# 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:** 18\ **Page:** 9
**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, 2:17am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/161 "2016-08-23T02:17:31Z")
> [@Damuri\_Ajashi](#): > > 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. That would be [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=783725): > [@Sanders proposals and how to pay for them.](https://boards.straightdope.com/t/sanders-proposals-and-how-to-pay-for-them/745741/73): > > It looks like the OP’s plan takes away federal grants and loans from ~1.9MM students at private non-profit colleges who currently \*can’t \*afford the cost to attend, and gives that to ~1.7MM students at public colleges who currently _can_ afford the cost to attend. Never mind that a student who has maxed out federal aid at a public college costs the taxpayers less if he or she switches to a private college, due to the absence of state subsidy. ---
**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 23, 2016, 4:03pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/162 "2016-08-23T16:03:17Z")
> [@Ruken](#): > > Mismatched inflation and excluded compensation. Again. Are you saying that they are using one rate for the first half of the curve when the wage rate is rising and another rate for the second half of the wage curve when it is flat? Or are you saying that they are fiddling with the inflation rate so that it will look like the wage rate closely tracked productivity until it diverged? Because, unless they are using different inflation rates for the ascending portion of the wage rate curve and another rate for the flat part, I don’t see how its bullshit. > [@](#): > > 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. Yeah that would be useful because I keep reading the opposite: [https://www.dol.gov/oasam/programs/history/herman/reports/futurework/conference/families/couples.htm](https://www.dol.gov/oasam/programs/history/herman/reports/futurework/conference/families/couples.htm) “We know unquestionably, for example, that the number of dual-earner couples has increased, and continues to increase, dramatically.” > [@](#): > > 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. These are anecdotes. In the aggregate, this sort of thing tends to wash out when we are trying to compare productivity with wage rates. When you enter the labor force at a lower wage rate it should also move productivity. > [@](#): > > I’ll drop this link here [http://www.bls.gov/cpi/cpifaq.htm](http://www.bls.gov/cpi/cpifaq.htm) > Happy to discuss further. Can you point me to the FAQ that answers because I’ve seen this FAQ before and I couldn’t find the answer to the question. My assumption has been that the folks over at BLS aren’t idiots who simply replace a $100 flip phone with a $7000 iphone and say “wow there was 700% inflation in cell phones!!!” > [@](#): > > I’m not convinced yet. Are you at least starting to think that maybe we can no longer simply dismiss this stagnation claim that I am “foisting” on you? ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 24, 2016, 1:35am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/163 "2016-08-24T01:35:44Z")
> [@Damuri\_Ajashi](#): > > Are you saying that they are using one rate for the first half of the curve when the wage rate is rising and another rate for the second half of the wage curve when it is flat? Or are you saying that they are fiddling with the inflation rate so that it will look like the wage rate closely tracked productivity until it diverged? Because, unless they are using different inflation rates for the ascending portion of the wage rate curve and another rate for the flat part, I don’t see how its bullshit. No. [CPI](http://www.bls.gov/data/inflation_calculator.htm)for compensation and [PCE](https://fred.stlouisfed.org/series/PCEPI)for productivity. > [@Damuri\_Ajashi](#): > > Yeah that would be useful because I keep reading the opposite: > > [https://www.dol.gov/oasam/programs/history/herman/reports/futurework/conference/families/couples.htm](https://www.dol.gov/oasam/programs/history/herman/reports/futurework/conference/families/couples.htm) > > “We know unquestionably, for example, that the number of dual-earner couples has increased, and continues to increase, dramatically.” Here: [PDF](http://www.bls.gov/opub/reports/womens-databook/archive/women-in-the-labor-force-a-databook-2015.pdf) It’s long, but an interesting read that may come in handy for threads about women in the workforce. And they put a new one out every year or so. For earners in married couple households, you want table 23 and pp 81-82 Your cite mentions numbers through '98. The _number_ of two-or-more-earner households increased until 2000, wavered, and has decreased. The \*percentage \*of two-earner households (among married couple households) was only 57.6 in 2013, lower than it’s been since the late 70s. And remember that the percentage of married couple households out of total households has been [decreasing](http://www.prb.org/Publications/Reports/2012/us-household-change.aspx). So that’s a decreasing percent of a decreasing percent. > [@Damuri\_Ajashi](#): > > These are anecdotes. In the aggregate, this sort of thing tends to wash out when we are trying to compare productivity with wage rates. When you enter the labor force at a lower wage rate it should also move productivity. So you don’t dispute that they’re excluding real compensation that I receive and get taxed on. It doesn’t come out in the wash, and I’m not the only one who disputes the decoupling of compensation and productivity: Paul Krugman [http://www.slate.com/articles/news\_and\_politics/dialogues/features/1996/whos\_the\_real\_economist/\_3.html](http://www.slate.com/articles/news_and_politics/dialogues/features/1996/whos_the_real_economist/_3.html) Martin Feldstein > **[w13953.pdf](https://www.nber.org/system/files/working_papers/w13953/w13953.pdf)** > > 33.59 KB Richard Anderson > **[ES0707.pdf](https://files.stlouisfed.org/files/htdocs/publications/es/07/ES0707.pdf)** > > 122.28 KB That last one has a plot of total compensation vs time that nicely tracks productivity. > [@Damuri\_Ajashi](#): > > Can you point me to the FAQ that answers because I’ve seen this FAQ before and I couldn’t find the answer to the question. My assumption has been that the folks over at BLS aren’t idiots who simply replace a $100 flip phone with a $7000 iphone and say “wow there was 700% inflation in cell phones!!!” I posted a link to a FAQ because instead of making a point or refuting one of mine, you chose to just ask questions. About points I never made. But to help you understand, we can play a game to illustrate the problem. Compare $100 in 2016 dollars of groceries to $34.24 in 1980 dollars (The CPI-adjusted equivalent) of 1980-quality groceries. It’s similar quality stuff. Maybe some more variety. More organic produce if that’s your thing. But the amount and quality of goods should be more or less similar. Now think about telecommunications. The Internet (might need to pick different years for that.) Healthcare helps us live longer. BLS does not take into account that I now have the entire internet in my pocket. That’s just not what they measure. Living in 1980 on 1980 pay is a very different experience. That is why I said that even if stagnation were real (it’s not), we’re still getting more bang for our buck. Note that they do try to account for some quality changes, see their vehicle guidelines. [http://stats.bls.gov/cpi/cpiautoqaguide.pdf](http://stats.bls.gov/cpi/cpiautoqaguide.pdf) > [@Damuri\_Ajashi](#): > > Are you at least starting to think that maybe we can no longer simply dismiss this stagnation claim that I am “foisting” on you? Allow me to rephrase; the data do not support the conclusion that we are replacing higher paying jobs with lower paying jobs, let alone that it’s due to trade. Especially in light of the supposed stagnation that disappears when you stop excluding compensation and when you stop indexing productivity to a slower deflator than compensation. ---
**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 24, 2016, 4:33pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/164 "2016-08-24T16:33:30Z")
> [@Ruken](#): > > No. [CPI](http://www.bls.gov/data/inflation_calculator.htm)for compensation and [PCE](https://fred.stlouisfed.org/series/PCEPI)for productivity. OK, let me try this again. So unless the curves of the CPI inflator and the curve of the PCE inflator are radically different, you STILL haven’t explained the divergence of he productivity curve from the hourly compensation curve. Why does the wage curve (using whatever valid inflator you desire) bend downwards in the 1970s while the productivity curve (using whatever valid inflator you desire) does not. How does the use of different inflators make a difference if the curves for both of the inflators are fairly similar? > **[et 20140417 pce and cpi inflation difference](https://www.clevelandfed.org/publications/economic-trends/2014/et-20140417-pce-and-cpi-inflation-difference?utm_source=sxa&utm_medium=redirect)** > > There are two common measures of inflation in the US today: the Consumer Price Index (CPI) and the Personal Consumption Expenditures price index (PCE). The two measures, though following broadly similar trends, are certainly not identical. > [@](#): > > Here: [PDF](http://www.bls.gov/opub/reports/womens-databook/archive/women-in-the-labor-force-a-databook-2015.pdf) > It’s long, but an interesting read that may come in handy for threads about women in the workforce. And they put a new one out every year or so. For earners in married couple households, you want table 23 and pp 81-82 I think you mean tables 24 and 25 on pages 83-86, right? Table 25 says that the wife’s median contribution to family income has gone from 27% to 37% in the last 40 years. This might account for the small increases in household incomes. But to reiterate, household income does not necessarily reflect wage rate… > [@](#): > > Your cite mentions numbers through '98. The _number_ of two-or-more-earner households increased until 2000, wavered, and has decreased. The \*percentage \*of two-earner households (among married couple households) was only 57.6 in 2013, lower than it’s been since the late 70s. And remember that the percentage of married couple households out of total households has been [decreasing](http://www.prb.org/Publications/Reports/2012/us-household-change.aspx). So that’s a decreasing percent of a decreasing percent. True. But once again you are still talking about household incomerather than wage rate. As an Off Topic aside, I would note that we seem have a fairly consistent level of married without kids. Where things seem to be collapsing is after the kids show up. So maybe all those divorces were the result of having children and the stresses that introduces into a marriage. > [@](#): > > So you don’t dispute that they’re excluding real compensation that I receive and get taxed on. It doesn’t come out in the wash, You seem to muddle the differences between household income and wage rate from time to time. So for every example of how a low wage worker entering the work force at a low wage would reduce the wage rate, I can point to a low wage worker leaving the work force and raising the wage rate. What I am saying is that we have more higher wage workers leaving the work force and reentering the workforce as (or being replaced in the work force with) a lower wage worker. Its not dramatic or overnight but over several decades, the effects seem obvious. > [@](#): > > and I’m not the only one who disputes the decoupling of compensation and productivity: > Paul Krugman > [http://www.slate.com/articles/news\_and\_politics/dialogues/features/1996/whos\_the\_real\_economist/\_3.html](http://www.slate.com/articles/news_and_politics/dialogues/features/1996/whos_the_real_economist/_3.html) > Martin Feldstein > [http://www.nber.org/papers/w13953.pdf](http://www.nber.org/papers/w13953.pdf) > Richard Anderson > [https://research.stlouisfed.org/publications/es/07/ES0707.pdf](https://research.stlouisfed.org/publications/es/07/ES0707.pdf) > That last one has a plot of total compensation vs time that nicely tracks productivity. And many others do. I’m not saying you are the equivalent of a denier of climate change. There are arguments for why we shouldn’t be alarmed or that we are looking at things through the wrong end of the periscope. But there is an apparent and obvious change in t slope of the wage curve that is not there for the productivity curve. > [@](#): > > I posted a link to a FAQ because instead of making a point or refuting one of mine, you chose to just ask questions. About points I never made. > > But to help you understand, we can play a game to illustrate the problem. Compare $100 in 2016 dollars of groceries to $34.24 in 1980 dollars (The CPI-adjusted equivalent) of 1980-quality groceries. It’s similar quality stuff. Maybe some more variety. More organic produce if that’s your thing. But the amount and quality of goods should be more or less similar. Now think about telecommunications. The Internet (might need to pick different years for that.) Healthcare helps us live longer. BLS does not take into account that I now have the entire internet in my pocket. That’s just not what they measure. Living in 1980 on 1980 pay is a very different experience. That is why I said that even if stagnation were real (it’s not), we’re still getting more bang for our buck. > Note that they do try to account for some quality changes, see their vehicle guidelines. [http://stats.bls.gov/cpi/cpiautoqaguide.pdf](http://stats.bls.gov/cpi/cpiautoqaguide.pdf) OK, so what you are saying is that even if iphones only cost as much as the old flip phones, inflation doesn’t reflect the improvement in welfare and utility? OK but that’s true for everyone throughout history and around the world. In comparing apples to apples we use things like inflation to help us do that. > [@](#): > > Allow me to rephrase; the data do not support the conclusion that we are replacing higher paying jobs with lower paying jobs, let alone that it’s due to trade. Especially in light of the supposed stagnation that disappears when you stop excluding compensation and when you stop indexing productivity to a slower deflator than compensation. The conclusion that we are replacing higher paying jobs with lower paying jobs (and that it is a result of trade) is a hypotheses. There is data that is consistent with this hypotheses even if it is not conclusive. I am not an economist (I minored in econ decades ago), so maybe I am not looking at this the right way. But it certainly seems like there is at least a colorable argument that there has been a decoupling based on the shapes of the curves. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [August 25, 2016, 4:00am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/165 "2016-08-25T04:00:59Z")
Recently [the YouTube “China Documentary – How is China Dying?” from History Channel](https://www.youtube.com/watch?v=fhLBIMwvnYA) was recommended at SDMB (in which thread?) and I started watching it. Outsourcing to China is one of the major topics. _ **The documentary is very frightening.** _ It may be partly exaggerated propaganda, and some of the problems pointed out may be well known, but it’s good to remind us all of impending danger. The documentary mentions all the technology theft China has done, aided by the same U.S. companies that were then ripped off. Before long, China — not the U.S. — will be the dominant super-power. [slight hijack] The controversial TPP deal is partly intended to limit Chinese power and may have therefore been a very wise move by the U.S.[As a N.Y. Times opinion points out](http://www.nytimes.com/2016/06/03/opinion/the-right-asian-deal-trans-pacific-partnership.html) it should be supported for that reason. ---
**Author:** ![randy054](https://avatars.discourse-cdn.com/v4/letter/r/54ee81/32.png) [@randy054](https://boards.straightdope.com/u/randy054)\ **Post date:** [August 26, 2016, 4:37pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/166 "2016-08-26T16:37:27Z")
> [@John\_Mace](#): > > 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? What choice did these 250 Million Chinese have when the Communist Government came in and bull dozed their lands and told them to go to the cities to find work? I can’t seem to find where these Chinese were ever given a choice. [http://www.nytimes.com/2013/06/16/world/asia/chinas-great-uprooting-moving-250-million-into-cities.html?pagewanted=all&\_r=0](http://www.nytimes.com/2013/06/16/world/asia/chinas-great-uprooting-moving-250-million-into-cities.html?pagewanted=all&_r=0) China’s Great Uprooting: Moving 250 Million Into Cities > [@](#): > > Across China, bulldozers are leveling villages that date to long-ago dynasties. Towers now sprout skyward from dusty plains and verdant hillsides. New urban schools and hospitals offer modern services, but often at the expense of the torn-down temples and open-air theaters of the countryside. > > “It’s a new world for us in the city,” said Tian Wei, 43, a former wheat farmer in the northern province of Hebei, who now works as a night watchman at a factory. “All my life I’ve worked with my hands in the fields; do I have the educational level to keep up with the city people?” This is actually a case for Human Rights Abuses but the Large Corporations and their Puppet Politicians were strangely silent on this. ---
**Author:** ![randy054](https://avatars.discourse-cdn.com/v4/letter/r/54ee81/32.png) [@randy054](https://boards.straightdope.com/u/randy054)\ **Post date:** [August 26, 2016, 6:15pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/167 "2016-08-26T18:15:16Z")
> [@DagNation](#): > > The problem is not trade treaties in general, it is that these have been bad treaties that were negotiated without the input of any one except big businesses and their political toadies. I would say that this issue overlaps with the issue of fair trade quite a bit, but is distinct. I agree with this as well In capitalism, all parties, workers, owners etc are entitled to bargaining power and negotiations. None of that happened with the formation of the TPP, NAFTA or China Trade. It was all formed by the heads of Multinational Corporations that do not give a fig leaf about this nation. And they paid off politicians with bucket loads of money to try and get it to pass. I think those that support the current global trade pacts exist mostly in the top 1% and above and these same people would be all for ending these trade pacts if we taxed them at the 90% level. Their moral arguments they hold would dissolve when it is their livelihood on the line. Also, I would like to see if the majority of the “savings” using slave labor overseas was actually passed onto the consumers and not given to shareholders and executive pay. The Iphone costs 200 dollars to make including labor and they sell it here for 650 Dollars to Americans. The stocks for it are very high. The savings were not passed on to the consumer. And even if the stuff is cheaper, the most costly expense has always been housing, medical, food and schooling, not cheap trinkets from China. All these are expensive in this country while the cost is much lower in other countries such as in India, housing costs 1/4 overall than it does here. So when the bottom end reach equilibrium with countries like India, minus any social support, they will be worse off here than in India. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [August 26, 2016, 6:19pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/168 "2016-08-26T18:19:17Z")
nm ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 27, 2016, 1:04pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/169 "2016-08-27T13:04:22Z")
> [@Damuri\_Ajashi](#): > > OK, let me try this again. So unless the curves of the CPI inflator and the curve of the PCE inflator are radically different, you STILL haven’t explained the divergence of he productivity curve from the hourly compensation curve. Why does the wage curve (using whatever valid inflator you desire) bend downwards in the 1970s while the productivity curve (using whatever valid inflator you desire) does not. How does the use of different inflators make a difference if the curves for both of the inflators are fairly similar? > > [PCE and CPI Inflation: What’s the Difference?](https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2014-economic-trends/et-20140417-pce-and-cpi-inflation-whats-the-difference.aspx) Using two, different, exponential modifiers causes the difference between otherwise similar curves to become greater over time, and less likely to get lost in the weeds. The Anderson plot still shows deviations on a short time-scale, even though total compensation per hour and productivity track together on the long term. The difference in inflation inserts a wedge between the two. If I’m self-employed and make/produce $10k (nominal) in 1970 and $50k (nominal) in 2000 while working the same, my compensation rate has increased by only 12% if we measure by CPI, but my productivity has increased 38% if we measure by IPD (not PCE; I got mixed up, sorry.) That makes no sense. Neither measure is _wrong_, but I can’t compare the two. Never mind that EPI wouldn’t be counting my compensation as a self-employed person, but \*would \*be counting my productivity. Furthermore, BLS has incomplete CES data prior to the 1964. About earlier times, they say: “it was not possible to compute hours and earnings estimates for all of the private industries”. But that didn’t stop EPI from including either those data or their own custom reconstruction on the same plot. More apples; more oranges. > [@Damuri\_Ajashi](#): > > I think you mean tables 24 and 25 on pages 83-86, right? > > Table 25 says that the wife’s median contribution to family income has gone from 27% to 37% in the last 40 years. This might account for the small increases in household incomes. > > But to reiterate, household income does not necessarily reflect wage rate… > > True. But once again you are still talking about household incomerather than wage rate. It’s a sniff test that shows us people are actually better off, despite the cries to the contrary and despite demographic pressures that should drive down average wage and income. That drives us to investigate suspect presentation of data, and now we’ve learned that there is in fact no divergence between hourly compensation and productivity. > [@Damuri\_Ajashi](#): > > You seem to muddle the differences between household income and wage rate from time to time. So for every example of how a low wage worker entering the work force at a low wage would reduce the wage rate, I can point to a low wage worker leaving the work force and raising the wage rate. What I am saying is that we have more higher wage workers leaving the work force and reentering the workforce as (or being replaced in the work force with) a lower wage worker. Its not dramatic or overnight but over several decades, the effects seem obvious. No, you can’t point to them “for every example”, because we have a greater percentage of immigrants and women working, and both groups make less. > [@Damuri\_Ajashi](#): > > And many others do. I’m not saying you are the equivalent of a denier of climate change. There are arguments for why we shouldn’t be alarmed or that we are looking at things through the wrong end of the periscope. But there is an apparent and obvious change in t slope of the wage curve that is not there for the productivity curve. And EPI manufactured that apparent and obvious change by excluding compensation and deflating it faster than productivity. > [@Damuri\_Ajashi](#): > > OK, so what you are saying is that even if iphones only cost as much as the old flip phones, **inflation doesn’t reflect the improvement in welfare and utility? OK** but that’s true for everyone throughout history and around the world. In comparing apples to apples we use things like inflation to help us do that. Bolding mine. We are in agreement that if people were earning the same\*, they’d be getting better utility from their goods. \*they’re not > [@Damuri\_Ajashi](#): > > The conclusion that we are replacing higher paying jobs with lower paying jobs (and that it is a result of trade) is a hypotheses. There is data that is consistent with this hypotheses even if it is not conclusive. > > I am not an economist (I minored in econ decades ago), so maybe I am not looking at this the right way. But it certainly seems like there is at least a colorable argument that there has been a decoupling based on the shapes of the curves. To recap: [ol] [li]Demographic changes apply downward pressure on compensation[/li][li]EPI doesn’t include all compensation[/li][li]EPI includes all production[/li][li]EPI has even more incomplete data before 1964[/li][li]EPI deflates compensation faster than productivity[/li][/ol] And finally, I’ve shown you a plot of total compensation per hour and productivity vs time that track together over a time period where the EPI method shows a divergence. ---
**Author:** ![asahi](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/asahi/32/8693_2.png) [@asahi](https://boards.straightdope.com/u/asahi)\ **Post date:** [August 27, 2016, 1:19pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/170 "2016-08-27T13:19:48Z")
Outsourcing creates economic opportunities and threats. The opportunities are increased trade, which can bring in jobs that we wouldn’t have by relying purely on domestic exchanges. The threat, on the other hand, is that labor can be moved abroad. However, I see no difference between this threat and the consequences of automation and computer technology. Reduced demand for labor is reduced demand for labor. In all cases, it would seem the ideal solution is to create more opportunities and reduce the threats associated with losing jobs. There is nothing at all wrong with foreign trade and I think the populist movement has created a false problem. The real issue here is, what happens to people when they lose a livelihood that has provided for them economically and given them a sense of purpose? We need to invest more into things like retraining and protecting communities from economic harm if Acme Manufacturing Company decides to pull out of some small town in Indiana and move to Vietnam. The solution, in my view, is not creating trade barriers, which have been shown historically to be more destructive than helpful. Rather, we need to find ways to make retraining cheap – not quite free but almost. We also need to be prepared to bail out middle American towns the same way we bail out large corporations when they are financially stressed. We need rent controls, mortgage lending controls, and programs to provide assistance to homeowners who have been good borrowers but find themselves in distress. And corporations that do business in this country should be forced to step the hell up and pay for some of this. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 27, 2016, 2:02pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/171 "2016-08-27T14:02:11Z")
**asahi** , I’ve heard that the retraining programs we’ve tried to implement as part of, say, NAFTA, have a poor track record (other than lining the pockets of those offering the retraining), but I’d need to look into it 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 27, 2016, 4:37pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/172 "2016-08-27T16:37:45Z")
> [@randy054](#): > > I agree with this as well > In capitalism, all parties, workers, owners etc are entitled to bargaining power and negotiations. > > None of that happened with the formation of the TPP, NAFTA or China Trade. It was all formed by the heads of Multinational Corporations that do not give a fig leaf about this nation. > > And they paid off politicians with bucket loads of money to try and get it to pass. > > I think those that support the current global trade pacts exist mostly in the top 1% and above and these same people would be all for ending these trade pacts if we taxed them at the 90% level. Their moral arguments they hold would dissolve when it is their livelihood on the line. Folks who profit from traded don’t always have a lot of allegiance to any one country. Certainly not more than they have to profits. > [@](#): > > Also, I would like to see if the majority of the “savings” using slave labor overseas was actually passed onto the consumers and not given to shareholders and executive pay. The profits from slave labor largely goes to slaveowners. > [@](#): > > The Iphone costs 200 dollars to make including labor and they sell it here for 650 Dollars to Americans. The stocks for it are very high. The savings were not passed on to the consumer. > > And even if the stuff is cheaper, the most costly expense has always been housing, medical, food and schooling, not cheap trinkets from China. > > All these are expensive in this country while the cost is much lower in other countries such as in India, housing costs 1/4 overall than it does here. > > So when the bottom end reach equilibrium with countries like India, minus any social support, they will be worse off here than in India. Maybe we should ship them off to China and India. Perhaps we can outsource our prisons as well. ---
**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 27, 2016, 6:48pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/173 "2016-08-27T18:48:51Z")
> [@Ruken](#): > > Using two, different, exponential modifiers causes the difference between otherwise similar curves to become greater over time, and less likely to get lost in the weeds. The Anderson plot still shows deviations on a short time-scale, even though total compensation per hour and productivity track together on the long term. > The difference in inflation inserts a wedge between the two. If I’m self-employed and make/produce $10k (nominal) in 1970 and $50k (nominal) in 2000 while working the same, my compensation rate has increased by only 12% if we measure by CPI, but my productivity has increased 38% if we measure by IPD (not PCE; I got mixed up, sorry.) That makes no sense. Neither measure is _wrong_, but I can’t compare the two. Never mind that EPI wouldn’t be counting my compensation as a self-employed person, but \*would \*be counting my productivity. > Furthermore, BLS has incomplete CES data prior to the 1964. About earlier times, they say: “it was not possible to compute hours and earnings estimates for all of the private industries”. But that didn’t stop EPI from including either those data or their own custom reconstruction on the same plot. More apples; more oranges. Let me try this one last time. The problem with using different inflators is that you are using meters for one measurement and yards for the other. The two are close but over a long enough distance the difference will lead to a wide gap. But when you are measuring relative distances, the fact that you are using different measuring sticks doesn’t really matter much in determining that one curve has bent downwards while the other one has maintained a pretty consistent trajectory. So how do you explain the downward bend in the wage curve that doesn’t seem to exist in the productivity curve? > [@](#): > > It’s a sniff test that shows us people are actually better off, despite the cries to the contrary and despite demographic pressures that should drive down average wage and income. That drives us to investigate suspect presentation of data, and now we’ve learned that there is in fact no divergence between hourly compensation and productivity. Households earn more income. The utility a household enjoys is not entirely determined by their income. And that still doesn’t say much about the wage rate. Where have we learned that there is no divergence between wages and productivity? There may still be some doubt about whether the divergence exists but it has not been disproven. > [@](#): > > No, you can’t point to them “for every example”, because we have a greater percentage of immigrants and women working, and both groups make less. Yes, there are more people entering the low wage work force than entering it. And that is the problem. A lot of these new low wage earners were relatively higher wage earners a generation ago. > [@](#): > > And EPI manufactured that apparent and obvious change by excluding compensation and deflating it faster than productivity. The two inflators track each other reasonably well. There is not significant divergence between the two so that would not cause a divergence in the things they inflated but the things they inflated diverge so its not the inflators causing the divergence… > [@](#): > > Bolding mine. We are in agreement that if people were earning the same\*, they’d be getting better utility from their goods. > > \*they’re not So you agree that you are making a special pleading here? > [@](#): > > To recap: > [ol] > [li]Demographic changes apply downward pressure on compensation[/li][li]EPI doesn’t include all compensation[/li][li]EPI includes all production[/li][li]EPI has even more incomplete data before 1964[/li][li]EPI deflates compensation faster than productivity[/li][/ol] > And finally, I’ve shown you a plot of total compensation per hour and productivity vs time that track together over a time period where the EPI method shows a divergence. No, I saw one that was much shorter. If you don’t include the 60’s, 70’s and 80’s in one graph you can’t see the divergence, you just see two straight lines that have different slopes depending on the inflator you use. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 28, 2016, 2:57am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/174 "2016-08-28T02:57:45Z")
> [@Damuri\_Ajashi](#): > > Let me try this one last time. The problem with using different inflators is that you are using meters for one measurement and yards for the other. The two are close but over a long enough distance the difference will lead to a wide gap. **But when you are measuring relative distances, the fact that you are using different measuring sticks doesn’t really matter much in determining that one curve has bent downwards while the other one has maintained a pretty consistent trajectory.** So how do you explain the downward bend in the wage curve that doesn’t seem to exist in the productivity curve? Bolding mine, because for an econ minor you don’t seem to understand how exponential deflators work. If we increase inflation enough, you can make any positive nominal curve negative. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 28, 2016, 3:05am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/175 "2016-08-28T03:05:34Z")
> [@Damuri\_Ajashi](#): > > No, I saw one that was much shorter. If you don’t include the 60’s, 70’s and 80’s in one graph you can’t see the divergence, you just see two straight lines that have different slopes depending on the inflator you use. Anderson does not show “two lines with different slopes.” He shows two curves that diverge when you exclude data and delete one more than the other. There is no need to repeat the exercise for other decades because the flaws in EPI’s methodology are numerous and you haven’t even attempted to defend most of them. ---
**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 28, 2016, 4:43am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/176 "2016-08-28T04:43:47Z")
> [@Ruken](#): > > Bolding mine, because for an econ minor you don’t seem to understand how exponential deflators work. If we increase inflation enough, you can make any positive nominal curve negative. So if I use different inflators (and the two inflators seem to track each other pretty well), you are saying that the two curves would be in synch with each other for 20 years and then one of the curves would bend bend while the other one remained relatively straight? Maybe its not econ I lack but math. Can you explain that? ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [August 28, 2016, 2:43pm UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/177 "2016-08-28T14:43:16Z")
> [@Damuri\_Ajashi](#): > > So if I use different inflators (and the two inflators seem to track each other pretty well), you are saying that the two curves would be in synch with each other for 20 years and then one of the curves would bend bend while the other one remained relatively straight? > > Maybe its not econ I lack but math. Can you explain that? I suspect, not having reconstructed their data, that if you ignored all the other issues and solely deflated both sets similarly, that the early decades that rely primarily on incomplete BLS CES data will show compensation increasing slightly faster than productivity. And after writing that this morning and forgetting to hit the Post button, I went and checked the indices at the St. Louis Fed and I’m wrong. It looks like CPI inflates $1 to $1.37 1947 to 1964 (January to January) and IPD inflates to $1.45 (Q1 to Q1). 1964 to 1981 has $1 inflate to $2.82 or $2.58 for CPI or IPD, respectively. So CPI is not consistently stronger than IPD for the entire series; at some point early on it reverses. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [August 29, 2016, 3:41am UTC](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720/178 "2016-08-29T03:41:36Z")
> [@septimus](#): > > It may be partly exaggerated propaganda, and some of the problems pointed out may be well known, but it’s good to remind us all of impending danger. The documentary mentions all the technology theft China has done, aided by the same U.S. companies that were then ripped off. Before long, China — not the U.S. — will be the dominant super-power. So what? Are Americans materially better off for being the world’s superpower? The U.S. hgas been a dominant superpower for a quarter of a century and according to the fear brigade, at the same time, Americans are getting worse off. Evidently, being a superpower doesn’t help the working man. [Previous page](https://boards.straightdope.com/t/would-some-economist-please-explain-whats-wrong-with-outsourcing/762720.md?page=8)