THE BOOK--Playing The Percentages In Baseball

Outsourcing is even better than technological improvements in the short term because you also benefit the poorer workers you are outsourcing too

If 50,000 textile workers lose their $10/hr jobs, that’s about a billion $ loss/year to the nation.  I think that the average person would gain lots more than $5/year in cheaper clothes.  That’s $1.5 billion/year.  We want to make sure that the overseas employees are not being exploited by the standards of their countries, and for some things by our standards, (pollution and safety, for example.) It would also help if the profits were not all kept overseas, US tax laws may not be very good at helping this.

Perhaps you haven’t heard or read about the hand-wringing over the recent rise in productivity gains? That’s what you’re talking about and there actually has been plenty of discussion on the ramifications of that.
If you’re curious I can point some articles to you, or outline some of the (negative?) implications that have been talked about.

Also, a crucial difference is where that $1 goes. So, with outsourcing that $1 leaves the US economy and then via multiplier effects for expenditures, lifts the economy elsewhere.  If you mechanize something here instead, there is still a cost for making the robot (computer program, etc), maintaining the robot and so on. So that $1 is spent here.
Factor in the fact that we’re not actually talking about 10:1, but probably more like 10:5, and where that $1 (or $5) goes is a big deal.

But I’ll agree that it is a jingoistic argument to make, which is increasingly archaic in the globalized economy. Intro to Macroeconomics, 2nd week, you get the exact same argument you’re making.

Outsourcing as a technique for human automation works effectively and I have no ethical concerns about it in general. Apprentices provide human automation as a way to learn the fundamentals of a craft. Doing it on a large scale might have ethical concerns because the human machines in China, for example, are treated so ridiculously shabbily and do not have the opportunity to advance to more interesting work.

Where outsourcing fails in my industry in particular—software development—is in the notion that building software requires the same kinds of automatable skills as, say, soldering a chip in place. We’ve tried this for 30-40 years and it has largely failed, even though its failures have been masked by other domestic failures, like assuming that most programmers are good designers and that with those programmers we can predict their rate of work output well. We can’t, because they are inherently unpredictable.

I quibble with Michael Harris’ comment, because outsourcing does not necessarily benefit the poorer workers. The sociopathic profit motive assures us that many of those workers will be abused. When, however, those workers do benefit—when they have steady work and humane conditions—then I think outsourcing does more for the world than technological improvements. Imagine the good that could come if those to whom we outsourced then became responsible for replacing themselves will machines!

As usual, intent and context both matter. Brutally seeking the cheapest labor makes machine automation a better solution; delegating low-value work to cheaper human labor with an eye towards giving those people a chance to improve themselves makes human automation better for everyone.

Economic literature is pretty clear that gains from trade, in aggregate, are positive. However, the literature is also explicit that the distribution of those gains could vary widely. What I think the pundits and others are really saying is that the distribution of the gains from trade (and technology) are not evenly distributed and that for many people, the gains are far outweighed by the costs. And, in aggregate, it is very possible that the monetary gains from trade are outweighed by distributional consequences of how those gains accrue.

Mitch/5 is spot-on.  It is a virtual economic tautology that free trade will be a net GDP gain; it doesn’t follow that this ought to be our public policy.  It is a kind of enthymeme of contemporary political discourse (on all sides of the political spectrum) that anything that increases GDP is good public policy and we should do it.  That may be true (although I doubt it), but you have to argue for it; instead it almost never gets discussed.  My perception is that most of the commentators against outsourcing lack either the economic or rhetorical sophistication to say, “Hey, yeah, it may increase our GDP, but those gains may go to so few people that it’s not in our collective national interest and instead we should practice X, Y, and Z.”

In addition, it’s also a virtual economic tautology that practices like outsourcing come with externalities that mask their true cost.  An externality is a cost of production that is not reflected in the final price of the product.  In the case of outsourcing, the great externality is the social cost, borne by all of us, of carbon emissions.  If that cost, through, say, a carbon tax, were included in the cost of production, outsourcing would in many cases be less profitable because of the increased transportation costs.

The point, in my opinion, is neither that outsourcing is good or bad per se.  The point is that public commentators lack the sophistication to make a healthy argument about it.  As a result, the public’s misunderstandings deform our political culture.

Building on BDF’s comment, I like to say that “Economic growth is a means, not an end.” Economic growth itself is not the goal; increasing living standards is the goal. Economic growth undoubtedly contributes to rising living standards, but so do things like the relative concentration of political power, environmental pollution, safety, and hours worked.

I agree with #5 &6, income distribution is the problem here.  How to fix that is the tough question. 

In theory, you could pay those people who lost their $10 jobs 9$ an hour to do nothing.  But in reality, how do you get anybody to do anything if you’re willing to pay them to do nothing?

Right now we’ve got about 20% of the population really struggling (unemployed, discouraged workers not counted as unemployed, people who can’t find anything better than part time work).  The 1r;s are living large.  And the other 79% is motivated to work really hard for their 1% masters so that they don’t end up like the bottom 20%.

The problem here is the implicit assumption, common to so many, that capitalism is the natural order of things.

re: 1/Harris: “Outsourcing is even better than technological improvements in the short term because you also benefit the poorer workers you are outsourcing too”

See, for example, this assumes that the “poorer workers” are merely workers who need jobs, so, hey, it can only be a good thing that they now have jobs they previously didn’t. But in reality, they have been thrown off the land, where they previously had some autonomy and were able to subsist, and now are literally forced to search for wage labor, in the form of shitty jobs. And one of the reasons they have been forced off the land is the country in which they live is forced (literally, often, at gunpoint, or through muscle-backed financial means) to enclose land, or export food that could be used to feed itself, and import food at higher prices, and to privatise things like education and utilities and etc.

Our fancy new devices and our comfort literally depend on the penury of the people in the countries that produce them for us.

The problem with outsourcing isn’t just that American workers are losing their jobs in favor of foreign workers; that’s pretty much just a selfish xenophobic argument. The problem is that foreign workers are cheaper *because* the laws of developing nations do not force the companies to bear the true costs of doing business. Child labor, healthcare, pollution, unemployment insurance, workplace safety, etc.

The other thing I’m not following is your argument that *any* technology that replaces workers is as bad as outsourcing. If a technology replaces manual labor, you still need jobs to research, develop, build, and maintain the “robots.” In addition to the societal benefits of more advanced technology, these types of jobs tend to pay more than the jobs that the “robots” took away.

i think we can all agree that “Outsourced” the tv show was a universally terrible idea.

I think #5, 6, and 8 really get to the root of the issue here. The “outsourcing is bad because workers lose their jobs” argument is really only half the story. The other half is that outsourcing lets everybody buy things cheaper. The benefits almost certainly outweigh the costs in the aggregate, but on an individual level there are huge disparities.

It’s possible in theory to do things to even out the inequality, such as Rally’s example, but in practice they might not work as anticipated.

The reason politicians all say that outsourcing is bad (regardless of whether they really believe it) is that the 1% of people that lose their jobs from outsourcing have a much stronger incentive to lobby against outsourcing than the 99% of people that benefit have to lobby for outsourcing. That’s just because on an individual level the negative impact is much greater even though in the aggregate the positive impact is larger.

"The other half is that outsourcing lets everybody buy things cheaper. The benefits almost certainly outweigh the costs in the aggregate, but on an individual level there are huge disparities.”

First of all, this is only from the standpoint of those of us who can consume those cheap things. But in any event, I wouldn’t count on this lasting very long. What do you think is the process through which the oil is acquired that goes into the plastic that produces the goods? What has happened in those places where people have tried to regain control over their own resources, control over which they had been forced to hand over. What happens when the oil becomes more scarce?

"Our goal should never be to ‘create jobs’. Our goal should be to enable people to contribute something valued by other people. The value is the point, not the work.”

See link.

Outsourcing does NOT lower prices. That’s the fallacy of Free Trade Agreements among countries.

Companies produce cheaper, but they will still sell their merchandise at the maximum price people will be willing to pay.

Do you really think if A Rod costed 1 million a season instead of 30 million, the Yankees would LOWER ticket prices to the fans?

The other thing with outsourcing is that corporations take advantages of poor laboral laws in countries like where I live (Colombia) and exploit people with all kind of threats until current workers can’t take it anymore and are fired or resign (or die or get hurt and are unable to go on). The cycle continues hiring more poor desperate replaceable people (which are the majority) until the country improves laboral conditions and then the corporation leaves for another country which offers “investment realibility”. That’s actually the term used by former president Alvaro Uribe, to let companies here do whatever they want with workers.

14/ well said.

The comfortable lifestyle that many Americans enjoy is produced and maintained through violence.

It helps to know anything at all about the working conditions in the countries to which the jobs are being outsourced.

13: “This is only from the standpoint of those of us who can consume those cheap things,” which is pretty much every American! Computers, clothing, phones, etc. are all cheaper because of outsourcing.

As for your second point, I don’t understand how resource prices have anything to with outsourcing of labour. Companies can charge lower prices if they can get pay $1 per hour of labour instead of the $10 it would cost in the USA. That is true regardless of what oil costs.

14: If companies can produce a product cheaper then more companies will start producing that product which lead to an increased supply and a decrease in prices. Your analogy doesn’t work because the Yankees are a monopoly.

If there were multiple New York teams and fans had no affiliations (which simulates the market for typical goods), then fans would go see whichever team had the lowest ticket prices (given the quality of the product). So in this scenario being able to sign players cheaper would lower ticket prices because teams would lower their prices to try to attract fans, until they could no longer do so profitably.

As for poor working conditions and exploitation, that definitely is a problem. But I don’t see how getting rid of outsourcing would fix it. If American companies started using more American labour, then foreign workers wouldn’t have better working conditions. Instead, they’d just be out of a job.

Replay to #9 Richard:

That’s what’s happened here in Colombia for the last 40 years. Farmers have been thrown off their own lands by gunpoint by extreme right paramilitars financed and backed by the government and several USA corporations like Chiquita Brands and Drummond. Also guilty are the extreme left guerrillas (FARC).

With Chiquita for example it has been proved by courts in USA, they payed 30 dollar cents for every banana box they exported to the Colombian United Selfdefenses in exchange of “protection”. That protection was threating any kind of intent of workers forming an union and killing union members in the region of Urabá in Antioquia. The excuse for the killings was accusing workers of being dissident and being “comunists”. The same case has been repeated countless times with other agroindustrial and mine companies in different regions of Colombia.

It’s reported by international human rights groups that more than 4 million people in Colombia have been displaced from the country to cities. That’s people that their only knowledge was agriculture. Now that people have to seek for shitty jobs (and homes, and everything because they had to leave all their properties behind) and that’s where multinational corporations come preaching they are saviors offering “something” instead of not dying of starvation.

Importing food we could cultivate here is starting to happen. Rice prices have almost tripled in less than 3 years. For Christ sake, we import fish, while having the fourth most rivers in the world and coasts with the Pacific and Atlantic ocean. Education has been tried to be privatised, but they couldn’t last year due to big rallys against in the streets by teachers, students, parents and unions (The same is happening in Chile). Utilities are public in most cities, but in Bogota (the capital), where they are private, utilities cost up to 10 more times than where I live (Santiago de Cali).

“Our fancy new devices and our comfort literally depend on the penury of the people in the countries that produce them for us”

That’s the money quote Richard.

"Outsourcing does NOT lower prices. That’s the fallacy of Free Trade Agreements among countries.”

All wonderful comments until this (sorry).

That’s way I can buy a DVD player at Wall Mart for $29 or a pair of pants for $8.

“Companies produce cheaper, but they will still sell their merchandise at the maximum price people will be willing to pay.”

I am not an economist, but companies will sell a product at a certain price such that the number of people buying it times the price equals the greatest profit. There IS not maximum price that “the people are willing to pay.” If a DVD player cost $400 (which they used to), X amount of people will gladly buy it.  If it cost $50 dollars, Y amount (many more than X) will buy it.

There is of course a lower limit on the price, which is slightly above the cost to make it. That is why they used to cost $400 and now they cost $20 or $50.

"Outsourcing does NOT lower prices. That’s the fallacy of Free Trade Agreements among countries.”

That’s about as blatantly false as claiming that an increase in OBP will not help you score more runs.

Of course it lowers prices.  It wouldn’t if there were no competition, but of course there is.  Company A makes a shirt they can sell for $10, made in the U.S.A.  Company B comes along, outsources the manufacturing, and makes the same shirt for $5.  Wal-Mart decides to only use company B as a supplier.  Company A can either go out of business, or outsource themselves and lower their prices.

It doesn’t help to use A-Rod as an example, because there is only one A-Rod.  The things that are cheaper because of outsourcing are things that can be made by more than one company, and in more than one place.

Reply to Jono # 16:

Corporations pay off politicians so they write and pass laws that disregard any protection for workers and discourage any kind of association of workers like unions.

Read my previos comment (#17). They also pay mercenaries and form paramilitar private armys (not only in Colombia, that’s usual business in all Africa) to kill and threaten any dissident.

Those armys are payed with commisions of the profit and with part of the land that is stolen to the farmers so agroindustrial corporations can grow cheaply (and mine companies can take out people that live near natural resources). Here in Colombia they also started using those lands to cultivate coca (for cocaine), cannabis and poppy (for oppium and heroine).

People here HAD jobs before corporations started coming to steal land, change laws for their sole benefit and lobby politicians so public and well managed companies that benefit the people are now private, bad managed and profitable to a small few foreigners.

MGL/18,

In general, we assume a competitive market for these products.  In that case, retail outlets sell at or near cost (with the price as given, otherwise they lose all market share to an identical product that is cheaper), so we would likely see cost decreases overall depending on the transportation costs, etc.

The choice of price to maximize profits is true in a monopoly setting (not out of the question, as not ALL products are exactly the same, and this differentiation allows for some price choice).  So I agree generally with your point, but just adding my two cents here (more like half a cent).

As a whole, lower prices with identical product quality ultimately means higher quality of living as a whole.  This is one of the reasons healthcare is expensive these days: we have a lot of leftover $$ and it is valuable to us.  Years ago, we spent this $$ on food.  But food got cheaper so we had more discretionary income.  As medical advances were made, we shifted it over.

This is certainly not to say that outsourcing is all good.  There are a number of issues--one of them being growth as mentioned earlier (and another being ethical issues).  And this makes the comparison of outsourcing to machines/robots not quite the same.  There is--I would guess--significantly more innovation and jobs needed with the robot than with outsourcing to other countries.  These include both R&D as well as maintenance.  Many of the further issues were mentioned above.

Now what one could do is remove the minimum wage in our country to be competitive with those overseas.  This would reduce unemployment most likely (as workers willing to work at these wages could be hired), but there are obvious implications with respect to quality of life and leverage companies have in that scenario. 

A large number of unemployed are willing to work at a reservation wage lower than the minimum.  If people are paid at their marginal value, then I’m not sure this would put much downward pressure (if any) on wages overall.  But the cost of transport channels overseas vs. the cost of ensuring reasonable work environments here might be close to one another.  Protection of worker rights vs. free capitalism is of course, always a heated debate.  I’ll remain agnostic here.

#18 and 19:

MGL: I was not implying some kind of auction. What I mean is for example; Nike now produces mostly in Vietnam. They reduce their costs, but they still keep selling their shoes at the same price as if they were producing in USA. If they can still sell their shoes at $200 dollars (for example), then, they will NOT lower the price of the shoes, just because they are producing them cheaper. They will lower the price if people show reluctance to buy Nike shoes at that price.

Another example is Apple. They produce in China now. But at least here in Colombia, Apple products keep being as expensive as they’ve always been.

Rally is right, corporations will lower prices IF the competition produces similar merchandise (same or best quality) at a cheaper price.

I disagree with the example of the DVD, because technology made them obsolete. That’s the reason DVD players are almost given away nowadays.

MGL: “The more people you have in a society who do non-menial things, the more prosperous your society.” That seems to be an unsupported (and unsupportable) statement.

If the statement is unsupportable, then Rally #8 would indicate that among the losers of outsourcing is the 79% “motivated to work really hard for their 1% masters so that they don’t end up like the bottom 20%.” Which is probably everybody posting here.

I’d say outsourcing and automation are bad for the average American. Both result in unemployment and a downward push on wages. I suppose your perspective all depends on whether you think corporate profits or American wages are more important.

One day we may make the average human being a redundancy. That will be an interesting society to live in.

i dont know if this adds much to the conversation but if live action television productions weren’t outsourced for labor-expensive places like Southern California to cheap labor locations like Vancouver, then we’d probably wouldn’t have Battlestar Galactica. also, if animation couldn’t be outsourced to South Korea where the costs are far less, we may have never had the Simpsons, Family Guy and Beavis and Butthead. South Park is still made in the USA tho.

If I assume by “outsourcing” you mean the choice taken by US/1st world companies to hire (presumably cheaper) workers from outside the US/1st world--doing so because they see it as an improvement to their long-term profitability, then it most certainly IS a good thing, (excepting the cases of slave labor and government-granted monopolies, of course).  By definition, the parties involved (company, overseas hired workers) make the exchange because they expect to benefit from it, otherwise the decisions would not be made.

Most likely the company chooses to outsource to reduce costs and remain competitive (typically some combination of lowering prices and increasing profitability to shareholders).  Then they can keep their employees employed and, with added profits, expand operations, hire more workers, etc.  Consumers paying a lower price for the product can then save the extra money not spent (which helps keep prices in general down) or spend it on something else--which then helps that company keep its employees employed, expand operations, etc etc..  So consumers can now have more for the same pay because productive capacity has increased.  Even if the outsourcing company does not decrease its prices, it could attract more businesses into a competing line, which would eventually cause a drop in prices as competition increases and profitability decreases.

The point is, as long as it is all voluntary--who are we to object?  The alternative is to replace the needs and desires of the consuming public as a whole with political whim.

Alvarao/20:

Ok, I didn’t know that. And I obviously agree that that’s terrible. It’s too bad that American politicians focus so much on the loss of some domestic jobs instead of on the human rights issues.

The argument against outsourcing is an argument for protectionism. Protectionism benefits the protected entities (industries, companies, employees, whatever) at the expense of everybody else.

Protectionist policy inevitably boils down to a trade-off between two things:
A) The acute short-term benefit of the protected entities.
B) The broad, compounding, long-term benefit to society as a whole through efficiency gains and economic growth.

People who argue against outsourcing labor are sympathetic to the short term pain incurred when adapting to new economic realities (unemployment, etc). On the surface, this is a noble and empathetic stance, but ultimately the side effects of the medicine are worse than the disease.

Here’s a really good NY Times article on this very subject:

http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=1&pagewanted=all?src=tp&smid=fb-share

I actually worked in China on an internship a few years back. Part of my job was visiting factories for various purposes that ranged from concerns over barbecue equipment being shipped in bad boxes to the Lunar New Year affecting production speeds.

Anyway, here is what I observed:

(1) Wealth was growing rapidly, and though factory work is hard and unpleasant toil, it is superior in many ways to the subsistence farming so many of the Chinese families had done for generations upon generations. (SIDE NOTE: I never saw any children working in a factory, but that’s beside the point, in my opinion. If they’re not in the factory, then they’re on the family farm. And only a city-slickin’ fool thinks farm work is better for a child’s body than being in-of-doors, sitting down all day.)

(2) People are not nearly as coerced into factory work as the media might portray. I do know of Chinese Christians forced to work in prison factories and other sorts of abuses worldwide, but I would wager that the majority of factories overseas—especially in China—are offering the best wages and perks within their area; the factories I visited were often trying to lure workers, and they certainly did not have the means to enslave them (of course, this could be vastly different in, say, Latin America; I dunno).

(3) The environment was getting soundly raped. Gray rivers. Gray skies. Black boogers. Thirty feet of visibility. The government has opened its wallet and closed its eyes—something the American government was certainly no stranger to in the late 1800s, early 1900s. And that is a shame. Is there a way around it? Possibly, but the matter is more difficult than just slapping regulations on everything. More regulations mean higher costs, and higher costs could kill the manufacturing industry as a whole.

Just like the industrial revolution in America brought great pollution problems (see: burning river, Ohio), it also led to increasing wealth among later generations and generally stronger economies and improved health and whatnot.

So I am, frankly, in favor of outsourcing. To complain about outsourcing—which has been made possible by efficient shipping technologies, the Internet, and increased communication technologies—is like complaining about the newfangled automobile industry because it is murder on the horse-and-buggy industry.

If you make a horse and buggy, it does not mean business is over, it means its time to get creative.

I’m generally in agreement with mgl’s comments here.

Another economic theory that has not been mentioned is comparitive advantage. Let every country find what they do best. If shirts can be made in another country for wages no worker here wants to be paid, then let them make the shirts there and refocus here onto a new product or service that we do the best.

The president, in his SOTU speech said about ending tax breaks for outsourcing, and creating tax breaks for domestic job creation. That is a short term measure to subsidize jobs here, but it may lessen the opportunity for consumer to have a wider choice of products at a cheaper price. Tax money and higher prices, from everyone, is used to keep domestic jobs, many in industries were we can’t compete with other countries.

My opinion is to end all tax breaks. Have the government adopt pro growth policies, decide how much money is necessary to fund the essential functions of government, then raise that revenue by having the government tax all economic activity at the same rate.

A note on productivity. I started in my current profession, making maps from 3d aerial photos, in 1985, for $5 an hour. I created maps drawing with a pencil on a piece of mylar. Today everything is digital. I’m doing basically the exact same job, but because I can produce so much more product in a set amount of time, I have about 8 times higher income than I did 25 years ago. That’s allowed me to buy quite a bit of things over the years, things which other people had to make.

Brian,
You are highlighting the fact that productivity growth is what drives real wage gains. Workers of virtually all stripes are more productive today than they were a generation ago, and that should mean higher wages. Unfortunately, the data shows that over the past 30 years or so, real income growth has been stagnant for most Americans despite productivity gains. I think this has to do with several factors: a shift from a manufacturing economy to a services economy (productivity gains in the service sector are generally slower), decreasing power of labor relative to capital (this includes not only the decline of unions but also the ability of companies to seek alternative labor suppliers abroad), and a shift in compensation and financial models that better rewards management and shareholders relative to labor (also related to the second point); there are likely many other reasons this group can think of, too.

My “gains from trade” comment (#5 above), was intended to speak exactly to comparative advantage. Comparative advantage is a difficult concept (it says that even if a country is absolutely advantaged in all goods production, it will still benefit from trade with other nations; it also says that what a nation does “best” may not even be its comparative advantage), but it does show that gains accrue to both nations from trade in aggregate; it says nothing, however, about who will benefit within each country. If you accept that distributional concerns are valid, then the efficiency gained through trade may be outweighed by the (potential) equity lost.

What many critics of outsourcing also mention is that the spillover effects from manufacturing also matter, and #30 above highlights the recent NY Times article on Apple. In addition to the “flexibility” the company seeks (and it is certainly worthy of debate whether or not this flexibility is worth building into a labor market), the other main reason for Apple’s locational decision was clustering; China has the component makers all in the same spot (and here I think the Times drops the ball by not investigating how the cluster was built initially - was it through wage competition? Industrial policy? A few trailblazer companies that attracted others?). This is not dissimilar to the U.S. auto industry, Silicon Valley, the NY finance industry, or even the number of baseball prospects that hail from Southern California; clustering spreads knowledge and talent across firms and individuals much more broadly than if firms locate far away from one another. As a nation, I think it is worthy of asking whether creating the conditions necessary for these positive feedback loops is a worthy goal of public policy.

Related to the discussion of companies not reducing their prices even though they are outsourcing (and thus increasing profits), I’ve never understood the bias against companies making profits in this country.  I’ve worked in US industry for 40 years, from being a young engineer to running businesses.  In every company for which I’ve worked at every level, making a profit has been a strong goal.  And when we did make our profit goals, only good things happened:  Employees (at all levels) got raises, we paid taxes (city, state and Federal), we had more entrepreneurial funds to use for R&D to provide more and better products, etc.  And of course the publicly traded companies returned dividends to shareholders, gave more to charities (and of course executives got bonuses).  Overall, businesses are in business to make a profit, and that’s a good thing!

"Workers of virtually all stripes are more productive today than they were a generation ago, and that should mean higher wages.”

Are you sure about this?  If everyone is 20% better, that just means the replacement level is 20% higher. 

If everyone can produce 20% more, then I could see firm X deciding to pay 20% more to its workers. But I could also see firm Y deciding to reduce prices by 20%, and vastly outselling X.

I don’t think there is any question but that outsourcing is a good thing for corporations and the global economy.

The question is if outsourcing is good for this country, the country being the people.

Most large corporations that outsource are global in nature. They tend to book the profits in a tax haven to minimize US tax.  Oil is a great example.  Exxon buys imported oil at price far lower than the market value, and sells it to their refineries in the US at close to market price.  The profits get booked in a tax haven like Panama. US corporations pay no tax in the US unless they repatriate their profits back to the US.  That’s why oil companies prefer to import oil than drill for domestic oil (contrary to what they say).

Retailers do the same thing as oil companies, having their overseas company buy low in China and sell to their US company at close to retail, lowering their profit and tax in the US, and booking profits in HK or other tax havens, or perhaps China if they have negotiated lower tax rates.

Furthermore, the savings on tax breaks and lower tax rates tend to get reinvested outside the US, complicating policy even more.  Cutting taxes does not always lead to increased domestic investment and job creation as it once did.

In any event, to buy these outsourced products that are imported, people in the US for the most part rely on income from US jobs.  When more jobs leave the country, this creates more supply of labor for those jobs left, and suppresses wages.  Also, it is well known that manufacturing jobs tend to pay better than the service jobs created to replace them.  So if unemployment increases as a result of outsourcing, and/or the rate at which wages increase decrease, the people living and working in the US are worse off.

Now it may very well be that those products people buy are cheaper than if they were made in the US, but most households spend the vast majority of their income on taxes, housing and interest payments, fuel, food, education, insurance, telecommunication and cable fees, etc.  The budget for outsourced manufactured products is a relatively small percentage of their expenditures.

Furthermore, as we learned in WWII, being able to convert your domestic manufacturing base to war time production was invaluable.  We would not be able to do the same today, at least not to the same extent, plus we no longer mine certain metals due to it is cheaper to import them from China, even though these metals are needed in many of our more sophisticated weapons systems.  So there is a security aspect to this as well.

Now, I have spent 25 years in Asia helping to outsource US jobs in Asia, and have seen the tremendous progress in Asia, particularly China and greater China.  The US looks more like a 3rd world country in some areas, especially infrastructure, and living standards appear to have declined in the US over this period, even if everyone has a HDTV and smart phone. 

1.3 billion Chinese say Xie Xie for your/our generosity.

"Now, I have spent 25 years in Asia helping to outsource US jobs in Asia, and have seen the tremendous progress in Asia, particularly China and greater China.  The US looks more like a 3rd world country in some areas, especially infrastructure, and living standards appear to have declined in the US over this period, even if everyone has a HDTV and smart phone.

1.3 billion Chinese say Xie Xie for your/our generosity.”

As far as I am concerned, as long as the prosperity of the world increases, it is a good thing. In fact, I’d rather see people in other countries living in what we would consider extreme poverty move up the ladder than our so-called lower middle class (who live like kings compared to 90% of the world’s population). If that makes me un-American, I am proud to be.

The notion of what is good for our country, with complete disregard for the rest of the world, to me, is un-human…

"As far as I am concerned, as long as the prosperity of the world increases, it is a good thing. In fact, I’d rather see people in other countries living in what we would consider extreme poverty move up the ladder than our so-called lower middle class (who live like kings compared to 90% of the world’s population). If that makes me un-American, I am proud to be.”

wow. well said sir.

It might be a good thing for the world for US corporations to sell out their own public in favor of lifting up the poor populace of the world and gain a profit to boot.

The biggest problem I have with this is that these same corporations and public officials who are actively pursuing this strategy want to lay the blame at the foot of the American workers who they seek to dispossess.

If you are going to seek to have high unemployment as a means of reducing wages and increasing profits, you damn well better have a strong social welfare state to take care of the people you dispossess.

if you look at outsourcing as just a byproduct of a much larger and inexorable trend of globalization, then the real debate is not whether or not you should try and stop, or limit companies from outsourcing, but how to ameliorate the negative consequences for those affected on a personal level. so yes a social safety net is absolutely necessary to protect the most vulnerable segments of the populations, but also important is resources diverted to training and educated the work force so that they can take advantage of new labor landscape.

and the debate becomes about to most effectively and efficiently train and educate a population, and thats pretty much a new topic.

Ken/24 - Ironic that South Park, with its intentionally crude animation, was the only one you listed still made in the U.S.!

Captcha: price24. If this blog were hosted in India, it would have been price8.

RE: Mike #35
“If everyone can produce 20% more, then I could see firm X deciding to pay 20% more to its workers. But I could also see firm Y deciding to reduce prices by 20%, and vastly outselling X.”

This is a real vs. nominal income distinction. Let’s suppose all firms are able to raise output by 20% per worker while paying those workers the same; competitive equilibrium then dictates that 1) prices fall by 20% or 2) new entrants bid up the cost of the factors of production to their marginal product (this prevents incumbent firms from earning excess profits on their new-found productivity gains). In scenario 1), those workers may not be getting paid any more in nominal terms, but they are getting paid more in real terms since prices have fallen, while scenario 2) sees the higher wages from the intuitive perspective. This is the magic of productivity gains.

Competitive dynamics have typically dictated that productivity gains were shared among the different factors of production (labor, capital, natural resources, etc); the transmission mechanism paying higher (real) wages to labor has broken down in the past 30 years or so.

I did not include “real” in the sentence you quoted, but I did include it in the preceding and following sentences.

One of the interesting things about this discussion is that (almost?) no one would claim, in fact, that improved GDP is a desirable enough outcome to overcome *any* objection based on distribution.  You’d have to be an awfully big economic naturalist to overcome the obvious reduction ad absurdum.

There is, however, an economic concept called Pareto efficiency, which is a type of efficiency in which at least one person in the group is made better off and no one in the group is made worse off.  It’s value neutral--it doesn’t say anything about whether chasing such efficiencies is a good thing--but it’s often used to justify current U.S. income inequalities, i.e., yes, real wages have risen for the bottom 80% by only 5% (all numbers are made up and for demonstration only) while those of the top 20% have risen by 50% and the top 2% by 500%, but that’s OK because it’s Pareto efficient.  This, also, is not a particularly effective argument, in my opinion (and also something of a misuse of the concept), but it is an argument, or at least a claim.

At the end of WWII, the US had 50% of the worlds wealth and only 5% of the population.  Today it is less than 20% of the wealth, with 5% of the population. 

And 40% of that wealth is held by 1% of the population (8% of global wealth), and increasing (Of course, that number is probably on the low side as it does not cover the wealth hidden by these 1%, actually mostly by the 0.1%, in the tax havens)

Anyways, It does not take a rocket science to know that redistribution of that wealth would be more profitable for corporations who have something to sell (product or service).  After all, there are only so many toasters, cars, phones you can sell 5% of the population, no matter how wealthy they are.

The redistribution started first in Europe in the 50’s, and then in the 1970’s the trilateralization of the global economy began, first with Japan, then the Asian Tigers (Taiwan, Korea, Singapore, HK) and then China and South Asia.

The world is a better place for it.  My only gripe is that most Americans do not realize it is by design, and not their fault. 

Elected leaders in DC put global interests above that of their citizens because that’s where the profits are for the global corporations, and they are the ones who fund their campaigns and provide them with various rewards (eg. well paying board positions)once they are out of office.  It’s that simple.

This thread is obviously a bit old now, but I thought a post I ran across today illustrates the productivity/income argument I made above rather well.

http://conversableeconomist.blogspot.com/2012/02/labors-declining-share-of-total-income.html