Friday, July 29, 2005

Income vs Expenses and Imports vs Exports

Russel Roberts of Cafe Hayek comments on CAFTA. In his comments, he mentions:

they falsely argue that the benefits of the agreement and the increase in exports to Central America and all the jobs that will be created. In this Alice-In-Wonderland world of pseudo-economics, exports are good and imports are bad... Presidents will find it hard to make the case for opening our borders unilaterally to foreign products—the educational well has been poisoned by all the previous mercantilist rhetoric that has argued that exports are good and imports are bad.

This reminded me of a commercial on the radio that I'd heard on the way to work this morning. In it, a state republican congressman was arguing for lower taxes (with which I agree) on the grounds that it would bring more business to our state resulting in more jobs. His argument basically was that a higher tax rate in this state, relative to the tax rates of neighboring states, encourages jobs to be created in those states. I must be starting to think like an economist because I was immediately puzzled by why I should care about whether or not a business comes to North or South Carolina. If I really want to work for the business in South Carolina, it's not hard. I just get a job and then move there. That's how I moved to North Carolina in the first place. Why should I care where that business locates itself. All I should care about is whether or not I want to work there for the salary that they offer me.

Which brings me to Professor Roberts comments about imports and exports. Imports are stuff that we as a nation buy. Exports are stuff that we as a nation sell. As an individual I also buy and sell stuff. Does the assumption that imports=bad and exports=good also apply to me as an indvidual? If so, then I should avoid imports, and try and increase exports. And in certain cases, I do avoid imports. For example, I don't import lawn mowing service. I do that myself. I earn roughly $25/week doing this by not having to pay someone else to do it. But I can't buy everything from myself and it's pointless to even try. The result is that I have trade defecits all over the place. I have an unbelievable trade defecit with the grocery store. I import all of their stuff and never export anything to them. Similarly my employer imports my services from me and I spend a tiny fraction of my salary on their products. This is an incredibly lopsided trade deficit for them in exactly the same way that I have a lopsided trade defecit with the grocery store.

Is this any cause for concern? Heck no! By buying my groceries I receive more benefit than just getting the groceries: I don't have to produce them. As I'm not very good at growing things (for example: my lawn), I get to take advantage of someone else's prodigious green thumb. Similarly, my employer doesn't have to learn certain technology skills; they simply hire me with my skills.

Imports aren't bad. Imports are good. Imports allow us to focus on the things that we do well, and let someone else who's figured out a better way to do things do them so that we can free up our labor efforts to focus on something that we do well. Exports aren't bad. Exports are good. They force us to create value for others when we work.

Neither imports nor exports are bad. Trade is good. Trade restrictions are bad.

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