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George Reisman Responds to Roberts


Dr. George Reisman, my favorite living economist, voice of clarity and reason, has replied to Schumer and Roberts on the Mises website:

Thus, here we are with American software engineers and American radiologists being replaced by much lower-paid Asian software engineers and radiologists. What causes them to be replaced is that they are unwilling to accept wages as low as their Asian competitors. The fact that they are replaced rather than accept the wage cuts needed to be competitive implies that they choose to move to alternative lines of work, which, while offering less money than the jobs they have lost, do not require reductions as severe as those needed to be competitive in the jobs now filled by Asians. The former software engineers take jobs that offer $100,000 or perhaps just $50,000 instead of the $150,000 that they had been earning. The former radiologists leave radiology and enter other branches of medicine at lower, but still considerable pay, in the process increasing the supply of physicians and reducing their rates in those other lines — a path to more affordable medical care, it would seem.

To understand what is present, all one need do is to generalize the situation. Imagine that in case after case Americans are confronted with lower-cost competitors, which causes a decline in their money incomes. But the decline in their money incomes is always less than the reduction in costs achieved by the competitors. Now all one need do is realize that the cost reductions achieved by the competitors show up as price reductions in the things Americans buy. And those price reductions, founded on cost reductions greater than the decline in American incomes, will also be greater than the decline in American incomes. In other words, American real incomes, as opposed to their nominal incomes, rise. Ricardo's principles both of comparative advantage and the distinction between value and riches are at work.

That's it, that's the aggregate-level argument in just two paragraphs! In his article Reisman does not address why even the disaffected software engineers and radiologists should support this process, or why they'll definitely be able to find other jobs, but I'm happy to provide backup on those points.

Reisman has a marvelous talent for writing. There's nothing dismal in this science when he's writing about it:

The economic development of China, India, and all other areas of the present-day third world, their full integration into a system of global division of labor and their attainment of "first-world" status, is earnestly to be desired not only by the populations of those countries, whose standards of living would obviously be enormously increased, but no less by the populations of today's first-world countries, whose standards of living would also be very greatly increased. What would be achieved, along with the benefits of comparative advantage, is the maximum possible economies of scale in every branch of production, given the world's population. Above all, every branch of science, technology, invention, and business innovation would be pursued by a far larger number of highly intelligent and motivated individuals than is now the case. The result must be far more rapid economic progress across the entire globe, raising the living standards of all far above the living standards of today's most advanced countries.

Reisman's gargantuan book Capitalism is available as a free download on his website, as are many of Ludwig von Mises's books along with other important works.

Tiny Island