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Straight from the Reader Mailbag

When my Daily Prophecy provokes a reader to ask a question or challenge my argument, I am happy. From time to time, I will devote a Daily Prophecy to my responses.

Recently a reader asked:

“What if the time value of costs you’re measuring (in the US, I assume) are transient, due to one-off effects of (1) outsourcing to cheap labor + (2) covering the loss of income locally due such outsourcing by borrowing more to consume?”

This question engages the real issue and reveals some common misunderstandings of time-prices and their significance.

Time-prices measure the time it takes to earn the money to buy a good or service. The time-prices are global and can be crudely calculated by dividing global GDP or output by global wages per hour.

The US numbers apply to the cost of a Thanksgiving dinner, as collected by the Farm Bureau since 1986. For a typical blue-collar worker, these costs are down from 32 minutes to 9.2 minutes over that span. The global numbers show a 72% drop in prices accompanied by a 71% rise in population.

Both global and US numbers show drastic benign deflation, signified by increases in productivity of between 300-500% since the 1980s. Accomplished through the pervasive advance of technology and learning curves in freer countries, these findings falsify CPIs and deflators that show real costs increasing over this period.

Massive advances in abundance, signified by the plummeting time-prices of all commodities, also refute leftist assertions that real costs have risen faster than the CPI. Time-prices also belie the claims of environmentalists that somehow environmental damage has reduced agricultural or other resources. For example, Pooley and Tupy show that since 1980, while CO2 in the atmosphere rose 22%, resource abundance rose 518.92%.

Real costs, measured by immutable time, have plummeted wherever free markets and property rights have been adequately maintained and trade has been permitted.

As to the specific question on the effects of outsourcing labor, capitalism works by legally hiring the cheapest labor that can perform the work. Protecting an existing pattern of employment is socialism and halts progress.

That dramatic gains from trade have been achieved is documented by the massive decline of time-prices as global trade has increased. US middle class workers have been among the greatest beneficiaries of the expansion of trade.

Time Prices in Relation to Globalization and Trade

If foreigners buy US assets (invest in the US), there is no loss of income. Time-prices show that the “borrowing more to consume” has been accompanied by radical increases in productivity and growth which have sharply reduced the burden of the debts.

Trade balance numbers are distractions that impair understanding. We don’t calculate the huge imbalances of trade between US states. Why calculate them between nations. In any case, it is perverse to use them to justify global mercantilist socialism (government-run trade wars and “deals”).

A foreigner in receipt of a dollar has two choices:

  1. He can spend it on US goods (soybeans, oil, microchips, 767s, tractors et al).
  2. He can spend it on US assets represented by stocks, bonds, and real estate.

Simply put, the choice is between buying an apple and eating it and buying stock in Apple and keeping it for us.

If he spends his dollar on goods and services, he consumes them and we don’t have them anymore. If he invests in the US (buys assets), they add to US capital and we essentially keep them.

So, why does Trump want foreigners to buy our goods and consume them rather than buy our assets and improve them?

Time-prices show that the globalization and trade has been great for American workers and for the global environment, for China and for the United States.

Today’s Prophecy

Why on earth should we let the politicians hobble commerce with their dealing and crony socialism?

Based on this question, I prophesize that many Americans will balk at giving up their belief that American workers are disadvantaged by international trade.

Mercantilism dies hard. But the gains from trade are so enormous that they will ultimately prevail, as they have prevailed over the years since 1980 as documented by Tupy and Pooley and my time theory of money.

Regards,

George Gilder
Editor, Gilder’s Daily Prophecy

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George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology — and its impact on our lives.

He’s an established investor, writer, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

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