December 24, 2003

Jobless Recovery

Economists 4 Dean tracks the jobless recovery:

Economists for Dean: Iraq and the Jobless Recovery

Posted by DeLong at December 24, 2003 12:45 PM | TrackBack

Comments

Brad: So, the jobs are leaving for Asia? And you no longer think it is a good thing? Steve Roach was the first major-league economist that found it alarming. I think both you and Krugman deserve some kind of award for holding out in the face of reality.

Posted by: Leopold on December 24, 2003 01:18 PM

____

"Economists for Bush" might ask which BLS survey was used to prepare those charts. When they figure this out, they'll see if some other data gives a more favorable chart for their purposes. Then we'll see NRO opeds as to why the other data series was the "right series". All in a days work at the University of Karl Rove.

Posted by: Harold McClure on December 24, 2003 01:32 PM

____

Of course jobs leave; that's normal.

It's when no jobs are being created, when the rate of innovation -- considered as the kinds of economic choice that the economy is creating -- goes flat, that it looks like structural disaster.

That there are economies boot-strapping themselves in Asia into an increased level of capability and becoming able to provide more kinds of ecomic choice than they used to be able to is, on the whole, good. (More active city economies, more smart people with better access to the resources necessary to innovate.)

It's the complete failure of the Anglo NorAm economy to innovate, to add types of capability, despite being loaded with capital, well educated smart people, and material resources that's scary. For the last thirty years, there should have been a much higher rate of real innovation than the (anemic) one we've seen. [Still not making real use of computer mediated communications for management; widespread use of high-precision manufacturing isn't happening due to a lack of percieved garunteed short term profit; most power technology innovation has been actively blocked; basic resource extraction techniques static. Worst single symptom is the extent to which political power is used to force market access and to guaruntee business models.]

That failure is the product of a whole bunch of deliberate wealth concentration policies, and indeed conforms to the typical historical result of shifting an economy from being a machine to create capability to a machine to concentrate wealth.

Has essentially nothing to do with the Chinese, and a whole lot to do with our own native errors and incompetence.

Posted by: Graydon on December 24, 2003 02:43 PM

____

OMG, check out this animated feature:

LORD OF THE RIGHT WING

http://flash.bushrecall.org/

Posted by: Kosh on December 24, 2003 03:00 PM

____

To Graydon:
There is nothing "normal" in the loss of jobs. American and European workers fought and gained a certain share in the enterprise revenues. People in less-developed areas did not. Moving the jobs there is an attack on the interests of the workers. If a woman in Africa allows you to screw her for a few bucks since she has nothing to eat, that's "normal"? What if she was your mother?

Posted by: Leopold on December 24, 2003 03:39 PM

____

Leopold --

Economies naturally lose jobs; the guys who knitted mail lost their jobs when plate armors started coming in around 1350, the jobs making magneto starters for internal combustion engines aren't there anymore, and so on. This is a natural and necessary side effect of finding different or better ways to do things.

The structural choices which are giving us the race-to-the-bottom are also normal, in the sense of 'this is what usually happens'; the powerful prefer medium-term economic ruin to the present risk of their social position due to economic innovation. (Major innovation tends to require a prostrate ruling class (war, plague, famine...) or one under an external threat of destruction. A secure established ruling will not permit significant innovation, because significant innovation threatens their social pre-eminence.)

That doesn't mean I think it's good, but the jobs that go to China and elsewhither aren't the problem. They're not even a major symptom. The problem is the last thirty years of structural changes to change the '1st world' economies from machines for producing capability -- new things, that couldn't be done before, or things that could be done before in new and more cost-effective ways -- to machines for concentrating wealth.

If that hadn't happened, the job transfers to Asia wouldn't be noticeable, because there would have been something around three times the rate of innovation actually seen after 1970 or so.

Posted by: Graydon on December 24, 2003 04:10 PM

____

And in general, some people make the ethics argument that even while injuring workers in developed countries the movemenet of jobs makes more-needy workers in less-developed countires better. This is false. There is a certain percent of the revenues that accrues to labor. Raising it makes workers better. Lowering it makes workers worse. What the companies do by moving the jobs to Asia is lowering it - so it is a net negative for the labor.

Posted by: Leopold on December 24, 2003 04:11 PM

____

To Graydon:
The guys who knitted mail were displaced when the mail became useless. Thousands of IBM and other companies' employees (would be interesting to check it against the total number of weavers in England during Luddite riots) that were laid off when their jobs went to India were diplaced by the market incentives (salary). My argument is that these market incentives are stacked against labor and that more labor-friendly goverment would correct the incentives by, for example, taxing the revenues of the foreign subsidiaries at the higher rate. If you are Republican, replace it with tax credit for the revenues produced in US - the argument stands anyway.

Posted by: Leopold on December 24, 2003 04:28 PM

____

If you look at the household employment survey instead of the establishment survey, however, it's been closely tracking the 1991-93 recovery.

According to the WSJ's "Outlook" it's because of increasing self-employment, that America "is becoming more entrepreneurial."
http://online.wsj.com/article/0,,SB107023342612276300,00.html

"...for the past 18 months, more and more Americans have been going off to work on their own. Self-employment has increased by 400,000 in the past year alone, according to a monthly survey of American households conducted by the Labor Department."

Posted by: Brady St. Germaine on December 24, 2003 04:49 PM

____

And it well may be that (something completely heretical coming) there is nothing else. All "productivity miracle" is just that - lowering labor's share in the revenues by moving the jobs to Asia. I am almost scared to write this - if true it heralds the disaster of unimaganable proportions.

Posted by: Leopold on December 24, 2003 04:51 PM

____

Hellooo Graydon too! Glad you're on this blog.

Leopold; if you tax revenues of foreign subsidiaries at a higher rate, then they will simply shut them down and purchase services from, e.g., Indian companies in India. And if you tax purchase price for those services too, then you get retaliation from India.

Now; a few days ago, I posted something like "suppose the call-center jobs that went to India were lost to automation, what difference would that make?"

Well, I thought about it again later, and now I think perhaps it does make a difference. Losing jobs to automation is better than losing them to India. But the way to do that is not to tax foreign subsidiaires or install service sector protection barriers. The way to do that is to encourage and support innovation and technical progress in order to improve productivity.

Free trade is not good for every body all the time in all aspects of it. But free trade is something that if you nibble at it here and there, you get chain reaction and trade balances come under threat. So the best policy for every body is to leave free trade alone.

Capital outflow is of course not a good thing for a country or local economy. But taxing capital outflow(*) is not the best way to prevent it, because you don't know what reaction it might cause; it may or may not be good for the economy, and you don't want to get into the game of determining on a case by case basis.

Best way to reduce capital outflow is to encourage capital inflows, to encourage investment in one's economy.

---
(*)I am referring to direct investment capital outflow. For some countries, though, it could be, just could be, a good idea to tax capital outflow in the form of so called "hot money".

Posted by: Bulent Sayin on December 24, 2003 07:24 PM

____

Bulent Sayin: Of course, you tax the products and services that came from offshore. Please note that I do not propose the tax for India. I propose to compensate the labor for a share lost through the globalization. Surely India's retaliation is a joke - India buys almost nothing in US.

Posted by: Leopold on December 24, 2003 07:37 PM

____

India buys nothing in US? No consulting services? Insurance? Auditing? Education services?

And I think the best strategy for taking a better share from the fruits of globalizaiton is to try to encourage/attract investment in one's country, high productivity investment as much as possible, including education and research.

Posted by: Bulent Sayin on December 24, 2003 07:52 PM

____

Bulent Sayin says: India buys nothing in US? No consulting services? Insurance? Auditing? Education services?

Man, you got to be kidding. There's probably not a penny that leaves India and goes to US. A small portion of money that comes to India is left in US as the revenue for this and other crap.

My point - again - is not about the foreign trade balance. It is about the balance between the labor and captial. If "productivity miracle" is nothing but transfer from labor to capital and if the goverment does not correct it, we are in for a major disaster.

Posted by: Leopold on December 24, 2003 08:10 PM

____

I hear/see alot of remarks about "free trade"--I have yet to believe that it has existed in my lifetime. NAFTA and GATT have both strengthened intellectual property laws--where's the "free trade" in that? When has there been absolute free trade or has it always been merely an approximation of sorts that is usually skewed to the advantage of someone (whoever's making the rules, I'd guess).

Posted by: Susan Hogg on December 24, 2003 08:18 PM

____

I hear/see alot of remarks about "free trade"--I have yet to believe that it has existed in my lifetime. NAFTA and GATT have both strengthened intellectual property laws--where's the "free trade" in that? When has there been absolute free trade or has it always been merely an approximation of sorts that is usually skewed to the advantage of someone (whoever's making the rules, I'd guess).

Posted by: SEHogg on December 24, 2003 08:19 PM

____

I hear/see alot of remarks about "free trade"--I have yet to believe that it has existed in my lifetime. NAFTA and GATT have both strengthened intellectual property laws--where's the "free trade" in that? When has there been absolute free trade or has it always been merely an approximation of sorts that is usually skewed to the advantage of someone (whoever's making the rules, I'd guess).

Posted by: SEHogg on December 24, 2003 08:21 PM

____

I hear/see alot of remarks about "free trade"--I have yet to believe that it has existed in my lifetime. NAFTA and GATT have both strengthened intellectual property laws--where's the "free trade" in that? When has there been absolute free trade or has it always been merely an approximation of sorts that is usually skewed to the advantage of someone (whoever's making the rules, I'd guess).

Posted by: SEHogg on December 24, 2003 08:22 PM

____

Leopold writes:

If "productivity miracle" is nothing but transfer from labor to capital and if the goverment does not correct it, we are in for a major disaster."


I'm afraid you're totally off the mark:

1- Productivity is ESSENTIALLY, if nothing but, transfer from labor to capital.

2- Hindering productivity increase in too many areas or in key areas for too long can be.. yes, deadly.

Scripwriters and other zealots in Ottoman Empire prevented transfer from labor to capital in business of publishing, that is, introduction of printing press, for three hundred years. I can tell you, they didn't gain any thing from that resistance, not their descendents did.

By the way, this is a question to any body who would care to address it:

Productivity increase strenghtnes national currency, in general, as far as I know. But it is not happening in US these days. So what's the story there?

Back to Leopold:

If you are sure that hindering transfer of call-center jobs to India would not cause any chain reaction in the way of de-stabilizing (spell?)foreign trade, well then by all means do it. Then the retailers would have to resort to innovation and replacement of labor by capital, thus improving productivity.

Posted by: Bulent Sayin on December 25, 2003 12:34 AM

____

Econ 101

Bulent Sayin writes:
1- Productivity is ESSENTIALLY, if nothing but, transfer from labor to capital.

BLS writes (ftp://ftp.bls.gov/pub/news.release/History/prod2.12032003.news):
Productivity: These productivity measures describe the relationship between
real output and the labor time involved in its production. Although these measures relate output to hours at work of all
persons engaged in a sector, they do not measure the specific contribution of
labor, capital, or any other factor of production. Rather, they reflect the
joint effects of many influences, including changes in technology; capital
investment; level of output; utilization of capacity, energy, and materials;
the organization of production; managerial skill; and the characteristics and
effort of the work force.

Posted by: Leopold on December 25, 2003 01:42 AM

____

BLS:

"they reflect the
joint effects of many influences, including changes in technology; capital
investment; level of output; utilization of capacity, energy, and materials;
the organization of production; managerial skill; and the characteristics and
effort of the work force...."

Exactly my sentiments.


You got to understand though, no matter how hard you try at hand-writing, you just can't match printing press.

No matter how hard you step on the pedal turning a small generator, you cannot match even a 1/8 two-cycle BHP internal combustion engine.

No matter how hard gunsmiths try, they cannot match mass production with interchangeable parts.

No amount of managerial skill could possibly get Henry Ford's mass production system to match the robot equipped Flexible Manufacturing System.

And all that is replacement of labor by capital -- replacement of labor by capital makes it possible for one percent of US population to feed entire nation and more.

They don't tell you much about all that in Econ 101, by the way.

Posted by: Bulent Sayin on December 25, 2003 07:06 AM

____

Free Trade -- Augustus Caesar managed something like both the free movement of labour and real free trade during the early Roman Empire. Worked beautifully.

Free Trade is unquestionably a good idea; the forced market access that gets sold as 'free trade' these days is an actively bad idea, very bad, becuase it's (effectively even when not literally) using military power to support a specific business model. This either destroys all economic progress in that area, or collapses horribly when someone in an ecnomic marcher-state innovates around the forcibly supported business model to the point where it collapses no matter what the former great power does to try to hold it up. [The typical economic fate of empire; it's why being an empire is a very bad idea in the long term, no matter the short term appeal.]

The current US productivity jump numbers are almost certainly in some measure fake; they are also almost certainly in some measure false, in that they are counting a gain (lowered costs) without counting any of its consequences to the economy, rather than the company which can export them to the public sphere. (Rather like not charging factory farms for their pollution.)

The fundamental problem in many ways is the US disgust with competence, combined with a structural refusal of risk on the part of capital; not only is all the risk going to get transfered to people who aren't capitalists, they're going to be viewed with contempt for not being members of that class, no matter how well they manage to cope with this unjust situation. (Which the majority of the capitalists regard as no more than their due, and obviously just and right.)

The fix is to force a lot of low-level, small, risky investment. There are probably better and worse ways to do that, but there is a whole lot of capital coming into the country; it's not impossible (novel, and doubtless tricky) for the US treasury to do this itself.

Posted by: Graydon on December 25, 2003 08:00 AM

____

Uhm, sorry, Graydon, I'm afraid I fail to understand exactly what point your are making here.

Especially "the fix" part; I just don't understand what it is you are recommending.

Posted by: Bulent Sayin on December 25, 2003 10:06 AM

____

The disaster of the twentieth century (in economic terms) was to not escape the nineteenth century fight between policies to produce artificially plentiful and artificially scarce labour.

The problem with the US economy right now is that the "artificially plentiful" faction has decided that they can get the rules written to make labour actually plentiful without having to allow free movement of labour (or the effectively-imported labour to take advantage of its market value to the economy that's hiring it), since transport costs are so low. If they only transfer labour and sharply limit innovation investment in the locations the labour is being transfered to (by keeping transfered wages tied to the local economy in the place of transfer, rather than to the market value of that labour in the economy that's using those wages, so there isn't much of a surplus to be locally re-invested -- not much import replacement), they can make labour cheap everywhere.

And put the global economy into a serious death spiral by choking out innovation in the process of extracting maximum transaction rents on everything; that's the problem with profit-maximizing economies, they maximize transaction rents and leave the people in a position to innovate unable to afford to make the effort to innovate.

I'm advocating policies to produce actually scarce labour.

My take on (some of) what such policies would involve includes the idea of forcing the sort of long term, small, risky investment capital markets will not themselves enter into. It's very good for the economy in the medium term; it increases the size of the pie like nothing else does, by adding new capabilities to the economy. But it doesn't maximize short term profits, so it is very rarely done once a market is mature enough to be dominated by people whose sole experience is that of finance.

It's never done when an economy has been converted into a wealth-concentrating machine.

Posted by: Graydon on December 25, 2003 11:20 AM

____

Graydon writes: The current US productivity jump numbers are almost certainly in some measure fake; they are also almost certainly in some measure false,...

If there was a real and significant number, like for example 50% of the productivity growth is actullay job transfer to Asia, it would have profund political and economic effects. Stock market, exchange rate, consumption forecasts and ultimately presidential campains would be affected. "In some measure" is not enough for that.

Posted by: Leopold on December 25, 2003 12:14 PM

____

Graydon writes: I'm advocating policies to produce actually scarce labour.

There is a portion of enetrprise revenues that accrues to labor and there is one that accrues to capital. When it gets seriously out of whack, you get unpleasant things like revolutions and civil wars. It is getting out of whack now (a little). I think we both agree on the need to correct this tilt. My proposal is simple: fiscal (taxation) incentives for companies with redistribution to labor to ease transition (and yes, you can use small business loans for that as well). I understand that fiscal incentives are simple as bludgeon is simple. If you can propose something more elegant, please do so.

Posted by: Leopold on December 25, 2003 12:27 PM

____

Me, I'm bad.

I advocate policies that would eliminate need for "labor".

Posted by: Bulent Sayin on December 25, 2003 01:26 PM

____

The econs for Dean site Brad links suggests that Iraq uncertainty may be responsible for the jobless recovery. I don't think that case can be made.

There is not a lack of innovation in the US. There is a herd mentality among the investor class that jumps on technologies that are not ready or are not ever going to make money. Investors jumped on genetic engineering long before it was ready to return. The same is true for the dot.bust companies. Misdirected investment coupled with lack of policy to train workers for jobs that are available leads to job loss.

There are a lot of undereducated workers in the US. Look at all the foreign hires by tech companies. Look at US science and engineering grad schools. Students complain about foreign TAs that have heavy accents, but Americans are not competing for those spots.

Posted by: bakho on December 25, 2003 07:48 PM

____

Bakho -

It doesn't really matter why -- not at this level of discussion -- the US economy doesn't add types of capability, generally accessible economic choice, very well. (Though I agree with your comments about 'not competint for those spots'.)

The problem is that it doesn't, so the structural replacement rate for jobs -- the kinds of things there are to do for wages -- lags the structural rate at which those things go away.

Leopold --

Putting a bright line like that between 'capital' and 'labour' is a mistake. Especially when you see the divide as politically mediated, because the scale of concern is carreers and lifetimes and political agreements don't last that long.

Stable employment has always historically required a labour shortage; produce a real labour shortage, and wages, job security, and similar issues tend to take care of themselves.

Posted by: Graydon on December 25, 2003 08:08 PM

____

Bakho -

It doesn't really matter why -- not at this level of discussion -- the US economy doesn't add types of capability, generally accessible economic choice, very well. (Though I agree with your comments about 'not competint for those spots'.)

The problem is that it doesn't, so the structural replacement rate for jobs -- the kinds of things there are to do for wages -- lags the structural rate at which those things go away.

Leopold --

Putting a bright line like that between 'capital' and 'labour' is a mistake. Especially when you see the divide as politically mediated, because the scale of concern is carreers and lifetimes and political agreements don't last that long.

Stable employment has always historically required a labour shortage; produce a real labour shortage, and wages, job security, and similar issues tend to take care of themselves.

Posted by: Graydon on December 25, 2003 08:13 PM

____

Backho:

There is a lot of susbstance in what you're saying but Iraq may indeed have an effect, not for security-related reasons (it never was a security threat enough to hinder economy in US) but for spending reasons, and also perhaps for reasons of international politics (US became an unpredictable actor and that means higher risk and uncertainty for investors both American and foreign).

That's how I think.

Posted by: Bulent Sayin on December 25, 2003 10:17 PM

____

Graydon writes: ...produce a real labour shortage...

How you produce a labor shortage, short of draft or mass incarceration?

Posted by: Leopold on December 25, 2003 10:48 PM

____

"If you look at the household employment survey instead of the establishment survey, however, it's been closely tracking the 1991-93 recovery."

Sorry, but self-employment at miserably low wages and little or no benefits is not what we need. Wages are falling or barely keeping up with inflation as profits have been rising rapidly the last two years. Middle class labor is slowly losing ground.

We need fiscal policies meant to aide the middle class far more directly and meaningfully.

Posted by: anne on December 26, 2003 02:35 AM

____

"There are a lot of undereducated workers in the US. Look at all the foreign hires by tech companies."

This is a most important point, but we need to emphasize creating additional demand for labor at all levels. We are squandered far far too much of the massive fiscal stimulus. Only about 1 in 3 dollars of tax cuts is used for consumption. A middle class stimulus was needed, we got a small to moderate middle class stimulus and a huge tax break for the most wealthy.

Posted by: anne on December 26, 2003 03:16 AM

____

http://www.alternet.org/story.html?StoryID=17452

Suppose that you actually liked a caste society, and you were seeking ways to use your control of the government to further entrench the advantages of the haves against the have-nots. What would you do?

One thing you would definitely do is get rid of the estate tax, so that large fortunes can be passed on to the next generation. More broadly, you would seek to reduce tax rates both on corporate profits and on unearned income such as dividends and capital gains, so that those with large accumulated or inherited wealth could more easily accumulate even more. You'd also try to create tax shelters mainly useful for the rich. And more broadly still, you'd try to reduce tax rates on people with high incomes, shifting the burden to the payroll tax and other revenue sources that bear most heavily on people with lower incomes.

Meanwhile, on the spending side, you'd cut back on healthcare for the poor, on the quality of public education and on state aid for higher education. This would make it more difficult for people with low incomes to climb out of their difficulties and acquire the education essential to upward mobility in the modern economy.

And just to close off as many routes to upward mobility as possible, you'd do everything possible to break the power of unions, and you'd privatize government functions so that well-paid civil servants could be replaced with poorly paid private employees.

It all sounds sort of familiar, doesn't it?

Posted by: lise on December 26, 2003 05:24 AM

____

Lise,
You are describing the plantation economy. That is the model the southern rednecks running the GOP have in mind. They especially don't want government money going to the poor because some of that money would help blacks.

Posted by: bakho on December 26, 2003 07:18 AM

____

Leopold --

Historically, there are two ways to get a labour shortage. Major plagues, and an economy that is expanding faster than the labour supply.

Don't want the plagues; do want the expansion, which means adding new kinds of capability, which in turn means finding much better ways to fund innovation, which in turn means getting rid of profit maximization as the stated and structural goal of economic activity.

That's the core change, from around 1970 -- the obligation of a company's board of directors was not constrained to 'make the maximum possible profit' before that date. If any one thing marks the change from a capability-increasing to a wealth-concentrating economy, that's the thing.

It's a mistake, even if one is already very rich, and needs to be changed.

Posted by: Graydon on December 26, 2003 07:40 AM

____

Econ 101

Graydon writes: ... economy that is expanding faster than the labour supply.

Oh, I almost forgot about that. Can you spell NAIRU?

http://www.economist.com/research/Economics/alphabetic.cfm?TERM=NATURAL%20RATE%20OF%20UNEMPLOYMENT#NATURAL%20RATE%20OF%20UNEMPLOYMENT says:

Governments that tolerated higher inflation in the hope of lowering unemployment would find that joblessness dipped only briefly before returning to its previous level, while inflation would rise and stay high.

Posted by: Leopold on December 26, 2003 10:13 AM

____

Leopold --

You're, in keeping with the tragedy of the twentieth century, looking at 'economic expansion' as 'count of stuff'.

I'm looking at economic expansion as 'kinds of different stuff' and 'kinds of things it can do'; the expansion that gives you titanium cooking pots for the first time, rather than a larger number of the glass and steel and aluminium pots you can already have.

Posted by: Graydon on December 26, 2003 10:21 AM

____

Yay! Some real economists are seeing the extent of our job export problem. The cruel dawn of a new sense of reality is at hand. Now I would like to see some of you sophisticated economists grapple with this reality, and propose approaches that will actually help. Yes if we go protectionist there will be a high price to pay. But if we don't there may be a yet higher price in destruction of the American middle class... so, is there a middle way? What about the idea Dean spouted off about a few weeks ago, that labor protections and worker rights need to be taken into account in global trade. How do we do that without becoming destructively protectionist?

Posted by: Camille Roy on December 26, 2003 10:35 AM

____

Labor and environmental standards should be prominent in all agreements as part of the “floor” of trade, but even that won’t stanch what appears to be happening.

Again another thread unravels to the knot: there's NO GUARANTEE that the RATE OF CREATION or innovation ALWAYS MATCHES the RATE OF LOSS of existing business to cheaper and/or more productive locales. It would seem there can be no predictive theory of human creativity, endogenous growth notwithstanding. (Among many other things, that theory would also explain its own creation, and breach Popper-falsifiability. It would be god-circular.) We are assured with the evidence of modern economic history that things will aright; a history that's only a few hundred years long and, on closer exam, fraught with enormous dislocation and pain.

Now after decades of more polarized distribution of income, we lurch jaggedly into an uneven recovery, losing jobs and industries at increasing pace to enormous poor countries very quickly becoming our world-class competitors, with global labor market arbitrage ensured by the ubiquity of internet communications, while the Administration clearly hopes to re-stumble into a second term by awarding high-income tax cuts leading to wealth-effect re-pumping (and incidentally increased campaign contributions) from inside some bubble, any bubble, sporadically reimpregnated by spurts of consumer debt, while tons of the re-entering unemployed, hitherto untabbed by beancounting, make their re-entrance for jobs, all in the historical hope that human creativity will create new goods and services enough to put our poor into a productive life and pay off the debt, with no real guidance from economic science on how to increase creativity and innovation at a rate commensurate with people being reordered and downsized by capital at near-lightspeed, other than more education too pricey for taxpaying, or new investment now cautious in overcapacity, all on top of a decade of slambang growth primed more from wealth-effect bubble, personal debt, and criminal rot than most newsreaders still realize, running unsustainable twin deficits that put our own credit at risk from foreign investors who could soccer-rally elsewhere quick, in an international scene where we’ve angered the others by engaging a pre-emptive war sold to our own population as an endowment of freedom while the rest of the world sees it as a physical play for the largest known last oil fields, and all of this is being reported, atomistically at best, by a press corps ninety percent of whom should never have been awarded a college degree in the first place.

Posted by: Lee A. on December 26, 2003 11:02 AM

____

"Bulent Sayin says: India buys nothing in US? No consulting services? Insurance? Auditing? Education services?

"Man, you got to be kidding. There's probably not a penny that leaves India and goes to US."
~~~~

Some kidding from McKinsey on the average return to both the US and India on the outsourcing of $1 of US work to India...

Benefits in US:

Savings to US customers/investors: $0.58.
Additional purchases of US products by India: .05
Transfer of increased profits from India to US: .04.
Reemployment of US labor elsewhere: .45-.47

Total return to US: $1.12-$1.14

Benefits to India:

Increased labor employment: $0.10
Increased profits retained: .10
Gains to suppliers: .09
Tax revenue: 0.4

Total gain to India: $ 0.33

Total benefit to both nations from the $1 of outsourcing from the US to India: $1.45-$1.47

http://www.mckinsey.com/knowledge/mgi/offshore/

Posted by: Jim Glass on December 26, 2003 11:54 AM

____

"...about the balance between the labor and captial. If 'productivity miracle' is nothing but transfer from labor to capital and if the goverment does not correct it, we are in for a major disaster."
~~~

Why would anyone think a productivity increase is *nothing but* a transfer from labor to capital?

When Henry Ford famously increased his company's manufacturing productivity 7-fold in one shot by introducing the assembly line, he also as a direct result slashed the price of the cars he sold by two-thirds -- so average working families could buy them for the first time -- and more than doubled his own workers' wages.

So some of that productivity increase sure inured to the benefit of workers, right? In fact, if you look at those numbers, it seems the great bulk of it did.

Even common sense should inform on this. Productivity has been increasing for 200 years. So if increasing productivity was nothing but, or even significantly, a transfer from labor to capital, then labor would have nothing at all left by now! Sheesh.

Instead, wages as a share of national income have been remarkably steady over the long run for as long as we have data. Go to the BEA web site and see. With productivity rising all the time.

For those who nevertheless believe that productivity increases lead to the immiseration of the workers, there is an easy logical policy fix. Make everyone less productive. If we just get tractors and all other productivity boosting machinery off of farms, there'll be plenty of work for everyone right there -- of necessity, just to eat.

Posted by: Jim Glass on December 26, 2003 12:09 PM

____

Jim Glass writes: Reemployment of US labor elsewhere: .45-.47
Total return to US: $1.12-$1.14

Oh, this is wonderful. Reemployment of a hardware or software engineer as a cab driver is surely a big win for US economy.

And you are just proving my point that India buys nothing in US. Of course when you get 100 engineers working for Oracle in India they need to buy hardware and software. But the people that pay for this hardware and software are consumers of the final product, so even pathetic $.05 may not really leave India and go to US - it is simply a part that the ultimate consumer in US pays to another company, like Sun (that also employs engineers in India). In fact if the number is $.05/$1 that means that most of that software is simply stolen.

Posted by: Leopold on December 26, 2003 12:13 PM

____

Personally, I think that framing the debate as economic benefits from companies sourcing one input (labor) where it is cheaper is a deliberate obfuscation of the matter. Labor is different from any other input - it is provided by people like yourself. It is economically efficient to kill old people and the mental patients. In fact, Nazis tried the latter.
Society sets the market incentives. My point is that the goal of healthy, educated society of people doing creative jobs is not served by reemploying engineers as cab drivers.

Posted by: Leopold on December 26, 2003 12:27 PM

____

"Jim Glass writes: Reemployment of US labor elsewhere: .45-.47
"Total return to US: $1.12-$1.14

"Oh, this is wonderful."

Sure is, glad you agree! Where else do you get a 12% to 14% return for the economy these days?

"Reemployment of a hardware or software engineer as a cab driver is surely a big win for US economy."

Oh, you were being sarcastic. ;-(
But you left out the single biggest number ...

"Savings to US customers/investors: $0.58."

Which gives consumers/investors more to spend/invest in other comparatively more productive sectors of the economy. Do you want to guess on the employment effect of that?

By my math .58 + .45 = $1.03 > $1.00, even disregarding the rest.

I know this does contrast with the old-style protectionist accounting where less is more, so long as the benefit of having less is concentrated in *my* industry, while the cost of giving up more is borne only by everybody else.

Posted by: Jim Glass on December 26, 2003 12:35 PM

____

Jim Glass writes: the benefit of having less is concentrated in *my* industry

What *my* industry? IT industry is the one that is doing outsourcing. I am talking about protecting the labor. Labor is not industry. Labor is people that form a society - consumers, voters. Society provides incentives for the markets. For example, there is a strong disincentive for importing nuclear waste into US. I hope you are OK with it? I am saying that the incentive is needed so that students would keep choosing engineering professions - and yes, so that existing engineering resources would not get squandered in highly educated people becoming Starbucks barristas.

Posted by: Leopold on December 26, 2003 12:44 PM

____

"It is economically efficient to kill old people and the mental patients. In fact, Nazis tried the latter."

I invoke Godwin's Law!

"My point is that the goal of healthy, educated society of people doing creative jobs is not served by reemploying engineers as cab drivers."

Was it served by forcing the creative skilled artisans of the buggy industry out of business and re-employing them in jobs formerly beneath them when they faced the competition of the cold, impersonal assembly line?

Would we have had a more healthy, more educated society if those skilled artisans had remained protected while economic transport continued to be lugged around in carts drawn through horse droppings?

Posted by: Jim Glass on December 26, 2003 12:48 PM

____

"What *my* industry? IT industry is the one that is doing outsourcing. I am talking about protecting the labor. "

Well then you should be happy to consider how *labor* benefits from that .58 saving in the US that you keep ignoring -- just like it benefitted in a huge way from Henry Ford's assembly line, and the mother of all productivity increases it produced.

Posted by: Jim Glass on December 26, 2003 12:53 PM

____

Those who object to transfer of jobs to India are overlooking something called competition:

If IBM and Oracle won't transfer jobs to India, or if American software engineers won't take salaries low enough to compete with India, then European firms will transfer jobs to India thereby gaining a competitive edge over US firms, and if not that, then eventually Indian companies themselves will do to US software sector something like the japanese auto makers did to Detroit in 1970s, until AFL-CIO and Detroit managers learned their lesson the hard way:

Automate, babe, or evaporate!

Posted by: Bulent Sayin on December 26, 2003 01:03 PM

____

Jim Glass writes: Was it served by forcing the creative skilled artisans of the buggy industry out of business...

Sorry, bad analogy: the reason buggy makers went out of business is because the value of their product dropped with the advancement of technology. When IBM replaces 5000 engineers in US with the same (or frequently larger) number in India that happens because cheaper source of labor became available. Better analogy would be: if some buggy makers found a way to make their workers work double-shift paying them the same wage and the rest went out of business. And you still claim this is good for society?

Posted by: Leopold on December 26, 2003 01:16 PM

____

All right, I am going to summarize what I was saying and shut up. There are 2 problems with the job transfer to Asia.

First it imposes a cost on people that have chosen the profession and worked in it for years. Should these people be compensated for this cost? That depends on whether you beleive external costs should be compensated. I can argue that the best place for me to build a steel mill is right next to your house. If you do not like it, tough - this is my property and this is a free country. Most likely though you are going to sue me for damages - or use zoning to prohibit me for building it in the first place.

Second, it destroys the knowledge on the subject created in the area. Harder to quantify but here is one good example: US run largely on Internet expansion from approximately 1996 to 2001. Japan did not have similar expansion. Here is one of the reasons: did not invest into PCs and PC software - not eonough PCs at home - not enough consumers - could not make it worthwhile for businesses to expand their enterprises to the Web. Another example: American LCDs.

A corrolary to #2 is: does our goverment really want that most of the people that know how to build advanced technology would live in the countries (China, India) that are neither America's ally and in fact likely to be strategic competitors (and possibly opponents) in the 21st century?

Posted by: Leopold on December 26, 2003 02:45 PM

____

"Man, you got to be kidding. There's probably not a penny that leaves India and goes to US."

If so, we're getting value from India without paying for it.

Posted by: richard on December 27, 2003 05:56 AM

____

Post a comment
















__