# Would some economist please explain: What's wrong with outsourcing? **URL:** \ **Category:** Great Debates\ **Created:** [August 13, 2016, 9:43pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720 "2016-08-13T21:43:13Z")\ **Posts on this page:** 20\ **Page:** 8
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 20, 2016, 2:23am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/141 "2016-08-20T02:23:58Z")
> [@RickJay](#): > > No, that is not equivalent to quadrupling the labor pool, not even close to it. The USA doesn’t, and can’t, do that much trade with China. It’s physically impossible. What are the relative populations of the US and China/India? We don’t have to import all that stuff for the access to that labor to affect our labor markets. Do you really think that China would be a problem if they were the size of Vietnam? > [@](#): > > You’re talking about “current trade issues” as if, well, these issues are new. They are, of course, not new at all. A specific trade deal may be new, but it’s still disruptive technology. IT’s been the same story over and over for centuries. There is no difference between “China” and “Computers” in terms of the disruptive effect on the labor force. Look right now at people panicking over what self-driving trucks might do to the labor force. Same as people panicking and throwing shoes into machinery. So you don’t see a difference between disruptive technology that ultimately improves productivity and the effects of flooding the labor market with a population that is 4 times the size of our labor pool? What’s disruptive is China’s apparently unending ability to absorb more and more of the demand for labor. > [@](#): > > The solution to disruption is to help the disrupted, and the statement you made that governments never do anything about it is preposterous. Governments do a LOT about it. I would agree that it might be wise to do more, or possibly not so much more as different things. And its nice that you want these things. If it ever actually materialized in the history of mankind where the beneficiaries of trade made whole the victims of trade, I’d like to know when. Lets not even set the bar that high, we won’t ask for pareto optimal outcomes. Lets just ask for outcomes that are clearly maximizing utility for Americans (and put aside the whole notion that I want to steal kidneys) because as far as I can tell, we have small benefits to the general population in the form of cheaper goods and the benefit to the importers, the rest of the benefit goes to our trading partner. Is the marginal increase in utility that results from cheaper goods and increased wealth for importers greater than the reduction in utility for the people who get displaced? It is not clear to me that this is the case. > [@](#): > > Your concern about concentration of wealth is **absolutely, wholly merited**. I could not agree more. But why attack _trade_? The problem isn’t trade, it’s the distribution of the benefits. Cutting off trade will not help anyone; to go back to the pie analogy, it is precisely equivalent to solving an unequal share by throwing the pie into the garbage. No we’re going back to the old pie and the old distribution. If you can show me a time when the guys with the concentrated wealth ever had to share the wealth to an extent that even approaches making the losers whole, then there would at least be some hoep that this redistribution that you think should occur, would actually occur. But AFAICT it never does and what we should do is slow down the rate of displacement to a rate our economy can absorb. > [@](#): > > I’d even go so far as to say that you are right in that there is, at some point we haven’t got the time to define, some benefit in the destruction of some wealth to ensure more equitable distribution that will actually raise marginal human welfare. You’re of course totally correct in that the way wealth is distributed can result in a greater total amount of wealth being of less total benefit to the population than a smaller amount; ten people are better off in the aggregate if they all make $50,000 a year, rather than one making $500,001 and nine starving in the streets. > > Major restrictions on international trade are, according to every bit of evidence I can find, way, way, way past that point, and always well behind, in their possible positive impact, better social programs and welfare spending. Going back on trade relations with China would hurt Americans far, far more than any benefit, and most of the benefits would, in fact, be conferred on people who are already rich. We are losing jobs faster than our economy’s ability to absorb those losses, this is leaving us with really talented baristas and appleby’s waiters. Displacement is one thing but we are hemmorhaging jobs that used to pay a reasonably good living and replacing them with McJobs, I don’t want to stop trade, I just want to slow down the rate of displacement. I have no doubt that given time we will figure out ways to make ourselves valuable enough to warrant our lifestyle but its a slow incremental process, trade growth has been much more rapid. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 20, 2016, 2:29am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/142 "2016-08-20T02:29:25Z")
> [@octopus](#): > > I did add the caveat of equivalent wealth redistribution policies. So if society gets wealthier by having more goods, services, and just general productivity be higher I don’t see how that’s bad for anyone if social safety nets alleviate the worst aspects of poverty. > > I don’t see the point in having less absolute wealth in order to get rid of relative disparities. If I destroy some of my wealth a poor person isn’t going to benefit. What we ought to do is promote policy that generates as much wealth as possible. Then provide a basic income so that everyone can get ahold of a portion of that productivity. Implementing policy that sidelines labor is stupid. You do know what marginal utility is, right? It is entirely possible that we keep all those displaced people just above the poverty line with a basic income and STILL end up with reduced aggregate utility. For example lets say I engage in trade that reduces the income of you and everyone you know to zero but you get a basic income that keeps you just above the poverty line and I increase my income by twice as much as you and everyone you know has lost. My marginal utility will likely not have increased as much as your collective marginal utility has gone down. Economics is frequently a tug of war between equity and efficiency. ---
**Author:** ![octopus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/octopus/32/3716_2.png) [@octopus](https://boards.straightdope.com/u/octopus)\ **Post date:** [August 20, 2016, 4:57am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/143 "2016-08-20T04:57:17Z")
> [@Damuri\_Ajashi](#): > > Yes sometimes you can do both and sometimes you can’t. Sometimes the only feasible method of achieving one is at the expense of the other. So I will ask YET AGAIN, when have the beneficiaries of trade mitigated the losses suffered by the victims of trade? > > AFAICT the beneficiaries of trade keep their wealth and scream protectionism whenever they are asked to contribute more because their trade has led to suffering for others. What good does it do to increasse the pie from 10 to 12 if our share has gone down from 5 to 3 with the other guy getting 9? > > And what hamfisted counterproductive policy have I suggested? I am still trying to get people to acknowledge that trade is not an unmitigated good but I am met with retarded arguments about how my resistance to some forms of trade is like stealing someone’s kidneys because those forms of trade have helped poor people in countries on the other side of the world. When I typed you I didn’t mean you specifically. Anyways distribution and creation are different problems requiring different tools. ---
**Author:** ![octopus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/octopus/32/3716_2.png) [@octopus](https://boards.straightdope.com/u/octopus)\ **Post date:** [August 20, 2016, 4:59am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/144 "2016-08-20T04:59:03Z")
> [@Damuri\_Ajashi](#): > > You do know what marginal utility is, right? > > It is entirely possible that we keep all those displaced people just above the poverty line with a basic income and STILL end up with reduced aggregate utility. > > For example lets say I engage in trade that reduces the income of you and everyone you know to zero but you get a basic income that keeps you just above the poverty line and I increase my income by twice as much as you and everyone you know has lost. My marginal utility will likely not have increased as much as your collective marginal utility has gone down. > > Economics is frequently a tug of war between equity and efficiency. Well in your scenario the ones you are trading with count as well even though you don’t account for them. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 20, 2016, 11:20am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/145 "2016-08-20T11:20:36Z")
“Victims of trade” is such a funny phrase. The government created winners and losers by restricting trade. We’re undoing that. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 20, 2016, 1:41pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/146 "2016-08-20T13:41:25Z")
I want to draw attention to this post: > [@Damuri\_Ajashi](#): > > What does it matter if our manufacturing and exports have increased a millionfold if none of that growth is reflected in the wages of Americans. So historically, real wages have increase in tandem with productivity. Over the last few decades, wage growth has been growing at about 1/20th the rate of productivity growth. This is in large par due to labor competition from abroad. **Damuri Ajashi** tried to foist stagnation on us in[this thread](http://boards.straightdope.com/sdmb/showthread.php?t=783915), supported by an EPI report (which I posted for him; the initial claim was uncited). But EPI fucked up, as I pointed out. He then tried to back it up with a CBO report he [admitted](http://boards.straightdope.com/sdmb/showpost.php?p=19140382&postcount=147)to not reading. But the CBO report in question shows income growth over the same time period. Whoops. After finally claiming to have read it, he never responded to an [invitation](http://boards.straightdope.com/sdmb/showpost.php?p=19151178&postcount=158)to discuss it. And now we’re back to the stagnation claim again. So we can dismiss that. But even if we suppose real median after-tax household income is flat, we’d need to account for the increase in retiring boomers, students, and unauthorized residents, all of whom make up a larger percent of the US population than they used to. That would mean income would be up for everyone else, despite the boomers being replaced by less-experienced workers. We also see more women in the workforce, who don’t make as much as men. That’s a can of worm for another thread. But even if income were flat for all the folks who aren’t retired, in school, or here without authorization, we’d still then need to take a look at standard of living. CPI doesn’t account for the increase in quality of goods. Our cars are better and safer. Our food is better. Broadband. Smartphones. Air conditioners. Healthcare quality (and life expectancy, despite the country trying to eat itself to an early death.) > [@Damuri\_Ajashi](#): > > The US population has grown by 30 million in that time, you do realize that gross employment numbers naturally increase with increases in population numbers right? And the retired population grew 10 million in that time, and the student population grew 6 million. As already mentioned, U-3 might be _too_ low. And if we throw in the discouraged, **underemployed** , and marginally attached, U-6 is still below its historical average. So we have more jobs than we know what to do with. But yes, yes, what _kind_ of jobs? > [@Damuri\_Ajashi](#): > > The job growth we have see has not been really good jobs. > > [https://www.washingtonpost.com/news/wonk/wp/2014/04/28/u-s-job-growth-is-coming-in-all-the-wrong-places/](https://www.washingtonpost.com/news/wonk/wp/2014/04/28/u-s-job-growth-is-coming-in-all-the-wrong-places/) You don’t know that, nor does NELP. The actual brief is here ([PDF](http://www.nelp.org/content/uploads/2015/03/Low-Wage-Recovery-Industry-Employment-Wages-2014-Report.pdf)) for those who want more substance than a news release. And actual methodology. You’ll see they just picked the 2009 median wage for each category and kept it fixed to CPI. They made no attempt to look at real wages or how many people actually ended up better or worse off than they used to be. A low-paying job in a high-paying industry and a high-paying job in a low-paying industry get counted as high and low, respectively. NELP points out there were (in Feb 2014) a million fewer jobs in each of the two higher-paying categories, offset by nearly two million more in the lower-paying categories. But even if lower-paying jobs recover faster than higher-paying jobs (which doesn’t necessarily strike me as bad), we’ve added 6.7 million jobs since that report was issued if the July estimates hold. I eagerly await their update. > [@Damuri\_Ajashi](#): > > Are you sure tat your number isn’t imports? > > Most estimates of our exports are under 2 trillion. > > Most estimates of our IMPORTS are over 2 trillion. > > [https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html](https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html) CIA is only reporting merchandise, and thus only two thirds of our exports. When a foreign entity pays hundreds an hour for a report from me on how they’re bad at science, that’s an export. Try Census FT900. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 20, 2016, 3:18pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/147 "2016-08-20T15:18:49Z")
> [@octopus](#): > > Well in your scenario the ones you are trading with count as well even though you don’t account for them. I agree that it is a lot easier to argue that WORLD utility has increased because lifting 25 million Chinese and Indian citizens out of poverty into a working class lifestyle is a LOT of added utility compared to the pain suffered by some guy that used to make $50K on an assembly line or at a helpdesk being reduced to working the fryalator at McDonalds but from the perspective of our national economic interests, its not so good. From a global perspective, a lot of things that would be bad for America make sense. ---
**Author:** ![octopus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/octopus/32/3716_2.png) [@octopus](https://boards.straightdope.com/u/octopus)\ **Post date:** [August 20, 2016, 4:07pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/148 "2016-08-20T16:07:31Z")
> [@Damuri\_Ajashi](#): > > I agree that it is a lot easier to argue that WORLD utility has increased because lifting 25 million Chinese and Indian citizens out of poverty into a working class lifestyle is a LOT of added utility compared to the pain suffered by some guy that used to make $50K on an assembly line or at a helpdesk being reduced to working the fryalator at McDonalds but from the perspective of our national economic interests, its not so good. From a global perspective, a lot of things that would be bad for America make sense. But aren’t things better for an average or even poor American due to trade? Real wealth such as this iPad I’m pecking on would be worth how much if I could bring one back to 1980? I think focusing on income is besides the point. That’s why I care about overall productivity first and foremost. Got to build it before you can share it. Now we do have issues where there seems to be a large resistance to help the demand side of the economy but I think you overcome that resistance with reason and not demonization of those who hold those views. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 20, 2016, 4:20pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/149 "2016-08-20T16:20:46Z")
> [@Ruken](#): > > I want to draw attention to this post: **Damuri Ajashi** tried to foist stagnation on us Foist? There has been a divergence between productivity and wage for a few decades now. When you have displacement associated with technology, we also get improvements in labor productivity that increases demand for that labor and results in increased wages. We have not seen this historical correlation maintained for the last few decades. Some of it is the result of the death of labor unions reducing the bargaining power of labor to get their fair share of gross profits. Some of it is the result of increased competition in the labor market. The real growth in wage rates is tiny compared to the growth in productivity. Do you have any cites that actually rebutts my cites or do you just have personal opinions about why my cites don’t really meet your standards of excellence? Do you have ANYTHING that says that says that wage growth doesn’t SIGNIFICANTLY lag productivity growth? > [@](#): > > But even if we suppose real median after-tax household income is flat, we’d need to account for the increase in retiring boomers, students, and unauthorized residents, all of whom make up a larger percent of the US population than they used to. That would mean income would be up for everyone else, despite the boomers being replaced by less-experienced workers. We also see more women in the workforce, who don’t make as much as men. That’s a can of worm for another thread. No we don’t need to do ANY of that to compare increases in wage rates to increases in productivity. We don’t need to do ANY of that to compare the relative quality of jobs in the past to the relative quality of jobs today. > [@](#): > > But even if income were flat for all the folks who aren’t retired, in school, or here without authorization, we’d still then need to take a look at standard of living. CPI doesn’t account for the increase in quality of goods. Our cars are better and safer. Our food is better. Broadband. Smartphones. Air conditioners. Healthcare quality (and life expectancy, despite the country trying to eat itself to an early death.) For the most part we consider use inflation adjusting as a measure of comparing apples to apples. But now you want to use some personal measuring stick that accounts for all the extra stuff that you think ought to count as well. Its like the guys at the BLS don’t know how to do the tough math associated with accounting for smart phones but you do. > [@](#): > > You don’t know that, nor does NELP. The actual brief is here ([PDF](http://www.nelp.org/content/uploads/2015/03/Low-Wage-Recovery-Industry-Employment-Wages-2014-Report.pdf)) for those who want more substance than a news release. And actual methodology. You’ll see they just picked the 2009 median wage for each category and kept it fixed to CPI. They made no attempt to look at real wages or how many people actually ended up better or worse off than they used to be. A low-paying job in a high-paying industry and a high-paying job in a low-paying industry get counted as high and low, respectively. Are you kidding? Your argument is that they are overlooking the fact that all those added McJobs might be high paying McJobs at the corporate headquarters and all the lost high paying jobs were janitors, etc? > [@](#): > > CIA is only reporting merchandise, and thus only two thirds of our exports. When a foreign entity pays hundreds an hour for a report from me on how they’re bad at science, that’s an export. Try Census FT900. True. Services are being outsourced as well these days but services are generally speaking more difficult to outsource. But your point is made, our exports are over 2 trillion. So our trade deficit is only about half a trillion instead of 3/4ths of a trillion. I am surprised at how much out services trade surplus has increased since the last time looked at it. I wonder what is driving this. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 20, 2016, 4:33pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/150 "2016-08-20T16:33:25Z")
> [@octopus](#): > > But aren’t things better for an average or even poor American due to trade? Real wealth such as this iPad I’m pecking on would be worth how much if I could bring one back to 1980? Well, lets say 1999 when we had the internet but not smart devices. That ipad would be priceless. > [@](#): > > I think focusing on income is besides the point. That’s why I care about overall productivity first and foremost. Got to build it before you can share it. Now we do have issues where there seems to be a large resistance to help the demand side of the economy but I think you overcome that resistance with reason and not demonization of those who hold those views. Are you talking in general again or do you think I have demonized the poor benighted souls who don’t realize we are eating the world’s seed grain when we undermine the wages of the consumption engine of the global economy? Our worker productivity has increased significantly in recent decades, their real wages have barely budged. I don’t know the answer to this but when people replace their $99 motorola flip phone with a $800 iphone that we have 700% inflation in a subelement of the communications basket of CPI? I would think that the guys at BLS would have a better way of reflecting inflation or the degradation of the purchasing power of a dollar than that. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [August 20, 2016, 5:05pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/151 "2016-08-20T17:05:33Z")
> [@Damuri\_Ajashi](#): > > What are the relative populations of the US and China/India? We don’t have to import all that stuff for the access to that labor to affect our labor markets. Do you really think that China would be a problem if they were the size of Vietnam? I understand what the population of China is, but it’s preposterous to point at that number and say “well, trading with them quadruples the effective labor pool.” That isn’t how trade works. You cannot import that much stuff. There are things you cannot import at all no matter how cheap the labor input is. > [@](#): > > So you don’t see a difference between disruptive technology that ultimately improves productivity and the effects of flooding the labor market with a population that is 4 times the size of our labor pool? No, I don’t. A machine that elimninates labor is exactly the same thing. If there was no such place as China, just a great big machine in the Port of Los Angeles called “The China Machine” that made T-shirts and assembled iPhones by inserting money and Boeing airplanes, it’d be pretty much the same thing. Actually, a machine would be worse, I guess, since machines don’t have feelings and can’t benefit from trade, so it’s better than Chinese people benefit. But from the perspective of the country trading with China it’s pretty much the same thing. > [@](#): > > What’s disruptive is China’s apparently unending ability to absorb more and more of the demand for labor. It is of course important to point out that China has no such ability. Their ability to absorb the demand for labor has limits. > [@](#): > > Is the marginal increase in utility that results from cheaper goods and increased wealth for importers greater than the reduction in utility for the people who get displaced? It is not clear to me that this is the case. Well, I’m sorry you lack clarity. > [@](#): > > We are losing jobs faster than our economy’s ability to absorb those losses, this is leaving us with really talented baristas and appleby’s waiters. As has been repeatedly explained, with objective evidence, there is no reason to believe this is true. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 20, 2016, 6:27pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/152 "2016-08-20T18:27:57Z")
> [@RickJay](#): > > I understand what the population of China is, but it’s preposterous to point at that number and say “well, trading with them quadruples the effective labor pool.” That isn’t how trade works. You cannot import that much stuff. There are things you cannot import at all no matter how cheap the labor input is. Of course its NOT preposterous. Are you under the impression that all of China has to be engaged in export manufacture for the USA to feel the pricing pressure of access to all that additional labor? > [@](#): > > No, I don’t. A machine that elimninates labor is exactly the same thing. If there was no such place as China, just a great big machine in the Port of Los Angeles called “The China Machine” that made T-shirts and assembled iPhones by inserting money and Boeing airplanes, it’d be pretty much the same thing. Wow. You sure you don’t want to think about that one again? If there were a China machine, then (unless it was a magical machine that could not be duplicated) we would be spending a lot of time and manpower building China machines all over the country and the people who built the machines and the people who ran the machines would have insanely high productivity and they would be able to demand a very high wage and enjoy a very high standard of living. Until very very recently technological advances didn’t eliminate labor, it just made it much more productive and while this frequently caused a lot of displavcement it also frequently INCREASED the demand for labor. Take the cotton gin for example. Combing cotton used to be a very time consuming and expensive part of making cotton fabric, usually performed by slave labor. Then Eli Whitney invented the cotton gin and this expensive step became very cheap, consequently making cotton fabric very cheap. This lowered the price and vastly increased the demand for this fabric which increased the demand for cotton pickers and resuscitated a dying economic model of slavery in the south for decades. If we simply imported really cheap cotton clothing, it would not have directly increased the demand for labor in the USA it would simply have displaced domestic production with foreign production. > [@](#): > > Actually, a machine would be worse, I guess, since machines don’t have feelings and can’t benefit from trade, so it’s better than Chinese people benefit. But from the perspective of the country trading with China it’s pretty much the same thing. Wrong. If China is displacing American jobs by exporting to the US but not importing anything from the US (I know they in fact do import stuff but lets keep it simple for argument’s sake), then its not the same thing. That wealth does not stay in the US creating US demand, much of it goes to China. > [@](#): > > It is of course important to point out that China has no such ability. Their ability to absorb the demand for labor has limits. Our economy would be severely impacted before China got anywhere close to reaching its limits. > [@](#): > > Well, I’m sorry you lack clarity. So it is clear to you? How so? > [@](#): > > As has been repeatedly explained, with objective evidence, there is no reason to believe this is true. No, you haven’t presented any evidence that we are not replacing higher paying jobs with lower paying ones. All the evidence points to stagnant wage rates with higher productivity. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 20, 2016, 8:19pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/153 "2016-08-20T20:19:24Z")
> [@Damuri\_Ajashi](#): > > Foist? There has been a divergence between productivity and wage for a few decades now. When you have displacement associated with technology, we also get improvements in labor productivity that increases demand for that labor and results in increased wages. We have not seen this historical correlation maintained for the last few decades. Some of it is the result of the death of labor unions reducing the bargaining power of labor to get their fair share of gross profits. Some of it is the result of increased competition in the labor market. > > The real growth in wage rates is tiny compared to the growth in productivity. Do you have any cites that actually rebutts my cites or do you just have personal opinions about why my cites don’t really meet your standards of excellence? > > Do you have ANYTHING that says that says that wage growth doesn’t SIGNIFICANTLY lag productivity growth? EPI rebuts itself by first generating [this](http://www.epi.org/files/2012/ib330-figureA.png) plot using two measures of inflation for compensation and productivity; if you can’t compare apples to apples, you aren’t making a real comparison. And second, by excluding some compensation. For example, AHE does not include overtime and bonuses. So we do not have evidence of a significant lag in compensation behind productivity from EPI. But if you want evidence for growth, your CBO report that I hope you finally read shows \>30% growth in median income over the time period where EPI shows it flatlining. > [@Damuri\_Ajashi](#): > > No we don’t need to do ANY of that to compare increases in wage rates to increases in productivity. We don’t need to do ANY of that to compare the relative quality of jobs in the past to the relative quality of jobs today. If stagnation were real and median income were truly flat in aggregate, then it is still possible for every single existing worker at the start of the time period to have either higher income or be retired at the end of the time period. If that doesn’t seem possible, I can construct a hypothetical (sans pizza and guns, alas.) > [@Damuri\_Ajashi](#): > > For the most part we consider use inflation adjusting as a measure of comparing apples to apples. But now you want to use some personal measuring stick that accounts for all the extra stuff that you think ought to count as well. Its like the guys at the BLS don’t know how to do the tough math associated with accounting for smart phones but you do. CPI adjusts the median wage for an industry from 2009 dollars to 2014 dollars or vice versa. It does not tell us what the median wage for that industry actually is in 2014 based on the 2009 median wage. Nor does it tell us the plights of the actual workers in question. As for smartphones, BLS does not perform hedonic quality adjustments here. Maybe they should. If you’re going to claim that CPI accurately accounts for such quality of life changes, I’m happy to have that discussion. > [@Damuri\_Ajashi](#): > > Are you kidding? > > Your argument is that they are overlooking the fact that all those added McJobs might be high paying McJobs at the corporate headquarters and all the lost high paying jobs were janitors, etc? We don’t know. They don’t know. I certainly doubt it’s “all those added McJobs”, but they make no accounting for real changes in job quality. I notice how you left out the part where this entire hoopla is about plus or minus only 2 million jobs in each category, when we’ve gained 3x more in the 2.5 years since. So we _really_ don’t know that the “quality” (however you’re defining that) of the jobs has gotten worse. > [@Damuri\_Ajashi](#): > > True. Services are being outsourced as well these days but services are generally speaking more difficult to outsource. But your point is made, our exports are over 2 trillion. So our trade deficit is only about half a trillion instead of 3/4ths of a trillion. I am surprised at how much out services trade surplus has increased since the last time looked at it. I wonder what is driving this. Don’t forget to count imported services to the deficit (it’s still definitely a overall deficit.) You might have already; I don’t have the numbers in front of me. Also, the accounting can be a little weird. E.g. when tourists come to the US and consume services, those expenditures are counted as exports. ---
**Author:** ![octopus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/octopus/32/3716_2.png) [@octopus](https://boards.straightdope.com/u/octopus)\ **Post date:** [August 20, 2016, 9:32pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/154 "2016-08-20T21:32:36Z")
> [@Damuri\_Ajashi](#): > > Well, lets say 1999 when we had the internet but not smart devices. That ipad would be priceless. > > Are you talking in general again or do you think I have demonized the poor benighted souls who don’t realize we are eating the world’s seed grain when we undermine the wages of the consumption engine of the global economy? > > Our worker productivity has increased significantly in recent decades, their real wages have barely budged. I don’t know the answer to this but when people replace their $99 motorola flip phone with a $800 iphone that we have 700% inflation in a subelement of the communications basket of CPI? I would think that the guys at BLS would have a better way of reflecting inflation or the degradation of the purchasing power of a dollar than that. Generally, in a conversation like this I mean in general. I probably should write “one” instead in order to provide more clarity. Now the $99 flip phone to the $800 iphone isn’t fair. There are smart phones for under $50. I just bought two for my children. I agree distribution is a problem. I’d like to see more money spent on proper education not stupid and useless degrees. And I’d like to see more money circulating to those with less so they can buy things. What’s limiting growth now in my opinion is insufficient money velocity. The rich could get even richer if the poor could buy more and work to produce more. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 22, 2016, 4:51am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/155 "2016-08-22T04:51:23Z")
> [@Ruken](#): > > EPI rebuts itself by first generating [this](http://www.epi.org/files/2012/ib330-figureA.png) plot using two measures of inflation for compensation and productivity; if you can’t compare apples to apples, you aren’t making a real comparison. Yes, that is the graph that I have seen. Tell me again why its bullshit? > [@](#): > > And second, by excluding some compensation. For example, AHE does not include overtime and bonuses. > So we do not have evidence of a significant lag in compensation behind productivity from EPI. But if you want evidence for growth, your CBO report that I hope you finally read shows \>30% growth in median income over the time period where EPI shows it flatlining. That’s household incomes. Very different than wage rates. That could merely reflect the increase in dual income households since the last half century. > [@](#): > > If stagnation were real and median income were truly flat in aggregate, then it is still possible for every single existing worker at the start of the time period to have either higher income or be retired at the end of the time period. If that doesn’t seem possible, I can construct a hypothetical (sans pizza and guns, alas.) I think you are comparing wage rates by using household income. not really the same thing. > [@](#): > > CPI adjusts the median wage for an industry from 2009 dollars to 2014 dollars or vice versa. It does not tell us what the median wage for that industry actually is in 2014 based on the 2009 median wage. It gives us a range doesn’t it? Is the range too broad? > [@](#): > > Nor does it tell us the plights of the actual workers in question. > As for smartphones, BLS does not perform hedonic quality adjustments here. Maybe they should. If you’re going to claim that CPI accurately accounts for such quality of life changes, I’m happy to have that discussion. So we experienced a slight jump in inflation as smartphones were adopted and cheaper flip phones were discarded? That CPI over time does not really fairly compare the price of a basket of goods? That its like the S&P 500 when it replaces a bankrupt company with something like google? > [@](#): > > We don’t know. They don’t know. I certainly doubt it’s “all those added McJobs”, but they make no accounting for real changes in job quality. > > I notice how you left out the part where this entire hoopla is about plus or minus only 2 million jobs in each category, when we’ve gained 3x more in the 2.5 years since. So we _really_ don’t know that the “quality” (however you’re defining that) of the jobs has gotten worse. This is just over the last 4 years during the recovery, the effects of trade competition has been affecting us for longer than that. The evidence over the last 40 years seems to be that we are replacing higher paying jobs (particularly for those without college degrees) with lower paying jobs. I guess there is some possible explanation for the evidence that doesn’t require this result but its a thin gap. > [@](#): > > Don’t forget to count imported services to the deficit (it’s still definitely a overall deficit.) You might have already; I don’t have the numbers in front of me. > > Also, the accounting can be a little weird. E.g. when tourists come to the US and consume services, those expenditures are counted as exports. I remember when our trade surplus was like 100 billion and was dwarfed by just the oil we were importing from Canada. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 22, 2016, 5:07am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/156 "2016-08-22T05:07:21Z")
> [@octopus](#): > > Generally, in a conversation like this I mean in general. I probably should write “one” instead in order to provide more clarity. > > Now the $99 flip phone to the $800 iphone isn’t fair. There are smart phones for under $50. I just bought two for my children. > > I agree distribution is a problem. I’d like to see more money spent on proper education not stupid and useless degrees. And I’d like to see more money circulating to those with less so they can buy things. What’s limiting growth now in my opinion is insufficient money velocity. > > The rich could get even richer if the poor could buy more and work to produce more. In a very Henry Ford sense, the rich want wealthy consumers who can pay large premiums for iphones and shit like that. But why not make those iphones for a few dollars less by making them in China. Sure that means that those wealthy consumers will be less wealthy and less able to buy the next generation of iphones but thats tomorrow’s problem, today I have to squeeze every dollar of profit I can out of today’s opportunities. Just my instinct but the loss of money velocity here is being replaced by increases in money velocity elsewhere. I think that if we fully funded public schools and reduced or eliminated government support of private colleges, we would stop seeing people going to a private university to study things that did not really provide a good ROI. The really smart kids that were interested in these areas would still get to study them at the state institutions and at well endowed private colleges. We should not be spending more on a student at a private college than a student at a public college just because the private college wants more money. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [August 22, 2016, 1:56pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/157 "2016-08-22T13:56:00Z")
> [@Damuri\_Ajashi](#): > > In a very Henry Ford sense, the rich want wealthy consumers who can pay large premiums for iphones and shit like that. But why not make those iphones for a few dollars less by making them in China. Sure that means that those wealthy consumers will be less wealthy and less able to buy the next generation of iphones but thats tomorrow’s problem, today I have to squeeze every dollar of profit I can out of today’s opportunities. I don’t want to get into a whole economics lesson about marginal cost pricing and whatnot. But what business people want is to price their products in such a way as to maximize profits. The iPhone is not priced for rich people. It’s priced for relatively affluent masses. Typically a different demographic from the people who actually make them. And again, there’s this zero sum game thinking where moving jobs from here to there creates a permanent gap that can never be filled. When jobs are outsourced, that frees up labor and other resources to be applied to other aspects of the economy. Obviously this can be a challenge if you are only skilled at one tasks that a machine can do or if you lose your job in a place where there aren’t a whole lot of other industries. > [@](#): > > I think that if we fully funded public schools and reduced or eliminated government support of private colleges, we would stop seeing people going to a private university to study things that did not really provide a good ROI. The really smart kids that were interested in these areas would still get to study them at the state institutions and at well endowed private colleges. We should not be spending more on a student at a private college than a student at a public college just because the private college wants more money. Why do you say “we” as if there is one monolithic entity that decides how every aspect of the economy should work (other than the market)? Private colleges are private. That’s why they get to decide how much to charge. And their endowments typically come from private donations from their alumni. People are independent actors. They get to decide if their ROI for whatever college or major they pick is worth it. If the government fully funded public universities, I think you would just further emphasize the differences between elite schools and “every other college”. The thing about elite colleges is you can study a “poor ROI” major, but still get a lucrative job after graduation by virtue of having gone to Princeton or Harvard. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 22, 2016, 2:11pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/158 "2016-08-22T14:11:31Z")
> [@msmith537](#): > > I don’t want to get into a whole economics lesson about marginal cost pricing and whatnot. But what business people want is to price their products in such a way as to maximize profits. The iPhone is not priced for rich people. It’s priced for relatively affluent masses. Typically a different demographic from the people who actually make them. I understand that. But when you undermine the ability of the relatively affluent society to continue producing relatively affluent people, you are sort of eating your own seed grain, aren’t you? > [@](#): > > And again, there’s this zero sum game thinking where moving jobs from here to there creates a permanent gap that can never be filled. When jobs are outsourced, that frees up labor and other resources to be applied to other aspects of the economy. Obviously this can be a challenge if you are only skilled at one tasks that a machine can do or if you lose your job in a place where there aren’t a whole lot of other industries. When people make these accusations of “zero sum game thinking” they are frequently dismissing the fact that outsourcing is not pareto optimal either. When you “free up” labor and capital more quickly than the economy can absorb and utilize that “freed up” labor and capital, its frequently what we call a recession. The rate at which we liberate labor and capital can be too high even if things might even out at a higher equilibrium level over the long run. Why do you say “we” as if there is one monolithic entity that decides how every aspect of the economy should work (other than the market)? Private colleges are private. That’s why they get to decide how much to charge. And their endowments typically come from private donations from their alumni. People are independent actors. They get to decide if their ROI for whatever college or major they pick is worth it. If the government fully funded public universities, I think you would just further emphasize the differences between elite schools and “every other college”. The thing about elite colleges is you can study a “poor ROI” major, but still get a lucrative job after graduation by virtue of having gone to Princeton or Harvard. [/QUOTE] ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [August 22, 2016, 2:25pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/159 "2016-08-22T14:25:17Z")
> [@msmith537](#): > > Why do you say “we” as if there is one monolithic entity that decides how every aspect of the economy should work (other than the market)? > > Private colleges are private. That’s why they get to decide how much to charge. And their endowments typically come from private donations from their alumni. > > People are independent actors. They get to decide if their ROI for whatever college or major they pick is worth it. > > If the government fully funded public universities, I think you would just further emphasize the differences between elite schools and “every other college”. The thing about elite colleges is you can study a “poor ROI” major, but still get a lucrative job after graduation by virtue of having gone to Princeton or Harvard. Sorry I didn’t see this. I agree. That is one of the reasons why I pointed out that well endowed schools would be able to maintain their low ROI majors. The ROI of a low ROI degree is intrinsically higher by virtue of having been issued by a prestigious school. But why should the government spend so much more money subsidizing those low ROI majors at private school than they do at public schools? Schools can charge what they want, students can choose to go where they want, government doesn’t have to pay more for those decisions. If this starts to derail this thread, we can move this discussion to another thread. I am pretty sure we have had this thread on this board before. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 23, 2016, 2:14am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/160 "2016-08-23T02:14:04Z")
> [@Damuri\_Ajashi](#): > > Yes, that is the graph that I have seen. Tell me again why its bullshit? Mismatched inflation and excluded compensation. Again. > [@Damuri\_Ajashi](#): > > That’s household incomes. Very different than wage rates. That could merely reflect the increase in dual income households since the last half century. It could, and I’m glad you’re thinking about demographic factors. But married couple families have been decreasing since at least 1960. And of the shrinking married couple families, the percent with two or more incomes was pretty flat from the 80s on. We’re trending toward smaller households with fewer earners. I can dig up the census and BLS tables if you’d like a look. > [@Damuri\_Ajashi](#): > > I think you are comparing wage rates by using household income. not really the same thing. And I think you and EPI are excluding real compensation that I receive and get taxed on. There are any number of scenarios that leave everyone better off, yet EPI doesn’t see it. E.g. a stay at home spouse going back to work at a low wage will lower the median income even if his spouse gets a raise. They’re both earning more, but EPI doesn’t think so. I got an extra week of vacation a couple years back, which I sell back to the company. EPI sees no change, but I have more cash in my pocket. And there are the demographic factors; I already mentioned immigration. Any immigrant who takes a job under the median lowers the median, even if everyone else is doing better. > [@Damuri\_Ajashi](#): > > It gives us a range doesn’t it? Is the range too broad? > > So we experienced a slight jump in inflation as smartphones were adopted and cheaper flip phones were discarded? That CPI over time does not really fairly compare the price of a basket of goods? That its like the S&P 500 when it replaces a bankrupt company with something like google? I’ll drop this link here [http://www.bls.gov/cpi/cpifaq.htm](http://www.bls.gov/cpi/cpifaq.htm) Happy to discuss further. > [@Damuri\_Ajashi](#): > > This is just over the last 4 years during the recovery, the effects of trade competition has been affecting us for longer than that. The evidence over the last 40 years seems to be that we are replacing higher paying jobs (particularly for those without college degrees) with lower paying jobs. I guess there is some possible explanation for the evidence that doesn’t require this result but its a thin gap. I’m not convinced yet. [Previous page](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720.md?page=7) [Next page](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720.md?page=9)