Outsourcing

[Pangloss]

As for being bankrupt, our deficit spending is so out of control right now each U.S. citizens has now borrowed $20K+ and a lot of that from Japan, China, and South Korea. Those are the countries that save and make the money, we are the country that spends and borrows the money. It is a situation that can not continue much longer.

 

Sure, but that doesn't have anything to do with outsourcing. Plenty of people buy American debt -- there's no shortage of buyers. If memory serves, the third or fourth largest holder of the debt is a Carribbean banking consortium!

 

Please make a connection between outsourcing and going bankrupt, or retract the statement.

 

 

Improvement is one thing, but compared to our standards, is practically slave labor. Why should they not enjoy our standard of living, just because it MAY BE better then how they lived before. (please note, that I wrote "may" because you did not source your argument.)

 

So what? We worked hard for our standard of living. Why should I give an iPod and a BMW to every man, woman and child on the planet? It's their job to keep up with me, not the other way around.

 

You want to talk about food and medicine and emergency relief and technology and cultural exchange, hey, I'm right there with you.

[RVonse]

 

Please make a connection between outsourcing and going bankrupt' date=' or retract the statement..[/quote']

 

Because of outsourcing, most of the manufacturing jobs have been turned into relatively lower paying Wal-Mart service jobs. That hits our country 2 ways. First of all, our treasury obviously loses from lower income taxes. But the worse problem is that we are giving our money to people in China for Wal-Mart goods and they are not buying anything from us. The Chinese are not buying anything from us because they are so poverty stricken they couldn't even if they wanted to. If we had manufactured the goods in the U.S., the money would have gone to another American and he would have spent it locally again and again. But if the money goes to China it helps their economy, not ours.

 

 

 

So what? We worked hard for our standard of living. Why should I give an iPod and a BMW to every man' date=' woman and child on the planet? It's their job to keep up with me, not the other way around..[/quote']

 

Right now it looks like we are going down to their level not the other way around. You might feel rich but it is an illusion created by funny money of our government. And it will not last very much longer.

[Pangloss]

Because of outsourcing, most of the manufacturing jobs have been turned into relatively lower paying Wal-Mart service jobs. That hits our country 2 ways. First of all, our treasury obviously loses from lower income taxes. But the worse problem is that we are giving our money to people in China for Wal-Mart goods and they are not buying anything from us. The Chinese are not buying anything from us because they are so poverty stricken they couldn't even if they wanted to. If we had manufactured the goods in the U.S., the money would have gone to another American and he would have spent it locally again and again. But if the money goes to China it helps their economy, not ours.

 

 

1) Actually income tax revenue is rising, not falling. It may be the highest this year that it's ever been. See this thread for our discussion on that subject last week, including source citations:

http://www.scienceforums.net/forums/showthread.php?t=14884

 

What is falling (or was falling before Katrina loomed on the budgetary horizon and Bush decided that he needed to prove that he really doesn't hate black people) is the deficit. Bush promised to cut it in half within five years, and it was looking like he'd instead accomplished that goal in one. The New York Times had a good piece on this a few days ago about how it may still fall by $100 billion anyway, in spite of Katrina. Revenue is that good.

 

 

2) Buying goods from Wal-Mart is a good explanation for a rising trade deficit, but it says nothing at all about bankruptcy.

 

 

3) Regarding "The Chinese are not buying anything from us because they are so poverty stricken they couldn't even if they wanted to", you know they have more people in their middle class than the entire population of the United States, right? They're not failing to buy American goods because they're poverty stricken. To generalize for a moment (which I'll correct in point #4), they're failing to buy American finished goods because their government goes and makes the same goods cheaper domestically.

 

(I read somewhere that China has lifted more people out of poverty in the last decade than have been lifted out of poverty in all the rest of the world in the entire preceeding century.)

 

 

4) The Chinese do buy something from us. It's just not what we were expecting them to buy. They buy raw materials instead of the cars and computers we were expecting them to buy. I agree that this is not a good thing, but it would seem to stand against your bankruptcy claim, wouldn't it?

 

 

In a nutshell, the Clinton administration granted China MFN status based on a pack of lies and deceptions, and we fell for it, hook, line, and sinker. The worst of it is, China knew exactly what they were doing, and they're doing an even better job of it with the Bush administration. They play the globalization game hardball, while we sit back and watch TV and listen to idiots tell us how evil and rotten we are and then we give them awards.

 

 

So I repeat, please make a connection between outsourcing and going bankrupt, or retract the statement.

[Phi for All]

As Ross Perot said there would be "a giant sucking sound" to Mexico. He was almost right but the sucking sound is going to China mostly.

Oh, so when Perot turned out to be wrong about Mexico, you just turn the blame onto China. And NAFTA affects them how?

As for being bankrupt, our deficit spending is so out of control right now each U.S. citizens has now borrowed $20K+ and a lot of that from Japan, China, and South Korea. Those are the countries that save and make the money, we are the country that spends and borrows the money. It is a situation that can not continue much longer.

Is this lame strawman all you can bring to bear? Can you make a connection for me between government deficit spending and offshoring?

After a person loses his high paying manufacturing job then has to re-train for another field. At a minimum, he would have to get a 2 year AA degree in some sort of technical discipline. So he loses 2 full years of wages plus the expense of college plus the experience he had in the manufacturing job. This probably doesn't sound like much to you but it adds up to a lot of people and some of them have changed careers more than 1 time. Thats a lot of waste that economists conveniently don't mention.

How does someone lose their experiences? Doesn't a rich job experience make someone a more attractive employee? I know I wouldn't have my present job if I couldn't combine sales, computer databasing and a healthy dose of acting I learned in high school and college. People who've trained for different positions usually end up managing those who haven't. I don't think I've heard the economists mention that part either.

If Bush was really interested in helping the middle class he would offer tuition assistance or free college for high school graduates in need.

More strawman, let's stick to the offshoring argument.

Perhaps but I am appalled by the lack of performance of CEO's and their corrupted pay system. They head companies that go into the toilet and then make millions anyway. Is that pay for performance or corruption? Or perhaps this is your version of capitalism?

You're all over the place here, CEO's didn't make it possible for offshoring to happen, computers, telecommunications, robotics and arbitrage are more likely candidates.

It looks like our current crop of leadership is showing us how to unbuild the U.S. right now. Whatever they are doing, its not working.

Stop trying to turn this into another Bush-bash thread. I like to bash him too, but he's not responsible for everything, just some things, and certainly not for the popularity of offshoring.

Improvement is one thing, but compared to our standards, is practically slave labor. Why should they not enjoy our standard of living, just because it MAY BE better then how they lived before.

You are using a few worst case scenarios to paint the entire offshoring controversy with the same wide brush. I know Indian offshoring first hand, and the people who are getting the jobs I bring to them are all college educated people who mostly own their own homes. How is that slave labor? The companies using arbitrage between differing economies pay the offshore companies great wages, that's why the demand is there, why the workers line up, why only the best get to compete for these jobs.

[Sayonara]

I'm just wondering why 3/4 of the posts in this thread are by moderators.

Moderators are people too

 

 

 

(Except for Mokele, who is a reptile)

[ku]

According to the economic classroom, the displaced worker simply finds another job and everything is great. Well I think thats a bunch of crap. The reality is a displaced factory worker making $25/hr can not so easily become something else at that same wage without a lot of education and expense. It is those costs that most economists do not take into account.

This is true. Most economic models do overlook labor mobility. This is why it is good to have job training programs.

 

Companies are moving offshores to avoid American taxes. They move out of the US, costing american jobs, the government tax dollars, and paying "foreigners" low wages under terrible conditions.

 

Conditions in free-trade zones in South america closely resemble those in the industrial days in America's 1900's. Workers cannot unionize, have no job security, no benefits. They are treated little better then slaves. their houses consists of shanties erected around the factories. They have no healthcare. Tell me again how globalization is helping everyone?

Because without globalization, these people would not have the jobs they voluntarily choose to do. You must agree that having no job is worse than having a bad job.

 

They buy raw materials instead of the cars and computers we were expecting them to buy. I agree that this is not a good thing

How come this is bad thing? Mining companies like BHP are very well off.

 

The Economics of Outsourcing - Mises Institute

[Pangloss]

It's a bad thing in the sense that we were hoping to sell them finished goods and were unable to do so. I still think American *manufacturing* can compete in a world market. We just need to take a more realistic view of what that means (esp wrt labor rates). I wouldn't mind seeing a new view of manufacturing in this country where young adults take a turn through that world as part of their experience profiles, in much the same way that they currently pass through areas like retail sales, on the way to "something better".

[Phi for All]

I still think American *manufacturing* can compete in a world market. We just need to take a more realistic view of what that means (esp wrt labor rates). I wouldn't mind seeing a new view of manufacturing in this country where young adults take a turn through that world as part of their experience profiles, in much the same way that they currently pass through areas like retail sales, on the way to "something better".

Oooh, great point. Having been an HVAC tech installing heating systems, then a property manager overseeing retail property, and now dealing with architects I can tell you it really helps to have that broad experience. No one should get to design a building that hasn't built one or worked in one before. The things some architects put into a space frustrate the contractor's and the end-users to tears. Looks good artistically but sucks in practical application and usage. They could really benefit from a broader experience in the trenches.

[john5746]

One problem I see with outsourcing are the things that don't get outsourced. Medical and government entities don't get outsourced by and large. So, while electronics and such stagnate on prices, medical care, drugs and government keep increasing. It will be more and more difficult for people to afford medical care, college, housing and other government services. I can see drugs being outsourced eventually, but many services cannot be outsourced. Those wages need to be knocked down relative to all the other wages so people can afford them. I don't see that happening, but this "bubble" will need to burst eventually.

[ku]

I still think American *manufacturing* can compete in a world market.

There are those who believe that if a sector is dying it should be left to die. The market culls out inefficient sectors so that resources can be channeled into efficient sectors, and specialization allows for gains from trade, leading to greater overall output. This of course assumes that labor is perfectly mobile because a worker who spent his whole life making shoes cannot instantly become, say, an accountant or an engineer. Is there evidence that a significant proportion of those who lose jobs don't find new jobs? Even IF a significant number of workers lose jobs or receive lower wages from their new job, is the magnitude of this loss negligible compared to the gain from trade reaped from specialization? (Comparative advantage.)

 

Because of outsourcing, most of the manufacturing jobs have been turned into relatively lower paying Wal-Mart service jobs. That hits our country 2 ways. First of all, our treasury obviously loses from lower income taxes.

If home workers lose jobs AND cannot find another job or finds another job with a lower wage, then tax revenue decreases. The foreign worker whom the local firm now hires is in another country and therefore doesn't pay taxes to the home government. However, the lowering of costs allows those who own home firms to increase income. Wouldn't this be taxed? Furthermore, because of the progressive income tax system in America and Australia, etcetera, then wouldn't they be taxed at a higher rate, leading to higher tax revenue?

 

But the worse problem is that we are giving our money to people in China for Wal-Mart goods and they are not buying anything from us.

With the freedom to offshore outsource, people engage in trade, and trade allows for two-way exchange, not one-way. Parties to a business transaction do not leech. Both parties enter the contract with the expectation of mutual gain. The argument made here is that payments to labor (wages) are going to China but nothing is coming back. But this is not so. In exchange for the wages from American firm owners to Chinese workers, Chinese workers are providing services. The U.S. firm owners gain from increasing their profits. The Chinese workers gain from increasing their wages (otherwise, why would they accept the job?).

 

If we had manufactured the goods in the U.S., the money would have gone to another American and he would have spent it locally again and again. But if the money goes to China it helps their economy, not ours.

This assumes that Americans only spend locally. Nearly all goods are wholly foreign owned or partially foreign owned. Furthermore, there is international investment. If money goes to China it may go to a U.S. firm operating in China. The U.S. firm operating in China may have one-third of its shareholders from France or Japan. So really, in the globalized economy nationality really is meaningless.

 

After a person loses his high paying manufacturing job then has to re-train for another field. At a minimum, he would have to get a 2 year AA degree in some sort of technical discipline. So he loses 2 full years of wages plus the expense of college plus the experience he had in the manufacturing job. This probably doesn't sound like much to you but it adds up to a lot of people and some of them have changed careers more than 1 time.

As I said, this is right. But many things lead to job losses, such as change in consumer tastes and technology. It is just the nature of capitalism. One year everyone loves Coca-Cola and Coca-Cola workers are well off. But in another year let's imagine people start disliking Coca-Cola and prefer Pepsi instead. Coca-Cola starts cutting jobs. Pepsi won't hire the workers because Pepsi and Coke operate factories differently, meaning that skills used to work in a Coke factor is not transferable to a Pepsi factory. (Note: this is just an illustrative example, not necessarily what is happening in the real world.) As for technology, film camera are being replaced by digital camera. Many Kodak workers have lost jobs. But what should the government do? Prevent innovation? Stop technology? Prevent people from changing preferences or tastes? A government dictated by workers' welfare instead of consumer demand--that is a communist government.

 

I think we desparately need more Henry Fords right now. Ford had the vision to know well paid manufacturing workers would buy the products they helped to build. Up until that time, most people could not afford an automobile and so it was his own employees who bought a lot of them. Ford paid his employees way more than market rate but in the end his vision rewarded him handsomely.

Ford is definitely irrelevant today. For one, most cars are made by machines, leading to job losses. Furthermore, car part manufacturing is highly specialized. While in the old days your whole car may be made by one company, in today's car, the gearbox may be made by one company, the steering wheel may be made by another company, the wheels by yet another company, and so forth. This specialization leads to lower costs and, some would argue, even better quality because each company specializes in one part of the car, allowing them to focus on their core competencies...all that textbook stuff.

 

So if we must outsource, we should atleast do it with 1st world economies or we are just racing to the bottom of the barrel.

Not true at all, especially with labor. Since developed countries have similar wages, then how will any opprtunities to trade or outsource labor arise?

 

To conclude, under communism you expect the state to look after you. Under capitalism, it's the other way around. You look after yourself. Your skills, your education, your job, and your life. It's your own responsibility. That is freedom.

 

Capitalism Magazine

[RVonse]

If home workers lose jobs AND cannot find another job or finds another job with a lower wage' date=' then tax revenue decreases. The foreign worker whom the local firm now hires is in another country and therefore doesn't pay taxes to the home government. However, the lowering of costs allows those who own home firms to increase income. Wouldn't this be taxed? [/quote']

 

Not in the United States. Most firms have learned how to evade taxes by finding corporate loopholes and offshore accounts. Thats not going to change because our government is also controlled by corporate heads through campain contributions and political PAC organizations. OTOH, a manufacturing worker has at least 20% or more deducted for taxes from his paycheck before he can even cash it.

 

 

 

 

As for technology' date=' film camera are being replaced by digital camera. Many Kodak workers have lost jobs. But what should the government do? Prevent innovation? Stop technology? Prevent people from changing preferences or tastes? A government dictated by workers' welfare instead of consumer demand--that is a communist government.[/quote']

 

I would not suggest the government interfere with technology job losses. I'm saying the governement needs to protect workers from an unjust playing field that exists between the U.S. and 3rd world societies. There is no way an American worker can survive on the slave wages over in China. Yes, it would be more effecient economically but when it puts the middle class out of work our country loses in the end.

 

 

Ford is definitely irrelevant today.

 

The example was not so much the auto industry as to point out that companies who lay off workers are also reducing their opportunity to sell products. If you look at the U.S. trade balance it is pretty obvious. China is building manufacturing capability at an explosive rate right now while Americans are borrowing money to consume their products. Do you think this process helps us to become more wealthy and prosperous?

[Pangloss]

Good post, ku. I thought that was a very comprehensive and thoughtful analysis.

 

 

I would not suggest the government interfere with technology job losses. I'm saying the governement needs to protect workers from an unjust playing field that exists between the U.S. and 3rd world societies. There is no way an American worker can survive on the slave wages over in China. Yes' date=' it would be more effecient economically but when it puts the middle class out of work our country loses in the end.

[/quote']

 

But "more efficient economically" equates to "better for the middle class", and every other class.

 

I agree that we need to work hard to make sure the playing field is level, as you say. Making sure that trade agreements are respected, etc. But I think you've missed a crucial point here.

 

If nobody wants the product, how can you have a job? The far left seems to think that you start with jobs and you end up with money -- the end product itself is just an irrelevent and slightly disgusting side effect of the process, like some kind of nuclear waste that should be buried and ignored.

 

We've forgotten in this society that the purpose of a job is to make a product that can be sold, not to give the worker something. It's the wages that are the (nice, helpful) side effect. Not the other way 'round.

[ku]

Not in the United States. Most firms have learned how to evade taxes by finding corporate loopholes and offshore accounts. Thats not going to change because our government is also controlled by corporate heads through campain contributions and political PAC organizations. OTOH, a manufacturing worker has at least 20% or more deducted for taxes from his paycheck before he can even cash it.

 

If that's true that's very sad.

 

I would not suggest the government interfere with technology job losses. I'm saying the governement needs to protect workers from an unjust playing field that exists between the U.S. and 3rd world societies. There is no way an American worker can survive on the slave wages over in China. Yes, it would be more effecient economically but when it puts the middle class out of work our country loses in the end.

 

Think of production as a black box. You put inputs in it (labor, raw materials, electricity, etc) and then this black box spits out output (cars, medicine, etc). The economist looks at it this way. If you increase output for each unit of input, then technology increases. For example, initally you produce $10 worth of cars with $5 worth of labor. Then you get machines and with $3 worth of machines (including electricity costs) you are able to produce $10 worth of cars. The machine is a technological improvement because it increases the firm's productivity. Outsourcing a job overseas, when you think about it, is similar. Instead of putting money into a machine, you're just putting it into another "machine" overseas, i.e. workers overseas who work for cheaper, thereby making the whole offshore outsourcing a technological improvement. What I mean is that although offshore outsourcing may not be strictly a technological improvement by most people's definition of technological improvement, its economic effects are very similar. Mechanical technology leads to job losses. In fact the tax argument used against offshore outsourcing could be used against mechanical technological improvements. If machines took the place of workers in a Toyota plant in the U.S., these workers, assuming they don't find new jobs, will not pay taxes. Firm owners will earn more and if we assume that the evil corporations engage in tax evasion (and the workers do not) then the government really loses when it comes to tax revenue.

 

Of course, when firms pay for machines and for the running of the machines they pay local electricity companies (should we assume they pay taxes?) and either local or foreign machine makers whereas if they offshore outsources this money would go overseas. Some may suggest that firms be forced to only buy machines locally.

 

As for wages, stopping offshore outsourcing won't stop wages from going down. If wages in America are higher than wages in China and trade in factor markets were allowed (i.e. workers allowed to move around) then wages will converge, Chinese wages go up and American wages go down. However, if we put a barrier between China and America prevent movement of labor but allowed for free trade of the good that these workers made, then this has the same effect. Workers' wages will go down in America. This is due to free trade of goods. See Factor-Price Equalization. If the argument is that jobs or workers should not be able to move between countries because of wage equalization, government would have to prevent movement of goods as well. This certainly would conflict with the free trade ideology ingrained in many Americans.

 

Read about the Luddites, a group of people who smashed and destroyed machines because of the threat they had on their jobs.

 

If you look at the U.S. trade balance it is pretty obvious. China is building manufacturing capability at an explosive rate right now while Americans are borrowing money to consume their products. Do you think this process helps us to become more wealthy and prosperous?

 

Maybe. But would banning outsourcing stop this? Perhaps consumers don't have incentives to save because of the taxes. Or perhaps they're just impatient.

 

See http://www.mises.org/story/1488 where Austrians talk about the buy-back-the-product argument.

[ku]

I will add, it is bad that workers lose jobs. (I'm not some kind of elitist who hates workers or anything.) But if they have the energy, most should get new jobs (assuming they channel their efforts into getting a new job instead of blowing it on unproductive pursuits like complaining). The extra money flowing in the economy from the extra profits the firm owners make from lowing costs will drive entrepreneurs to find ways to grab that extra money. They may hire more workers.

 

For example, Ford outsources its factory to another country. Workers are unemployed. Rich Ford executives become even richer. They can afford to buy Mercedes instead of Toyotas now. Mercedes hires more salespeople in response to higher demand. Workers who used to work at Ford find jobs in the Mercedes dealership, selling cars to executives who fired them.

 

From Wikipedia it says: "Drezner ... points out that large software companies such as Microsoft and Oracle have increased outsourcing and used the savings for investment and larger domestic payrolls. Nationally, 70,000 computer programmers lost their jobs between 1999 and 2003, but more than 115,000 computer software engineers found higher-paying jobs during that same period."

 

Watch China in the Red to see that workers in America are not the only ones doing it tough. With market reform in China, with the Chinese government becoming more and more capitalistic, Chinese workers are losing jobs and must struggle to stay competitive. But it is this extra competition that is good for the economy.

[Pangloss]

More very well thought-out reasoning.