Exporting Jobs, Importing Goods & Services:
The Good, The Bad and the Money
By Pete Lester, Sr.
January 4, 2007
If someone tells you “its not about the money…,” we all know – ITS ALL ABOUT THE MONEY.
In 2006, the USA exported $55 billion in goods and services to the Peoples Republic of China. To date (through 10/31/2007), the USA has exported $53 billion to China in the current year. [1] Exports no doubt have increased due to the weakened dollar.
According to the Peterson Institute, a Washington DC economic policy think-tank, Americans save approximately $1 trillion a year as a result of our nation’s free trade policy.
That is to say, that because the United States allows many countries to ship their goods to the US and sell these goods without import tariffs, the US consumer saves money. The Peterson Institute goes on to report that these savings ($1 Trillion annually) are 19 times larger than the estimated 225,000 jobs, and $54 billion in lost wages (over a lifetime). [2]
Have you been to Detroit or Buffalo lately? I have. It is not a great sight to see: ample idle plant and equipment available, and industrious people to fire the furnaces and man the lines. If you live in a community that seems to be avoiding the housing crisis – go to these cities. The population is stagnant (people are leaving) and there are houses for sale on every street. This was the case BEFORE the subprime lending bubble broke. It is now even more of an issue.
So, what has happened to these two cities? Why have they been hit so hard? Is it lack of leadership? Is it psychological or a mentality that essentially is ignoring the changes in the global economy? Is it the Union influence? After all, most of us are benefiting from the availability cheaper imported goods, which force US manufacturers to compete for our consumption dollars. $1 Trillion in savings goes a long way for all of us.
But here is the rub - there are some communities that are adversely impacted. This is a great example of "The Fallacy of Composition." Seemingly, the country as a whole is benefiting from cheaper imports, and this is true. For an auto worker in Detroit, however, the news released today that Toyota surpassed Ford to become the second largest automaker in terms of units sold in the US was not "good news." It was certainly good for Toyota. It was probably comforting to Americans who own a Toyota. There is not a PR firm on the planet that can spin this positively for Ford.
As the US gradually transformed to a service economy, many communities shed their dependence on heavy manufacturing, opting for a more diverse job base.
I recall the late ‘70’s and early ‘80’s when Jimmy Carter was President: we had double digit inflation and double digit unemployment. I was in College near Pittsburgh, and the Steel Mills were shutting down. This is the economic environment that yielded Billy Joel’s song “Allentown.” If you do not know the lyrics - check them out - they are depressing.
It is the case that during that time, I was really concerned for Pittsburgh – one of my favorite cities. A city of hard working people, with an equally hard working football team. It was the closest large job market available to a graduating senior and most importantly, my wife’s hometown.
Today, I consider Pittsburgh a minor economic miracle. And while I do not know all the business decisions that were made, I do know this: The city fathers, political leaders and business leaders made a cognitive decision that, while Steel had provided great wealth to the city and would always be a part of the city's job base, sizable investment needed to be made to transform Pittsburgh's economy into an economy that was less reliant on heavy manufacturing. Mellon, PNC, USX (formerly US Steel – they even changed their name) ALCOA – they all could have picked up their bags and relocated to healthier, more diverse economies.
Instead – they stuck with the city and saw the transformation through.
Now, the city has emerged with a more diverse economy, a vibrant downtown, a new airport, and yes, their NFL team is back in the playoffs too. While it is true that the city has not experienced the growth of a Las Vegas, Charlotte or Atlanta, it is also true that the city's economy has stabilized and is moving forward.
Cities with less job diversification could learn from the example set by Pittsburgh.
[1] Department of Labor website.
[2] “The Payoff from Globalization.” By Gary Claude Hufbauer and Paul L.E.Greico, Peterson Institute, June 7, 2005
QUESTIONS for STUDENTS of ECONOMICS:
The Good, The Bad and the Money
By Pete Lester, Sr.
January 4, 2007
If someone tells you “its not about the money…,” we all know – ITS ALL ABOUT THE MONEY.
In 2006, the USA exported $55 billion in goods and services to the Peoples Republic of China. To date (through 10/31/2007), the USA has exported $53 billion to China in the current year. [1] Exports no doubt have increased due to the weakened dollar.
According to the Peterson Institute, a Washington DC economic policy think-tank, Americans save approximately $1 trillion a year as a result of our nation’s free trade policy.
That is to say, that because the United States allows many countries to ship their goods to the US and sell these goods without import tariffs, the US consumer saves money. The Peterson Institute goes on to report that these savings ($1 Trillion annually) are 19 times larger than the estimated 225,000 jobs, and $54 billion in lost wages (over a lifetime). [2]
Have you been to Detroit or Buffalo lately? I have. It is not a great sight to see: ample idle plant and equipment available, and industrious people to fire the furnaces and man the lines. If you live in a community that seems to be avoiding the housing crisis – go to these cities. The population is stagnant (people are leaving) and there are houses for sale on every street. This was the case BEFORE the subprime lending bubble broke. It is now even more of an issue.
So, what has happened to these two cities? Why have they been hit so hard? Is it lack of leadership? Is it psychological or a mentality that essentially is ignoring the changes in the global economy? Is it the Union influence? After all, most of us are benefiting from the availability cheaper imported goods, which force US manufacturers to compete for our consumption dollars. $1 Trillion in savings goes a long way for all of us.
But here is the rub - there are some communities that are adversely impacted. This is a great example of "The Fallacy of Composition." Seemingly, the country as a whole is benefiting from cheaper imports, and this is true. For an auto worker in Detroit, however, the news released today that Toyota surpassed Ford to become the second largest automaker in terms of units sold in the US was not "good news." It was certainly good for Toyota. It was probably comforting to Americans who own a Toyota. There is not a PR firm on the planet that can spin this positively for Ford.
As the US gradually transformed to a service economy, many communities shed their dependence on heavy manufacturing, opting for a more diverse job base.
I recall the late ‘70’s and early ‘80’s when Jimmy Carter was President: we had double digit inflation and double digit unemployment. I was in College near Pittsburgh, and the Steel Mills were shutting down. This is the economic environment that yielded Billy Joel’s song “Allentown.” If you do not know the lyrics - check them out - they are depressing.
It is the case that during that time, I was really concerned for Pittsburgh – one of my favorite cities. A city of hard working people, with an equally hard working football team. It was the closest large job market available to a graduating senior and most importantly, my wife’s hometown.
Today, I consider Pittsburgh a minor economic miracle. And while I do not know all the business decisions that were made, I do know this: The city fathers, political leaders and business leaders made a cognitive decision that, while Steel had provided great wealth to the city and would always be a part of the city's job base, sizable investment needed to be made to transform Pittsburgh's economy into an economy that was less reliant on heavy manufacturing. Mellon, PNC, USX (formerly US Steel – they even changed their name) ALCOA – they all could have picked up their bags and relocated to healthier, more diverse economies.
Instead – they stuck with the city and saw the transformation through.
Now, the city has emerged with a more diverse economy, a vibrant downtown, a new airport, and yes, their NFL team is back in the playoffs too. While it is true that the city has not experienced the growth of a Las Vegas, Charlotte or Atlanta, it is also true that the city's economy has stabilized and is moving forward.
Cities with less job diversification could learn from the example set by Pittsburgh.
[1] Department of Labor website.
[2] “The Payoff from Globalization.” By Gary Claude Hufbauer and Paul L.E.Greico, Peterson Institute, June 7, 2005
QUESTIONS for STUDENTS of ECONOMICS:
- What policies could cities implement to encourage new, emerging companies, and service industries to locate to the city and create jobs for the citizens?
- What must the citizens in the city do to take ownership/contribute to the process?
- What is the incentive for an existing company to stay in a city that is “down on its luck”? When should a company relocate? Why do you think these companies stayed in Pittsburgh?
- What ingredients are necessary for a city to make a successful transformation?
- As a consumer, are you willing to pay more for goods and services - to know that they are "Made in America?" How willing? Do you go out of the way to buy American-made goods?
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