Hillary is chastising Donald for importing products from China, which is putting Americans out of work. About once a month, ABC news does a fluff story on “Made in America”. Buying products made in one’s own country sounds laudible, but does it really make a difference? Could some economist please explain: what’s wrong with buying a product that was made in a country other than your own?
Ilive in the USA and own two cars: A Volkswagen Passat and a Dodge Caravan. One of them was made in the USA, the other was made in a foreign country. However, when I bought the foreign car, my US dollars went to that foreign country and now someone over there has US dollars. They could take those US dollars and paste them on the wall (great, just print more), but most likely, they want those US dollars in order to buy some product that was made in the USA. In other words, even though I bought a foreign car, some USA product will eventually get purchased with those dollars.
Am I over simplifying? When two bazillion people buy a cup of Brazlian coffee, Brazil can now import a Boeing 737. When I buy French wine, the vinyard owner can now buy a German BMW and the Bavarian worker can now import Nebraskan wheat to make bread.
You also might want to check where that Dodge Caravan was “made”. If it was assembled in America, I can bet you that many of the sub-assemblies were not!
But let’s remember that Trump is ranting about outsourcing as much, if not more, than Hillary is. Part of what she’s doing is calling him out for being a hypocrite. Most economists will tell you that outsourcing is a net gain for the country as a whole, but there are winners and losers. The issue is what you do to help the losers.
(1) The charge against Trump is hypocrisy. He denounces outsourcing yet does it himself. (Accusing Trump of hypocrisy would be an example of the “Monopoly Free Parking fallacy” except for Trump’s own bombastic rhetoric.)
(2)
You overlook another option. They can use the dollars to buy USA assets: stocks, bonds, real estate. Dollars spent on buying U.S. assets instead of U.S. products do not lead directly to hiring American workers.
One of the nasty things with outsourcing – even domestic outsourcing – is that, on paper, a company can lay off all its employees, and then hire them again from an agency. The agency deals with all the regulations, reviews, insurance paperwork, etc.
Ah, but what happens to all our years of seniority, and our progress toward pension vestment? That can just go away in an instant, and I speak from personal experience.
“How nice that you’ve worked here for nineteen years. However, we’re a different employer now, so the pension clock is reset to its beginning.”
Imagine the grumbles and growls when that little piece of sunshine was laid out before a corporate-wide all-hands meeting.
(My pension clock was reset four different times. As you might imagine, this is a sore point with me.)
I buy stocks and real estate. Nobody bitches at me.
OK, so they buy assets. SO WHAT!! Now the seller of those assets has U.S. dollars and (s)he is going to spend them. No mater where they go, those US dollars will eventually buy US products.
Nothing is wrong with outsourcing when we go outside of the household to purchase goods or services. Nothing is wrong with outsourcing when we go outside of the neighborhood, county, state, nation, or continent. Also, nothing is wrong when we go outside of the company to purchase goods or services.
Most statists see the object of economic activity as “hiring workers”. No. The object of economic activity is to satisfy human needs and desires. Instead of providing cheap plastic goods, the sun provides us with “free” light and heat. Is the sun making us poorer because we do not need to invest resources into manufacturing heat and light for our use?
There will be unemployment as market conditions change. This is the price paid for economic growth. Luckily, unhampered capital investment increasingly makes workers more and more productive with less and less training. 200 years ago one had to be a learned craftsman to make a boat. Now insert a former call-center employee displaced by outsourcing/off-shoring into the boat manufacturing capital structure and he enjoys a standard of living unimagined by the boat builder’s boss 200 years ago.
Only to the degree that it happened…more than once. I worked for the company for years, then they got sold to another company, the pension clock got reset, and I never got a damn dime.
It’s not impossible that there’s some money out there, waiting for me in an unclaimed account. But I very definitely was told, “Once you’ve worked for us for twenty years starting now…” and not “twenty years minus the number of years you’ve already worked.” Quite a few of us old-timers were mad as can be.
Except that the way you’re portraying it, no country could run a trade deficit, because the money would always return to the home country. Except we know that doesn’t happen in a neat and tidy way.
So you buy a Volkswagen. Let’s just say that all of your dollars go to Germany. Germany isn’t under some obligation to return those dollars to the US in an equal manner - Volkswagen may pay its supplier in China with those dollars, which then may be used to buy minerals from Niger, which then maybe be used to buy oil from UAE, etc.
So you got the advantage of buying a better car at a low price, but that doesn’t mean that someone in Europe sent that money right back to the US. As we can see from the trade deficit, there’s a roughly $45 billion difference each month in trade in which American consumers buy imports, but do not send exports in an offsetting amount.
Again, this doesn’t mean that trade is an overall bad deal for the US as a whole. It generally means that the laid off workers who used to make the Caravans that neither you nor Europeans are buying will be able to find work at Boeing or a farm in Nebraska.
On a sidebar, Donald Trump often brings up the well-known fact that China manipulates their currency, but isn’t the reality that the market has largely already adapted and taken this into account over these last years to the point where it makes little difference anyway? I’ve heard Donald also floated the idea of tariffs but from what I recall from my Econ classes the other country just retaliates and this drives the prices up artificially. The other thing about stuff like government tariffs for instance in the past when they had them on steel, it just amounts to the government unfairly subsidizing particular industries to the detriment of the American taxpayers and consumers.
Imagine an Phd economist who writes a well-researched article in the New York Times about the benefits of outsourcing . Then imagine that the Times tells him that they have outsourced his job to a guy in India, who also has a Phd in economics, but is happy to write well-researched articles for a much lower salary.
But everybody benefits!!! The Times makes more profit, and their ex-economist in Manhatten is now free to get a job at a sidewalk stand selling newspapers.
It’s interesting that the people in favor of outsourcing are never the ones who lose their jobs.
(yes, I know…that’s the way the global economy works, and we can’t do anything about it.
But millions of people will never enjoy any “benefits” from outsourcing, and it’s cruel when politicians to tell them that they should.)
And the market has changed. There’s no more high paying job assembling Caravans, there’s no assurance that the high paying jobs assembling 737s will be created in the OPs scenario… So the skills of this one line worker may be marketable only as, say, a mechanic earning half the pay, or whatever.
The trade off is, of course, that everyone else in America is able to buy a better car at a better price. That doesn’t mean we can pretend that there are not economic effects to some people as a result of this kind of trade.
ETA: I just realized my last post had an error. Laid off auto workers aren’t guaranteed jobs at Boeing (as a result of dollars returning to the US in the way the OP theorized) is what I meant to type. Sorry for the confusion.
First, yes, outsourcing - allowing jobs to flow to where they’ll cost the least - is a valid economic proposition. It cuts costs and theoretically that flows downhill to where everyone pays less for their t-shirts and iPhones and such. Well and good.
But there an implicit assumption here at the economics level - and it’s a mistake economists make a lot - that the displaced workers are able to find other and equivalent work. That’s simply not true for most in practice. By approaching it at the macro level - wealth of nations as a whole - economics leaves off the individual troubles caused by outsourcing.
NYT columnist David Brooks on Friday’s NPR politics discussion also brought the point that globalization - allowing jobs and goods to flow around the world - has brought a great many of the world’s poorest out of crushing poverty by providing jobs where previously there had been none.
But there is at least two things wrong with this argument. There’s not a fair playing field. Many of those workers being lifted out of poverty are working in horrendous and unsafe conditions. People die for our iPhones and we’re allowed to turn a blind eye to it. Morally, that’s horrific. One of the reasons we’re a more expensive place to be employed is the hard-won protections for workers. I don’t care if you work on a factory floor, in a cushy office or at a stand selling ice cream at the beach. Whether you acknowledge it or not you benefit from having OSHA and DoL looking out for you. It’s pretty well established that most corporations - when they get big enough - would mulch excess workers and sell them as fertilizer if it could get away with it.
The second answer to Brooks argument about ‘emmiseration’ (no kidding, he used the word) is a basic one. Who says it’s our responsibility to raise those people out of misery through sacrifice? That’s a discussion no one seems to have. Should we empoverish ourselves to benefit others when their governments aren’t also doing so with human rights and workers rights guarantees?
The second point about globalization - and where economic arguments really break down - is political. We’re seeing it right now. Yes, globalization may have made goods cheaper for us. But it comes as a human price of displaced workers and a lower standard of living for some. And those people are voters. The rise of Trump’s style of populism - that’s what it is demogogic populism - only becomes viable when there’s a large cohort of people feeling excessively pinched by economic pressure. They look for someone to lead them in blaming some sort of other - illegal immigrants, outsourcing, whatever - and it can cause a backlash against globalization.
Now, I don’t expect Trump to win. But that’s largely because he’s an idiot as a campaigner. If someone with real political chops had seized that message and won the R nomination - Rubio, Kasich, even Cruz - Hillary would be sweating bullets now. And when that person won - if he did - he’d be beholden to his voters to raise tariffs and roll back some of the last 20 years of international trade treaties.
Honestly, I’m not sure that’d be a bad thing, either. I’d gladly pay more for my products to ensure workers in the PRC, Vietnam and so forth have some sort of legal rights protection. Alternately, I’d be glad to do so to see such things manufactured in Sandusky or Flint.
Globalization should lead to the workers of the world being lifted up to American levels of prosperity over time. Instead, the first 20 or so years of it have seen the direction moving the other way. American workers are losing ground on the gains won in the 20th century.
Not necessarily, though. So much stuff is made in China I would suggest the nice chap at VW who got your American Dollars as a result of making a car which ended up in your garage wanted them turned into Euros so he could buy something from Aldi or Lidl or the petrol station or Ikea or any one of a squillion things people buy that aren’t from America.
Serious question: What’s still made in the USA that the average international consumer is likely to buy? Cars, plastics, guns*, bourbon, lollies/soft drink, some children’s toys (higher-end stuff) and books are the major ones I can think of, with a guest appearance by clothing.
So basically, the problem with outsourcing is that in your VW scenario your American Dollars are now in the pocket of some chap with a name like Gunther in Germany and will be spent in Germany on stuff which is probably made in China (because everything is these days) or from elsewhere in Europe - instead of being in the pocket of a chap called John in America and being spent in the US on stuff.
For most in practice? I’d like to see a cite for that.
But are those conditions worse than being subsistence farmers? Isn’t that a choice those workers should be allowed to make for themselves?
Who says it’s our responsibility to prevent them from doing so?
Why should it do that? That might be nice, but there is no reason to think it should be inevitable.
Can you make the case that average American’s standard of living is worse now than it was 50 years ago? (I don’t think 20 years is sufficiently long to make something a trend.)
But for actual academic jobs, this happens a great deal. Well over half the professors at my own department are imported, and the ratio is even more overwhelming at the lower level – for new jobs – where the competition is even stiffer. It’s even difficult for a native to get the PhD in the first place: the strong majority of graduate students are also imported, meaning that any native who wanted to be trained to be a professional economist in the first place would have enormous international competition.
Your hypothetical examples might improve if you take some time to learn about the people you’re talking about before writing up a post. If the New York Times hires an equally qualified economist from India rather than me for a lower salary, then good for them. That’s exactly what they should be doing if they want to stay in business.
Actually, despite the job pressure that we feel, most of us still support outsourcing. I don’t personally know any exceptions. People should hire those who they feel are best qualified.
Obviously.
From my own personal perspective, this is still very easy for me to say. I’m not going to be hurting in the job hunt, pretty much regardless of whatever future job prospects I have working specifically in academic economics. But of course, that’s because I jumped the initial hurdle. Plenty of natives don’t make it past that hurdle, and a big reason they don’t is the international competition for slots to be educated.
I suppose it’s possible for there to be a group of people out there who couldn’t make it into an economics PhD program in the first place, and who are consequently angry at the foreigners who have taken all the slots. But blaming other people for one’s own failure is not a particularly attractive trait in any candidate, for any job, let alone as an economist.
Every single person living in a developed country has already enjoyed the benefits from outsourcing. Even China has a helluva lot of outsourcing.
The same principle behind outsourcing is the reason you’re typing at a computer right now, rather than taking a crudely-worked hoe to the dirt in order to bring up a bit of food for personal consumption.
The countries that don’t have much or any outsourcing tend to be the same countries where the average person lives off of about $2 a day. You don’t hear about Chad stealing American jobs. There’s a reason for that. So what, yay for them? They’re doing fantastic, since they are so perfectly well protected from outsourcing? From what you’re writing, it seems like you’d want to take their place. They for sure as shit would be happy to take your place, but I think you’d personally be happier living in a place with a lot of outsourcing, rather than the alternative. A place with a lot of outsourcing is concerned with efficiency, and in the long run, the efficiency is what is going to matter.
People suffer from losing their jobs. This is plain fact, no dancing around it. But those same people have gained immeasurably from an economy that is orders of magnitude more productive. This includes you. The majority of jobs that existed in the past were destroyed. On net, the winners are always bigger than the group of losers. This is as true today as it was two hundred years ago.
We have an engine of prosperity here. This is the reason we don’t live in mud huts.
Not everybody gains equally from this engine. Some individuals in fact suffer vicious set-backs. That’s a problem. There are two ways to approach the problem. The smart way is to look at the pain of transition and try to do something to ameliorate it.
The less-smart way is to destroy the engine in a fit of pique because the world seems so unfair.
This last sentence is plainly false.
If it were “not true for most in practice”, then the median income in the United States would still be hovering at less than $2 a day. It’s possible that it has been true for a particular subset of people: low-wage workers in the developed world since the 1980s, when the world labor markets expanded by a couple billion people. But there is absolutely no chance that it is the normal state for the world as a whole today, let alone the normal state in history. Lots and lots of jobs in China get out-sourced, because Chinese wages are rising so quickly. But that doesn’t prevent them from finding better jobs.