A Ploy for Poverty

That the assembly of most of our consumer goods is done abroad is a blessing for America. Most of our workers have better-paying options.

Whatever policies the United States pursues to increase job growth should not aim at encouraging any particular mix of jobs. The best such policies – which include across-the-board cuts in marginal tax rates and an easing of regulatory burdens – would rely upon markets to discover which jobs are best done in America and which are best done abroad.

Because politicians are too prone to be captured by interest groups – and because the amount of information that they can absorb and reliably process is much less than the amount of information that is routinely and reliably used in markets – politicians cannot outperform markets at discovering what jobs are best to have here at home.

Markets have spoken pretty clearly that assembling component parts into final consumer goods such as iPhones and computers is best done in countries where average wage rates are lower than in the U.S. The chief reason is that such assembly does not add much value to the final product. Manufacturers, therefore, will not pay much for such assembly – which is a way of saying that manufacturers cannot afford to perform such assembly by paying high U.S. wage rates.

So contrary to much public commentary, the fact that the assembly of most of our consumer goods is done abroad is a blessing for America. This fact is evidence that most of our workers have better-paying options than working at low-value-added, mass-production assembly. American manufacturing workers instead process industrial chemicals, produce pharmaceuticals, and perform other similar higher-valued-added and less routinized tasks that require more skills than are possessed by the typical assembly-line worker in China and India. As a result, American workers are more highly paid.

While it's true that too many American workers are today unemployed – and, hence, might now be happy with such assembly-line jobs – sound public policy doesn't react to temporary exigencies but focuses on long-run realities. And the long-run reality in America is that we would be made poorer if pressed by misguided policies to perform jobs that are most appropriate for workers in developing economies.