Should America Stop Making Cars?

Michael Arrington writes:

The best way forward for the automotive industry is to rip itself apart and start doing things sensibly, like the PC industry does. It won’t make any one company more stable, of course. In fact, it means competition will regularly drive companies at every point in the process out of business. But none of those companies will be in a position to drive our economy south if they do go out of business. Someone better will just take their place.
Does this mean our cars will be built in China? Yeah, it does. There’s no avoiding that. U.S. workers are just paid too much to build cars any more. Detroit may become the center of the car design world, with highly skilled and highly paid workers designing the iPod of cars, but the parts will be built elsewhere, and assembled elsewhere.

This last paragraph doesn't make any sense to me. Why did Toyota, et al locate so many factories here in the United States if it is so inefficient to do so? I think Arrington is committing one of the most common fallacies about outsourcing. Labor quality matters. The reason Americans and Germans, etc. get paid so much to assemble car parts into cars is that they're really, really good at it. Lower-quality workers probably cannot make the same car at the same quality in the same number of worker hours. It can be cheaper to pay more per hour for more and better hourly work. Also, I imagine cars are a lot more expensive than laptops to ship to across oceans. I'm all for milking the most out of Ricardo, but it's important to recognize that, when they are unsubsidized, exceptionally high wages tend to indicate exceptionally high productivity.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center