David Friedman talks about the culture-tech manufacturing machine that inputs Iowa corn and outputs Japanese cars. Add the culture-tech of finance and you can have the cars come out of the machine before the corn goes into it.
All tariffs mean is that you have to input more corn to get the same amount of cars.
Would the multipliers and spillovers gained be greater for the 1,000 steel jobs gained, or would the multipliers and spillovers be greater in the 75,000 jobs lost from more expensive steel?
No, the multipliers from employment will net out (incremental grocery clerks, or gas stations or teachers at the local school). The gain you get is from secondary industry. Truck and train drivers to gather the steal, HVAC guys, industrial parts firms that feed the steel manufactures, etc ... But I suspect all that would also apply to steel-input manufacturing and since we are talking almost 2 order of magnitude, it likely won't dominate even the primary losses.
"Making tangible things is simply not the basis of a successful modern economy. It would be like if in 1960, Americans became enamored with the idea that more people had to go back to being farmers."
I think a lot of what fuels scepticism of free trade is that the service jobs that replaced manufactory aren't obviously useful like farming and manufacturing are.
Some of the scepticism towards services comes from class resentment. But in my opinion a lot of service jobs really are unproductive.
Many service jobs are “unproductive” in your estimation, but we have a handy and reliable means of determining whether something provides value: the price the market sets for it.
I roll my eyes at do-nothing office jobs too, but the market is not mispricing service jobs to the tune of tens of trillions of dollars a year.
"we have a handy and reliable means of determining whether something provides value: the price the market sets for it."
Maybe broadly, but there are lots of exceptions like jobs that involve zero sum competitions, jobs that provide ancillary support to other parts of the economy but never actually bottom out in real production, jobs where employers can't monitor what's being produced etc. Those exception add up to a large fraction of the service sector imo.
Check the link I posted for a post that goes into all the details on the different ways jobs can be unproductive but still rewarded in the market.
I read the article and am unconvinced. The examples of zero-sum competition jobs seems to hinge on re-engineering society such that advertising and lawsuits are banned. Sure, that would change things but it doesn't describe present reality.
Unconvinced by the theory or unconvinced that there's a pragmatic solution?
The economy before around 1980 had many fewer of what of what I consider unproductive jobs. So I think it should be possible to reduce their number without dramatically changing the economic system.
Also the other side of this trade war, China, obviously has a small service sector.
Unconvinced by the theory. He unilaterally defines jobs as zero sum, but if one side stopped doing those jobs it would be extremely positive sum for the other side. It’s like saying LeBron James’ job is zero sum because Stephen Curry is on the other side.
I agree there are deadweight loss jobs in the aggregate economy, like corporate tax attorneys who spend all day searching for deductions and tax credits to save their clients millions, but that’s a different class of argument.
Also, China has an enormous service sector. It’s obvious to anyone who visits. When I was there, I got a simple haircut and five people were involved in the process. Restaurants had multiple hosts and waiters per table.
<Many service jobs are “unproductive” in your estimation, but we have a handy and reliable means of determining whether something provides value: the price the market sets for it.>
That only makes sense if you think that wages are a perfect measure of the value-add of a given job. This doesn't make any sense when you realize that labor markets are (A) not perfectly-competitive and (B) influenced by preexisting norms and institutions (rather than marginal productivity).
Making tangible things is a good thing. Having people doing it is not. Manufacturing is like farming and worker per output is bound to keep decreasing exponentially. China has already been past peak manufacturing employment.
The problem with the service-sector is not that the jobs are bullshit, but rather that there are hard limits to how much you can improve productivity. Service-sector productivity is notoriously difficult to improve, especially when compared to manufacturing productivity; all else being equal, a country with a powerful industrial sector (say, 20-25% of GDP) has a better potential growth trajectory than a country without one (say, 5-10% of GDP).
Moreover, the most reliable way to improve productivity in the service sector is to rearrange the mix of inputs and outputs. And since labor is arguably the most plentiful input in the labor-intensive service sector, this requires changes to the labor market that inevitably limit the ability of workers to improve their bargaining position. This is in stark contrast to manufacturing, where technological innovation and capital investment can achieve greater marginal productivity gains that can be allocated to capital and labor.
Those two things are one and the same though? If for example it takes 1 person farming cotton, 1 person spinning and weaving it into clothes, and 1 person to do all the various services like sell it, keep track of it in the inventory system, handle payroll for the other 2 guys, and decide what kinda clothes to make... then the economy is (roughly speaking) one-third agriculture, one-third manufacturing, and one-third services.
But if tractors or whatever get invented and the productivity of the farmer doubles, then you now need 0.5 farmers + 1 factory worker + 1 service worker to make each set of clothes, and the economy is now 20% agriculture/ 40% manufacturing / 40% services.
And if new spinning machines get invented and the productivity of the factor worker doubles, then you need 0.5 farmers + 0.5 factory workers + 1 service worker per set of clothes, and the economy is now 25% agriculture/ 25% manufacturing / 50% services.
Keep this going, with productivity increases to farming and manufacturing but none to services, and you get an economy that by *necessity* is like 84% Services / 8% Agriculture / 8% Manufacturing, because you only need 0.1 farmers and 0.1 factory workers per set of clothes, but still need 1 service worker. It's precisely *because* its productivity isn't improving that the economy has to increasingly revolve around it. If we instead lived in some mirror universe where manufacturing and services productivity kept increasing, but farming productivity stayed constant, then people would instead be complaining that farming just keeps growing as a % of the economy despite sucking and not improving, without realizing that the 2 things are actually the same thing.
So no, I don't think manufacturing can be a much larger % of employment so everyone can benefit from its fast productivity growth. That'd be the same as turning everyone into farmers so everyone can drive a tractor and enjoy the fast productivity growth, then realizing that you've shot yourself in the foot because you're just growing cotton your shrunken manufacturing sector can't use. Same thing with taking people away from services to work in manufacturing, then realizing you're just producing more stuff then your shrunken services sector can actually use.
I am an evolutionary psychologist, and I agree with the reasoning in your Human Progress article.
I was struck by the following line in your Substack commentary: "Making tangible things is simply not the basis of a successful modern economy. It would be like if in 1960, Americans became enamored with the idea that more people had to go back to being farmers." I was struck by this line because there were a number of people who became enamored with the idea of becoming farmers. It was the hippie commune movement, and most of these communities did not work out.
So manufacturing jobs are not the basis for a successful modern economy. Then, specifically for the US, what is? Services and raw materials? And is this model sustainable into the future? Do you really think the US will be competitive on any of the high value services it currently offers over the long haul when China, India and every other country wants in the game?
You know what else is not the basis for a successful modern economy? Permanently running trade deficits and fiscal deficits. It will catch up with you eventually. And if you've put all of your eggs in the services and raw materials basket, then you are at risk.
So, some smart person is now going to say, we just need to raise taxes to square things. But this is a dynamic multi-body problem, and moving one piece will change all of the others.
Part of the issue is time scale : are we looking at a 4 year, 10 year or 30 year horizon. And if you run things out longer what does it look like.
You should have manufacturing capabilities for key sectors even if you are not manufacturing much. This would allow easier pivots on the basis of global trade changes. Also, with AI and automated manufacturing, there is less benefit to locate manufacturing in low wage countries.
None of this is easily deducible from recent experience. That is what the caveman brains do.
> You know what else is not the basis for a successful modern economy? Permanently running trade deficits and fiscal deficits.
Strangely enough, that's not quite true. Everyone else uses the US Dollar for international trade -- that's what it means to be the global reserve currency, more or less. The more intentional, the more US Dollars are needed. The only source of US Dollars is the US, and within the US, the only source of US Dollars is the US Government (well, more or less, the exact details involve the Federal Reserve, bond purchases, and open market operations). If people want US Dollars, they have to get them from the US. The US doesn't give them out for free though, people have to sell us stuff in exchange for our dollars. This shows up as a trade deficit... though you can think of it as "Other countries pay us tribute in exchange for the honor of being allowed to use our currency, almost Roman Empire style". (Arguably China is the biggest tributary of all, in fact, a la Ancient Egypt sending free grain to Ancient Rome and just eating the loss, but with cheap toys and stuff instead.)
If instead the US ran a trade *surplus*, selling stuff in exchange for other countries giving us their US Dollars... then, international trade would start seizing up from a lack of "transmission fluid". It's expanding and needs more US Dollars, but we're actually removing Dollars from the system. So the US *has* to export dollars instead. Unless the US is willing to give those dollars away for free, this means running a trade deficit.
You can then run the same analysis on US government budget deficits. To a first approximation, no one is allowed to own a money printer except the government. When more money is needed, say because the economy is healthy and expanding, it has to come from the government. Unless the government is willing to run Ben Bernake's "helicopter money" thought experiment, the government does this by buying stuff, which shows up as a budget deficit. If the government did the opposite, both the national and international economy would be royally screwed from the sudden shortage of "transmission fluid". (Well, except when inflation is out of hand and the money supply needs to contract.)
Anyways, if you want to read more about this, look up the "Triffin Dilemma". And if you think this is a very bad thing, look up "Resource Curse" and "Dutch Disease" but replace every mention of exporting oil or gas, with being the world's money printer and having to export pure money instead.
In 1930s Germany, Hitler's protectionism was, indeed, focused on getting people out of industrial jobs and back into the agricultural profession. The Nazis fetishized the scythe over newer forms of technology, like combine harvesters. It was believed that agriculture was a healthier form of labor which would produce more babies. There is truth to the idea that farmers had a higher birth rate than city folk. To that point, more rural North Korea has a higher birth rate than more urban South Korea. Ultimately, however, the Nazis did not boost the birth rate very much, and the post-war birth rate was higher and faster. I'd like to see a pro-tariff calculation of the benefit to birth rates, and then compare that to a natalism-for-cash policy. But I don't think that will be done because the former is likely inferior.
I do not know what Hanania is smoking these days., So first-remove manufacturing jobs to all countries with cheaper labor cost and then-claim that only small number of people work in manufacturing jobs. This is your logic Mr. "I know better, just because I were never there at these mills and refineries and papermills?" I witnessed the emptying of these plants, shutting down these facilities, emptying and falling in poverty of the towns based on these great industries. These plants and mills were also great training ground for trade expertise which spread to the small businesses, which could not afford their own training. The contractors these plants used for service, the restaurants and small shops around them. On top of this the national security was actually in real terms outsourced to our adversaries in particular to China-like Boing making parts for wings in China. Our stupid "Captains of Industry" sold expertise for profits which of course went to the companies' top administration and boards, which widen the divide between top administration and employees which remained in the USA. Who is really the Caveman in this assessment, when even Financial Times agreed that globalization failed in regard to benefiting our own working class and creating ever widening gap. After the WW2 ideology of lifting the world based on the thinking that USA is so rich it can endure negative balance indefinitely. This self -maintaining illusion persisted in the globalization ideology, glorifying Davos and Soros like foundations until it became clear to the sober minds that it is suicidal illusion. Why should we care about international markets if our own population is lowering its living standards. I am really disgusted with your false twisted numbers and you, Mr. Hanania misrepresenting of reality
I think this analysis focuses too much on individual employment in the manufacturing sector, and downplays the importance of simply being able to make tangible items, regardless of the number of jobs tied up in it.
Imagine how many lives could have been saved early in the pandemic if we had a domestic industry capable of manufacturing N95 masks and ventilators at scale, thereby avoiding the rationing that happened.
This is a good argument undermined by the reality we live in. Like Biden Era infrastructure projects turning into "everything bagel" voter handout corruption fests... there is a good, sensible, practical idea we should do. Attached to it is a series of awful ideas that don't care about getting things done, but rather stuffing as much money as possible into the hands of reliable voters, under the guise of "It's just infrastructure spending!". The mirror image of construction contracts being reserved for LGBTQ owned firms with DEI hires, is manufacturing contracts being reserved for Rust Belt steel workers and redneck congressional districts. In the same way California should probably have given up on its high speed rail dreams before spending billions of dollars on stuffing money into pockets, and not even getting high speed rail in exchange... we should probably give up on this too, before the politically inevitable happens.
You mean the "not losing wars fetish", or "not letting China win the next big war fetish", Richard?
In Dec 1944 the US stopped shipping military supplies to France, because the warehouses were full The official warehouses, and the unofficial warehouses, like every place where a sane person would store ammo, so not in a school for example. It was literally full.
I'm pro industrial policy and it really has nothing to do with preserving manufacturing jobs. I'm pro friendshoring and automation too. I don't really care if robots or humans make advanced chips or if they get made in the USA, India, Denmark, or some combination. But having them all made in one island country that's the most likely ground zero for WWIII seems...less than ideal. Call it antifragility if you need some name for it.
I get I may be a minority in this debate but people like me do exist.
"Without developed market economies, outsiders could gain something from your tribe only at your tribe’s expense." I don't know about this. Tribes have been voluntarily trading goods with each other for millennia.
I don't think we need to invoke evolutionary psychology - it's sufficient to invoke memories of the glorious 1950s, when many of our fathers, grandfathers etc. had good union jobs in factories. And this continued into the 1970s at least.
I don't think those jobs were good because they were manufacturing jobs, but because inequality was relatively low, and unions relatively powerful. But seeing that requires more than simply hearing granddad's stories at the holiday dinner table.
They don’t care about the rest of society the same way the rest of society doesn’t care about them. They aren’t recipients of the abundance free trade creates so self-interested opposition is perfectly rational.
I think the increase of jobs which have no tangible outputs is affecting a lot of economic views for the worse, especially on the left. If the work you do has no tangible output/contribution, you would naturally think that compensation and ultimate wealth accumulated from a job are completely detached from the economic value it generated. People don't get rich because they do valuable work, they get rich for some inexplicable reason, probably because they stole from others. The wealth we all have today compared to the past is not due to a 1000x increase productivity, but again is just completely inexplicable, probably due to random historical events, and stealing from others.
So many jobs fit this category like, teachers, nurses, baristas, journalists, influencers, 'fake email jobs', etc. When a job actually is a net cost on society, which certainly happens sometimes, it's just a testament to how much 'slack is in the system', ie we're so good at being insanely productive in other parts of the economy that we can afford a lot of misses and a lot of costs.
From where I sit, teachers, nurses and similar produce quite valuable outputs. I wouldn't have had a successful career without the people who educated me. I wouldn't be here at all without the medical people who treated my potentially fatal illness. I value what they did for me, and by extension what similar people do for others.
I'm not so sure about influencers, marketers, advertisers, or most of the people in finance. On a bad day, I'll add most executives to the useless list, along with most politicians.
I'll repeat something I think David Friedman said on his blog.
Suppose that, instead of trading with us, foreigners just sent us goods FOR FREE. Just plain free - nothing in return expected, ever. And no prospect of cutting off the supply in the future, ever.
Wouldn't that be a good thing, not a bad thing? Really free stuff?
It's good in the short term. But in the long-term it can lead to your domestic economy hollowing out. Then if the supply of free stuff stops you can't easily rebuild it, or you miss out on technological advances in the hollowed-out sectors, or you lose your military industrial capacity.
There's a case to be made that the US is suffering from a financial Dutch disease: i.e., the dollar's use as a reserve currency is contributing to a bloated financial sector consuming labor and resources from more productive outlets (semiconductors, electric automobiles, mass-produced drones, etc.).
Then there's also the scary prospect of imagining what happens when the USD is no longer the reserve currency and its economic ramifications on the global economy.
David Friedman commits a common mistake by setting allocative efficiency and consumption as the supreme good, to the detriment of other important values (supply-chain resilience, national security, improving labor outcomes for low-skilled workers, etc.).
I did say "no prospect of cutting off the supply in the future, ever" in my hypothetical.
Supply chain resilience and national security are GOOD arguments for tariffs. "Trade deficits are bad" is a BAD argument.
Outcomes for low-skill workers isn't a very good argument. Modern manufacturing is mostly automated; very few low-skill workers are needed. For those few who get those jobs, yes they benefit, but a vastly larger number of low-income people get to pay more that they would have if they could buy from the most efficient (foreign) supplier. Low-income people are not ahead except for a tiny lucky few - their gains are nowhere close to outweighing the costs for the large majority.
There are legit arguments for tariffs in some cases. "Trade deficits are bad" is not one of them.
<I did say "no prospect of cutting off the supply in the future, ever" in my hypothetical.>
So, basically your argument relies on an unrealistic (and rather naive) assumption of international relations, no? Sounds like a sound foundation for macroeconomic policymaking lol.
<Outcomes for low-skill workers isn't a very good argument. Modern manufacturing is mostly automated; very few low-skill workers are needed.>
I don't really agree. Manufacturing is automated, sure, but that has been true going back decades. Automation didn't lead to the massive decline in manufacturing jobs in the early 2000s: that was the China shock. Plus, manufacturing productivity in the US has been stagnant over the past two decades, so clearly there is something structurally wrong with America's industrial sector.
I'm completely spitballing but I think the new crypto stablecoin law is going to turbocharge demand for dollars. I haven't seen any good analysis of how that will affect deficits but there are literally billions of people who'd like to park their money in dollars and currently have no means of doing it.
The 2018 steel tariffs gained ~1,000 steel jobs and cost ~75,000 jobs in industry that needed steel as an input. https://marginalrevolution.com/marginalrevolution/2025/02/steel-tariffs-in-two-pictures.html
David Friedman talks about the culture-tech manufacturing machine that inputs Iowa corn and outputs Japanese cars. Add the culture-tech of finance and you can have the cars come out of the machine before the corn goes into it.
All tariffs mean is that you have to input more corn to get the same amount of cars.
Seems to me that you can't really just look at those two things, because the steel jobs also had multiplier and spillover effects.
Would the multipliers and spillovers gained be greater for the 1,000 steel jobs gained, or would the multipliers and spillovers be greater in the 75,000 jobs lost from more expensive steel?
When you consider not just the jobs gained but also the jobs preserved that would have otherwise been lost, I think it is not so easy to say
No, the multipliers from employment will net out (incremental grocery clerks, or gas stations or teachers at the local school). The gain you get is from secondary industry. Truck and train drivers to gather the steal, HVAC guys, industrial parts firms that feed the steel manufactures, etc ... But I suspect all that would also apply to steel-input manufacturing and since we are talking almost 2 order of magnitude, it likely won't dominate even the primary losses.
"Making tangible things is simply not the basis of a successful modern economy. It would be like if in 1960, Americans became enamored with the idea that more people had to go back to being farmers."
I think a lot of what fuels scepticism of free trade is that the service jobs that replaced manufactory aren't obviously useful like farming and manufacturing are.
Some of the scepticism towards services comes from class resentment. But in my opinion a lot of service jobs really are unproductive.
https://claycubeomnibus.substack.com/p/bullshit-jobs-review
There is a worry that the real economy has been hollowed out and replaced with imports. From a military point of view it definitely has been.
Many service jobs are “unproductive” in your estimation, but we have a handy and reliable means of determining whether something provides value: the price the market sets for it.
I roll my eyes at do-nothing office jobs too, but the market is not mispricing service jobs to the tune of tens of trillions of dollars a year.
"we have a handy and reliable means of determining whether something provides value: the price the market sets for it."
Maybe broadly, but there are lots of exceptions like jobs that involve zero sum competitions, jobs that provide ancillary support to other parts of the economy but never actually bottom out in real production, jobs where employers can't monitor what's being produced etc. Those exception add up to a large fraction of the service sector imo.
Check the link I posted for a post that goes into all the details on the different ways jobs can be unproductive but still rewarded in the market.
I read the article and am unconvinced. The examples of zero-sum competition jobs seems to hinge on re-engineering society such that advertising and lawsuits are banned. Sure, that would change things but it doesn't describe present reality.
Thanks for reading it.
Unconvinced by the theory or unconvinced that there's a pragmatic solution?
The economy before around 1980 had many fewer of what of what I consider unproductive jobs. So I think it should be possible to reduce their number without dramatically changing the economic system.
Also the other side of this trade war, China, obviously has a small service sector.
Unconvinced by the theory. He unilaterally defines jobs as zero sum, but if one side stopped doing those jobs it would be extremely positive sum for the other side. It’s like saying LeBron James’ job is zero sum because Stephen Curry is on the other side.
I agree there are deadweight loss jobs in the aggregate economy, like corporate tax attorneys who spend all day searching for deductions and tax credits to save their clients millions, but that’s a different class of argument.
Also, China has an enormous service sector. It’s obvious to anyone who visits. When I was there, I got a simple haircut and five people were involved in the process. Restaurants had multiple hosts and waiters per table.
<Many service jobs are “unproductive” in your estimation, but we have a handy and reliable means of determining whether something provides value: the price the market sets for it.>
That only makes sense if you think that wages are a perfect measure of the value-add of a given job. This doesn't make any sense when you realize that labor markets are (A) not perfectly-competitive and (B) influenced by preexisting norms and institutions (rather than marginal productivity).
Making tangible things is a good thing. Having people doing it is not. Manufacturing is like farming and worker per output is bound to keep decreasing exponentially. China has already been past peak manufacturing employment.
The problem with the service-sector is not that the jobs are bullshit, but rather that there are hard limits to how much you can improve productivity. Service-sector productivity is notoriously difficult to improve, especially when compared to manufacturing productivity; all else being equal, a country with a powerful industrial sector (say, 20-25% of GDP) has a better potential growth trajectory than a country without one (say, 5-10% of GDP).
Moreover, the most reliable way to improve productivity in the service sector is to rearrange the mix of inputs and outputs. And since labor is arguably the most plentiful input in the labor-intensive service sector, this requires changes to the labor market that inevitably limit the ability of workers to improve their bargaining position. This is in stark contrast to manufacturing, where technological innovation and capital investment can achieve greater marginal productivity gains that can be allocated to capital and labor.
Those two things are one and the same though? If for example it takes 1 person farming cotton, 1 person spinning and weaving it into clothes, and 1 person to do all the various services like sell it, keep track of it in the inventory system, handle payroll for the other 2 guys, and decide what kinda clothes to make... then the economy is (roughly speaking) one-third agriculture, one-third manufacturing, and one-third services.
But if tractors or whatever get invented and the productivity of the farmer doubles, then you now need 0.5 farmers + 1 factory worker + 1 service worker to make each set of clothes, and the economy is now 20% agriculture/ 40% manufacturing / 40% services.
And if new spinning machines get invented and the productivity of the factor worker doubles, then you need 0.5 farmers + 0.5 factory workers + 1 service worker per set of clothes, and the economy is now 25% agriculture/ 25% manufacturing / 50% services.
Keep this going, with productivity increases to farming and manufacturing but none to services, and you get an economy that by *necessity* is like 84% Services / 8% Agriculture / 8% Manufacturing, because you only need 0.1 farmers and 0.1 factory workers per set of clothes, but still need 1 service worker. It's precisely *because* its productivity isn't improving that the economy has to increasingly revolve around it. If we instead lived in some mirror universe where manufacturing and services productivity kept increasing, but farming productivity stayed constant, then people would instead be complaining that farming just keeps growing as a % of the economy despite sucking and not improving, without realizing that the 2 things are actually the same thing.
So no, I don't think manufacturing can be a much larger % of employment so everyone can benefit from its fast productivity growth. That'd be the same as turning everyone into farmers so everyone can drive a tractor and enjoy the fast productivity growth, then realizing that you've shot yourself in the foot because you're just growing cotton your shrunken manufacturing sector can't use. Same thing with taking people away from services to work in manufacturing, then realizing you're just producing more stuff then your shrunken services sector can actually use.
I am an evolutionary psychologist, and I agree with the reasoning in your Human Progress article.
I was struck by the following line in your Substack commentary: "Making tangible things is simply not the basis of a successful modern economy. It would be like if in 1960, Americans became enamored with the idea that more people had to go back to being farmers." I was struck by this line because there were a number of people who became enamored with the idea of becoming farmers. It was the hippie commune movement, and most of these communities did not work out.
So manufacturing jobs are not the basis for a successful modern economy. Then, specifically for the US, what is? Services and raw materials? And is this model sustainable into the future? Do you really think the US will be competitive on any of the high value services it currently offers over the long haul when China, India and every other country wants in the game?
You know what else is not the basis for a successful modern economy? Permanently running trade deficits and fiscal deficits. It will catch up with you eventually. And if you've put all of your eggs in the services and raw materials basket, then you are at risk.
So, some smart person is now going to say, we just need to raise taxes to square things. But this is a dynamic multi-body problem, and moving one piece will change all of the others.
Part of the issue is time scale : are we looking at a 4 year, 10 year or 30 year horizon. And if you run things out longer what does it look like.
You should have manufacturing capabilities for key sectors even if you are not manufacturing much. This would allow easier pivots on the basis of global trade changes. Also, with AI and automated manufacturing, there is less benefit to locate manufacturing in low wage countries.
None of this is easily deducible from recent experience. That is what the caveman brains do.
> You know what else is not the basis for a successful modern economy? Permanently running trade deficits and fiscal deficits.
Strangely enough, that's not quite true. Everyone else uses the US Dollar for international trade -- that's what it means to be the global reserve currency, more or less. The more intentional, the more US Dollars are needed. The only source of US Dollars is the US, and within the US, the only source of US Dollars is the US Government (well, more or less, the exact details involve the Federal Reserve, bond purchases, and open market operations). If people want US Dollars, they have to get them from the US. The US doesn't give them out for free though, people have to sell us stuff in exchange for our dollars. This shows up as a trade deficit... though you can think of it as "Other countries pay us tribute in exchange for the honor of being allowed to use our currency, almost Roman Empire style". (Arguably China is the biggest tributary of all, in fact, a la Ancient Egypt sending free grain to Ancient Rome and just eating the loss, but with cheap toys and stuff instead.)
If instead the US ran a trade *surplus*, selling stuff in exchange for other countries giving us their US Dollars... then, international trade would start seizing up from a lack of "transmission fluid". It's expanding and needs more US Dollars, but we're actually removing Dollars from the system. So the US *has* to export dollars instead. Unless the US is willing to give those dollars away for free, this means running a trade deficit.
You can then run the same analysis on US government budget deficits. To a first approximation, no one is allowed to own a money printer except the government. When more money is needed, say because the economy is healthy and expanding, it has to come from the government. Unless the government is willing to run Ben Bernake's "helicopter money" thought experiment, the government does this by buying stuff, which shows up as a budget deficit. If the government did the opposite, both the national and international economy would be royally screwed from the sudden shortage of "transmission fluid". (Well, except when inflation is out of hand and the money supply needs to contract.)
Anyways, if you want to read more about this, look up the "Triffin Dilemma". And if you think this is a very bad thing, look up "Resource Curse" and "Dutch Disease" but replace every mention of exporting oil or gas, with being the world's money printer and having to export pure money instead.
In 1930s Germany, Hitler's protectionism was, indeed, focused on getting people out of industrial jobs and back into the agricultural profession. The Nazis fetishized the scythe over newer forms of technology, like combine harvesters. It was believed that agriculture was a healthier form of labor which would produce more babies. There is truth to the idea that farmers had a higher birth rate than city folk. To that point, more rural North Korea has a higher birth rate than more urban South Korea. Ultimately, however, the Nazis did not boost the birth rate very much, and the post-war birth rate was higher and faster. I'd like to see a pro-tariff calculation of the benefit to birth rates, and then compare that to a natalism-for-cash policy. But I don't think that will be done because the former is likely inferior.
I do not know what Hanania is smoking these days., So first-remove manufacturing jobs to all countries with cheaper labor cost and then-claim that only small number of people work in manufacturing jobs. This is your logic Mr. "I know better, just because I were never there at these mills and refineries and papermills?" I witnessed the emptying of these plants, shutting down these facilities, emptying and falling in poverty of the towns based on these great industries. These plants and mills were also great training ground for trade expertise which spread to the small businesses, which could not afford their own training. The contractors these plants used for service, the restaurants and small shops around them. On top of this the national security was actually in real terms outsourced to our adversaries in particular to China-like Boing making parts for wings in China. Our stupid "Captains of Industry" sold expertise for profits which of course went to the companies' top administration and boards, which widen the divide between top administration and employees which remained in the USA. Who is really the Caveman in this assessment, when even Financial Times agreed that globalization failed in regard to benefiting our own working class and creating ever widening gap. After the WW2 ideology of lifting the world based on the thinking that USA is so rich it can endure negative balance indefinitely. This self -maintaining illusion persisted in the globalization ideology, glorifying Davos and Soros like foundations until it became clear to the sober minds that it is suicidal illusion. Why should we care about international markets if our own population is lowering its living standards. I am really disgusted with your false twisted numbers and you, Mr. Hanania misrepresenting of reality
I think this analysis focuses too much on individual employment in the manufacturing sector, and downplays the importance of simply being able to make tangible items, regardless of the number of jobs tied up in it.
Imagine how many lives could have been saved early in the pandemic if we had a domestic industry capable of manufacturing N95 masks and ventilators at scale, thereby avoiding the rationing that happened.
This is a good argument undermined by the reality we live in. Like Biden Era infrastructure projects turning into "everything bagel" voter handout corruption fests... there is a good, sensible, practical idea we should do. Attached to it is a series of awful ideas that don't care about getting things done, but rather stuffing as much money as possible into the hands of reliable voters, under the guise of "It's just infrastructure spending!". The mirror image of construction contracts being reserved for LGBTQ owned firms with DEI hires, is manufacturing contracts being reserved for Rust Belt steel workers and redneck congressional districts. In the same way California should probably have given up on its high speed rail dreams before spending billions of dollars on stuffing money into pockets, and not even getting high speed rail in exchange... we should probably give up on this too, before the politically inevitable happens.
"the manufacturing jobs fetish"
You mean the "not losing wars fetish", or "not letting China win the next big war fetish", Richard?
In Dec 1944 the US stopped shipping military supplies to France, because the warehouses were full The official warehouses, and the unofficial warehouses, like every place where a sane person would store ammo, so not in a school for example. It was literally full.
Now why was it so?
I'm pro industrial policy and it really has nothing to do with preserving manufacturing jobs. I'm pro friendshoring and automation too. I don't really care if robots or humans make advanced chips or if they get made in the USA, India, Denmark, or some combination. But having them all made in one island country that's the most likely ground zero for WWIII seems...less than ideal. Call it antifragility if you need some name for it.
I get I may be a minority in this debate but people like me do exist.
"Without developed market economies, outsiders could gain something from your tribe only at your tribe’s expense." I don't know about this. Tribes have been voluntarily trading goods with each other for millennia.
I don't think we need to invoke evolutionary psychology - it's sufficient to invoke memories of the glorious 1950s, when many of our fathers, grandfathers etc. had good union jobs in factories. And this continued into the 1970s at least.
I don't think those jobs were good because they were manufacturing jobs, but because inequality was relatively low, and unions relatively powerful. But seeing that requires more than simply hearing granddad's stories at the holiday dinner table.
They don’t care about the rest of society the same way the rest of society doesn’t care about them. They aren’t recipients of the abundance free trade creates so self-interested opposition is perfectly rational.
I think the increase of jobs which have no tangible outputs is affecting a lot of economic views for the worse, especially on the left. If the work you do has no tangible output/contribution, you would naturally think that compensation and ultimate wealth accumulated from a job are completely detached from the economic value it generated. People don't get rich because they do valuable work, they get rich for some inexplicable reason, probably because they stole from others. The wealth we all have today compared to the past is not due to a 1000x increase productivity, but again is just completely inexplicable, probably due to random historical events, and stealing from others.
So many jobs fit this category like, teachers, nurses, baristas, journalists, influencers, 'fake email jobs', etc. When a job actually is a net cost on society, which certainly happens sometimes, it's just a testament to how much 'slack is in the system', ie we're so good at being insanely productive in other parts of the economy that we can afford a lot of misses and a lot of costs.
From where I sit, teachers, nurses and similar produce quite valuable outputs. I wouldn't have had a successful career without the people who educated me. I wouldn't be here at all without the medical people who treated my potentially fatal illness. I value what they did for me, and by extension what similar people do for others.
I'm not so sure about influencers, marketers, advertisers, or most of the people in finance. On a bad day, I'll add most executives to the useless list, along with most politicians.
I'll repeat something I think David Friedman said on his blog.
Suppose that, instead of trading with us, foreigners just sent us goods FOR FREE. Just plain free - nothing in return expected, ever. And no prospect of cutting off the supply in the future, ever.
Wouldn't that be a good thing, not a bad thing? Really free stuff?
Argue that it's not. Go ahead. I want to watch.
It's good in the short term. But in the long-term it can lead to your domestic economy hollowing out. Then if the supply of free stuff stops you can't easily rebuild it, or you miss out on technological advances in the hollowed-out sectors, or you lose your military industrial capacity.
There's a case to be made that the US is suffering from a financial Dutch disease: i.e., the dollar's use as a reserve currency is contributing to a bloated financial sector consuming labor and resources from more productive outlets (semiconductors, electric automobiles, mass-produced drones, etc.).
Then there's also the scary prospect of imagining what happens when the USD is no longer the reserve currency and its economic ramifications on the global economy.
David Friedman commits a common mistake by setting allocative efficiency and consumption as the supreme good, to the detriment of other important values (supply-chain resilience, national security, improving labor outcomes for low-skilled workers, etc.).
I did say "no prospect of cutting off the supply in the future, ever" in my hypothetical.
Supply chain resilience and national security are GOOD arguments for tariffs. "Trade deficits are bad" is a BAD argument.
Outcomes for low-skill workers isn't a very good argument. Modern manufacturing is mostly automated; very few low-skill workers are needed. For those few who get those jobs, yes they benefit, but a vastly larger number of low-income people get to pay more that they would have if they could buy from the most efficient (foreign) supplier. Low-income people are not ahead except for a tiny lucky few - their gains are nowhere close to outweighing the costs for the large majority.
There are legit arguments for tariffs in some cases. "Trade deficits are bad" is not one of them.
<I did say "no prospect of cutting off the supply in the future, ever" in my hypothetical.>
So, basically your argument relies on an unrealistic (and rather naive) assumption of international relations, no? Sounds like a sound foundation for macroeconomic policymaking lol.
<Outcomes for low-skill workers isn't a very good argument. Modern manufacturing is mostly automated; very few low-skill workers are needed.>
I don't really agree. Manufacturing is automated, sure, but that has been true going back decades. Automation didn't lead to the massive decline in manufacturing jobs in the early 2000s: that was the China shock. Plus, manufacturing productivity in the US has been stagnant over the past two decades, so clearly there is something structurally wrong with America's industrial sector.
I'm completely spitballing but I think the new crypto stablecoin law is going to turbocharge demand for dollars. I haven't seen any good analysis of how that will affect deficits but there are literally billions of people who'd like to park their money in dollars and currently have no means of doing it.