export a good to TRADE China for the stuff they're going to sell to you. Hey, there's a word you don't hear very much: Export. Everyone's always crying about how much we're importing, but they don't realize how we actually GET those imports. We get imports by trading other countries for our exports. It's a long, complicated process, but that's it in a nutshell.
Do you realize that the United States is the largest exporter in the world as we speak? This book is only a year old, so I'm going to think that we haven't lost that status, yet. That's right. We give other countries a massive amount of products and services in exchange for a massive amount of products and services. The thing is, we're not exactly known for consumer level products, or you'd see more food and toys and cheap electronics made in the United States. Actually, we have a huge comparative advantage (there's that idea again) in wheat and high-technology and massive equipment. (Think factory robots and cargo jets and excavation equipment.) The United States is the top of the line in many industries, but they're not industries the regular person would even think of buying. What would you need one of those giant dump trucks for? Not the little ones... THE REALLY FREAKING HUGE ONES. See, the US is the largest exporter in the world right now and we export things that you, the Wal-Mart shopper, will probably never see. Just because you're not aware of what we export doesn't mean we don't export. We have a colossal amount of jobs that sell products overseas so they can import the things someone else can make cheaper.
Now, I'm sure those jet and dump truck factories could use some workers, since cheap industries will always grow until it's not in anyone's best interest to do. All these automotive worker unions who've priced their own industry into oblivion can probably shift to other fabrication factories without too many problems. There will be changes, such as relocation and maybe a smaller paycheck, but that's the ebb and flow of the economy. The automotive industry is dying. Deal with it. If you don't let the market adjust like it's supposed to, you'll seriously harm the economy and make the entire country worse off. (Seriously, you've already managed to take 800 billion dollars of tax payer money to be used to bail out everyone who needs to scale back.)
A final example is the idea that the government will tax imports to protect domestic products. This is a horrible idea... If you can get something cheaper somewhere else, and trade for it by making something cheaper, and the whole market gets cheaper, WHY IS THAT BAD? Cheaper means more sales. Remember, this isn't the idea that consumers get a break and producers have to bite the losses, this is cheaper for everyone. Less money to buy something and less money to make something. Currently, there's a restriction on sugar imports. Why? Your guess is as good as mine, but you know what it's hurting? The ethanol industry. You know how ethanol has been deemed a uselessly expensive alternative to gasoline because it uses up valuable corn resources and doesn't really affect the price at the pump? Well, that's because there's a restriction on sugar.
And why is a sugar restriction affecting the price of ethanol? Because there's two ways to make ethanol... One with fermented corn and one with fermented sugar. Using sugar is vastly cheaper than using corn. We don't make a whole lot of sugar. That comes from other countries. As of the writing of the book, which is very recent, the world price of a gallon of ethanol is a single dollar. American price is two dollars. See, the rest of the planet benefits from unrestricted sugar trade and they can use all this extra sugar flowing around to make cheap ethanol. But the United States regulates sugar imports for some dumb reason, and we don't get sugar ethanol OR the sugar to make our own sugar ethanol.
You'd think that all these global warming alarmists who want us to get off gasoline would realize that these stupid trade limits are slowing the transition to "cleaner" fuel... It's insane. They're not interested in helping, they just want to control our lives. If they were really interested in the best for this country, they would approach the economy in the true capitalist sense.
As my professor says: FREE TRADE GOOD, TRADE RESTRICTIONS BAD.
And now it's time for Chapel... Oh boy.