The United States and Mexico are actually somewhat tolerable neighbors. We could be Israel and The Palastinian State. That being stated, things are closer to Guns N’ Roses instead of wine and roses. NAFTA has been a disater for us both.
Mexicans have discovered that American companies have left the US and brought jobs tot heir land in part so that they could use Mexico as an environmental crapper.
According to Mexican government figures, the economic costs of environmental degradation have continued to average 10 percent of GDP since NAFTA. Hazardous waste and air pollution are on the rise. Eight million tons of hazardous waste are generated in Mexico each year, but Mexico can only absorb one million tons per year. This has led to a large pile-up of hazardous waste, and to illegal waste trade as well.
Americans are equally harmed by the predation of well-paid jobs. The Z-Blog offers details.
Making car batteries in the US means people working in a car battery factory. Move those jobs to Mexico and we do get slightly cheaper car batteries, but we get more unemployed people. The unemployed car battery worker is not taking up a self-actualizing career at the George Mason economics department. Heâ€™s going on the dole or drifting down the economic scale. At low levels, the trade-offs seem worthwhile, but once you scale this up the costs metastasize.
But David Ricardo promised this wouldn’t happen. He wrote all about the magic of comparative advantage. Regardless of absolute productive ability, assigning everyone the task they do best and then trading the resulting goods will make the world a better place. This has been the doctrine of Free Traders ever since. It is based on outmoded knowledge.
Between the era of Ricardian Economics and Donald J. Trump’s rebellion against globalism, we have learned a lot more about labor theory and we have experienced a heck of a lot of real life that repudiated Ricardian Theory. We begin with the theory. David Ricardo, meet the Learning Curve and then meet Senor Anderlohr. Learning Curves describe how fast people learn new tasks. In industry, they govern how expensive a given unit of production from an industrial process becomes.
We learn that initial units are expensive and time-consuming, but as the count of units produced doubles, the cost in labor hours drops a given percentage. An 85% Learning Curve will start at some unit N and by the time it reaches unit 2N, the cost of production for that unit is 85% of what it took to produce unit N. Learning curves differ based on process and ability. Hands-on manufacturing processes rapidly go down in cost. The workers get good at a faster rate, but start at a higher start -up cost. Mechanized processes gain slowly, but start at a lower expense.
The upshot is that heavily funded, mechanized factories gain cost advantage regardless of prior comparative advantage. Thus, the question facing Carrier is one of the cost of regulatory compliance. It becomes cheaper to use Mexico as an environmental crapper. Then, the people who used to make things in America forget how.
This is the Anderlohr Effect and it involves five processes that undermine the ability of workers to take advantage of comparative advantage and just swap processes. The workers lose personal learning, the supervisors forget their roles, continuity of production is lost, methodologies are forgotten, and speacial tooling gets relocated and repurposed. Anderlohr’s lost learning factor directly worsens the ability of a trading partners to take advantage of comparative advantage when they swap.
In the real world, the impact of these theoretical concerns leads to a bifurcated outcome. Fred Reed describes the winners and the losers. The winners win big.
The rich and powerful are on display in Washington, white, well paid, secure, above average in intelligence, often from Oberlin, Amherst, Swarthmore, Yale. The better sorts of schools, you know. They cluster in Washingtonâ€™s posh barrios of Bethesda, Upper Connecticut, Cap Hill, and Great Falls. They drink together and talk to each other and believe that they must be right because everyone they know agrees with them.
The losers live in F. Scott Fitzgerald’s Valley of Ashes.
They do not know that that in the bleak down-scale strip development of Jeff Davis Highway, a half-hour away, reeking of exhaust and blowing with trash, an aged veteran on crutches lives in a dismal residential motel. Every mourning he hobbles to Dixie Leeâ€™s Diner– I forget its actual name — for a cheap breakfast because it is all he has. Or ever will. He is waiting to die. The elite donâ€™t know, and wouldnâ€™t care.
The powerful corporate masters with their bevy of machines can go anywhere its cheap and make anything they want in order to turn a profit. The workers lose their skills after they lose their employer. The longer it takes to get rehired, the more the Anderlohr Effect erodes their value to a perspective employer. Their ultimate destination under a Free Trade regimes is the bottom. Their lives become just as polluted as the Mexican wilderness. If all lives matter, Free Trade can no longer be seen as free.
Tags: free trade, NAFTA, offshoring, outsourcing