Economics – America and China

Business Week has several good articles on the topic of China’s Economic impact including: Shaking up Trade Theory and The China Price.

In Shaking up Trade Theory Aaron Bernstein explores: “The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage.” Over the last few years the white collar job losses in tech US have seemed to cause quite a bit more concern than the manufacturing and other job losses of the 1980s and 1990s. His article does a good job of exploring this issue within the limits of a short magazine article.

He captures the surprise economist (in the US) see because “Conversely, India, where just a fraction of its 400 million-plus workers have gone to college, should grab the low-skilled work and leave higher-end products to the U.S.” That conflicts with the data that many high skilled jobs are going to India (and elsewhere). The US Economists don’t seem to realize India is producing as many college educated engineers as the US. So India also has hundreds of millions of low skill workers that doesn’t mean they don’t also have plenty of high skilled worked (that speak English, which is, of course a huge benefit that is less true of Chinese high skilled workers).

Ok, I need to do better research but here is one source: “I know that US production of engineers declined from about 80K (in ’85) to about 65K – but is back up to about 75K in the latest data. For context, however, the production of engineers is over 200,000/yr in each of China and India.” Wm. A. Wulf, President, National Academy of Engineering (United States) in talk entitled: Out-sourcing/Off-shoring of Engineering Jobs.Update: see USA Under-counting Engineering Graduates

Basically the United States is not the only country that realizes it is a great things for your economy to have highly skilled people who can provide high value and receive high compensation. The benefits of highly skilled people to an economy is huge. The United States has proven very effective at providing personnel to fill many of these jobs. However, many others are going to make considerable efforts to compete for these jobs.

It seems to me American economist have equated comparative advantage with America gets the best deal and others do better than they would without free trade but less well than the United States. I don’t believe that is a given. I have been thinking about the recent economic events and the theory of comparative advantage recently. In a world where it might become possible to produce an huge quantity of goods and services with a fraction of the population I think strange effects may take place. I have to give this a great deal more thought.

Americans’ may have to face the possibility we don’t automatically get to be the richest with ever increasing economic bounty. The United States will continue to be economically wealthy, however, I would not be surprised that the relative wealth of the United States declines. We continue to reap huge economic rewards far exceeding those of most others. America has shown a great ability to continue to succeed economically exceptionally well compared to the rest of the world. I think there are many reasons to be optimistic about the economic future of America. However, I think the future will be one in which the United States has to react to forces much more powerful than itself which is not something America is used to.

Some seem to look at the gains in India, China, Singapore, Japan, etc. with the feeling that what is rightfully America’s is being taken. I don’t see that as the case. There are many interesting factors to consider on the present and future of the economic state of America. I hope to have some time to gather my thoughts on these topics and share them here. The idea that America would do better by trying to reduce international ties is a mistake.

My guess is that the United States of America’s economic success will continue. However, I think more economic benefit will accrue to the American economy, in the next 20 years from the improved products and services created elsewhere, and in America, (getting better good and services at lower prices) than it will by increasing our productive ability (increased earnings of employees). Also America will reap great benefits form the huge wealth currently held. Assets owned by Americans are likely to do very well and benefit from the more rapid growth in other countries. There risks and segments of the economy face very trying times. Low skilled workers may have great difficulty making economic gains. Even high skilled workers may have trouble living as lavishly as they would like to. However, if you were to chose one country to start life in 2005, based on the likelihood of economic success, the United States would be among the candidate countries.

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