Wednesday, September 17, 2003

John Hawkins over at Right Wing News scored a great interview with Milton Friedman

I found this part particularly interesting:

John Hawkins:"Let me ask you about this -- what do you say to people who claim that free trade will eventually lead to high unemployment in the US as large numbers of jobs move to cheaper labor markets overseas? "

Milton Friedman: "Well, they only consider half of the problem. If you move jobs overseas, it creates incomes and dollars overseas. What do the do they do with that dollar income? Sooner or later it will be used to purchase US goods and that produces jobs in the United States.
In fact, all of the progress that the US has made over the last couple of centuries has come from unemployment. It has come from figuring out how to produce more goods with fewer workers, thereby releasing labor to be more productive in other areas. It has never come about through permanent unemployment, but temporary unemployment, in the process of shifting people from one area to another.
When the United States was formed in 1776, it took 19 people on the farm to produce enough food for 20 people. So most of the people had to spend their time and efforts on growing food. Today, it's down to 1% or 2% to produce that food. Now just consider the vast amount of supposed unemployment that was produced by that. But there wasn't really any unemployment produced. What happened was that people who had formerly been tied up working in agriculture were freed by technological developments and improvements to do something else. That enabled us to have a better standard of living and a more extensive range of products.
The same thing is happening around the world. China has been growing very rapidly in recent years. That's because they shifted from a very inefficient method of agricultural production to something that comes close to the equivalent of private ownership of the land and agriculture. As a result, they've been able to produce a lot more with many fewer workers and that has released workers who have come into the cities and have been able to work in industry and other areas and China has been having a very rapid increase in income. "

Friedman makes a very important point. Much of the debate between Jefferson and Hamilton in the Early National period focused around each's vision for the country. Jefferson wanted for the fledging country to remain an agriculture based economy while Hamilton wanted the US economy to be more manufacturing based similar to England at that time. This debate over the future of America's economy grew to a fevered pitch in post Civil War America when industrialization really began to take off in the US. It was at this time parties such as the Grangers and later the Progressive Party were formed to "protect" or represent America's agriculture society. At first, the "Robber barons" or "Captains of Industry" were the champions of manufacturing, however, later, unions began taking up the causes important to industrialization. The most significant factor, however, in manufacturing's victory over agriculture was the increase in urbanization.

Today a very similar debate is being waged, but instead of manufacturing being pitted against the agriculture community, rather, manufacturing is being pitted against the Service industry. Now, before I receive E-mails saying that the country can not all work in restaurants, I feel compelled to define what the service industry entails. The service includes, Lawyers, accountants, engineers, civil servants, health care providers, and many other fields that require some level of post High School education.

According toThe Department of Health and Human Services : In 1995, 62 percent of high school graduates in this age group (25-29)had completed some college, and 28 percent had received at least a Bachelor’s degree.

This is an important fact when considering the future path of the US economy. Nobody seeks higher education only to work on an assembly line. They go to avoid such demanding labor and achieve more than their parents did(the American Dream.) Now, with more than half of high school graduates seeking higher education, the economy MUST transition to a different form to accommodate this up and coming demographic. This accommodation is represented by the gradual switch of the US economy from a manufacturing based economy to a service based economy. This trend leads to US ownership and management, of corporations with US designers and engineers working in the US utilization foreign labor to produce the product.

Now, to tie this into what Mr. Friedman said, the unemployment rate now(even as low as it is, 6.1%, in a relative sense) is taking people from the manufacturing sector and moving them into the service sector. This is a logical move considering the increase in standard of living, referring to personal health, that accompanies such a move. Those who stand to lose the most from this transition are the labor unions of who's members make up a large portion of the Democrat Party.. So, this so called "jobless recovery" that many in the Democrat party are calling the current economic period is actually a transition period in the US economy, much like that experienced in the late 19th century, and Democrats are standing in the way of economic progress when they pander to their base and seek to prevent the current economic evolution!