Friday, April 21, 2006

Dancing in the Rain

Earlier this week, Lou Dobbs commented on President Hu's visit to the US. In a move that resonated in the minds of economists and non-economists alike, Hu paid a visit to Bill Gates before President Bush.

Like most non-economists Mr. Dobbs groaned at the news. Calling China a "Red Storm Rising," he blamed the US government for allowing manufacturing jobs to go abroad and creating a "...dependency on China for our clothing, computers, consumer electronics and a host of other products..."

Mr. Dobbs is incorrect. The US is not dependent on China for these products no more than I am dependent on McDonald's for lunch. Firms choose to have their goods made there because it's cheapest and if China disappeared, we would still have them; they would just cost more.

Dependency implies the US economy is vunerable which is why this word is so completely inappropriate for describing outsourcing. Opportunities like moving factories to China makes the US economy more resilient, not less. Options can never make a person worse off. "Dependency" would require laws that force firms to produce in the country and no where else. Thankfully, the government isn't demanding people to put all their eggs in one basket.

Storms are violent but helpful things. They nourish the worthy and wash out the decripted so new life can grow and maybe florish. This process of creative destruction is one Mr. Dobbs finds so unfair, if he lived a hundred years ago he would certainly call for trade barriers so people wouldn't leave their farms to build the manufacturing sector he is now so desperate to protect.

1 comment:

Brian said...

Hey David, great post! Love the analogy between China and McDonald's! Just linked to it on my blog.