Just finished listening to some podcasts from here and I really enjoyed them (as usual). The first one was about outsourcing and trade in general and had some interesting tidbits. One thing I liked was his idea about economies of scale. Instead of talking about the efficiencies of returns to scale due to large purchases of supplies, etc. he posited that the efficiencies come from the continual use of human capital. Economists use the term “human capital” to describe the skills and knowledge that people have and use to produce stuff and services. His idea was that in a production environment capital is used all the time. If I decide to make an amplifier, my human capital involving cameras and Arabic aren’t used. I can only use one skill at a time so anything I decide to make is inherently inefficient. If you get several people (or a lot) together and they specialize, human capital can be used around the clock leading to much greater efficiency. Well, I thought it was interesting…
He also brought up the idea that there are no longer the manufacturing jobs to employ a lot of the immigrants like there used to be. He used the example of the Endicott Johnson shoe factory in Johnson city to discuss his point. I used to wander around the old grounds of the EJ factory in Johnson city a lot back in my college days. Anyway, I don’t think it’s necessarily a problem, but it is interesting to see the difference between today’s immigrants and the ones from years past.
When they started to talk about outsourcing, Russ came up with an interesting way of analyzing things. The usual issue is weather or not the decreased costs are “worth” the loss of jobs stateside. People sometimes have difficulty determining who comes out ahead in these sorts of deals. Imagine some product, like computer software, became totally free. Or imagine that a teleportation device was created. Both of these hypothetical situations would eliminate hundreds of thousands of decent paying jobs. Certainly the people that had those jobs would be worse off, but what about everyone else? It’s pretty clear that everyone in the world would be better off with zero cost software and transportation. The thing that people usually forget is that the money that would no longer be spent on those things would be spent on something else, and that is what drives economic growth long term. The same general idea applies to automation and outsourcing. By making things less expensive (they can never be totally free), the world benefits and money is freed up to be spent on other ideas and services. It’s a great way of putting things into perspective.
On another podcast, they were talking about recycling. It’s interesting to think about the idea between resources and trash. In short, a resource is something that someone will pay you for and trash is something that you have to pay to get rid of. It turns out that aluminum cans are usually a resource and as such are worth recycling, newspaper is a bit of a wash, and glass is a real money loser. What that means is that is actually more expensive (in many cases) to make glass from old bottles than it is to make it from scratch.
Some people might say that it doesn’t matter what it costs, we should reuse and recycle as much as we can, even if it loses money. These people tend to sneer at economists as being short sighted and resource hogs. The shame is that economists are the only ones that take all resources into account, most people that are rabid about recycling think that only the things we get out of the earth are important. Economists take into account time and alternative uses of human capital as resources, things that are frequently ignored by many people. It turns out that if prices are allowed to be set accurately (always easier said than done), it’s easy to find the least resource-intensive product, it is the cheapest one. That’s one more reason to allow prices to rise and fall on their own, it’ll allow us to accurately determine the relative resource use of the products we use.