There may be lots of good reasons to develop a “smart grid” for electricity transmission, but as Sunil Sharan explains, job creation is not among them. Automating functions to increase energy efficiency can be worthwhile, but it will tend reduce the need for labor. So, for instance, installing smart meters nationwide could produce a few thousand jobs in a relatively short-period of time, but would eliminate thousands more meter-reading jobs. Other “green” sectors may experience some job growth, but they won’t produce the employment bonanza advocates claim. Concludes Sharan, “those who take great pains to tout the ‘ job-creation potential’ of the green space might just end up inducing labor pains all around.”
Mark Field says:
So he believes the Luddites were right after all?
February 27, 2010, 10:46 amJatinder says:
Eliminating the need for manual meter reading may cause thousands of meter readers to lose their jobs, but it will also reduce the cost of energy. Thus, companies who rely on that energy could sell their products for a lower price, which would allow them to sell more of their products. If automation leads to unemployment, then Japan should have a very high unemployment rate. However, it is below 4%.
February 27, 2010, 10:54 amMatt says:
Just like the lightbulb put candlemakers out of business. That’s progress. Even if all of the newly-unemployed meter-readers only mow one lawn, it’s still a net GDP gain.
February 27, 2010, 11:12 amAndyinNc says:
Citation(s) needed.
February 27, 2010, 11:13 amIchthyophagous says:
Spain has embarked on a huge wind power initiative; wind energy is now the third technology of the Spanish power system, having reached an output only overtaken by thermal gas combined cycle and nuclear. For additional information, see here: http://en.wikipedia.org/wiki/Wind_power_in_Spain
But the country’s unemployment rate is 14%. I hope Van Jones in his new perch at CAP will take note.
February 27, 2010, 11:52 amFub says:
IANAEconomist, so I don’t see how this is true.
Automated collection of billing data presumably will reduce the cost of gathering billing data for retail distributors. A barrel of oil, a ton of coal, a nuclear fuel rod, etc. to run the generators will still cost the same for the electrical energy producer.
February 27, 2010, 12:22 pmlgm says:
Do the math. There will be job losses and job gains. If you don’t have numbers, you don’t have a story.
February 27, 2010, 12:41 pmPubliusFL says:
Fewer broken windows, fewer jobs.
February 27, 2010, 12:50 pmRandy says:
Way back in the early 80s, people were afraid that computers were going to put people out of work. And they did. So I guess we should make Microsoft, IBM and Apple go out of business so we can bring all those old jobs back and reinvigorate the economy.
Sheesh. What an idiot this guy is. Did he even make is past Econ 101?
February 27, 2010, 1:20 pmThomasH says:
The idea of Green Jobs is silly. The reason to invest in “Green” technology is to keep from frying our decendants. Now so long as we have lots of unemployed resources (labor and non-labor) it is a good TIME for investment, period, including in Green technology.
February 27, 2010, 1:26 pmKevin! says:
“Without regard for the wishes of men, any machines or techniques or forms of organization that can economically replace men do replace men. Replacement is not necessarily bad, but to do it without regard for the wishes of men is lawlessness.”
February 27, 2010, 2:06 pmDavid Nieporent says:
Did you? I’m pretty sure people wanted to buy the products of these companies; the government didn’t need to coerce them to do so.
February 27, 2010, 2:25 pmA. Criminal says:
There’s nothing really “green” about automation or efficiency, it’s just good business.
Concludes Sharan, “those who take great pains to tout the ’ job-creation potential’ of the green space might just end up inducing labor pains all around.”
Gov’t based “green job creation,” if any, will be in subsidized things that nobody wants badly enough to pay for with their own money. IOW, not really real jobs.
“Automation is the single biggest destroyer of manufacturing jobs not just in the U.S., but worldwide. And that’s a good thing. It’s called productivity, and making more stuff with fewer people is perhaps the major driver behind improved living standards worldwide over the last few centuries.
U.S. Real Value Added Manufacturing output, a good proxy for stuff made, advanced from about $1.1 to about 1.4 trillion from 1995 to 2002. During that same period, the U.S. lost 2 million manufacturing jobs.”
February 27, 2010, 2:44 pmhttp://community.controlglobal.com/content/automation-destroys-manufacturing-jobs
common_sense says:
Randy,
February 27, 2010, 3:00 pmI think what is being discussed is when someone who cries about the loss of manufacturing jobs to China also advocates green energy for job creation. Green energy, at least as far as it relies on automation, will reduce jobs in a very similar way to automation or outsourcing. Yes, it will free up inefficient human capital for more efficient uses and increase the average standard of living. But the people who are comfortable with that mechanism are usually also comfortable with outsourcing low skill labor. It is possible for someone to decry outsourcing and advocate automation, but it seems to be a difficult argument to make. Also, I think there will be labor pains as people shift from one sector to another, especially if the shift requires additional training. Not a bad thing in the long term, but people advocating the job creation potential of green energy should make it clear that those new jobs won’t be in energy creation and that there will be some tumult as people move to new industries. I don’t think that is the argument that say Pelosi is making when she advocates the job creation potential of green energy.
A. Zarkov says:
Who will manufacture all these new smart meters? Most likely China. Who is the main manufacturer for solar cells and solar panels? You guessed it: China. As long as the Chinese can undercut the U.S. in labor costs, the green jobs are going to China. How about the installers? Well that’s a one time service and that can be done with cheap imported labor too. The engineering work can be outsourced to China, Japan, Korea and Taiwan too. Those countries have lots of electrical engineers and they work cheaply too. The so-called stimulus package where you give people money to go to the mall is pretty much a jobs program for China.
If jobs are the primary concern, then yes automation is a job killer and for that reason is undesirable. Thus far new industries and government make work have provided jobs for people displaced by automation. Unfortunately the new jobs don’t pay as well as the old unionized manufacturing jobs, so you see the gradual elimination of the middle class, but that’s the whole idea isn’t it?
February 27, 2010, 3:39 pmMCM says:
Wasn’t it Adler who was complaining about Cash for Clunkers being a “broken window” fallacy?
And now he posts this nonsense?
February 27, 2010, 3:55 pmRandy says:
David: “Did you? I’m pretty sure people wanted to buy the products of these companies; the government didn’t need to coerce them to do so.”
I was being sarcastic. I got a B in Econ 101.
commonsense: ” people advocating the job creation potential of green energy should make it clear that those new jobs won’t be in energy creation and that there will be some tumult as people move to new industries. ”
Agreed. And cars displaced buggy whip makers. So what else is new? The economy since at least the start of the industrial revolution has always been in tumult and has always displaced people in favor of higher productivity. If you think you can stop this process, just try. You cant. You can delay, perhaps, but that just makes the pain worse.
I never said it’s without pain. The energy companies that don’t need meter readers can and should train those employees to do something else — perhaps something of a higher value to the company.
Zarkov: “As long as the Chinese can undercut the U.S. in labor costs, the green jobs are going to China.”
Yes and no. The innovators of those automated meter readers are based in the US, and the company is US based. That creates wealth within the economy here in the US. Yes, they will probably be manufactured in China or elsewhere. So what? You would rather pay more money for them to be manufactured here?
And what is the alternative? China and Germany are No 1 and 2 for investment in green technology. Perhaps we should just sit on our hands and do nothing. That way, those countries will not only be manufacturing the meter readers and develop all new green technology, they will have the entire industry as well.
” so you see the gradual elimination of the middle class, but that’s the whole idea isn’t it?”
Please. If you really cared about the middle class, then you certainly wouldn’t be shopping at Walmart or any other store that manufactures their products over seas. You can still find plenty of things made here in the US, but they cost more. Unless you actually pay more for all your products made and grown within the US, you have little to complain about.
There are many jobs that are disappearing. Growing up in Buffalo in the 70s and 80s, I can assure you that I know first hand the pain of families having to have been split up due to the loss of heavy industrial manufacturing, so I really don’t need any lectures about destroying the middle class. The rust belt cities were all destroyed back then, and people moved to the south for the jobs there. I didn’t see any concern for those people — instead, I say plenty of laughter at the unions and high wages and inefficient factories that existed there. Market efficiency! Higher production! Lower taxes!
Now that jobs are leaving even from the South, suddenly everyone is concerned. So let’s leave aside the crocodile tears, shall we?
The only way to stay ahead of the game is to emulate Silicon Valley, which constantly renews itself. I don’t see any semiconductors manufactured there, or computers. And not surprisingly, there they have full employment. No empty factories there.
February 27, 2010, 4:19 pmThe Volokh Conspiracy » Blog Archive » Greener Grid, Fewer Jobs | Green Jobs says:
[...] Continue reading here: The Volokh Conspiracy » Blog Archive » Greener Grid, Fewer Jobs [...]
February 27, 2010, 4:40 pmMark Field says:
This is a silly argument in context. The existing meters are government owned. The meter readers are government employees. The new meters will be government owned.* The government is coercing the purchase of existing technology; changing the technology doesn’t affect this.
*”Government owned” in each case includes public utilities and licensed monopolies.
February 27, 2010, 4:44 pmA. Zarkov says:
Yes I would rather pay more. I have to pay the costs anyway to cover the displacement of those workers.
How do you know where I shop? But it doesn’t matter where you shop because you have no choice because most everything is now made overseas. Clothing, tools, hardware, electronics, even furniture is now foreign made. I tried to help my daughter buy some tailored suits made in USA. We went to all the major retailers, and virtually nothing is domestic anymore.
I live near Silicon Valley. Most of the factories that used to be there are gone. I know someone who worked at the last circuit board manufacturer in the valley and he got laid off. They survived by giving one day turn around. My old (1980s) HP-11C was made in the US, but my newer (190s) HP12C was made in Brazil. I ordered an airport router from Apple and it was mailed directly to me from China. Go ahead, take a tour through Fry’s electronic store and see how many items are domestic.
Give me the names of at least 3 major companies who do their manufacturing in Silicon Valley.
BTW your “crocodile tears” remark is insulting. I have never ever laughed at people losing their jobs. I have always supported the American worker.
February 27, 2010, 4:50 pmDavid Schwartz says:
The cost of energy includes all the costs required in order to produce, distribute, and sell energy, not just the cost of fuel. If you reduce the cost of billing for energy use, the cost of energy will also decrease. Unless your energy company is losing money, every dime they spend must covered by their rates.
February 27, 2010, 5:11 pmThe Volokh Conspiracy » Blog Archive » Greener Grid, Fewer Jobs | Bootstrap Recession Kit says:
[...] post: The Volokh Conspiracy » Blog Archive » Greener Grid, Fewer Jobs … other posts by [...]
February 27, 2010, 5:11 pmKazinski says:
There is nothing wrong with going to “Green” technology for economic reasons, then it will reduce the cost of energy and create jobs. But if going to Green technology is because of government coercion it will result in more expensive energy and cost jobs. It’s an economic law, and it can’t be repealed.
February 27, 2010, 6:55 pmuberVU - social comments says:
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February 27, 2010, 7:54 pmerp says:
Sheesh.
Have we been reduced to make-work jobs?
Don’t automate meter reading because we’ll put thousands of meter readers out of work. I can’t believe people commenting here think this is a good idea?
February 27, 2010, 9:21 pmPubliusFL says:
I know how we can generate renewable energy and tons of new jobs:
Giant hamster wheels.
February 27, 2010, 9:30 pmerp says:
Hamsters are messy and they die.
Much better are lots and lots of windmills. Yes, that’s the ticket and it’s freeeeeeeee.
February 27, 2010, 9:44 pmPubliusFL says:
You misunderstand. The hamster wheels are giant so we can put people in there to run all day and generate power. That’s where the millions of new jobs come from. It’d probably even help with the national obesity epidemic!
February 27, 2010, 10:03 pmFub says:
I think you mean “the retail cost of energy to customers”. I thought the cost of energy was the cost to produce one unit of energy, and the rest is a cost of distributing energy.
Even with that qualification I doubt retail customers will see a rate decrease. They changed last year to automated metering where I am. If I see a rate decrease, I’ll concede the point. I haven’t yet.
February 27, 2010, 10:07 pmJames N. Gibson says:
Lets see: Jobs lost by smart meters.
First the meter reader. Then the two lawyers (yes two, one for the reader and the other for the owner of the Rot in the back yard). Then the people who file the paper work for the medical request (whether the Rot actually bites or just scares the reader half to death). That covers quite a few people right there.
February 27, 2010, 10:16 pmerp says:
PubliusFL – A thousand pardons. People running the wheels is a great idea. They’re messy and die too, but since they’re not cute and furry, nobody will care.
Fub – You better take see a doctor while you still can about that dangerous idea you have that energy bills can ever decrease!!!.
February 27, 2010, 10:34 pmJames N. Gibson says:
The dangerous idea is that going Green or free living is possible. Solar arrays on a home can’t power the sewage plant that takes care of your home waste, or supple the power for the pumps that send water to your home.
This is just another case of marketing no different then the marketing of renewables back in the Carter Admin. Back then Windmills were sited as pretty with Dutch windmills put forth as an examples. Years later the late Sonny Buno had nothing but poor words for the Windmill farms near the city of Palm Springs which he was mayor of.
Now green energy is marketed as a job maker. And like all these wonderful concepts the jobs they will make will vanish by the end of barracks second term. In the short term its a wonderful way to get one elected. But in the long term it will cripple the party responsible when the jobs disappear and they have no ideas how to replace them.
February 27, 2010, 10:53 pmerp says:
James N. Gibson — don’t get me started.
Some years ago, a bunch of post menopausal busybodies of all sexes wanted to help the planet so they forced recycling on our small (pop. 5,000) central Florida town.
Everyone knows it’s a farce and the “recycled” stuff get dumped in the same dump as the regular garbage, but we’re forced to do it anyway because if you don’t recycle, your regular garbage won’t be picked up.
Thanks so much to the green loonies.
February 27, 2010, 11:29 pmRandy says:
Zarkov: “Give me the names of at least 3 major companies who do their manufacturing in Silicon Valley.”
Exactly my point. Yet people are still working and getting rich there. That’s because SV is constantly adapting to the future, not holding on to the past.
“But it doesn’t matter where you shop because you have no choice because most everything is now made overseas”
And you have benefited quite a bit from that. Prices for clothes and appliances and all sorts of things have not risen much at all since 1990, and that’s a direct result of the fact that the costs keep being reduced. And that’s a major reason why inflation hasn’t been an issue since 1990. Additionally, China has been buying up all our debt with the money it has earned manufacturing all those goods. Without China to the rescue, we would be paying substantially more interest on that debt, which is another reason why inflation has remained low.
This has all been a tremendous boost to the US economy, and you and I have benefited from it substantially. If you have a better model, let’s hear it. But if you seriously think that turning our back on R&D on any form of technology is the way to keep jobs, well, that’s just laughable.
“BTW your “crocodile tears” remark is insulting. I have never ever laughed at people losing their jobs. I have always supported the American worker.”
No more insulting than saying that the whole point of green tech research is to eliminate the middle class.
February 28, 2010, 12:51 amA. Zarkov says:
You need to read me more carefully. It’s not green tech research that’s the problem, it’s the outsourcing or jobs, and the use of cheap H1-B labor that’s killing our middle class. Alan Greenspan explicitly said that we must import labor to reduce the wages of our tech workers. Moreover you directed your remark to me specifically. Did I try to insult you or a specific person? I simply advanced an economic opinion to which you responded with an insult.
February 28, 2010, 3:48 amA. Zarkov says:
But fewer jobs are available because manufacturing has left. Only a very few people are getting rich. Even the engineering jobs are getting outsourced, and American engineers are getting replaced by cheaper H1-Bs. In the 1970s an engineer could work for (say) HP and make a starting salary high enough to buy a house and live in the valley. Today he can’t even afford the rent, and faces a long commute from the East Bay. Do you know anything about the valley? Have you ever lived there or nearby?
February 28, 2010, 3:53 amA. Zarkov says:
That’s right, and we are going to pay dearly for this short-sighted policy. American industry has become hollowed out. Our manufacturing base has been severely reduced. What are we going to export to pay for all our imports? Trade is just that, a bilateral relationship. But we don’t have trade, we have an immense debt piling up, both public and private and that will kill us. Go read Hyman Minsky and you will understand how excessive debt is destroying the American economy.
February 28, 2010, 3:58 amA. Avetisyan says:
@Zakarov
As a conservative republican who holds an economics degree, I’m pained by this, and I say this only because republican’s in government are doing it too now.
Where do you get talking points like that? It’s obviously false. No, Zakarov, there has not been a manufacturing decline in the USA
Duh. Do you just make things up whenever you feel the need? You don’t know what you’re talking about.
Of course, the worst part is that people like me have to waste our time responding. I didn’t vote for Barack Obama, but when he has to respond to made-up facts like these all the time, I can feel his pain.
PS, Don’t get me started on your ludicrous H1-B comments
February 28, 2010, 6:30 amJonathan H. Adler says:
I think the OP was not clear. Of course investments that increase productivity and efficiency can have broader economic benefits, including aggregate job creation, as the economy benefits from the investments. But this is not the argument made by the “green jobs” crowd. Rather, they stress the jobs directly produced in targeted industries by mandates or subsidies for particular investments. So, for instance, they argue that “smart grid” investment will produce jobs in that sector, “smart grid” jobs, not in the economy generally (see also here). The point of the post was that measured in this way, many “green job” proposals will not produce significant job increases in the targeted industries. Those that will produce job creation are those investments which are cost-justified and contribute to overall economic growth.
JHA
February 28, 2010, 7:36 amMark Field says:
Even if I were to accept your description of the “green jobs crowd” argument, I don’t think this editorial would refute it. Let’s take the specific case of the new meters. It seems obvious that people will need to be employed to manufacture the new meters and to install them. Those are jobs.
What the editorial argues is that other jobs will be lost along the way. That’s not refuting the “green jobs argument”, that’s making the idiotic argument that increases in productivity actually decrease employment (in this case, because the job of meter reader will be lost).
I put the “green jobs” phrases in quotes because I don’t believe you’ve accurately described their arguments in general; there may be particular instances of people making the bad arguments rejected in this thread, but I think it’s a strawman for the most part.
February 28, 2010, 11:03 am10000 yr man says:
Finally, somebody who sees the arguments on my side! I’ve been taking this position ever since we started using the plough instead of farm hands digging the ground themselves. It’s been one steady downward spiral for humankind since.
February 28, 2010, 11:50 amA. Zarkov says:
Manufacturing as a percentage of GDP from 1950 to 2000 in 10-years increments were as follows: 29.3%, 26.9%,23.8%,20.8%,16.3%,14.5%. In 2005 it was 12%. Sources: Various Economic Reports of the President. See here for the 2005 report as an example. Over the same period of time the Financial Services Sector about doubled its share from 10.9% to 20.4%. One can see a steady secular decline over a period of 50 years in the manufacturing sector relative to the economy. The shift to the non-productive, and non-exportable financial sector is dramatic. Moreover the financial sector has pulled talent away from manufacturing. In 2007 about half the graduating class at Harvard went into finance.
Perhaps you don’t like my metric. But it’s a lot more informative than the one you linked to. As the economy grows and population grows along with productivity, output will go up. Gross output does not tell the story. For one thing jobs have dried up in manufacturing. Go to BLS and look at the predictions for future employment as a tool-and-die maker. Dismal. This was once a wonderful career in the US. This skill is a key factor in any manufacturing economy. Then we have all that stuff we buy from foreign countries, so much so that our Current Account deficit runs to something like $800 billion per year. Surely that indicates we need to manufacture items of trade, something which are are not doing.
I’m going to refrain from answering your insults with other insults because such activity does not contribute to the discussion. Rest assured I can insult with the best of them. But grownups don’t do that.
Well we can go into that. Rest assured I have plenty of evidence to back up my comments. If you want a civil discussion, fine. Otherwise get lost.
February 28, 2010, 12:51 pmSam Hall says:
The purpose of “smart meters” is not to automate meter readings. Remote meter reading equipment has been on the market for two decades and many electric companies have installed it.
Smart meters control the electric usage inside your home. They can remotely turn off things like your water heater, AC units and other high power devices.
I predict that when smart meters start doing their job, the American people are going to have a fit and demand their removal.
February 28, 2010, 12:54 pmerp says:
Sam Hall says:
… I predict that when smart meters start doing their job, the American people are going to have a fit and demand their removal.
Smart meters like all the rest of our tools only do as they’re bid. If we allow the government and the electric companies and other entities to control them and us, then We, the People deserve to lose our freedom.
Will everyone please wake up.
February 28, 2010, 1:15 pmBruce Hayden says:
I don’t think that it is just the manufacturing jobs, which as some have pointed out above, have moved offshore. But rather, a lot of those green energy jobs are the type where you are effectively greatly increasing the cost of, for example, energy, and paying for it through government handouts. So, you face the classic Keynesian problem of, sure there is a multiplier on the spending end, but that money isn’t manna from heaven, but rather has to come from somewhere, and the multiplier on that end is typically even greater.
So, I find it flat silly to think that we can spend our way out of the current recession by creating all these “green jobs”. Yes, jobs are created, but more are destroyed by having to find the money to spend on those green jobs – whether by taxation or borrowing, it still costs more jobs than it creates.
February 28, 2010, 10:50 pmA. Zarkov says:
Yes. Moreover adding to the debt is counter productive. Excessive private + public debt is the root cause of our current problem. Neoclassical economics, the dominant dogma in the academy, does not focus on debt and credit. That’s why they didn’t see the crisis coming. For decades we have been mitigating recessions and bubbles with debt. Eventually you can’t do that any more. No one knows the exact debt/GDP that will cause a major instability, but it looks like we are close based on historical data. See This Time It’s Different. Borrowing money for green jobs adds to the debt. In short you can’t cure a debt problem with more debt and that’s what administration after administration has been doing. It didn’t work for Japan and it won’t work for us. We might postpone the inevitable for a few years, but I doubt it.
February 28, 2010, 11:34 pmDavid Schwartz says:
One meaning of the term “cost of energy” is “the retail cost of energy to customers”. There are other reasonable uses of that term. Mostly what retail energy buyers care about is how much they pay. (And unless you are specifically talking to wholesale energy end use buyers, this would be the ordinary understanding of the term.)
Prices don’t work that way. If one company makes a change that allows their cost to go down, they see increased profit, not decreased prices. Eventually, as other companies adopt the same changes, pressure mounts (either market or regulatory) to drop prices and bring profit back down.
In any event, there are other significant ways that smart meters can bring energy prices down. One big one is through time of use billing — encouraging customers to move as much of their energy use as possible to times when energy is cheaper. There are other ways too.
March 1, 2010, 2:58 amDan Weber says:
This is exactly what you want in stimulus spending. You want to eliminate some short-term suffering by making some short-term jobs. Jobs that defeat themselves and provide for increased productivity down the road are the best of both worlds. In practice, I don’t know how many of those you will find in the real world.
We are manufacturing more things than ever before. (At least a few years ago this was true, the current recession has probably eroded that a bit, but that’s what recessions do. In a year we will be back at record high levels.) We don’t need as many people to do it, though.
That doesn’t mean the manufacturing base is eroding. It just means we do a lot more besides manufacturing.
Farming is only a tiny percent of our GDP, having fallen from around 90%, yet we aren’t starving in the streets.
March 1, 2010, 11:13 amA. Zarkov says:
You’re neglecting the enormous trade deficit. We indeed do a lot more than manufacturing, and manufacturing matters because the American people want the fruits of the manufacturing industry. That’s why we buy so many foreign goods.
How do you think we are going to pay off our massive foreign debt? Without a much larger manufacturing industry than we now have, just exactly what are we going to export? If we wern’t running such a large trade deficit, I might agree with you. It would mean our manufacturing industry was so productive, we could supply domestic needs. But it can’t because as I said it’s been hollowed out and replaced by the financial services industry. We do export some financial services, but obviously it’s limited. Moreover the foreigners can and will provide those services for themselves. It’s not capital intensive like (say) making a foundry.
Evidently you think our current massive trade deficit is indefinitely sustainable. That’s exactly what most economists thought about the housing bubble. Somehow because it had kept going for a long time, it would keep going that way forever. It didn’t. The trade deficit is not going away either unless we restore our manufacturing base.
March 1, 2010, 12:59 pmDan Weber says:
Y = C + I + G + (X – M) The economy can grow (and it usually does) despite trade deficits.
The problem with measuring “manufacturing-as-percent-of-GDP” is that you make a zero-sum game. Nothing can win without something else losing.
The ability to stamp out a billion socks or a billion computer chips has dropped in importance compared to the ability to design the chips that those plants are making.
(And FWIW, I think finance probably had grown too big.)
March 1, 2010, 3:13 pmA. Zarkov says:
This is the neoclassical model, which as I said does not consider credit and debt. I contend neoclassical economics is simply wrong. Debt matters, and we are finding that out. Ultimately Hyman Minsky’s ideas will replace the flawed neoclassical thinking. But let’s get into the real world. Tell me what foreigners are going to buy from us to make trade balance? Or do you think trade never has to balance and we can just keep running up the imbalance forever? I think the Asians will ultimately use their dollars to buy real property in the U.S. and move here. What else are they going to do if we never regain the ability to manufacture exportable goods?
March 1, 2010, 4:11 pmDan Weber says:
I don’t see the problem with indefinite trade imbalances, if they are of a sustainable size. If other countries invest in us, great. We were freaking out about Japan buying us up a generation ago.
We don’t need to sell physical objects that we make in this country to other countries, anyway. If we have the physical objects built in Bangalore and then ship them to Germany, great. Shipping intellectual property is also awesome.
I do worry about our willingness to take on massive debts now and kick the can down the road to future generations. But I don’t see how giving up comparative advantage by manufacturing physical goods when it is cheaper to get someone else to manufacture them for us helps us solve that problem.
March 1, 2010, 4:53 pmA. Zarkov says:
Thus through some alchemy a country can produce 3x and yet consume 4x, with 1x provided free by foreign countries. How generous of them. What do they get out of this deal? If the U.S. builds a plant in India and pays for it in dollars then it increases the world’s supply of dollars. But what can the world buy with these dollars if we don’t manufacture enough? Sooner or later the dollar must fall and that will be extremely painful.
As for the U.S. providing “intellectual property” in exchange for material goods, that’s fine. But do we provide enough and what’s to stop the foreigners from also creating intellectual property, which has fewer barriers to entry than material production? We can wrap all this in economic abstractions, but sooner or later we must have real flows of goods and services back and forth. We consume, they produce makes no sense.
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March 30, 2010, 3:50 pm