Two comments on this, starting backwards. David Henderson building off of Ron Paul’s – admittedly mixed up – answer on manufacturing jobs.
The other candidates did a poor job too. All of them seemed to see the lack of manufacturing jobs as a problem per se.
As is my wont, allow me to get a little meta here. Suppose that the topic had not been manufacturing jobs but infanticide. If the candidates had taken it for granted that infanticide was a bad thing per se, would we have let them off the hook?
At the end of the day, infanticide happens and the more infants there are, all else being equal, the more will be murdered. The history of society is one of more babies being born and consequently more of them being murdered.
I have the strong urge to go deeper and suggest that the configuration of subatomic particles we call a dead baby is not in its essence more or less outrageous than the configuration of subatomic particles we call an unemployed manufacturing worker.
These configurations matter because they matter to someone. People are obviously very concerned about unemployed manufacturing workers and thus they matter, per se.
On a more concrete level we can see this by imagining that all of the former manufacturing workers had owned stock in their companies. The companies then discovered some way radically increase productivity, lower costs and send profits through the roof. All of the former workers lost their jobs but became millionaires. Would there be a lot of handwringing over this – I am guessing not.
Which is to say that people complain about things because they are painful, we should take their pain seriously and speak about what can be done to alleviate it.
If the answer, is: it is not worth it for me to alleviate your pain because any feasible method would be too costly to the whole economy, then we have to recognize that that is in fact our answer and does in fact suck for the person hearing it.
Now, on to Ron Paul, he said many things but key among them was
But as long as we run a program of deliberately weakening our currency, our jobs will go overseas, and that is what’s happened for a good many years, especially in the last decade.
This is, of course, exactly backwards. Weakening our currency will bring jobs to America. This is why exporting countries have a deliberate and successful policy of weakening their currency.
However, my point is not to hit Ron Paul over the head with this. I am sure he has sort of put this together in his head. Its to point out how ubiquitous the trap of imagining that good things lead to other good things can be.
Ron Paul believes for many reasons that a strong currency is good. He also believes that seeing all of these job losses is bad. My strong suspicion is that it is difficult for him to reconcile the idea that a good idea could have such a bad outcome.
However, of course this happens all the time, because happiness and prosperity are not rewards for doing the right thing. They are simply one of many possible states of the world that result from the unique interaction of the events which preceded it.
Very few choices are clean in the sense that they will make everything better and nothing worse and none are clean with probability one.
So lets step back from all of this and looking at the policy dimension of the jobs question. My narrative is that the United States has somewhat passively allowed itself to get into a position of being consumer of last resort.
Other nations, most recently China, have run deliberate policies to suppress household consumption. The result was a rapid increase in both investment and net exports. This has the inverse effect of increasing US consumption and decreasing US net exports.
The costs and benefits of this policy accrue unevenly to Americans. Most Americans benefit slightly in the form of cheaper consumption goods. A few Americans benefit immensely by working in the financial sector of a country experiencing huge capital inflows and cheap financing. Another subset of Americans suffers miserably from losing employment and seeing the agglomeration effects that built their entire communities unravel.
The true policy question is: are we indifferent to this? I don’t think a simple appeal to Laissez-Faire is enough, if for no other reason than because this is not a Laissez-Faire outcome. It is the result of the deliberate policy of another government. Should that matter? I am not sure.
At a minimum, however, I think as intellectuals we should recognize the suffering of people affected by this and address it directly. Even if what we have to say is: I’m sorry but there is just nothing I think we should do to help you.

16 comments
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Friday ~ June 17th, 2011 at 11:04 am
Roland
Excellent reality check. The outcomes observed have caused concentrated pain for a few and diffuse benefits for others. These are the result of choice, for example support for free trade with economies which have a huge comparative advantage in manufacturing.
As you note, it may be that we cannot say “we care, but no policy choice is available that does not have other, higher costs attached to it..” so we practice various forms of cognitive dissonance.
However, it may be that some (imperfect) public actions are available, actions that tax winners, payoff losers and secure free trade (the Trade Adjustment Assistance program does this). We would all be better off in the long run, but this kind of public program is inconsistent with the mental landscape of many legislators, for whom all public actions are “bad”. This is not a perfect program, nor an especially “fair” one (what about those made unemployed by domestic competition?) but it buys a better state of the world. Its pragmatism that helps political markets clear in ways favorable to economic markets..
Friday ~ June 17th, 2011 at 11:32 am
Dustin Miller
Awesome post.
Friday ~ June 17th, 2011 at 11:45 am
DJ Any Reason
Oh man – Karl, you better hope that you never get caught with a love child from cheating on your wife, or Adam will endlessly post in glee over your misery because you dared to suggest considering focusing on re-building the manufacturing sector.
Friday ~ June 17th, 2011 at 11:58 am
engineer27
Hence his rather Laissez Faire attitude toward infanticide….
Friday ~ June 17th, 2011 at 11:57 am
engineer27
Ron Paul is evidently comparing this graph with, for example,
this graph and assuming causation is at work. Dollar declines, US manufacturing employment shrinks, QED.
There is insufficient lumber remaining in the Pacific Northwest to adequately hit Ron Paul over the head with.
Friday ~ June 17th, 2011 at 12:59 pm
Andrew Chesley
Yes, the costs and benefits of current trade policy accrue unevenly in America, but it’s important to remember that there are costs and benefits outside of the United States as well. American manufacturing workers are worse off, yes, but Bangladeshi factory workers are much, much better off. Those lives matter too.
Tuesday ~ June 21st, 2011 at 9:56 am
Khal Mojo
I knew this was going to be brought up at one point. There have been several blog posts on this site before lambasting Americans for hating on China where many jobs that Americans used to do are being done there; the bloggers have said that Chinese life is much better for it and everyone will be eventually once everything evens out. The problem is that it won’t even out naturally because the invisible hand is being forced by the Chinese government. The problem is that, as Karl mentioned, much of this isn’t Laissez-Faire at all. It’d be one thing if it was American policy doing damage to employment in the US (and we’ve been moving away from what does do damage to jobs in the US: regulation, taxation, labor unions, etc.) in the past three decades.
Sure, we should be glad Bangladeshi factory workers’ lives are being improved but if foreign countries are manipulating the variables to better their own outcomes instead of allowing the floating point calculations do their work and produce a natural outcome of best use of resources, then that’s no different than your best friend cheating at cards.
Friday ~ June 17th, 2011 at 2:03 pm
George Washington
Did You suggest that a weakened dollar instills confidence in the currency and therefore promotes business to come back to the USA?
Funny how real life does not promote Your statement.
Ron Paul for 2012 Please
Friday ~ June 17th, 2011 at 2:08 pm
Roland
A relative decline in the price of the dollar raises the cost of imports and effectively shelters the traded goods sector. Ron Paul has it completely back to front. And US policy hasn’t been to deliberately “weaken” the dollar, but to practice an independent monetary policy in conjunction with unrestricted international capital flows–as a result, it has surrendered control of the price of the dollar to the marketplace..
Friday ~ June 17th, 2011 at 7:20 pm
Rick Russell
Confidence is the currency is important when *selling* products, not when *making* them. The cost of new production operations is very much dependent on the value of a nation’s currency.
Friday ~ June 17th, 2011 at 7:18 pm
Rick Russell
First off, thanks to Andrew for pointing out the obvious. Indeed, there is no reason that Juan in Mexico or Joro in Africa or Jiang in China is less deserving of rewarding work and a fair wage than John in Cincinatti. While we can acknowledge the pain of those displaced into lower income work or forced out of work for a period of time, their pain is rather less intense than the pain of 90% of the planet’s population. So maybe they should temper their complaints.
Second, I think a statement like this: “Most Americans benefit slightly in the form of cheaper consumption goods. A few Americans benefit immensely by working in the financial sector of a country experiencing huge capital inflows and cheap financing. Another subset of Americans suffers miserably from losing employment and seeing the agglomeration effects that built their entire communities unravel.”
… is one of those statements that really demands evidence. Are cheaper household consumption goods the only benefit of free trade? What about tools, capital goods, etc? What about the market for US capital goods abroad? What about the people who are employed or run their own businesses because of the cheap availability of Chinese capital goods? Economists that really dig into international trade numbers (I recommend Scott Lincicome) find that the numbers rarely back up the claims.
Saturday ~ June 18th, 2011 at 3:05 am
Ron Paul and David Henderson on Manufacturing Jobs « Modeled Behavior | Financial News
[...] this article: Ron Paul and David Henderson on Manufacturing Jobs « Modeled Behavior Share and [...]
Saturday ~ June 18th, 2011 at 6:03 am
Peter
“Weakening our currency will bring jobs to America.”
I find this statement very simplistic. Couldn’t there be lots of other outcomes?
1. Zimbabwer style weakening. USA loses jobs and the weakening economy leads to jobs lost in China.
2. Scott Sumner’s argument (reversed). Weakened dollar increases jobs in USA (due to AD problems) wich leads to increases in jobs in China.
3. No change at all since real exchange rates might not change.
Saturday ~ June 18th, 2011 at 5:22 pm
Ryan Vann
Karl’s foray into textbookenomics is cute, but silly. Nothing concrete can be said about a relative dollar price drop with out understanding the underlying factors. If the price drop is due to currency instability caused by improper monetary policy (which Paul clearly believes is the case) it doesn’t bode well for FDI or exports. Think of it this way, if the dollar price is the result of lowered global demand for dollars, tautologically it means FDI and/or exports are lowered.
Sunday ~ June 19th, 2011 at 1:43 am
Joe Eagar
It isn’t fully China’s fault. China doesn’t really have a “natural” capital surplus, due to internal investment and FDI flows. What China has done is reflected hot money inflows onto America. China is also making steady progress (if slow); I’m rather optimistic about it. I mean, just think, we could be Greece. China is being far more cooperative with us than Germany is being with the eurozone periphery.
I was surprised at Ron Paul’s comments. The dollar’s been overvalued for so long, I think politicians came to believe it wasn’t (all evidence to the contrary).
Sunday ~ June 19th, 2011 at 1:55 am
Joe Eagar
Ryan, I’m not sure you understand how “demand for dollars” works. A dollar is nothing more then a financial asset. It doesn’t produce anything, it isn’t a car, an airplane, or a consumer good.
When foreigners demand more dollars, by definition they are demanding less of our goods. This is an accounting identity, and is why capital inflows always lead to trade deficits. Economists noticed this in the 19th century, when they noticed that a surge in foreign lending by Britain tended to improve it’s trade position (I think I read this in Golden Fetters, and the Reagan “fiscal twist” of the 80s also fits that narrative, where the U.S. ran large fiscal/trade deficits to put a floor under demand amidst global disinflation).