Re:Decline in the labor share of income in the U.S.
by roymurdock on Friday October 23, 2015 @03:17PM
(#10440714)
I've never heard of this idea of trade and technology being "economically equivalent, or literally fungible." I think you might be confusing technology with the means of production. Take a look at the basic production function: Y = zf(K,L)
Where Y = output, z = Total Factor Productivity (technology), K = capital, and L = labor.
We started by trading output for output when the production process was simple. Clothing for meat, lumber for gold, etc.
As we began to organize by country, we started to specialize and create more sophisticated outputs to trade from country to country. Silk for glass, spice for minerals, cars for wheat, etc. Still, we traded mostly commodities and finished goods, but we also began to see countries "trading" labor in the form of immigration and emigration as people flowed from countries with low economic potential to those with higher potential.
Nowadays, the flow of outputs (Y), labor (L), and capital (K), is extremely fungible relative to 100 years ago due to advances in logistics, transportation, finance - in one word, globalization.
But we haven't addressed that last variable - Total Factor Productivity (z). Economists refer to this as the "level of technology," which makes it the economist's catchall for things that are hard to measure, but extremely important when determining an individual, firm, or country's level of output in the long term. It is thought to account for around 60% of the growth within economies, although I wouldn't put much stock in hard estimates - the point is, it bundles together some really important, non-fungible variables.
We are still unable to trade things like education, social and legal norms and customs, and basic infrastructure. To me, this is what we mean when we talk about technology. Modern standards of living, medicine, software, hardware etc. are "high tech" because they could only have been brought about in a society with a sophisticated educational system, favorable social and legal norms, and advanced infrastructure. Technology should be thought of as the system that makes the creation of more advanced goods and services possible, not the goods and services themselves.
In summary, yes commodities, labor, and capital are easily traded, but we are still working on transferring the underlying technology of one country to another. So I have to disagree with the statement that trade is indistinguishable from technology.
Where Y = output, z = Total Factor Productivity (technology), K = capital, and L = labor.
We started by trading output for output when the production process was simple. Clothing for meat, lumber for gold, etc.
As we began to organize by country, we started to specialize and create more sophisticated outputs to trade from country to country. Silk for glass, spice for minerals, cars for wheat, etc. Still, we traded mostly commodities and finished goods, but we also began to see countries "trading" labor in the form of immigration and emigration as people flowed from countries with low economic potential to those with higher potential.
Nowadays, the flow of outputs (Y), labor (L), and capital (K), is extremely fungible relative to 100 years ago due to advances in logistics, transportation, finance - in one word, globalization.
But we haven't addressed that last variable - Total Factor Productivity (z). Economists refer to this as the "level of technology," which makes it the economist's catchall for things that are hard to measure, but extremely important when determining an individual, firm, or country's level of output in the long term. It is thought to account for around 60% of the growth within economies, although I wouldn't put much stock in hard estimates - the point is, it bundles together some really important, non-fungible variables.
We are still unable to trade things like education, social and legal norms and customs, and basic infrastructure. To me, this is what we mean when we talk about technology. Modern standards of living, medicine, software, hardware etc. are "high tech" because they could only have been brought about in a society with a sophisticated educational system, favorable social and legal norms, and advanced infrastructure. Technology should be thought of as the system that makes the creation of more advanced goods and services possible, not the goods and services themselves.
In summary, yes commodities, labor, and capital are easily traded, but we are still working on transferring the underlying technology of one country to another. So I have to disagree with the statement that trade is indistinguishable from technology.