US Economy and Permanent Job Losses

Great Debates
41

Freetrade is wonderful in theory, but if we remove ourselves from the purely textbook viewpoint, the question becomes - how do we deal with the very real problems that we face?

Government needs tax dollars to operate. People out of work don’t pay taxes. People whose jobs have been outsourced and have been lucky enough to find other work, often do so at 30-50% lower wages, in lower quality jobs. Therefore, they make less and pay less taxes. How does the government fund itself and the services we want if tax dollars are declining?

The only real solution is to tax corporations much more, thereby negating any “savings” they may be gaining by offshoring. And corporations won’t be happy about that. Drastic cutbacks in government size or spending are just not going to happen.

The USA has one of the highest standards of living in the world. As such, there is simply no way we can compete on labor costs with countries such as India, China, Pakistan, Indonesia, Hungry, the Philippines, etc. where lack of birth control has produced a population willing to do any work for virtually any payment, just to survive.

When we were primarily outsourcing manufacturing jobs, it was felt that the displaced people could mostly be retrained for other, “more rewarding” work, perhaps working in call centers, doing data entry, becoming entry-level computer programmers, working as a medical technologist, etc. But now, the countries mentioned above are doing much of this kind of work also. Furthermore, these countries are now eating into higher-level jobs such as advanced computer programming, product development, preparing tax returns, medical billing, etc.

Our government has a retraining program for manufacturing jobs that have been outsourced but no such program for outsourced white-collar jobs! And retraining someone with a college degree could mean that they have to go back to school for 2-4 more years and perhaps switch industries, a difficult proposition for someone who may be 40-60 years old with a family to support. Given that our country is currently running a deficit that is estimated to be somewhere between 500 billion to one trillion dollars, it is questionable if the government/taxpayers could or want to afford to support someone and their family who needs a new four year degree to reenter the work force after their job has been outsourced. And what would they study? Without any bounds to outsourcing, they may find that by the time they were retrained, their new chosen position may also have been displaced!

Also, no one seems to be giving any consideration to the security issues of outsourcing. What happens if India and Pakistan goes to war? Whom do we support? What if one of these countries tries to hold us hostage (support us or we will destroy all your data)? What if we go to war with a country that we outsource heavily to but we no longer have the expertise to quickly pick up and run with the ball when we need to? What if we no longer have the facilities or expertise to manufacture munitions in a large war with one of our old “partners”?

It’s about time that we start looking at the very real social and economic risks and problems of outsourcing instead of falling back on what an economist wrote in a textbook somewhere. :eek:

42

I hate it when that happens.

[hijack]

As economics grows, so does its understanding of the world. Interesting to note, and to keep things in perspective, the idea of the Invisible Hand, that is competitive markets maximizing social well-being by minimizing total cost (without the weak being weeded out—that quasi-evolutionary gibberish is not part of the Invisible Hand) wasn’t but on solid footing until the 1940s or '50s. I don’t recall exactly; however, it was done with the First Fundamental Theorem of Welfare Economics. (The 2[sup]nd[/sup] Fund. Thm. demonstrates that any welfare maximizing distribution can be obtained through redistributing wealth and then letting the competitive market do its thing.) Economics as a scientific endeavor is pretty young; sea changes in dominant paradigms should be viewed in that light for deeper perspective.

Specifically, the stagflation of the '70s gave economists a new and unexpected bit of empirical data that they had to deal with. I’m sure you’re familiar w/ the Phillips curve. Simplistically stated, it illustrates the unemployment-inflation trade-off. I’m not going to go into the mechanics, you can find all that pretty easily online. What happened was that as unemployment was ratcheted down (and inflation up) below “full employment,” unemployment would move back to its “natural” level and the process would begin again. At some point this whole thing broke down and there was a re-adjustment. (Try googling for “long term phillips curve” and see what comes up.) Economists adjusted the models—scrapping bits, adding bits, yadda, yadda—and there is now two Phillips curves: long-term and short-term. If the natural rate of unemployment is X, the short-term adjustments can move in that area, but as the state attempts to keep unemployment too low we find increasing inflation but no real benefits in terms of employment. The short-term Phillips curve is still the same trade-off we normally think of, but the long term one is verticle and policy has to be sensitive to that.

I haven’t read it in detail—I only just googled for it myself—but this discussion from the New School looks like it should be a pretty good introduction to what I’m going on about:

http://cepa.newschool.edu/het/essays/keynes/inflation.htm

Of course, if someone like Hawthorne comes along and totally contradicts me, then you should listen to him. He’s good.

[/hijack]

Economics is pretty abstract and should be pretty resilient to quite a bit of abuse, for lack of a better word. So if our main economic engine moves from manufacturing to service, I’m just not seeing why economics per se may need re-adjustment. For example, corporations providing services still invest in equipment and capital, and pay dividends or re-invest earnings, so macro policies that affect depreciation, investment, capital gains tax, etc., should still operate similarly. The mix of prescriptions may shift if you’re trying to stimulate industries that are heavily invested in equipment vs. human capital, but fundamentally there is no obvious need for modification of economic paradigms.

So I’m not saying that policies don’t need to be adjusted; I’m just not seeing anything to suggest that economics itself needs to be changed because of the ebbs and flows of the U.S. economy.

43

That should have been:

“…wasn’t put on solid footing…”

44

If you had actually read the whole thread, surely you would have noticed post after post after post in which people note that free traders say that people should be retrained, but that they never can say for WHAT they should be retrained. Until you can answer that question, you’re just blowing smoke, like all the other free traders.

45

The following is comprehensive training for nearly all jobs that have “replaced” lost manufacturing and other good-paying jobs:

“Do you want fries with that.”

Welcome to the McEconomy. You will either be nobility or a serf.

46

There’s no one good answer to that question, wikstead, and of course it changes very quickly from year to year.
Best thing to do is open up your local paper or go to monster.com, and look up what the export-oriented industries in your area are looking for. By export I mean out of your city, not necessarily out of the country. In other words, in NYC you’d want to look at what the banks and brokers are looking for. In Detroit, it would be the carmakers; in LA, Hollywood, stereotypically, although all cities of course have more than one export industry. Pay is always the highest in the industries that sell nationally/internationally, as opposed to locally-oriented industries. An exception to this might be healthcare. This is a lesson I learned relatively late in life, unfortunately. Oh well.

Move to the head of the class, fella. This is basic stuff that no one ever remembers. Most startups are started by people who decide to specialize in some one area of a process inside a business that they learned by doing the job for someone else. In large cities, you have massive networks of small businesses selling to each other and doing work for each other, and consumer-oriented retail businesses sit at the end of a very long chain of these types of goods and services suppliers to business. The slowdown in recovering from recessions I cited above is a sign that this process of innovation is slowly grinding to a halt in the USA, under the massive pressure of a too-high level of competition as a result of the chronic overvaluation of the dollar. What you see going on in IT is also going on in other areas, it’s just more obvious there. It also means that what used to be a vast network of small software and software service suppliers is slowly being eroded away to nothingness. This is happening in industry after industry.

47

One of the most ominous effects of outsourcing is the possibility that it will demotivate large segments of the youthful population, and as has been hinted, will pretty much eviscerate technical professions in this country. How do you motivate someone to study engineering or computer science, when no matter *how well they do in school[/], there’s someone on the other side of the globe that has the same degree and will do the same job for a fifth of the salary? What occupational choices will be left, then? Only the kind of work that cannot be moved: education, medicine, law, and entrepreneurialism. And of course retail, and personal service.

Another ominous aspect peculiar to the U.S. is what unemployment or underemployment represents. True, the unemployment rate here is far less than that of Germany or France. But the devastation of being unemployed here is arguably greater. The dole here is puny and temporary; in Europe, while the executive class may outsource their workers’ jobs just as eagerly as their American counterparts, they pay higher taxes that go into, among other things, the welfare system. And, of course, one’s health coverage isn’t tied to one’s job, so even unemployed people are protected.

48

Well, it seems as if the computer world is conspiring against me. Once again, I had a nice long, thoughtful response ready to post that got deleted.

Anyway, thanks for the reply. I may have overstated my claim that economics may need to change radically. When I said “paradigm change”, I was thinking more along the lines of the various schools of thought in economics (say, the neo-classical economists versus the Austrians). Mighten one of these other schools (Austrians, Neo-Keynesians, Marxists ?!!) become more prominent if their assumptions/theories/models accord more closely with what’s actually taking place in the economy? I’m thinking here of examples as the rise of Keynesian economics (remember the old adage - I think it was Nixon, but I’m not certain - “We are all Keynesians now”). Likewise the influence of the monetarists over the last 20-30 years.

49

pantom,

Thanks for the info - I specifically posted this topic with you in mind. In my readings, I’ve seen bits and pieces here and there regarding the differences in the number of jobs that have been created in past recovery periods. I was hoping you’d show up and provide the relevant data. :slight_smile:

Oh, and thanks Kimstu - I hadn’t come across the Nation article, but it does sumerize nicely some of the bits and pieces of information I’ve been encountering on the Internet regarding this issue.

50

And the fact that the ‘freetraders’ don’t have a time machine or the ability to gaze into the future means they obviously must be wrong…correct? I mean, what would those ‘freetraders’ have said just prior to the recent computer revolution when asked by such a sharpy such as yourself as to what folks suffering in the then economic doldrums should retrain in? They would have shrugged like they do now and say they don’t know atm…we’re IN those doldrums atm. Who knows what the next growth industry might be? Could be biotech, could be a second computer or information technology revolution…could be the reinvention of the buggy whip industry for all we know.

I remember these dire economic predictions for as long as I’ve been around…and it seems that something always comes along, unlooked for and unexpected, to make those predicting gloom and doom look like fools…for a while. Until the next time the economy goes into the tank and we float along in limbo.

So, unless you have a lock on the future (or any of the other posters in this thread, which has been done numerous times btw) we are ALL blowing smoke Evil Captor…as you very well know yourself. What will be interesting to me is to look back on threads like this in a few years and see who is right…the gloom and doomers (which seem to prevail on this board) or the freetraders. Or maybe it will be some middle ground between the two extremes.

The British also went through a series of economic ups and downs (and similar dire predictions and economic recovery, etc). Eventually the British Empires economy fell to the point where it was no longer a world economic power…and so, eventually, will the US’s. Maybe this time is the time (I doubt it)…maybe not. Time will tell.

-XT

51

Oh, dear, what to do, what to do. OK, just for a suggestion, mind you, but what about some of the stuff people like me have been urging for lo, these many, many years? Howzabout educating ourselves and our fellow citizens away from a culture and an economy based on bright, shiny crap? Expensive bright shiny crap?

Mightn’t we save enough resource and energy to provide a decent floor for our fellow citizens? You know, those people here in the boat with us? Or would you prefer that our political discourse for the foreseeable future center on which of us to throw overboard first? Or whom to cannibalize? Well, then, please keep in mind that children are no more productive than old folks, and old folks are tough and stringy. Just a thought.

52

Of course, thanks to the computer industry, all future industries will have less demand for workers than they would have prior to it.

I don’t think that this employment problem is going to go away. Most of the new industries being contemplated will involve a small number of innovators, and very little labor. Up until the nanotech industry, at which point labor will quickly become completely redundant. We’re going to have to figure out what to do when nine billion people have to split half a billion jobs. We should probably get on that pretty fast.

53

Well, I don’t disagree with you here. I actually did a thread about this very subject a while ago…what happens when our technology makes it such that there simply AREN’T that many jobs to go around? When manufacturing is so automated and automatic that there are basically no jobs in that sector, and when the maintenance of those machines is also pretty much automated? We’ll have to figure out an entire new economic model at that point most likely, where some other quantity besides labor will be the medium. I have no concept of what that might be…I’m no gazer into the future.

However, I don’t think we are quite there yet. As to whether the next ‘big’ thing takes a lot of skilled labor or not…again, time will tell. You may very well be right, though I would guess initially, just like with the computer revolution, there WILL be a need for a large group of skilled people…which, just like now, will drop off sharply after things are in place and moving along. The main problem with the computer and IT industry is that we are victims of our own success. We made things so automated and easy to install and use that we were no longer needed in the numbers we were initially. I’ve seen this industry go from punch cards, to esoteric CLI commands, to primitive GUI interfaces which still required a level of knowledge, to todays GUI interfaces and expert systems which basically do all the thinking and grunt work for you. I think a brand new industry will always go through a similar process…almost a bell curve (for labor) of initial ramp up, peak, then downsize as things get fully automated.

As to 'luci’s ‘shiny things’…I seriously doubt that you are ever going to take that out of human kind. They will always be nifflers (obscure Harry Potter reference…I’m reading it to my youngest son atm :)) at heart, loving the shiny things. In fact, I think that after some of these 3rd world nations and other developing nations who are being exported the jobs some folks are so worried about begin to get a handle on such trivial things as food, clothing and shelter, they will ALSO begin turning their heads towards those very shiny things themselves…

-XT

54

epo: keep this up and I’ll have to hit you up for a dozen Krispy Kreme glazed donuts as my pay for being your research department. :stuck_out_tongue:

55

And that my friends, is what Geo. W. Bush is all about.

56

Can you flesh that out? All I’m seeing are visions of government ads that sound something like “Less is more”. Surely I must be missing something. Or are you, perhaps, advocating a massive citizen effort.

57

I humbly submit to you that the computer revolution has made that initial period of human interaction much less likely. The whole function of computers has been to minimize the necessity of humans doing repetitive work. One programmer can automate the jobs of thousands. It took some time to convert current industries over to the new model, but new industries will come with less human overhead from the start.

The ‘next big thing’ that comes down the pike is probably going to put more people out of work than it’s going to employ, just like the computer industry has. Don’t believe me? Fine. Just don’t go into the construction industry anytime soon, for instance.

58

There’s been some mention of “full employment” and the “natural” rate of unemployment here. But you can’t accurately talk about such figures given that the numbers on employment provided by the government are “juiced”. The government, through statistic manipulation, routinely and I think, arbitrarily, eliminates large numbers of people from the unemployment statistics by classifying them as no longer looking for work. If you are working part-time but would like to work full time, you are counted as fully employed. And if you worked even 1 hour for pay or profit, you are counted as fully employed! Our real rate of unemployment at this point is around 10%, not the 5.6% the government claims.

From the BLS website (Link) :

Here’s a good link on unemployment: Link

Here’s what Businessweek said:

And from Reuters, March 5, 2004:

59

That is not true.
People said that “the computer” would eliminate jobs 40 years ago, and it is just as false today, as it was back then. Computers created tons of jobs, and continue to create tons of new jobs. More jobs are created by the comuter than are lost, far more.

The fact is, that lots of jobs are continuing to be created, even today. However, all the jobs being created are in India, china, asia, etc. There is an economic boom in aisa, factories, offices, and hiring are at all time highs. We are witnessing an economic boom, and job creation, unparralleled in the history of the world.

60

That would require a massive hijack, on the order of the invasion of Grenada. Better I should refer you to the Great Thoughts of Western Civ series. Under “E”.

But at the risk of drastic oversimplification, “less is more” is a roughly adequate credo. It isn’t so much what we spend that is crushing us, its what we spend it on. But at least you can be assured that your dog is getting enough cheese.