I recall my late paternal grandmother telling me how much she looked forward to the third Friday of each month. This was the day her husband – my grandfather – took her from their small farm into town.
For all the other days of the month my grandmother worked on the farm. She made her own bread, harvested and canned vegetables raised in the garden and even helped butcher, dress and cook the pork and poultry raised on their land. Of course, my grandfather worked equally hard in the fields. He also built their house and barns.
My grandparents’ farm was close to self-sufficient but not totally. One reason my grandmother enjoyed traveling to town was that she could buy things that either she couldn’t make or which she could only make at great cost.
Life is much different today. While some of us have small vegetable gardens and others have chicken coops – even in the city – most of us rely on buying food in supermarkets or restaurants, purchasing clothes in stores and buying our cars, trucks and electronics at dealers. Most homes are built by professional contractors with large crews.
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Why do we do this? Because it’s economically efficient, or in everyday language, it makes us better off. To lead the kind of lifestyle we have today – and to achieve this lifestyle using only our own skills – we’d each have to be a carpenter, electrician, plumber, farmer, mechanic, computer systems manufacturer, computer technician and our own power generator. And this is just a start. We’d also have to make our own movies, TV programs, video games and perform medical diagnoses and treatments.
This is why we trade. Each of us trains for and specializes in specific skills and occupations and effectively trades the products of our skills for the outputs of others with different skills. Of course, we no longer do this through bartering but instead use money.
This trading goes on between people in the same community, people in different communities and different states and increasingly between people in different countries. Trade between countries has increased in recent decades with advances in transportation and communications. Like people, few states or countries today are totally self-sufficient.
North Carolina is involved in international trade. The latest data show almost 11,000 companies in the state are engaged in selling products and services made in North Carolina to other countries. These exports are valued at $30 billion annually and help support more than 150,000 Tar Heel jobs.
But at the same time, North Carolina companies and residents purchase products and services made in foreign countries. Also, like the nation, we import more than we export. Imports are valued at $47 billion annually, $17 billion more than the state’s exports. Clothing – once a major industry in North Carolina – is a now a leader on the list of imports.
Some would like to see our imports reduced. One option being discussed to accomplish this goal is a border tax on imports. Such a fee would operate through the tax code by allowing businesses to deduct their costs of inputs only if the inputs were made in the United States. Imported inputs would not be tax-deductible. The objective would be to substitute homemade products for foreign-made products and thus create more domestic jobs.
But questions have been raised about whether such a policy would work. How quickly – if at all – could domestic companies gear up to make the products now produced in foreign countries? Would foreign countries retaliate by also reducing the products and services they buy from the United States? If our exports drop at the same time imports fall, then gains from fewer imports could be offset by losses from fewer exports.
Further, the dollars foreigners accumulate by selling imports to U.S buyers eventually return to our country in the form of investments. It’s estimated that such foreign investments support 240,000 jobs in North Carolina.
My grandmother and grandfather wouldn’t recognize today’s economy. If they were alive today and still involved in farming, they would likely be specializing in one or two products – perhaps hogs and chickens – and a significant part of their revenue would be from foreign sales. They would have traded self-sufficiency for becoming really good at one thing – thus expecting to earn more income. Is this progress? You decide.
Walden is a professor and Extension economist in the Department of Agricultural and Resource Economics at N.C. State University. He teaches and writes on personal finance, economic outlook and public policy.