Wednesday, February 4, 2004
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The war of anecdotes
One of the problems in the outsourcing debate is that those who defend the practice lose the war of anecdotes. [What about economic models and statistical evidence?--ed. Then the arguments in favor of outsourcing win hands down. You'd think those pieces of information would be more important for public policy debates, but that's not the way it works. Between econometric models showing that trade is good for the economy and tangible anecdotes of job losses due to import competition, most citizens go with the anecdotes.]
It is easy to point to large multinational corporations laying off American workers because of offshore outsourcing -- cue IBM. However, the jobs that are either saved or created from outsourcing seem less impressive. In the case of jobs created, it's because a healthy share of new hiring takes place among smaller firms, the anecdotes of job creation seem much less convincing -- even though there may be more examples of the latter than the former.
In the case of jobs saved, the difficulty is that such statements require counterfactual reasoning -- "If outsourcing had not occurred, then a greater number of jobs would have been lost." Counterfactuals are extremely difficult to demonstrate beyond a reasonable doubt.
So, in the debates over trade and unemplyment, protectionists have juicy media stories, while those who favor an open economy are often left sputtering.
Bruce Bartlett tries to address "anecdote gap" on offshoring with this anecdote:
FINAL UPDATE: I've posted more on job growth here.posted by Dan on 02.04.04 at 05:54 PM
Look, I'm so sick of this outsourcing debate.
I was layed off in June of 2002 (unix sys admin)
- depressed in San Joseposted by: Michael on 02.04.04 at 05:54 PM [permalink]
Please address the following argument straight on, which is the main cause of the "unease" with outsourcing, that has been happening for the past 20 years:
30 years ago, the largest employer of the US - the one most identified with - is General Motors. We were a General Motors America, and the General Motors employee had - good wages, good health insurance, decent retirement package. A married man COULD support his wife, kids, and buy a home.
Now, the largest employer in the US is Walmart. The walmart employee does NOT get a decent wage, does NOT have a good health insurance package, and does NOT have a decent retirement package. As well, both people in a couple now have to work, in the vast majority of cases, to afford a house.
Yes, there "have been jobs created". But if the jobs created are of the walmart type - with an incredible paucity of wages and worker rights - the "jobs" created don't seem worthwhile to most people who actually EXPERIENCE this job shift.
Right now, I know of so many fellow techs who are bright, knowledgeable, smart people, who have had such a hard time finding GOOD jobs. In the meantime, while looking for good jobs, they are working at "newly created" service jobs - such as working in a new store that Circuit City opened.
Is this progress?
If you can't answer this questions in a straightforward, honest and TRUE way, and show that in the large majority of cases, the jobs created are better, or higher quality, then what has been lost, your argument is empty and shallow. And people will and SHOULD not listen to what you have to say here, cozy in your academic perch.
I apologize if I come across sounding strident, but if you've seen smart people train their replacements, and then be let go, perhaps you'd get it.
Best regardsposted by: JC on 02.04.04 at 05:54 PM [permalink]
Maybe rather than muttering "tough shit" to those who lost their jobs, something should be done for them? Just a thought.posted by: Jason McCullough on 02.04.04 at 05:54 PM [permalink]
Part of the problem is that this war is being fought out on the level of anecdotes. I've looked at the issues, and hope to put together some articles on it by this weekend. Suffice it to say I think that anyone who looks carefully at the macro-economic evidence has to say that the total compensation of the American worker is being driven down by market competition. This is a systematic trend that easily goes back to the beginning of the Reagan years. The supposed job creation "mystery" can simply be explained if one assumes that actual economic growth ("Real" GDP) is near flat or negative. This of course requires analyzing our measures of inflation. Suffice it to say whether being "off-shored", outsourced, having more medical costs (higher premiums, less coverage, and higher co-pays), more retirement costs (matched contribution rather than entitlement pension plans) that Americans are progressively less well off today than they were before. This creates an environment where wages rising much slower than costs of living (greater education costs for lower returns, higher home costs, etc.) As I said, too complicated to explain here but hopefully I'll have something put together by this weekend.posted by: Oldman on 02.04.04 at 05:54 PM [permalink]
JC..it's true that 30 years ago there were a lot of good jobs at GM and other manufacturers (although if you read things written by intellectuals durig that time period, they mostly dealt with how "degrading" those jobs were). But there were a lot of people doing other kinds of jobs, such as:
It's would be hard to say how many of the Wal-Mart jobs are descendents of GM vs descendents of jobs such as these...
I don't think the outsourcing debate suffers from lack of anecdotes. What would be nice is if someone out there would write about the subject in an objective way. Everything I've read has either been a journalist warning about the foreigners taking our jobs, or a stump speech for free trade.
A couple of articles I'd like to see:
- Case studies of companies that are offshoring. In particular, the article should compare the number Americans the companies employed before and after offshoring with salaries taken into account. To make it sort of objective, the author could study a random sampling of companies, rather than cherry picking anecdotes.
- Take a particular company that offshored some smallish number of jobs, say 50. Find out the peoples names, and track them down. Ask them if they're employed, happy with their new position, and whether they're making more or less than they used to.
These articles may be very difficult to write, but they'd be vastly more worthwhile than the advocacy pieces.posted by: Dustin on 02.04.04 at 05:54 PM [permalink]
"Those 450 Americans, making good wages in California, might not have jobs at all if Logitech wasn't able to stay competitive by outsourcing some of its costs."
And when some or all of those marketing jobs get outsourced?
"If outsourcing had not occurred, then a greater number of jobs would have been lost."
I'm not sure that's true.
If the jobs are being outsourced or sent offshore, instead of cut, it's because they're too important to cut. The company is saving money, but it can't afford to cut the jobs outright.
Maybe if the outsourcing didn't occur, the executives would have to give up some cushy benefits, pay, "forgiven loans", private jets, and expensed items.
Dan, taking your Logitech story one step further:
Those 450 employees would not have jobs if Logitech could not reduce its costs -- "stay competitive" -- by manufacturing in China. Is this really true? Suppose Logitech were not able to stay competitive (that is, suppose it had to put up with higher manufacturing costs by not running plants in China). It would have to charge higher prices for the Wanda mouse, and would either get them or see its business go to other mouse manufacturers, who would expand their workforces as Logitech contracted its own. Unless the other mouse manufacturers are all located in other countries I'm not sure I see how Logitech's employees' jobs depend on the company's assembling its mice in China; they might not be working for Logitech otherwise, but they would be working for someone, and probably doing much the same thing they are doing now.
One thing to bear in mind here is that the workers potentially affected by outsourcing are keenly aware that lower production costs may be passed along to them, but are always passed along to company stockholders and management in the form of higher stock prices and increased executive compensation. Academic observers, by definition immune from outsourcing, tend to focus so intently on what the Econ 101 textbook says should happen that they become careless in observing what actually does happen, and overlook this aspect of the situation.posted by: Zathras on 02.04.04 at 05:54 PM [permalink]
Academic observers, by definition immune from outsourcing, tend to focus so intently on what the Econ 101 textbook says should happen that they become careless in observing what actually does happen, and overlook this aspect of the situation.
I understand the point of your argument, but by saying that your view doesn't really have much evidence to back it up, while the opposing view does, suggests that just perhaps there might be something that you are overlooking, or simply have wrong.
Outsource jobs to India? I can't understand them but who cares! There is the chance of the goods being less expensive. Get cheaper XYZ from the slave labor in China? I'm more than willing to pay more for an American product from an American company.posted by: BigJosh on 02.04.04 at 05:54 PM [permalink]
First, to Michael, forget about going back into IT. It's over for you and me. When companies are hiring fewer workers, they damn sure aren't hiring those over 50. I was out of work 13 months (help desk supervisor) and currently work at a call center making $10 an hour. That's what I made back in the 70s as a laborer for USDA. Will be interesting to see how I manage to pay off that student loan and if I manage to hold onto my very modest house. I'll be filing for bankruptcy this month.
There are a couple of things I see missing in this debate. The first is the idea that the loss of those jobs isn't important. Fits right in with the line we are given when they talk about illegal aliens and jobs. They say "these are the jobs that Americans don't want to do". These jobs are unimportant or jobs Americans don't want because the COMMENTATOR doesn't want them! I see people come to work at the call center every day. They are exactly the same type of people I saw when I did factory work in the 80s, only they have even less now. They are driving ratty, barely running cars. They have to live with roomates or, like one co-worker, share a motor home. They are a paycheck away from living under a bridge. Do you honestly think that life is better if they lose those jobs to India? Should we not give a damn about the long term effects that losing good jobs does to this country?
We hear people talk about free trade. Please explain to me why we can't have this in the employment market. If there are jobs that people don't want to do, in a free economy, companies would have to offer more pay to interest employees. Instead, they bring in illegals. Then they claim they can't find workers any other way. Don't those companies deserve to fail? And there is a fundamental problem with being a knowledge worker. The only place your knowledge is valuable is to your current employer. It's not like having a trade or skill. It is a one-way ticket down the economic ladder.
The only solution offered is training for these displaced workers. I tried that and the career worked for exactly seven years. Now I'm 53. If I retrain again, and I'm lucky enough for it to last as long, I'll be 60 the next time this comes up. What then? Is is realistic to think that we must continually pick up a new career every few years? Do you really think they have to do this in countries like India and China, where they now have a strong manufacturing base? Can we continue to fund the defense of our country on service jobs? I am not hearing anything from either party that makes me think they have done any deep thinking on the subject. It's probably because their jobs are exactly the ones protected from outsourcing. When we start to see executive positions go overseas, that's when it will suddenly become an "issue".
As for me, our boss at last night's meeting, when asked if our jobs would be going to India, said that she knew she had a job for the next six months. That's as close as anyone comes to lifetime employment these days.posted by: Teri Pittman on 02.04.04 at 05:54 PM [permalink]
Oh yeah, one last thought...can someone point me to this wonderland where people make $32k a year? I keep hearing that figure and it sure doesn't seem like a fair average with the people I know. I think I interviewed for just a couple of jobs that paid that well. Most pay in the 20s.posted by: Teri Pittman on 02.04.04 at 05:54 PM [permalink]
When logitech's proprietary knowledge is stolen by its Chinese management and used to set up a rival (we'll call it "Loggitec"), which then proceeds to undercut the market for the real Logitech's product (underselling it by half, through streamlined distribution channels at the "biggies" like Walmart and OfficeMax), and Logitech's copyright infringement suit gets bogged down in the court system here, and disappears into the legal morass in the PRC--after all that happens, where will those high-paid US based Logitech workers go?
So, who is doing well by offshoring? Answer: Indian American techies, who are being charged by their bosses with the set-up of offices in the "home country." Some of these guys had never even been to India before they got the call-up, some of them are uncomfortable with (even offended by) the idea, some of them are pleased to have this opportunity land in their lap. Why does no one ever mention this trend in their anecdotes or insightful reports? I don't know. Excess of political correctness, perhaps.
So there it is. I'll let the rest of you chew this over a while.posted by: Kelli on 02.04.04 at 05:54 PM [permalink]
"The only solution offered is training for these displaced workers. I tried that and the career worked for exactly seven years. Now I'm 53. If I retrain again, and I'm lucky enough for it to last as long, I'll be 60 the next time this comes up. What then? Is is realistic to think that we must continually pick up a new career every few years?"
Only if you want continued technological advancement. If you want new stuff on the shelves, then we'll have to do new tasks to make them. If you don't mind the same old crap year after year, then by all means lets keep doing the old jobs.
"Do you really think they have to do this in countries like India and China, where they now have a strong manufacturing base?"
How the hell do you think they got into IT in the first place? Wiggled their noses?
"Suffice it to say I think that anyone who looks carefully at the macro-economic evidence has to say that the total compensation of the American worker is being driven down by market competition."
And so is the cost of everything he buys. Except heavily-regulated stuff such as food, medicine, and education. Get those items to follow suit, and we'll be golden.posted by: Ken on 02.04.04 at 05:54 PM [permalink]
Michael, Teri -- which party have you been voting for all these years? If it's the Republicans or Libertarians, you have no one to blame for your problems but yourselves. The Democratic Party is the only one that has shown any concern for the quality of jobs created, much less the quantity. If you voted for any other party, you voted to flush yourself down the toilet.posted by: Rich Puchalsky on 02.04.04 at 05:54 PM [permalink]
I am a little tired of people always complaining that they can't find a job, for 13 months 2 years whatever the case maybe, but they are unwilling to move. When I could not find a job in the region of the country I was living in, the midwest, I moved to the east coast and found a job. My sister did the opposite, she moved from Virginai to Texas to find the work she wanted.
Also, the cost of living in Washington DC is quite high, and if I moved back to the midwest I could have the same standard of living, or better making two-thirds of what I make now. My guess is that it is the same for people living in California. So even if you need to take a lower salary the standard of living will be similar.
I have had 3-4 different jobs in my relitively short work life, which seems to be the standard now. This was something that I was being told would happen when I was in college 20 years ago. It should not be a suprise to people. I have conversations with the people I work with who are programers, and we discuss this issue all the time, and we all know that if you do not keep improving your skill set you will get left behind. Hell they want to get out of doing the boring programing and do something more interesting, so let this part get outsourced and let them figure out how to better use the information that we have. So yes Teri, you will probably need to get 1-2 more jobs before you are done, don't fear this look at it as the opprtunity that it is.
As for China having a good manufacturing base, they have shead more manurfacruring jobs in the last few years than America has.
Bartposted by: Bart on 02.04.04 at 05:54 PM [permalink]
Beyond the fact that that is one of the more churlish comments I have ever seen, it's not logically true (unless, I guess Michael and Terri lived in Florida and voted for Bush.)
I had some ex-co-workers who died in 9-11. I voted for Clinton (both times) and W. Under your logic, I guess I have their blood on my hands.
And, as to your point, it strikes me that the Democrats are more concerned about job preservation than job creation. Which may have been helpful to Michael and Terri, but not to folks trying to get into the job market.
(By the way, because I am being somewhat nasty,I have dropped the Appalled Moderate pseudonym for this thread.)
Dan Drezner -
Let me invert the question, and ask you what anecdotal or investigative evidence would persuade you that the Ricardian theory is wrong or at least incomplete?posted by: Bruce Cleaver on 02.04.04 at 05:54 PM [permalink]
Moving's easy when you aren't married and don't have kids, and your non-existent spouse doesn't have a career of his/her own. Otherwise, it is more problematic. (And, by the way, it costs $$ that you might not have if you've been laid off.) You know, you need money for apartment deposits, getting the utilities turned on, etc. And, while companies will sometimes pay you to move, they don't do it for $10 per hr jobs.
What strikes me on this thread is a general lack of sensitivity of certain posters to those who get laid off. (Ken, Bart, I mean you.) Generally, people do what they have to do bring money in. If what they are doing is not working, it may indicate a structural flaw in the economy, not that the unemployed have a flabby moral tone (or, Rich, didn't vote the straight-line Democratic ticket).
I tend to agree with our proprietor that government intervention to prevent outsourciung would be counterproductive. The more difficult you make it to lay off someone,the more likely you are going to end up with a European economy, where nobody creates new jobs, because you can't eliminate them when necessary. In a technological world where change is constant, however, we have to do better as a society about dealing with those whose skills have become outdated.posted by: alonzo church III on 02.04.04 at 05:54 PM [permalink]
I know someone who worked at Cisco whose job was outsourced. They didn't get another job there. The reason you can't defend your postion is that it is undefendable.posted by: Lynne on 02.04.04 at 05:54 PM [permalink]
Rich P...you say that offshoring is the "fault" of those who voted Republican or Libertarian. Without here getting into the merits and demerits of offshoring, let me point out:
1)The liberalization of trade with both Mexico and China took place under the Clinton administration, with his enthusiastic support. Most politicians, of both parties, agreed that these were good things. The main serious opposition I remember was from those concerned about human rights issues (viz Tibet).
2)Much of the trend toward offshoring has been caused by technological factors, especially the dramatic cost reductions in telecommunications.posted by: David Foster on 02.04.04 at 05:54 PM [permalink]
Alonzo Church has raised an important point: humans have a limited tolerance to change. If the rate of change in the economy is too large, cracks develop.
It is easy to postulate from afar that 53 year old Michael, or Teri (whatever her age) should simply retrain in another high-tech field - but is quite difficult and expensive and perhaps not worth the cost, both in terms of real dollars and in terms of opportunity cost in participating in other training programs that aren't subject to so much churn. Of course, those other programs usually lead to careers that pay substantially less.posted by: Bruce Cleaver on 02.04.04 at 05:54 PM [permalink]
Bruce: No piece of anecdotal evidence would convince me that Ricardian trade theory is wrong -- it's just one data point, and usually a incomplete one at that.
If someone could demonstrate that over the past decade, all else equal, trade flows as a percentage of GDP are negatively and significantly correlated with either employment or per capita income, it would certainly give me pause.posted by: Dan Drezner on 02.04.04 at 05:54 PM [permalink]
"protectionists have juicy media stories, while those who favor an open economy are often left sputtering." Because we're talking about fellow American human beings and not populations of canada geese?
BTW, the article you cite would have a different flavor if you only change a couple of words:
Change "Studies have also shown that workers displaced by outsourcing are often retrained for better jobs within the companies doing the outsourcing." to "... are often not retrained ..."
Change "These jobs often pay better than those that were outsourced." to "... often don't pay better ..."
Or how about: I can't begin to count how many times I have had some perky twenty-something HR rep look me in the eye and say "Change is good!" On the other hand, I have never had someone with an autistic child, or a gravely ill elderly parent say the same, except through clenched teeth.
I assume that Alonzo Church III is the grandson of the famous mathematician (Church-Turing thesis)?posted by: Bruce Cleaver on 02.04.04 at 05:54 PM [permalink]
Yup, but please deduce nothing from that. I didn't get the math genes.posted by: alonzo church III on 02.04.04 at 05:54 PM [permalink]
You are correct that moving with family is more difficult,but not impossible. Yes, in some ways I am showing insensitivity, (this is not an excuse but an observation) but this same insensitivty was shown to 'blue collar' workers when their jobs were lost. Now when it is someone elses ox being gored it is a whole different or new situation. I can't speek for Michael or Teri's previous feelings on this, but there were plenty of 'white collar' workers that did not seem to care that much about this type of situation before.
I still stand behind my comments on job loss/changes being opportunities. The two best jobs I ever had were when I had to look for new work when my employment situation changed unexpectidly. Was it easy? Not at all, at the time I did not have money saved up, or a plan on what to do, so I was extra motivated to find something new. Having gone through something similar twice, I now have a better savings plan and I am much more aware of what I need to be doing to stay employable at my current job as well as my potenial next job. I will continue to plan ahead and look for opportunities, this is not always easy in that it is easy to get comfortable in a situation, but that is not how the system seems to work now.
Just my $0.02
Bartposted by: Bart on 02.04.04 at 05:54 PM [permalink]
Dan...granted that Ricardian trade theory is correct..isn't it fair to say that it is an equilibrium theory rather than a dynamic theory in that it is silent on the question of *how long* it takes the conditions of (mutually beneficial) balance will be established?
Analogy from physics: if you put a weight on the end of a spring, it's trivial to calculate how much the spring will be stretched *in equilibrium*. But if you want to know how the system will oscillate after you release the weight, and how long it will take these oscillations to damp out, you need to know the coefficient of friction of the system and you need to actually solve the differential equations which model the system's behavior.posted by: David Foster on 02.04.04 at 05:54 PM [permalink]
This thread of comments suggests Dan's point is correct. Economists have academic theory and some macro statistics on their side in the debate over outsourcing, but when the discussion turns to people they get slaughtered. (Somewhat the same thing seems to be true, incidentally, about the debate over immigration -- except that proponents of unrestricted immigration can offer all kinds of inspiring human interest stories, just not stories about Americans.)
This is an observation about the debate, not a policy recommendation. I don't have one, and wouldn't suggest one unless I understood the outsourcing phenomenon much better than I do now. I subscribe to the same economic theories Dan does, believing that free trade in goods and ideas is the best way to create wealth. The process of creating wealth in some places destroys it in others, though, and the political consequences of this have to be dealt with. One way not to deal with them is to hold on tenaciously to the view that only low-skill jobs Americans are better off losing (because they can then be trained for something better, or more creative, or something) are outsourced.
This is manifestly untrue, something other posters here have dealt with already. What they haven't touched on very much is the apparent proximate cause of much outsourcing, which has less to do with long-term productivity than it does with the imperative publicly-held corporations feel to drive up their stock price by improving their short-term bottom line. The common tie between company stock prices and executive compensation is a clear incentive for corporate leaders to consider outsourcing, or other ways to quickly reduce costs, regardless of the consequences for a long term that many of them know they will not be around to see.
Given enough time this could all balance out somehow. At the moment, though, I see defenders of outsourcing and economic liberalization generally looking away from issues like this. They're making a mistake, and jeopardizing the prospects of maintaining public support for a free economy.posted by: Zathras on 02.04.04 at 05:54 PM [permalink]
From a pragmatic, practical standpoint, it's a bad idea for our society to say "Tough nooties" to Michael and Terri. For one thing, the economy at large is losing out because they do not have money to spend. For another, their experience and knowledge is simply lost if they cannot find employment that uses it. When you went from one job to another, you did not throw everything you learned at job A into the wastebasket. But that's what is happening with Michael and Terri. And that's a measurable loss to the economy, as well as a mere anecdotal personal tragedy.
I don't disagree with what or proprietor says on outsourcing. I think government's job (and it is government's job, because nobody else is going to do it) is find some way to retrain people who find that their skills have expired, and send them back out into the workforce. Otherwise, we'll just keep accumulating the anecdotes, and some dimwit politician will figure that the best solution is Economic Fortress America, with tariffs on labor from abroad and everything else. (And it will probably be the same politician that spends the most time railing about Bush's UN bashing unilateralism.)posted by: alonzo church III on 02.04.04 at 05:54 PM [permalink]
Because the tie between short-term investment results and executive compensation was also the wellspring of the recent accounting scandals, there is legislation burbling around that would remedy some of the statutory reasons for this tie. Internal Revenue Code section 162(m), which denies corporations deductions for comp in excess of 1 million dollars, unless the comp is tied to performance is a prime offender here. Also, there is some stringent regulation of deferred executive compensation that is trying to work its way through Congress.
Wonder if passage of any of this stuff would stop the outsourcing fad? Who knows. Once again, the Internal Revenue Code trumps rational economic theory in mysterious ways.posted by: alonzo church III on 02.04.04 at 05:54 PM [permalink]
"I know someone who worked at Cisco whose job was outsourced. They didn't get another job there. The reason you can't defend your postion is that it is undefendable."
No this actually proves the point Dan makes about anecdotes. You can easily track those who have their jobs outsourced. It is difficult to track those whose jobs are created by outsourcing.
Many of the people above are in the tech field, a highly changing area of work. All of the arguments you now advance have been used by people trying to 'protect' their jobs against automation and computerization. We didn't lose jobs overall as a country when we started using computers for a lot of things. But it is undeniable that certain people lost their jobs. It was good for the economy that we did not continue to pay them to do something that could be done much cheaper through other means. It was easy to identify people who lost their jobs to automation, but more difficult to identify the hundreds of thousands who gained access to cheaper and higher quality (AHEM GM) cars, refrigirators, computers, ovens, microwaves, televisions, and housing (housing ownership is way up over the 1970s). We should try to help such displaced people get new jobs and new skills. But we should not try to stop it from happening.posted by: Sebastian Holsclaw on 02.04.04 at 05:54 PM [permalink]
I don't think any of this has much to do with executive comp. Corporate officers have a fiduciary responsibility to their shareholders. If it were clearly possible to reduce costs by, say, 20% by offshoring, and the company didn't do it, they could be sued by their large shareholders (pension funds, for instance), and they quite likely would be.
Also, remember that markets are global. If American company "A" chooses not to produce in China and do software development in India, it will be competing with (say) an Indian company that does both, and sells in U.S. and European markets.posted by: David Foster on 02.04.04 at 05:54 PM [permalink]
Dan Drezner wrote: No... evidence would convince me that Ricardian trade theory is wrong...
If someone could demonstrate that over the past decade, all else equal, [gabble gabble mumbo jumbo academic numeristic statistico-flom] it would certainly give me pause.
Yeah but that won't happen, 'cause for you people, if you replace a situation where 10 people are making $30,000 with a situation where 1 person is making $300,000 and 9 people are making $4,000, its a net gain.
You people are makling a rod for your own back. After y'all have "starved the beast" to the point where the life of the people is destroyed, you assume the people will meekly clibm into their graves.
Don't be too sure.
David Foster writes: "The liberalization of trade with both Mexico and China took place under the Clinton administration" [...]
I'm not suggesting that protectionism is the way to go. Even if you accept that free trade is an overall benefit for society, it will still have winners and losers within a society. Only the Democrats have shown some willingness to redistribute wealth from the winners to the losers (in the form of retraining, education, various forms of industrial policy, unemployment compensation, progressive taxation, etc.) to make up for this. The Republicans and Libertarians want to let the chips fall where they may, which means the losers can go ahead and starve.
Most of the people who post on the Internet have always assumed that they would always be winners, so many of them didn't care about this. Now that it looks like this may not always be true, they are changing their tune, in the name of rational interest. To paraphrase Churchill, a young economic conservative is someone with no heart, an old one is someone with no brains.posted by: Rich Puchalsky on 02.04.04 at 05:54 PM [permalink]
I strongly contest the attempt to frame this issue as "economic models" versus everyday anecdotes. There is strong macro-economic evidence that not all is well. I do not not contest the validity of Ricardian econometric models, but I do contest the idea that the current trade regime with its protectionist barriers, inequalities of intellectual property rights, currency manipulation, and subsidies is in any fashion Ricardian. In the real world what happens is not that two countries sit down and decide that they'll trade back and forth goods according to comparative advantage, what happens is that if there is competition then a brutal absolute advantage struggle takes place where the lower marginal cost producer grabs the market share and drives the other producer either out of the market or into niche markets. This is exacerbated when "unfair" absolute efficiences are introduced by currency intervention or a refusal to restructure the economy from an export-led one.
This isn't some esoteric argument. Considering that the Fed itself argues that the payroll survey is more reliable and that even with the household survey included the job market is weak, how can anyone reconcile the GDP and unemployment numbers? I challenge Dan to explain if it's not the CPI that is lowballing inflation, how else can we have nominal GDP at 4-8% per quarter and have continued below trend job growth?
The economic models are not all in favor of outsourcing.posted by: Oldman on 02.04.04 at 05:54 PM [permalink]
Pitching redistribution to anyone who is middle class or above is a hard sell, because everyone figures it's their hard-earned money that's going to be redistributed. And successful Democrats generally have stayed away from that terminology. Hell, if you take the payroll tax into account, there is a pretty good argument that US tax policy is regressive, not progressive. So, there's no need for a good Democrat to be tooting the redistribution horn, and be a Michael Moore type mocking insufficiently liberal middle management types.
And by the way, it is human nature -- at least in the USA -- to assume that you will vanquish your enemies, end up real rich, and date Salma/Fabio, before marrying the perfect soulmate. It doesn't usually work out that way, but what's wrong with the dream?
posted by: alonzo church III on 02.04.04 at 05:54 PM [permalink]
The reason why this argument is important is it's a framing issue. When it comes down to it, policy makers will generally pick models over anecdotes. If it really is just an argument over whether to believe models over anecdotes, then it's over. That's why the pro-outsourcing side is so eager to frame this as a anecdotes vs models deal. I'm not against trade, offshoring, or outsourcing. But I think it's being conducted irresponsibly.
Even if one believes the models categorically, there is serious reason to believe that they simply aren't being applied correctly or are being fed bad data. Whether this is being done out of ideological fervor, wishful thinking, ignorance, or whatever I don't care. But don't let yourselves get fooled by this one. If you cede the arguments about models then this issue might as well be dead.posted by: Oldman on 02.04.04 at 05:54 PM [permalink]
Seabastian writes: "Many of the people above are in the tech field, a highly changing area of work."
Ah, but the only change that is preventing people from getting new jobs is the change of geography to other countries, where cost of living is low and people are cheap.
Implying that the problem is "change", as if the people were failing to adjust to changes in technology itself, misses the boat. It's not the technology that's the problem. It's not the case that some new technology has arisen which Indians can master while Americans cannot.
The advantage for India is a massive population, cheap education, and, thanks to the caste system, large populations relegated to menial jobs, reducing cost of living for higher castes.posted by: Jon H on 02.04.04 at 05:54 PM [permalink]
"If someone could demonstrate that over the past decade, all else equal, trade flows as a percentage of GDP are negatively and significantly correlated with either employment or per capita income, it would certainly give me pause."
I can't answer all of that, but look at page 7 of http://www.census.gov/prod/2002pubs/p60-218.pdf. It shows that the median income has been pretty flat for the past 30 years for full-time workers. That's interesting, especially considering that there are probably a higher percentage of non full time workers now.posted by: Dustin on 02.04.04 at 05:54 PM [permalink]
Let's take your premise that outsourcing is bad. What do you have in mind to prevent it? And what would the consequences be?posted by: alonzo church III on 02.04.04 at 05:54 PM [permalink]
David Foster's point is that corporate officers must maximize profits to fulfill their fiduciary responsibilities to their stockholders. Fair enough.
But over what time frame are these responsibilities to be fulfilled? If it is five to ten years all sorts of strategies to reduce expenses and increase income are possible. If it is one year, or one quarter, reducing expenses is much more attractive -- especially because if the steps taken to cut costs turn out badly this will not become clear for some time, hopefully after the corporate leaders responsible for taking them have moved on to other things.
Obviously this applies to any step to reduce expenses, not just outsourcing jobs to India. So strictly from a methodological point of view the influence of the tie between executive compensation and company performance on outsourcing would be pretty hard to isolate. My point was that most defenders of outsourcing do not so much disagree with me on this point as they are reluctant to discuss the subject at all. For advocates of a free economy this reluctance is unwise.posted by: Zathras on 02.04.04 at 05:54 PM [permalink]
Several months ago, Warren Buffett wrote a Fortune article which is very relevant to these issues. I've got a summary and a link over at my blog.posted by: David Foster on 02.04.04 at 05:54 PM [permalink]
alonzo church III: "Pitching redistribution to anyone who is middle class or above is a hard sell, [...] And successful Democrats generally have stayed away from that terminology"
So the electorate is ignorant and greedy. What else is new? I'm not a Democratic political candidate, so I don't have to pretend otherwise. The economic reality is that capitalism only survived the conflict with communism because of redistribution programs, and that such policies are even more prevalent in the other Western countries than in the U.S. Almost all of which countries are doing far better than ours in terms of the lifestyle of their people, especially people displaced by trade. (And before anyone starts quoting comparative unemployment stats to me -- consider that we imprison a huge chunk of our population that would otherwise just be unemployed).posted by: Rich Puchalsky on 02.04.04 at 05:54 PM [permalink]
For all you free-traders out there, let me say I don't understand your intellectual inconsistency. Any standards for labor rights, minimum ware, or right to organize unions are verboten but intellectual property rights as defined by the rich west are supposed to be respected??? That's bogus. The way it is now, a DVD has rights across international borders and a human being has none. How long do you think that is going to last? As our living standards plummet into the gutter and trailer park??posted by: camille roy on 02.04.04 at 05:54 PM [permalink]
"I do not not contest the validity of Ricardian econometric models"
I think it was William Grieder in Herald Tribune who wrote about the other idea of Ricard's, the one the economists don't ever, ever, ever mention, perhaps because it would make Ricard models like pretty dreadful basis for policy. That was called, I think, 'the iron law of labor' which says compensation for workers will always trend down over time to the subsistence level.
Maybe that is really what is going on in the United States right now.
As somebody with strong technical background in computer science, physics, blah, blah, I find it incredible that economists seem to be unable to question their own theories. Hey, theories of economics are NOT natural laws. In human societies, circumstances change. Repeating 'Ricard' like a mantra does not make the problem of falling employment & falling wages go away. Why should any citizen who lives off wages believe that an economy in which we are losing ground, health insurance, wages, security, etc with off-shoring, is better than a protectionist economy?
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