What Goes Around Comes Around

Technology costs job, but no one bans technology
-incr. of hourly manufact. wage in China
-absolute and comparative advantage

 Wages / Marginal Product of Labor = how much stuff we get if work more

China: $8 / hr per 4 units of labor = $2 / unit
USA: $30 / hr per 20 units of labor = $1.50 / unit

Wage & ability to produce AND consider opportunity cost
-What else could a worker be doing instead? 
 -->Is relative cost/output higher or lower? Must consider other jobs, outcomes

What Else Costs Manufacturing Jobs?
-Energy tax    -Total manuf. jobs around the world going down

Do Trade Surpluses Create Jobs?
U.S. increases exportation of food every year
...BUT why decline of farming jobs? Despite growing population, despite funding, less farmers
Answer: No.

Is There Proof That Trade Doesn't Destroy Jobs?
-Employment is dynamic
-Trade: pay for imports with exports
-When specialize, get richer
  -->Income effect; fewer resources used to make goods
Wealth = more consumption, more jobs!

Ex: "Gift economy"
Imagine every American accepts a gift of a free car from Korea annually
--> infinitely large trade deficit & would ruin the auto industry
BUT still have some auto sales, some people would still be willing to pay
Believe imports steal jobs, so does technology
-all sectors have more jobs because more $ to spend in them
"Ricardian"
Free gift of cars =
-Incr. of labor that supplies Korea
- In US incr. of $ saved goes to buy other stuff

ex: infinitely large trade deficit with Wegmens; roundabout way of paying
Rizzo sells us lectures, gets $ back and uses it at Weggies
-Rizzo has a trade surplus w/ Rochester

Farm: more food at lower prices with fewer workers
-frees budget to do other things

Trade: peaceful, cooperation, interdependence

Then...what IS related to Trade Deficit?

Capital Account Balance

-surplus, why? American assets

-buy corp. stocks, bonds

-allow to consume more than product

  -->stay attractive to investors

$ Rizzo spends on another country comes back!

ex: Rizzo buys $10 of toys from China

China buys $5 worth of classes

-->$5 deficit, what to do with the money?

1) buy more American goods

2) Bank account; buy treasury bond stocks

  -->circum. on financial asset of Amer. NO trade deficit

  a) ruin the dollar!! (cue Rizzo ripping up a dollar and front row gasping)

     -->reduced money supply raises its value!

3) Buy other foreign goods; stuff from Germany

  -->Germany might buy stuff from U.S. or Ameri. assets

Capital Account & Current Account graphs = mirror of each other