14.12.16

TRADE IS A MARSHALLIAN IMPROVEMENT.

Social welfare improves in the aggregate (think an expansion of the production possibility frontier) and some agents lose out.  (Think a movement from the old allocation that's not to the northeast, or Pareto-improving, opportunity set.)  I've suggested such things before.  Now comes Russ Roberts, with the details and analysis.
So let’s start with a seemingly unrelated example that will help us see the unseen. Suppose a scientist invents a pill that once you take it lets you live until 120 with no health issues whatsoever. Once you turn 120, you die a peaceful death on your birthday. Suppose the scientist, in a gesture of good will, charges $10 for the pill.

Should we let the scientist sell the pill? Is it good for the country? It’s good for almost everyone. But it’s going to be very hard on a very large group of people immediately:

Doctors. Nurses. Health Care administrators. People who build hospitals. People in medical school. People who teach in medical schools. People in health insurance companies. Pharmaceutical companies. Researchers. You get the idea. It’s millions of people. This is a very disruptive technology.

What’s going to happen to all those people?
The parable is a variation on the "magic factory" story (somebody eventually gets a look behind the walls and discovers there's a seaport hidden back there delivering all the good cheap stuff) but well worth studying.
In the last 15 years, America has lost 5 million manufacturing jobs.

But overall, net, the US has added 12 million jobs since 2000. The worry is that not enough of those manufacturing workers have found good alternatives. The worry is that they are more like doctors than the children of farmers in my previous examples. They are struggling to find uses for their skills. It’s not as simple as the children of farmers who headed into the cities when they realized that farming was going to be a lot tougher than before.

I don’t think we know just how easy or how hard it has been for out-of-work manufacturing workers to find new jobs. What I do know is that the question of whether trade with China or the increased use of technology in manufacturing has been good for America isn’t just about those lost jobs vs. cheap toys. What we have to remember is that spending less on toys (and clothes and cars and smartphones) creates a lot of opportunity elsewhere.
Yes, although in a world of costly information, identifying opportunity is hard. Read and understand.

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