Would some economist please explain: What's wrong with outsourcing?

Great Debates
121

To a certain extent, yes.

I would claim that we’re no longer ‘at risk’ for energizing an anti-globalization cohort of voters but that we are already seeing it occur, both in the US and Europe. Where that outcome leads - it’s hard to put that genie back in the bottle - is right now indeterminate.

Be cautious, though, in claiming what ‘we’ see as right or wrong. There’s a certain arrogance to assuming that what one perceives as ‘best’ for people is what they should have (the ‘What’s the Matter With Kansas’ fallacy). It may be the case that overall economic conditions could be weaker with a protectionist policy - things more expensive, less innovation and so forth - but it’s also possible that voters are perfectly content with lesser growth provided their own situation is more secure. The vast majority of voters vote their own close-order situation and don’t really care about larger economic issues.

Remember, part of my basic thesis is that mainstream economics has been foolish to ignore this over the last few decades. Properly accounting for this would have been straightforward, though costly, if done up front.

I’d also want to dispute the word ‘vast’ in your second paragraph. I think there’s a real policy discussion to be had about the distribution of gains from globalization. If the majority of people are seeing the benefit of marginally lower cost-for-goods but the majority of profit is being held by a small minority - the 1% people are complaining about - there’s cause for concern and unrest as well.

122

I thought the “even if” I started with was a clear enough qualifier.

123

Oh, no dispute. I just wanted to be clear on what I perceive as the large potential issue might be.

124

Gotcha.

125

What trade agreement was actually equivalent to quadrupling the labor pool?

Ten of what and 100 of what? To construct a comparative advantage scenario you’re supposed to explain which items you produce more efficiently.

I’ll say it again; if you think the problem is that the pie’s getting bigger but some people aren’t getting their fair share, the problem isn’t that the pie is getting bigger. The problem is that some asshole isn’t slicing it up fairly. Look to your domestic policy.

You’ve never heard of social programs? Safety nets? Guaranteed incomes and income supplements? Welfare? Social security? Old Age Security? Unemployment benefits? The New Deal? Public education? Governments almost never do these things? It’s the bulk of what all industrialized countries DO, so far as I can tell.

I would say governments have actually done quite a lot of things. It was hell on earth to be poor in the early days of modern capitalism; now governments spend much, if not most, of their money transferring resources from people who have lots to people who need it. In my country people don’t go bankrupt when they have a health crisis. That’s a major safety net.

126

I think that analogy might reinforce the original point more than contradict it, practically speaking. The valid climate change debate isn’t the scientific question of whether there’s a risk of serious negative effects of human made GHG emissions. It’s how much to spend in higher cost to produce energy now to head off highly uncertain negative effects far in the future, and how feasible that actually is in the relevant political system (the world one). Those who claim there is no risk from man made climate change are deluded IMO, but there’s still a difficult trade off of cost benefit via the political system if everyone does agree there’s a risk. I personally think the climate issue is not solvable at all until/unless there are major breakthroughs in low cost zero carbon energy and/or climate engineering. The real cost of radical reductions soon is just too high, politically, with everyone agreeing on the science.

So the real question is not totally different than free trade. Trade politically is about how to balance costs and benefits, not now and future but more often where some people suffer and others benefit, both now, in a net benefit policy. The people who think ‘ripping up trade agreements’ is going to spark greater overall prosperity in the US are deluded IMO, like people who think man made GHG’s pose no risk. However that doesn’t mean there isn’t a difficult political debate to be had about sharing costs and benefits.

127

I agree that as a general rule there are improvements in standard of living associated with cheaper goods and as long as there is no wage effects of trade, it is pareto optimal. Here we have a lot of free market types acting like trading with low wage countries is pareto optiimal (while giving lip service to dislocation costs, etc.) and a moral imperative when its nothing of the sort. YO can make non-pareto optimal improvements into pareto ootimal improvements with redistribution but I’ve never seen that actually happen, have you?

When we lost the garment industry, people said “do you really want Americans to be making their living making that low margin stuff?” But now we are importing iphones from China and exporting coal to them. The high wages are steadily becoming less and less high so as all the high paying jobs are being outsourced to low wage jurisidictions. There is a limit to how much you can pay a barista.

I understand that we are manufacturing more than ever but we are also employing fewer people doing it because the only manufacturing we can compete on is where wages are not a large enough element to tilt the balance in favor of lower wage jurisdictions. I understand that we are exporting more than ever but we are also importing more than ever. This is even with the virtual elimination of net oil imports. Generally speaking you want to import less complicated products (like agriculture, minerals and raw materials) and export more complicated products (like iphones and computers) to maintain a higher wage rate, but our mix of imports and exports are moving more and more in the other direction.

Its not the end of the world or anything and frankly its no skin off my nose, I am not really as exposed to the effects of trade as others might be but I think its pretty clear that trade as we see it today does not reflect our bargaining power in the world economy and as our bargaining power erodes we will not be able to correct this situation.

128

Damn you and your brevity.

:stuck_out_tongue:

129

Yes it is. People aren’t obligated in anyway to care for others more than the others care for themselves. I suppose the “even if that duty must be reasonably mitigated by circumstance.” phrase gives enough wriggle room to make that moral necessity meaningless.

Now this is correct. And we should implement policy to grow the pie even more. Even if such policy is politically uncomfortable.

130

I have also been saying that labor is unique:

No other supply curve I can think of curves back to the left when the price gets high enough. IOW as the price of pizza rises, more and more people are willing to provide pizza and the supply of pizza also rises and this correlation remains no matter how expensive pizzas get. But if the price of labor rises high enough, people start to retire earlier, or cut back on their hours or someone might decide to stay home with the kids and the supply of labor shrinks when the price of labor gets high enough.

No other factor of production votes.

Labor represents a large part of consumption and drives and even larger part of the economy. When labor prices drop, consumption drops even more.

American consumers drive much of the global economy and as we reduce american demand for labor in an effort to produce products that will be cheaper for american consumers we are engaging in a form of economic cannibalism.

131

Stop trying to solve wealth distribution problems with wealth destruction tools like minimum wage and we wouldn’t have this issue. You would see the sad sight of some areas of the nation still not working due to negative market value but hopefully those areas would be rare. However, implement wealth creation friendly policies combined with a wiser social safety net wealth and standards of living would increase.

132

And as the the wealth of other consumers increase and there are 5 billion or so of them than demand grows as well. There is absolutely 0 special about the American worker or the American consumer. That attitude is dangerous.

And no, labor is not special. As it’s not homogeneous it’s probably not good to think of it as a single commodity. However, it’s nothing more than a set of commodities. The fact that people vote doesn’t change that labor is governed by supply and demand. Voters vote for the stupidest things. That’s how we got Trump vs Clinton. I don’t trust “labor” with making economic policy.

133

Normalizing trade relations with China.

OK I will restate what I said upthread

I’ll say it again, in the 200-300 year history of modern trade theory, people have said this same thing over and over again. “hey the pie is bigger, why give up that bigger pie just because all the increase PLUS some is going to China and a few wealthy outsourcers?” But in that entire history, we have never asked the Chinas of the world to pay some back or the wealthy outsourcers to share the wealth. The peices of the larger pie tend to stay where they are.

These things existed BEFORE our current trade issues. They are not a reaction to the problems caused by our current trade issues.

It was hell on earth to be poor BEFORE the early days of modern capitalism too. Modern capitalism didn’t bring misery, it brought economic opportunity. Noone is saying that democratic representative government is not one of the greatest boons to mankind. Noone is saying that capitalism hasn’t done more for the welfare of the global poor than all the NGOs put together. Noone is saying that free trade and comparative advantage isn’t a powerful tool for growth and improved welfare.

What some people are saying is that trade as we see it today is creating a lot of concentrated wealth, a lot of concentrated misery. And the winners of global trade do not seem eager to ameliorate the misery of the losers and we don’t seem eager to force them to do so. Marginal utility sorta tells us that concentrated wealth combined with concentrated misery is not a good tradeoff from more even distribution even if there is more aggregate wealth as a result.

134

Sometimes wealth distribution is more important than wealth creation.

Maybe the tools we have to maximize utility aren’t theoretically the best ones possible but you fuck with the dick you got.

135

You can do both. But each should be done with appropriate policy. Not ham fisted and counterproductive policy.

136

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.

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.

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.

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.

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.

137

I’d like to see that argument actually. I’m not convinced that that would ever be true.

With equivalent wealth redistribution policies how could the destruction of wealth result in greater human welfare?

138

I’ve provided a mathematical extreme. One dollar isn’t the same as the next, octopus. There is a marginal utility to every dollar and it’s not the same.

Suppose I came up with an economic plan that would reduce the household income of 100,000 lower class households by $1000 a year, but would increase productivity such that ten CEOs already making $10 million a year would get all that productivity and see their salaries jump by, I dunno, $20 million a year. Do you REALLY believe we’ve increase overall net welfare? There is no real difference in the personal welfare of a guy making $10 million and a guy making $30 million. There is a big difference between scraping by on $11,000 and scraping by on $12,000.

139

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.

140

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.