December 26, 2003

Outsourcing Once Again

Matthew Yglesias reads Bob Herbert on "outsourcing":

Matthew Yglesias: High Tech Offshoring: Bob Herbert writes on the subject of high tech offshoring. It's easy to see why this bothers many Americans -- it means that some Americans who otherwise would have had high paying jobs either have no jobs, or else lower paying jobs. All else being equal, it would be better for more Americans to have higher paying jobs.

What I don't quite see, however, is why the alternatives are supposed to be so much better. Say we changed things around and more Americans made more money, more Indians made less money, and all people everywhere had to pay somewhat more for their software. How is that really better? Because it's better for Americans? What if we sent the Marines into Bombay to rob a few banks and help close the budget deficit -- would that be better? I would say not. Now it's not the same as restricting the offshoring of jobs, but it's not totally different either, the Indian software engineers are people too, and their interests count. Come to think of it, American software consumers have interests that count as well. So do the shareholders in US software companies. Why is protecting the salary levels of American geeks so overwhelmingly important?

First of all, it's job shift--not job loss. "[S]ome Americans who otherwise would have had high paying jobs either have no jobs, or else lower paying jobs," but other Americans who would have had no jobs or else lower paying jobs have higher paying jobs, and Americans who buy what they make pay less and so have higher real incomes. We pay for the stuff that Indians sell us by giving them dollars, and those dollars are useless to them unless they use them to buy U.S. exports (or trade them to people who will use them to buy U.S. exports) or invest them in America--thus providing financing for American businesses to expand their productive capacity.

Thus to Bob Herbert the group of non-persons--those who simply do not count--is quite large: it's not just Indians who are non-persons, it's not just American consumers, it's also Americans who work in export industries and Americans whose jobs in construction or capital-goods production are ultimately financed by capital inflows.

A better U.S. government would do much more about the distributional impact of expanded trade--would try to make it win-win, rather than the win-lose game with the winners winning more and being more numerous than the losers that it is at present.

A worse U.S. government would try to freeze the world distribution of labor at least to the extent of protecting politically-powerful domestic interest groups.

I wonder about Bob Herbert: is he smart enough to have, when he looked in the mirror this morning, thought, "I see a man who is trying to keep India a desperately poor country?"

Posted by DeLong at December 26, 2003 01:21 PM | TrackBack

Comments

Brad is using a bipolar model of trade, Indians develop software, software is sold in the US for dollars, Indians are paid dollars and use them to buy US stuff.

Not today. What happens to your duality if the Indians use dollars to buy oil from Saudis, or if the US companies pay the Indians in euro (a much more valuable currency:( with money from their European operations.

You assume that all the software the Indians are now developing is sold to the US. What is the effect if the Indian engineers are developing software that is sold in Japan, for example, when this software was previously developed in the US?

This does not even take into account that dollars can be invested other places than the US to expand productive capacity. China for example.

There are multiple opportunities for net losses to the US in both jobs and wealth.

Posted by: Josh Halpern on December 26, 2003 02:22 PM

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Sorry, I posted it in another thread but it is relevant here. 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 at December 26, 2003 02:45 PM

Posted by: Leopold on December 26, 2003 02:55 PM

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Howard Dean has tapped into angry Democratic partisans and he has done it on the internet. Computer jobs in the US are no where near what they were. The tech sector has a lot of dislocated workers. I wonder how much of the anger is coming from this group, many of whom are both unemployed , soon to be unemployed or underemployed and internet savvy?? Whether or not it is Mr. Bush's fault, this group is not going to support him in 04 and would rally behind someone who addressed their concerns, rightly or wrongly.

Posted by: bakho on December 26, 2003 02:57 PM

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Brad Brad. Shame. Bob Herbert is fiercely concerned about displaced workers, and if neglecting to consider Indian workers, this can be addressed with no vilification. I am shocked that you attack Bob Herbert. Where were you when this wonderful columnist was arguing on behalf of beset African-American families in Texas or ill IBM workers in Silicon Valley. Please Brad, we love you, do not sneer at a person of the compassion of a Bob Herbert.

Posted by: anne on December 26, 2003 02:59 PM

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Josh: That trade is multilateral is not exactly a new discovery. Nor does it change the essence of what Dr. DeLong was trying to say. I'm confident of two things: (a) he knows what you said already; and (b) with a little more explanation, he could very easily make the same exact point in a model with more than 2 nations.

Posted by: Harold McClure on December 26, 2003 03:11 PM

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Me too, me too -- I posted this in another thread but....:

"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!"


Oh, about looking at mirrors: Somebody once wrote to Art Buchwald that he should take a good look in the mirror and then bang his skull into it!


Posted by: Bulent Sayin on December 26, 2003 03:20 PM

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Here coming for the kill:
Think about the case when the company had to compensate all replaced employess (by paying them the difference with cab driver's income, re-trainig as biochemists to work in nanotech or whatever). Would the transfer of jobs still occur? In the buggy-maker/car-maker case, yes - it would still make sense for Ford to make cars even if he had to compensate buggy-makers. In the transfer of jobs to Asia case? Of course not - why transfer jobs if you have to incur transfer costs, pay people in India 20% and also pay 80% to people in US for not producing anything when these people were doing the job in the first place? So all that is happening is the company imposing the costs on others (employee and society at large) and taking the profit. Can someone say Chomsky?

Posted by: Leopold on December 26, 2003 03:40 PM

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Leopold writes:

"Think about the case when the company had to compensate all replaced employess (by paying them the difference with cab driver's income, re-trainig as biochemists to work in nanotech or whatever). Would the transfer of jobs still occur?..."

You bet! They will entirely and permanently close shop in US and open shop in India and other places where labor law is more sensible than that.


Posted by: Bulent Sayin on December 26, 2003 03:50 PM

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I have a great plan to create long term employment throughout
the United States.

First spend a lot of money to make sure there's employment
everywhere in the US. Next we divide up the United States
into 1000 economic zones with its own federal reserve, currency,
etc so that economically it would be like its own country.
Then we have long term employment throughout the United States
because the rules of international economics apply. No longer
would there would be job losses there would only be job shifts.
When jobs move from, say, town1 to town2, this would actually
be a job shift.

Town1ees pay for the stuff that Town2ees sell Town1ees by giving
them Town1dollars, and those Town1dollars are useless to them
unless they use them to buy Town1 export (or trade them to people
who will use them to buy Town1dollars exports) or invest them in
Town1dollars--thus providing financing for Town1dollars
businesses to expand their productive capacity.

Sounds like a great plan to me.

Posted by: Dan the Man on December 26, 2003 03:51 PM

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To Bulent Sayin:
You do not understand. I've shown that job transfer to Asia does not produce an efficient outcome. I want my PhD(Econ)!

Posted by: Leopold on December 26, 2003 04:05 PM

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That plan has been under implementation for about 200 years.

In bad times, California, for example, loses people, millions of them, and becomes net recipient of Fed funds; in good times, California takes migraiton and becomes a net contributor to Federal treasury.

Flexibility like that is what they aim in European Union but it is still in its infancy.

You know what Boston is working on these days (I got from ArgMax but forgot where ArgMax got it from)? They are working on creating a concentration of biotechnology sector in their area, aiming to have about 100,000 new jobs -- you can be sure they expect those jobs to be pretty well paid.

Suppose there were four other cities working like Boston and aiming at 100,000 well paid jobs each?

If it weren't for Bush policies, domestic and foreign, America would now have the funds to encourage and support not five cities, but ten or fifteen cities like that.

Get rid of the Bush administration.

The Bush administration is probably going to go down in history as the worst administration America ever saw.

Posted by: Bulent Sayin on December 26, 2003 04:10 PM

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>That plan has been under implementation for about 200 years.

I must have missed something. So when they teach about international
economics and talk about appreciation and depreciation they're also
talking about economic relations between California and Boston? How
did currency get appreciated or depreciation between California
and Boston? After all they both use the dollar right? So did the
dollar appreciate/depreciate against itself?

Posted by: Dan the Man on December 26, 2003 04:19 PM

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This sentence is wrong: "We pay for the stuff that Indians sell us by giving them dollars, and those dollars are useless to them unless they use them to buy U.S. exports (or trade them to people who will use them to buy U.S. exports) or invest them in America--thus providing financing for American businesses to expand their productive capacity."

People have pointed out some of it already, that Indians are also able to trade with third parties. But the main flaw comes on top of that. The US$ is a reserve currency, and printing more of that is the USA "exporting inflation". When US trading partners pass on their depreciating dollars to third countries, some of that is "investment" as well as short term trade - but to the extent that it is using depreciating fiat currency, it isn't real investment but a wealth transfer, acquiring existing assets and revenue streams in third countries. (Later still, the depreciated US$ don't come back to haunt the USA as much as their initial real value might suggest.) And of course infrastructure also builds up in these middlemen countries from a sort of trickle down.

So a better analogy is what happened to Spain and Portugal (front end countries), England and Holland (middleman countries), and Poland and Turkey (end primary producer countries) during the bullion driven inflation after the discovery of New World resources. China and India were affected right at the end, and the trade imbalances drove 18th and 19th century European imperialism to some extent, but that was after the initial phase. The USA is experiencing the analogy of the Spanish disease, while India and China are incidentally experiencing the build up of infrastructure etc., in a concealed way mainly at third party expense.

I should mention, I am posting from Australia, a third party country.

Posted by: P.M.Lawrence on December 26, 2003 05:07 PM

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The US has a huge trade deficit. How can it be true that every dollar we send out is coming back to us?

(I realize that foreigners can buy things other than US exports, but is there really that high an amount of US bonds/stocks/property bought? And if so, isn't that also a bad thing, per Buffett?)

Posted by: crayz on December 26, 2003 05:22 PM

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"Thus to Bob Herbert the group of non-persons --those who simply do not count--is quite large: it's not just Indians who are non-persons, it's not just American consumers, it's also Americans who work in export industries and Americans whose jobs in construction or capital-goods production are ultimately financed by capital inflows. "
I agree with Anne here on the shame-thing.

Herbert just passed on the uncertainty of the white-collar-workers. He did not attack the IBM-policy, nor did he defense (or attack for that matter) any form of protectionism.
I am much surprised how many people keep on debating in moral terms instead of thinking about real policies. Policies of the workers to whom this concerns and/or policies of the government.
In my humble opinion the IBM-workers should address the possibility of to low wages for their Indian colleges and the need for decent redundancy schemes.
Politics to some extend should address the same issues but on top of that (and as some sort of prerequisite to those) should prepare society on the global shifts: it’s a very good development that now (at last...) countries like India, China, Brazil are really changing their positions. This inevitably brings disadvantages to the US and Europe. To face these it’s absolutely necessary that the rich in the West get a fair share of the disadvantages, otherwise the foreseeable populist reaction will make everyone loose.

Please elaborate on "do much more about the distributional impact of expanded trade".

Posted by: FransGroenendijk on December 26, 2003 05:27 PM

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"Think about the case when the company had to compensate all replaced employess (by paying them the difference with cab driver's income, re-trainig as biochemists to work in nanotech or whatever). Would the transfer of jobs still occur? ... Of course not - why transfer jobs if you have to incur transfer costs, pay people in India 20% and also pay 80% to people in US ...
~~~~

Think of the case where people who have their jobs and salaries protected from foreign competition must compensate all consumers (who are workers too, after all) for the increased costs they have to incur, plus compensate all other workers who suffer lower wages or having no wages at all due to the loss of or lack of creation of their jobs, due to the decreased demand in *their* industries thanks to the reduced consumer demand and investment in them that follows from barring more productive use of resources.

From data in the other thread we know there is a net loss here domestically 1.14 to 1 -- although we also know this logically since national income tracks national productivity. Which is why a barber gets paid so much more in Manhattan than in a third-world country for doing the same thing.

Would people still want to protect their jobs this way? Of course not -- why protect your job if you have to pay out more than 100% of what you save to those whom you harm by doing so?

"I've shown that job transfer to Asia does not produce an efficient outcome. I want my PhD(Econ)!"

Your diploma is on order from Usenet University.

Posted by: Jim Glass on December 26, 2003 05:28 PM

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Jim Glass: Think of the case where people who have their jobs and salaries protected from foreign competition must compensate all consumers (who are workers too, after all) for the increased costs...

So, can I build that steel mill next to your house? Well, steel mill is expensive - how about "Bear, Wine, Hot Girls and Checks Cashed"? Right door to door? After all, there is no external costs, right?

Posted by: Leopold on December 26, 2003 05:40 PM

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Jim Glass:

As for people who has their jobs protected owing everyone else. Your claim is based on the existence of 1.14:1 efficiency. My argument is that your "efficiency" is coming from the ability of the company to transfer its costs to the outsourced employees and the society, in other words, that there is no efficiency at all.

Posted by: Leopold on December 26, 2003 05:46 PM

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Oh what wonderful theories will economists come up with when their jobs are sent overseas?

Posted by: tgermano on December 26, 2003 05:55 PM

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Brad DeLong's unpersons, by contrast to Herbert's, are all in one category: American workers and businessmen who are hurt by free trade, together with their families and neighborhoods.

beyond the fact that displaced workers are not being compensated or helped in the actual world of reality, is it economically even feasible to help them? If you take the dollars saved or earned by free trade and give them to displaced workers, where's the advantage?

It is always assumed that overseas economies benefitted by free trade are put on the road to gradual progress to first-world income levels, but is this true? It hasn't seemed to have happened in Mexico -- when Mexican wages start to rise the jobs go to Bangla Desh or somewhere. My understanding is that only when everyone in the world has a job will unskilled wages start to rise significantly. As long as there's somewhere to run, capital will run.

Posted by: Zizka on December 26, 2003 05:57 PM

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To: Jim Glass,

I am not sure why we are having so much difficulty here. The persons committing actions (for example, accidentally hitting your car) bear the responsibility for the consequences (pay you the damages). The company committing the action of layoff damages the people it lays off. These damages, when counted as a part of the cost of the job transfer to Asia, make transfer uneconomic. The only half-reasonable argument that can be made here is that the damages are covered by at-will employment. My argument is that it is not. You cannot buy out the at-will option. The only comparison we have - goverment jobs - pay less than 1:1,14. Therefore the costs are passed to employees and society at large. Is this so hard?

Posted by: Leopold on December 26, 2003 06:42 PM

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"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?"

I dunno. Should all those who chose to work as buggy makers, or in the Studebaker plant, or as specialist programmers for OS/2 or CPM have been compensated when outside competitive forces put them out of business?

"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..."

Um, if you are confusing externalities such as pollution and noise from a steel mill with "external" factors like competition affecting wages and prices, sorry, even Usenet University is going to put your PhD diploma on hold.

When you go out and buy a more fuel efficient car than your old one, your act is an external factor that reduces your local gas station's revenue and the amount it can pay its low-wage help. Do you feel a moral obligation to pay extra to it, to protect its workers from your "external" reduction in demand for their services? Perhaps gas station workers deserve protection from/compensation for CAFE requirements? (Not to mention other "external" costs to them like re-routed highways, new competitors opening up the road...)

"Jim Glass: ... So, can I build that steel mill next to your house?"

Well, do you think you'll be able to afford to buy all the land and rights-of-way in-and-out that you'll need when so many individuals each have the power to extort you by refusing to sell?

Seems to me that as in most such projects you'll probably have to get the government to use eminent domain on your behalf -- which will require a quite persuasive showing by you that your mill will produce net benefits to the whole community. BTW, I live in Manhattan.

"Well, steel mill is expensive - how about 'Bear, Wine, Hot Girls and Checks Cashed'? Right door to door? After all, there is no external costs, right?"

Like I said, I live in Manhattan so I've got all this stuff within two blocks of me in any direction. Don't you watch "Sex and the City"? They're what keep the rents up and folks coming into town on Saturday night. If you can afford the rent, more power to you!

(Though I assume you mean "beer" for "bear". Not many bears around these parts.)

Posted by: Jim Glass on December 26, 2003 07:27 PM

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"To: Jim Glass
What is 'external factor' as opposed to externality? "

Oh, my. ;-)

"Did you get your Usenet PhD for it?
If someone hits your car which is it, external factor or externality? Or it depends on whether they hit it from the front or back?"

Hey, how about you answering one of my questions for a change?

CAFE requirements have reduced demand for gasoline, the revenue for gas stations, and thus the amount of wages avaialble for low-pay gas station workers.

Do you think gas station workers should be compensated for, or protected from, this harmful "externality"? How about being protected from "externalities" such as the state re-routing a highway away from a station? Or a 20-pump super-discount Gas and Go opening up the highway?


Posted by: Jim Glass on December 26, 2003 08:44 PM

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"To: Jim Glass
What is 'external factor' as opposed to externality? "

Oh, my. ;-)

"Did you get your Usenet PhD for it?
If someone hits your car which is it, external factor or externality? Or it depends on whether they hit it from the front or back?"

Hey, how about you answering one of my questions for a change?

CAFE requirements have reduced demand for gasoline, the revenue for gas stations, and thus the amount of wages avaialble for low-pay gas station workers.

Do you think gas station workers should be compensated for, or protected from, this harmful "externality"? How about being protected from "externalities" such as the state re-routing a highway away from a station? Or a 20-pump super-discount Gas and Go opening up the highway?


Posted by: Jim Glass on December 26, 2003 08:44 PM

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Jim,

Let me go slowly - I am sure we will understand each other in the end.

If you go with your girlfriend to visit her auntie you hate, your girlfriend created 2 large externalities: one, presumably positive, for her aunt and one - negative - for you. Both of them will play out - in your girlfriend feeling good to be such a good niece and in the fact that she will want to make it up to you. During the trip your girlfriend and you will create a large number of small externalities. Some of them have too widespread effect to compensate to a specific person, like your car's pollution and noise - the city will step in and account for them through the taxes and permits. Some of them are impractical to account for, like when you cut someone off at the turn. There is no mystereous "external factors" that your girlfriend and you create - there are externalities that are impractical to count.

Now, back to our real case. When someone is laid off because their job has been outsourced, she knows who laid her off, right? And the effect is presumably significant. So we have to account for it, just like for pollution and resource use.

This has nothing to do with the efficiency, 1:1,14 and the other magic numbers. If you owe something you will pay it back - even if it gets you out of business. The only argument you can make is that the externality is accounted for in at-will employment. In my opinion it is not fully priced. We can think together on setting up the way to measure it.

Understand now? Keep the PhD.

Posted by: Leopold on December 26, 2003 09:14 PM

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As a person with a fierce Austrian tilt I never anticipated defending Brad DeLong, but he's absolutely right about this. Globalization is inevitable. Foreign competitors who have the skills and are offering them cheaply will get the jobs. Those jobs can either be with American corporations or with competitors to American corporations who will then run us out of business with their lower costs. Take your pick, but you can't prevent the job shift without resorting to force.

bakho asked: "The tech sector has a lot of dislocated workers. I wonder how much of the anger is coming from this group, many of whom are both unemployed , soon to be unemployed or underemployed and internet savvy??"

A lot of it. I'm a tech worker and see many jobs similar to my own going overseas. Many of my co-workers are worried and are strongly opposed to globalization. However, I'm economically savvy and believe that globalization is good ( http://arbyte.us/essays/Glory_of_Globalization.html ) because it's the natural result of economic competition -- without which I wouldn't have my job in the first place.

I don't think it's in my interests to bite the hand that feeds me.

Posted by: Kyle Markley on December 26, 2003 09:18 PM

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".... Foreign competitors who have the skills and are offering them cheaply will get the jobs. Those jobs can either be with American corporations or with competitors to American corporations who will then run us out of business with their lower costs.... "

Mes sentiments exactement! :)

Posted by: Bulent Sayin on December 26, 2003 09:58 PM

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Not taking care of your redundat workers in market economy is moral equivalent of not taking care of your wounded in war.

Especially those ardent advocates of market economy and market forces and market driven processes should be able to see that better than any one else.

Posted by: Bulent Sayin on December 26, 2003 10:18 PM

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"Jim Glass: ... The persons committing actions ... bear the responsibility for the consequences (pay you the damages). The company committing the action of layoff damages the people it lays off. These damages, when counted as a part of the cost of the job transfer to Asia, make transfer uneconomic. The only half-reasonable argument that can be made here is that the damages are covered by at-will employment. My argument is that it is not. You cannot buy out the at-will option. The only comparison we have - goverment jobs - pay less than 1:1,14. Therefore the costs are passed to employees and society at large.

"Is this so hard?"
~~~~~

When you intervene in the free market to favor and protect workers in group A over other workers *and* consumers -- call them group B -- you clearly harm those in group B by your action. You owe compensatory damages to those in group B for the harm you do to them, the costs you have imposed on them.

Is this so hard?

Yet I don't see you proposing to pay such compensation, nor even proposing that the beneficiaries of the protection in Group A pay it.

Perhaps this is because as the harm to those in B just within the US's borders exceeds the gain to those in A by a 1:14-1.0 ratio, paying such compensation would be not merely uneconomic but impossible. Which is the definitive in *uneconomic*.

Your only answer is to deny or ignore the harm you do to those in B. But let's look at a real case. It's quite well documented that the recent steel tariffs did harm to workers in steel-consuming industries at a *multiple* of the benefit they provided to workers in the steel-producing industry, plus harm to consumers too.

Please tell us how these harmed workers and consumers should be compensated for the real harm they suffered -- they are waiting. Is this so hard?

BTW when you as a consumer stop buying services from plumber X and instead start buying them from plumber Y, (or from lawyer, doctor, accountant, grocer, car repairman X etc) in order to get a better deal on price and quality, you harm X by your action, no doubt about it.

Surely you owe him damages. You may rationalize that you do not because an "at will" hiring relationship exists between you in law and by long-time mutual agreement. But your own argument is that it is not so -- damages are not covered by the at will option, you say above -- so to argue that *your* at will relationships *are* so while the at will arrangements of those who hire computer workers are *not* so would be too self-serving to take without laughter.

So get ready to pony up damages for anyone whose services you ever stopped using. Heck, for *any* reason, not just price.

Also BTW, your claim that "the only comparison we have is gov't jobs" is incoherent to me. Are you trying to say the 0.58 per $1 saved by consumers/investors all go into gov't jobs -- not into comparatively more productive parts of the economy, expanding employment there?? Or that everyone who ever lost a job to competition, domestic or foreign, has had to resort to a gov't job???

And I'm still waiting to hear if gas station workers deserve compensation for external policies that reduce demand for gasoline.

Posted by: Jim Glass on December 26, 2003 10:21 PM

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It seems to me (and evidently other folk here) that Jim, Harold and Brad are claiming that the best of all possible worlds is one in which all wage earners earn the least amount possible, perhaps zero.
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It seems to me that those who think higher wages are desirable would bother to learn how economic theory and empirical fact agree that what increases national wages is *increasing productivity* -- and that increasing productivity is what free trade is all about. And that protectionism stymies productivity without saving jobs.

I mean how naive is it feel good about "saving US jobs" in the steel industry with the steel tariffs, without looking at how many US jobs were *lost* downstream due to higher steel prices facing steel-using industries and higher costs imposed on consumers?

And BTW, don't forget to put Prof. Krugman to "our" side of this argument.

"How productivity gains are the source of all Economic good, not evil, in the world."
http://www.pkarchive.org/theory/hotdog.html

Now, those who want higher wages might ask: How do we increase national productivity *without* moving capital and labor from our comparatively less productive industries to our comparatively more productive industries?

And: If we "protect" workers in our less productive, less competitive industries, locking in capital and labor in them so they cannot move to more productive uses, are we not harming our national productivity and thus national wage level too?

Say 50% of the population had stayed on the farm like in the old days, instead of productivity increases and competition driving the number of farmers down to 2%. Would we have higher national wages today by maintaining the productivity level of a subsistence agricultural economy? By not protecting those jobs, did we get a 48% unemployment rate with lower wages?

The fallacy is people see a job lost here and think that's terrible, but when they see new jobs and businesses there, those are taken for granted as if an economy creates those automatically -- and would have even if the capital that was used to create them had remained locked up in an old New England shoe factory after its shoe makers were protected from Italian imports.

And where is any real *evidence* that trade actually costs jobs on net for the economy anyhow(which some claim even when begrudgingly admitting it does increase productivity and wages)? It's odd how this effect is only seen in association with recessions, which *do* cost jobs.

Here's Krugman on jobs and trade with Mexico under NAFTA -- though you could substitute Japan earlier, or China or India today, or whatever other nation is getting beaten up by protectionists at the moment...

"To me, at least, the idea that changes in demand will normally be offset by Fed policy -- so that they will, on average, have no effect on employment--seems both simple and entirely reasonable.

"Yet it is clear that very few people outside the world of academic economics think about things that way. For example, the debate over the North American Free Trade Agreement was conducted almost entirely in terms of supposed job creation or destruction.

"The obvious (to me) point that the average unemployment rate over the next 10 years will be what the Fed wants it to be, regardless of the U.S.-Mexico trade balance, never made it into the public consciousness..."
http://slate.msn.com/id/1917/

Personally I'm happy enough to be on the side of economists on economic issues, as on that of physicists on physics issues, geographers on geography issues and astronomers on issues of astronomy.

The only *evidence* that most people have to trump the economists on trade is what they see with their own eyes combined with common sense -- which will also tell them that the world is flat and the center of the universe. Let them believe that and get equally self-righteous about it.

Posted by: Jim Glass on December 26, 2003 10:33 PM

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"And I'm still waiting to hear if gas station workers deserve compensation for external policies that reduce demand for gasoline."

No, not "compensation". Yet I would like to repeat what I said:

Not taking care of your redundat workers in market economy is moral equivalent of not taking care of your wounded in war.

Posted by: Bulent Sayin on December 26, 2003 10:38 PM

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Jim,

I am sorry, this is getting silly. You now claim that whoever is laid off suffers no damage whatsoever? In this case why people are paid severance and dismissals are contested in courts? And here I thought we had a real conversation.

Posted by: Leopold on December 26, 2003 10:40 PM

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"And I'm still waiting to hear if gas station workers deserve compensation for external policies that reduce demand for gasoline."

No, not "compensation". Yet I would like to repeat what I said:

Not taking care of your redundat workers in market economy is moral equivalent of not taking care of your wounded in war.

Posted by: Bulent Sayin on December 26, 2003 10:46 PM

____

Jim,
Let me go slowly - I am sure we will understand each other in the end...

When someone is laid off because their job has been outsourced, she knows who laid her off, right? And the effect is presumably significant. So we have to account for it, just like for pollution and resource use.

This has nothing to do with the efficiency... If you owe something you will pay it back - even if it gets you out of business. The only argument you can make is that the externality is accounted for in at-will employment. In my opinion it is not fully priced....
~~~~~~

I'm just curious, do you apply the same analysis the other way?

A worker quits her job and goes for higher pay to another firm, maybe a foreign one. The company knows she quit, and the effect on it could be quite significant, right? So we have to account for it, just like for pollution and resource use.

This has nothing to do with the efficiency... If you owe something you will pay it back - even if it gets you out of business. The only argument you can make is that the externality is accounted for in at-will employment. In your opinion it is not fully priced...

Let's stipulate that she was a valuable employee and that her departure harms the company.

In spite of her having an at will employment agreement with the company, she owes it damages for the harm she did to it upon leaving it?

Posted by: Jim Glass on December 26, 2003 10:58 PM

____

Jim,

Remember, this was my argument that you are disputing. The argument goes like this:
- People suffer damage when they are laid off. To me this is indisputabe.
- This damage is not fully priced in in the employment agreements. This is testable and I am inviting anyone to think together of some way to test it.
- If accounted for in offshoring decision, this damage could make the whole decision inefficient. This directly depends on the test for 2 vs. efficiency (1,14).
- Even if it does not make the decision inefficient, it seems desirable to place more of the burden of this damage on the offshoring employer and less on the emplpyees. This is a value judgement based on the fact that it is an employeer that is making the decision and on the fact that for contemporary professional employee it is much harder to reach the similar level in any other profession.

What I do not understand is why you are talking about buggies, Ford, Paul Krugman and other things? You started disputing my argument so I am willing to dispute any particular point. Right now you still seem to disagree that people would really rather not be laid off. That places you squarely outside of my audience so I am willing to concede that disagreement and call it a day.

Posted by: Leopold on December 26, 2003 11:23 PM

____

Let's say the US has a large trading partner -- we'll call it "China."

And this partner is currently undergoing a series of economic changes which create a higher level of unemployment than usual -- let's call them "shutdown of inefficient state industries."

If China were to then trade with the US but block US imports (through various means, including one I like called "linking the Yuan to the dollar,") then take every single extra dollar the US sends them and keep it as a foreign currency reserve, would not then China be engaging in a practice which could be reasonably described as "exporting unemployment"?

Especially if they keep it up for a decade or two? Twenty years is a long time to wait for the scales to start to balance for the average person . . .

Wouldn't subtler sorts of problems crop up with countries that are less obviously mercantilist but have structural issues as well (i.e. quasisocialist India)?

Posted by: Kimmitt on December 26, 2003 11:24 PM

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"Quasisocialist India" is so passe. They have universal health and education system but other than a very strong union presence in their state controlled companies, India today is not socialist by any stretch of the imagination.

The average wages of an average engineer have increased from 5000 rupees/month to about 100,000 Rs/month over the past two decades. Nowadays, the idea of hiring a professor in India for $100/month is ludicrous (*$1 = Rs.46).

Indians have a tremendous appetite for all things American. They prefer the American brand over any other if the price is right.

Posted by: Anon on December 27, 2003 12:16 AM

____

This reminds me of the joke about a farmer who reduced the feed of his horse by half every two weeks and was saving quite a bit of money until the stupid horse died.

Posted by Josh Halpern at December 26, 2003 08:17 PM

BINGO! Good on you, Josh, for you hit the nail squarely on the head.

One of the biggest worries of the average American is the ability to service their debt, which is at an all-time high. When this "horse" dies, it will take down more than a few banks with it. For also with it will go a way of life. If a race to the bottom is what the high-and-mighty wanted, then that's what they will get.

Now the Bush administration has a new plan to link up employers with prospective employees--regardless of where they come from. This will drive wages even lower, for employers won't be seeking employees from high-wage countries. (To do so would be "unethical", according to the rules that apply to shareholders. So much for "ethics.")

When this drama finally plays out, the US populace, at long last tired of being worked to death, will revolt. Bush may win in '04, but in '08 the country will take a sharp leftward tilt.

Ol' Karl would be thought of as a conservative in 2010.

Posted by: James Hogan on December 27, 2003 12:18 AM

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"..They have universal health and education system but other than a very strong union presence in their state controlled companies, India today is not socialist by any stretch of the imagination...."

Why that sounds pretty much like Western Europe? Although Europe is in process of getting rid of "state controlled companies"...

Posted by: Bulent Sayin on December 27, 2003 12:21 AM

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It comes down to this: farm hands and blue collars couldn't blog.

Posted by: Hans Suter on December 27, 2003 12:29 AM

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Precisely!

Therefore farm hand and blue collar jobs should be transfered to machines and farm hands and blue collar workers should be back at school.

Posted by: Bulent Sayin on December 27, 2003 04:06 AM

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Right on, Brad! Don't worry about the people posting against you on this board -- recessions make people do strange things.

Does anyone know if Brad has written anything on Lou Dobbs? He devotes an entire segment to outsourcing, I think called "exporting america" or something. Regardless of what the segment is called, Lou Dobbs is, I think, the worst offender in the media.

Posted by: Bobby on December 27, 2003 04:21 AM

____

"A better U.S. government would do much more about the distributional impact of expanded trade--would try to make it win-win, rather than the win-lose game with the winners winning more and being more numerous than the losers that it is at present."

Labor's bargaining power has been ebbing for decades. There is too little political pressure on George Bush or Congressional Republicans to do more than mask the harsh effects of global displacement. Trade and trade is wonderful. Losing fine jobs, and being unable to hold a living standard are not wonderful for the displaced.

Posted by: anne on December 27, 2003 04:33 AM

____

Could someone please explain how this has anything to do with real productivity? I mean if I pay my kid $5 to mow the lawn instead of paying some 20 year old $20, is my kid more productive, or just willing to work for less?

I agree with the sentiments expressed above, that if American workers can't move to India and get the same cheap cost of living, then this is simply not fair.

And really, the end result is just going to be India becoming a country just as wealthy as the US and with much more experience in computer software. Our payoff is 10 years of cheap Windows upgrades and tech support. Somehow I'm not impressed.

Posted by: crayz on December 27, 2003 05:17 AM

____

"Losing fine jobs, and being unable to hold a living standard are not wonderful for the displaced."

No, it is not. And it is not even their fault! That's why I'm saying:

Not taking care of your redundat workers in market economy is moral equivalent of not taking care of your wounded soldiers in war.

Posted

Posted by: Bulent Sayin on December 27, 2003 05:25 AM

____

1) Both free trade and competition hurts some workers (and their companies).

2) Both free trade and competition also benefit other workers (and their companies, as well as non-working consumers).

3) The effect in (2) is larger than the effect in (1).

4) Focussing on the loss to some while ignoring the larger benefits to others is a mistake.

5) It would be nice if the government were to take some of the excess from the benefits of free trade and competition to help those who lose.

6) It would be a mistake if the government were to act so that the net effect was negative. Protectionism is an example.

Posted by: richard on December 27, 2003 05:38 AM

____

"Could someone please explain how this has anything to do with real productivity? I mean if I pay my kid $5 to mow the lawn instead of paying some 20 year old $20, is my kid more productive, or just willing to work for less?"

Your kid would lower lawn mowing prices and therefore push down productivity statistics.

Real productivity difference is between using whatchamallem hand tools to cut the lawn or a motor lawn mower (spell?).

Posted by: Bulent Sayin on December 27, 2003 05:55 AM

____

"5) It would be nice if the government were to take some of the excess from the benefits of free trade and competition to help those who lose."

Wrong. IT IS AN OBLIGATION for the government to take .... and help those who lose.


----
1) Both free trade and competition hurts some workers (and their companies).

2) Both free trade and competition also benefit other workers (and their companies, as well as non-working consumers).

3) The effect in (2) is larger than the effect in (1).

Therefore it is both a moral obligation and a very smart thing to do to take some of the net positive effect in favor of winners and use it to help losers.

Not taking care of your redundant workers is moral equivalent of not taking care of your wounded soldiers in war.

Posted by: Bulent Sayin on December 27, 2003 06:06 AM

____

Jim Glass suggests that I and Brad DeLong are hoping wages fall to zero. I should thank Jim for lumping me in the same sentence as Dr. DeLong, but let me suggest that Jim should rethink how competitive markets work - as should the person who should Peace Corp aid to India. In my view, free trade and pro-savings fiscal restraint would tend to raise real wages, not lower them. Now if our friend who wishes to have Peace Corp aid (I might support that but someone has to pay the taxes) wants to argue nulitnationals have monopoly power, we can debate that, but if multinationals live in a competitive world, his argument does not make sense to me.

Posted by: Harold McClure on December 27, 2003 06:51 AM

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http://www.nytimes.com/2003/12/27/international/americas/27NAFT.html

Free Trade Accord at 10: Growing Pains Are Clear
By TIM WEINER

The North American Free Trade Agreement took hold 10 years ago, after a bruising, arm-twisting debate. Today it is more than ever a politically charged symbol of the promises and perils of free trade.

The accord, known as Nafta, brought under one canopy three hugely different economies: the wealthy United States, middle-class Canada and striving Mexico. The disparities made Nafta the boldest gamble ever on the proposition that free trade could benefit all.

Leaders promised the accord would create millions of good jobs, curb illegal immigration and raise living standards "from the Yukon to the Yucatan." A decade later, the verdict, even among Nafta's strongest supporters, is that for those goals free trade by itself is not enough.

Nafta's effects cannot be isolated from the broader changes in a globalizing economy. But many economists and political analysts say that while the accord stimulated trade and overall growth, it also brought jarring dislocations. For better or worse — or both — Nafta transformed the continent's economic landscape with startling speed.

Gary Hufbauer, a senior analyst at the Institute for International Economics, a Washington research group that supports free trade, said the gains for the United States — lower priced consumer goods and increased corporate earnings — are large compared to the losses.

"However, the gains are so thinly spread across the country that people don't thank Nafta when they buy a mango or inexpensive auto parts," he said.

The pain, he said, is concentrated in places like the Midwest, where manufacturing jobs have been lost to Mexico and Canada, and now to China. "Nafta-related job loss and lower income may be small, but the echo is very large because of all the other jobs lost to globalization," he said. "Nafta is the symbol for all of that pain."

Posted by: anne on December 27, 2003 06:53 AM

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Anne - thanks for the post with the insights from Gary Hufbauer. His writings on trade issues are always a delight.

Posted by: Harold McClure on December 27, 2003 06:58 AM

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http://www.nytimes.com/2003/12/27/international/americas/27NAFT.html

Ciudad Acuña, Mexico

A Fleeting Boom and Disillusionment

One of the promises of Nafta was that it would close the great gaps in wages and living standards between the United States and Mexico and keep Mexicans working on their side of the border.

Nowadays in Mexico, "When you argue that free trade benefits poor people," said Luis de la Calle, a chief Nafta negotiator for Mexico, "no one believes you." A strong supporter of the accord, Mr. de la Calle, an economist, nonetheless believes Nafta's benefits for Mexico are dwindling as manufacturing moves to countries where wages are even lower, particularly China.

Some Mexican companies successfully exploited the new American market, especially those allied with American corporations, like big tomato growers that sell to companies like Del Monte, or food processors that turn American pigs into bacon.

But by every measurable standard, the gap between rich and poor in Mexico widened. Unemployment is up and real wages, eroded by a collapse of the peso in 1995, are flat or down for many millions of workers.

Nafta created jobs, but not fast enough to keep pace with rising competition from China, or with a labor force that swelled with Mexican farmers displaced by subsidized American imports.

Millions of Mexican workers crossed into the United States. A million more moved north to the border looking for work, in a movement comparable to the migration of Americans from the rural South to Northern cities like Chicago and Detroit in the first half of the 20th century. For Mexico, the change happened in a decade.

Many ended up in the trade-driven assembly lines known as maquiladoras, most of which stand in hard-bitten border towns like Ciudad Juárez and Ciudad Acuña. The maquiladoras produced $78 billion in exports during 2002, nearly two-thirds of that sum from American parts assembled in Mexico and re-exported to the United States.

"The promises made about how life would be were not real," said Etelvina Vázquez, 43, an assembly-line worker in an Alcoa auto-supplies plant. She is one of 27,000 people who moved to Ciudad Acuña from the southern state of Veracruz alone, according to the city's maquiladora owners' association.

After five years, Ms. Vázquez takes home $45 for a 48-hour week, after deductions for the costs of her government-built house. Though her income is higher than it was back home, what she has left after paying the bills is about the same. "Life is different," she said, "but just as hard."

Many of these maquiladora jobs are now disappearing, as the one relative advantage Mexico once had — cheap labor — erodes in an expanding global marketplace. Of the 700,000 new maquiladora jobs generated in Nafta's first seven years, 300,000 have been eliminated since 2000.

Inside and outside the maquiladoras, "all the jobs gained in manufacturing thanks to Nafta have vanished," said Edgar Amador, an economist in Mexico City. "Ten years after, there is no conclusive evidence that real wages have increased because of Nafta."

To Angelica Morales, a maquiladora worker transplanted to Ciudad Acuña from Monclova, four hours south, the reason is clear enough. "There are no independent unions," she said. "Workers have no say over what happens to them."

Such arguments do not persuade Cuauhtemoc Hernández, 31, who represents the city's Maquiladora Association — 34 assembly-line plants, all but two owned by American companies, employing 32,000 Mexican workers. The benefits for American business — cheap labor, high productivity, generous tax breaks — flow throughout the city, he says.

"The growth of Acuña was fast, fast, fast," he said — so fast that the city has a severe lack of housing, hospitals and schools.

"Everybody says the local situation — unpaved streets, no workers' health institutions, no housing that workers deserve — is the maquiladoras' fault," Mr. Hernández said. "Even some government authorities say, `No more maquiladoras.' What is our answer? Our answer is: `You cannot stop progress.' "

Posted by: anne on December 27, 2003 06:58 AM

____


Its a big deal for anyone who involuntarily loses their job, whether its a restructuring of 3 or 3000. But I am fascinated by the amount of attention IBMs decision is getting in the media. We don't yet know how many people are losing their jobs. A company of IBM's size is probably hiring 10-20 thousand new employees this year.

IBM, and just about every other multi-national corporation has been restructuring their operations for the past 15-20 years. In terms of what is going on at other companies or even IBM historically (they layed off over 40000 in 1992 when they were losing money) this is fairly small.

The only unique thing is that the jobs are being centralized in Bangalore instead of Boise or Salt Lake or Prague...

Doug

Posted by: Doug on December 27, 2003 07:09 AM

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Remember, to have fair free trade we must be pushing hard for China and others to improve labor conditions. The degree of workplace danger in China is appalling. The need is to push for helping the displaced worker, and better workplace conditions, and environmental respect.

Posted by: anne on December 27, 2003 07:11 AM

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There is enough work to go round, if we use fiscal policy intelligently in fostering demand for labor. That is not being done now, and will not be done by this Republican Congress and George Bush.

Posted by: lise on December 27, 2003 07:16 AM

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I am a business student [MBA] writing from the place that is very much present in the discussion here. India and Bangalore!
I was working as a software programmer in one of the best known software companies of India - Infosys and I aspire to become an economist. That was to mention my credentials - to qualify my comments on the topic.

Most of the arguments here are on

1. Protectionism vs. free trade in service industries.
2. Labor shifts and the cause/effects of it etc.
3. Lester Thurow styled(?!) arguments about the importance of having strategic industries domestically located. Can commercial software devp. be considered strategic, is controversial. Maybe this would suit the R&D and Financial services outsourcing that is/wouldbe happening in a short while. I am really looking forward to the day when Lehman brothers and Goldman sachs 'offshore' their analyst jobs from wall street to chennai. ;-)

There is a big difference between 'profits' for a nation and profits for a corporate. Unbridled capitalism and free markets for labor - sure give enormous profits for corporate entities. But can the same be said for a nation state and its citizens? I would say no. The trickle down effects of corporate profits into national welfare is not direct.

Hence the need to effectively intrude into free trade and discuss its merits/demerits for a nation state. The realm of the discussion now shifts from economics to political economy.

And these political economy topics, obviously couldnt be proved as advantageous or otherwise by analytical or mathematical economics alone. Judgements and opinions are required and I think the best people suited for commenting on these are political economists.

Posted by: Sathish on December 27, 2003 07:49 AM

____

"The trickle down effects of corporate profits into national welfare is not direct."

Yes, though there is a price benefit to trade that may be well distributed.

Posted by: anne on December 27, 2003 08:06 AM

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Sathish-

I have read a number of articles recently in the United States about the export of Knowledge work to India, and as you see in this comments thread here it is controversial. How much coverage of the controversy is there in the Indian media?

Is there a prevailing opinion among your fellow students / co-workers on the issue?

Posted by: Doug on December 27, 2003 08:29 AM

____

Doc DeLong has it right. As long as there is the general consensus that "development" is good, and that this goal can best be attained in a setting of free trade, there will be downward pressure on wages.

The externalities of the resultant job shifts will remain unless humans achieve the same degree of fungibility as capital. At present, this is not likely. Dealing with these externalities will continue to be a political question, and rightly so.

Posted by: bobbyp on December 27, 2003 08:30 AM

____

One of the big problems with this, is that for the most part, most theory only looks at investment from the capital side. Very rarely does anybody talk about investment from the labour side.

People invest their time, energy, and social links into a company. It's not small potatoes for a person to put down roots, and not unreasonable to think that they'll have a job tomorrow. Maybe it is unreasonable, now that I think about it...but what does that say about our society?

Is the American dream dead?

From an economical point of view, I don't see how this can NOT lead to deflation. Not enough consumer money to go around, means prices drop, lowering wages and so on, correct?

I just don't see how this sustainable.

Posted by: karmakin on December 27, 2003 08:39 AM

____

Economic theory can be beautiful or even inspiring, but it is not comparable to physics or astronomy. Gravity is more than a good idea, it's the law! The same can not be said of economic ideology.

Therefore Sathish recommends that we talk about political economy, not just economics. In our present political economy, employees have diminishing power compared to employers.

Right now ordinary people, drenched in capitalist ideology, have trouble imagining other arrangements. We may have to break our bonds.

It's a different world above the ideological clouds. Naomi Klein remarked this month: "For the men who rule our world, rules are for other people. The truly powerful feed ideology to the masses like fast food while they dine on the most rarified delicacy of all: impunity."

Posted by: Stephen Lehr on December 27, 2003 09:20 AM

____

Bulent,

"Not taking care of your redundat workers in market economy is moral equivalent
of not taking care of your wounded in war."

You've repeated that so often that I'm surprised nobody's said this already: I DISAGREE. People should be responsible for their own lives.

It's a terrible analogy, besides. Free trade is not like war at all.

""5) It would be nice if the government were to take some of the excess from
the benefits of free trade and competition to help those who lose."

Wrong. IT IS AN OBLIGATION for the government to take .... and help those who
lose."

Wrong! You want to use the government to steal money out of my pocket in order to give it to people who haven't been paying attention -- who haven't prepared themselves for economic changes that anyone can and ought to see coming years in advance?

It's wrong to penalize _me_ for _their_ lack of foresight, and by providing them a safety net you're creating a disincentive for them to be more thoughtful in the future. *You'll worsen the very problem you think you're solving!* (And you'll probably blame the market for it, instead of your intervention...)

Posted by: Kyle Markley on December 27, 2003 09:50 AM

____

"In our present political economy, employees have diminishing power compared to employers."

That is a most important matter. Labor sees less and less of the return from productivity growth. Profits grow, wages stagnate. This problem will gradually become severe if it is not so already.

Posted by: anne on December 27, 2003 10:14 AM

____

People are responsible for their lives when there is a chance to be responsible. Power differences that are over-whelming between owners and employees may not be over-come by all too many employees.

Posted by: anne on December 27, 2003 10:16 AM

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http://www.nytimes.com/2003/12/21/business/21view.html

A Recovery for Profits, but Not for Workers
By LOUIS UCHITELLE

THIS economic recovery is distinctly unkind to workers.

Output is clearly rising, and, normally, that would feed into both corporate profits and labor income. But while profits have shot up as a percentage of national income, reaching their highest level since the mid-1960's, labor's share is shrinking. Not since World War II has the distribution been so lopsided in the aftermath of a recession.

Profits, it turns out, never stopped rising as a share of national income all through the 2001 recession and the months afterward of weak economic growth. That did not change even as the recovery kicked in strongly last summer and hiring resumed. New data from the Bureau of Economic Analysis erases all doubt on this point.

The reasons for labor's poor showing are not hard to spot. The employment rolls are still smaller, by 2.4 million jobs, than they were at the recession's start in March 2001. Those who are employed are also feeling the squeeze, particularly the 85 million people who hold office or factory jobs below the rank of supervisor or manager. Their average hourly wage, $15.46, is up only 3 cents since July, according to the Bureau of Labor Statistics. That wage is rising at an annual rate of less than 2 percent, barely enough to keep up with inflation, mild as it now is.

'We have never seen in the 40 years that we have this hourly wage survey, wage growth that has been this slow,'' said Dean Baker, an economist at the Center for Economic and Policy Research....

Posted by: anne on December 27, 2003 10:23 AM

____

By your point of view, then, Kyle Markley, The New Deal was all wrong, it was scheme of theft by the government?

You go to war and if your are wounded, it is not really your fault. So they take care of you.

You take a job and become good at it, taking your off-job hours for training to become even better at it, because management encourages you to, and then all of sudden they shut down the plant you are out of work. This is not your fault either. And they should take care of you.

Obviously, wounded soldiers and redundant workers would be talken care of differently.

I did not have in mind to liken war to either free trade or even to competition.

But still, moral equivalence is there.

In both cases, there is an individual trying to contribute to a collective effort and taking risks (losing one's life or missing out on opportunities); and if the risks do become materialized, it is then a moral obligation to help the individual to recover and get back on track as much as possible.

Therefore I repeat:

Not taking care of redundant workers IN MARKET ECONOMY is moral equivalent of not taking care of wounded soldiers in war.

Posted by: Bulent Sayin on December 27, 2003 10:24 AM

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Kyle Markley : Wrong! You want to use the government to steal money out of my pocket in order to give it to people who haven't been paying attention...

It really amaizes me why people that talk about "failure" or "lack of foresight" of outsourced employees do not talk about the failure and lack of foresight of those working at the WTC or flying all those airplanes.

Kyle, why are you using the goverment to steal money from my pocket to cover airline losses and create Homeland Security Dept?

Posted by: Leopold on December 27, 2003 10:34 AM

____

Sorry can't resist. Re: our kid with the lawnmower. You're not paying him $5.00. You're "paying" him $5.00 and in order to pay him that you are providing him with room, board, education, etc. And what do you do when he grows up? You've spent six figures overall for a cheap gardner for a few years, so you wind up hiring the 20 year old anyway just about the time you are shelling out five figures for university and then you think grandkids are cheap. What does this have to do with anything? Beats me.

Posted by: alan aronson on December 27, 2003 10:34 AM

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"Right now ordinary people, drenched in capitalist ideology, have trouble imagining other arrangements. We may have to break our bonds."

Right!

Posted by: Bulent Sayin on December 27, 2003 10:38 AM

____

Kyle Markley : Wrong! You want to use the government to steal money out of my pocket in order to give it to people who haven't been paying attention...

It really amaizes me why people that talk about "failure" or "lack of foresight" of outsourced employees do not talk about the failure and lack of foresight of those working at the WTC or flying all those airplanes.

Kyle, why are you using the goverment to steal money from my pocket to cover airline losses and create Homeland Security Dept?

Posted by: Leopold on December 27, 2003 10:39 AM

____

Alan Aronson, thank you! You just caused me LOL!

--- ---

Leopold, you are talking a language that I understand:

"Kyle, why are you using the goverment to steal money from my pocket to cover airline losses and create Homeland Security Dept? "

And you know how much Bill Clinton paid out of YOUR money to defense sector firms to get them to merge? (Let's be honets here, however. I think most of that money went to compensate redundant workers.)

Posted by: Bulent Sayin on December 27, 2003 10:44 AM

____

Leopold,

I meant to say "you are NOW talking a language that I understand..."

Posted by: Bulent Sayin on December 27, 2003 10:49 AM

____

Bulent,

I am just showing that Kyle's argument is a variation on "Die today so I live to see tomorrow". Kyle does not want to live in the society, he wants to live in the jungle. Given that he is posting here he is most likely not a rugged individual and would not survive long in the jungle he wants to live in. So he is just delusional.

Posted by: Leopold on December 27, 2003 10:51 AM

____

Still, in these times, a fearful analogy.

Posted by: lise on December 27, 2003 10:55 AM

____

Leopold, my comment did not have any thing to do with Kyle. So let me rephrase it by re-focusing on the part of your comments that I liked best:

"..using the goverment to steal money from my pocket to cover airline losses..."

Now, picking that one was stroke of brilliance on your part, especially next to all that rubbish you have previously inflicted on us here! :)

Posted by: Bulent Sayin on December 27, 2003 10:57 AM

____

So I haven't been paying attention? I haven't been taking responsibility?

I've invested thirty years of my life mastering systems programming. I've learned every new CPU, operating system, and programming language along the way. I've worked on ISO standards and developed an international reputation as a top designer. I find myself well employed doing R&D for one of the world's largest software companies. But thanks to fallout from the recession and wage pressure from our Indian subsidiary there have been almost no raises, no promotions, and no new hiring in the US for three years running. I have been offered a promotion, but the offer is in Bangalore at a third of my current salary. Do I take the offer, stiff my ex-wife on her alimony, give the keys to my unsellable over-mortgaged home to my banker, and give up on ever saving enough to retire in the US? Do I say goodbye to my aging father, my grown kids, my sisters and brothers, my nieces and nephews, my best friends, my horses, and my favorite wilderness trails? Or do I stick it out here until I get laid off anyway?

I understand that in the long run things are all for the economic good in this best of all possible worlds, and I don't begrudge my Indian colleauges their hard-earned success, but I don't see how those of us losing out can possible change our skills as rapidly as capital can yank our jobs out from under us.

So call it a job shift for the economy as a whole, but for me and my colleagues it is looking to be not just a job loss, but a career loss.

Posted by: Doctor G on December 27, 2003 10:58 AM

____

So, we really must find ways to present the New Deal visions in compelling terms. America becomes a middle class society only with the New Deal.

Posted by: anne on December 27, 2003 10:59 AM

____

The actual cost reductions realized by outsourcing software development work to foreign counties does not measure up to expectations. Companies think they will save something 70%, but when actually go ahead and do it, they find the savings are more like 30%. Why? While direct labor costs are much less, hidden costs eat into that expected 70%. Examples are shoddy workmanship, missed deadlines, management problems, communication and language problems, and increased spending on travel. In former Soviet States a company needs to set aside from 1.5% to 3% of their total budget to pay bribes to avoid sabotage. For all these reasons the amount of programming work sent offshore is fairly small, about 5% currently. The real job losses for American IT workers come from H1b visa holders.

Seeing the handwriting on the wall, American students are tending not to major in computer science, engineering, physics, chemistry and biology. It’s a rational decision considering the future career prospects in these fields. If and when the hidden cost problems are solved in foreign countries, the prospects for Americans in these fields will be even worse, but it’s bad enough already. The eventual cost to the US will be large from a national security standpoint. As the number of people with technical skills here erodes, US we will become more and more dependent on foreign countries, some of who could be adversaries in the future.

Posted by: A. Zarkov on December 27, 2003 11:00 AM

____

Bulent,

You are very inconsistent, you know. You say
"Not taking care of your redundat workers in market economy is moral equivalent of not taking care of your wounded in war." You want to live in the society based on morals.
I was demonstrating that applying basic ethic principles of accounting for injury and loss to the cost of layoff may make the job transfer to Asia simply uneconomic. You call it rubbish I inflicted on you.

Posted by: Leopold on December 27, 2003 11:08 AM

____

"... I have been offered a promotion, but the offer is in Bangalore at a third of my current salary. "

So they are "re-defining" the concept of promotion, I guess.

The following is very true:

"...I don't see how those of us losing out can possible change our skills as rapidly as capital can yank our jobs out from under us."


There is only one solution; read my lips:

Higher taxes and better social safety net.

Or else instability, risk, uncertainty, all them evil things, continue and continue... until...

(now that was dramatic, no?)

And don't forget one other important thing somebody (Anne?) said here:

Push for improving quality of life all over the world -- you just can't isolate yourselves from the rest of the world any longer.

We are all in the same ship now.

Posted by: Bulent Sayin on December 27, 2003 11:11 AM

____

"So, we really must find ways to present the New Deal visions in compelling terms. America becomes a middle class society only with the New Deal."

Yes!

Both the Industrial Revolution and the New Deal were made possible AND inevitable by accumulation of and continuing productivity increase.

Productivity has been increasing since the New Deal and there is all ingredients for continued productivity increase.

Therefore I think time just might have come for renewing the New Deal.

---
"..I was demonstrating that applying basic ethic principles of accounting for injury and loss to the cost of layoff may make the job transfer to Asia simply uneconomic. You call it rubbish I inflicted on you."

Leopold, this IS indeed rubbish. Easy fire, easy hire. Remember that.

Social safety net is a completely different matter than that.


Posted by: Bulent Sayin on December 27, 2003 11:25 AM

____

Bulent Sayin writes: Easy fire, easy hire. Remember that.

If there is a cost of layoof to an employee it needs to be accounted for. The argument can be made that there is no cost (that is, you do not care if you are laid off or not). The argument can be made that it needs to be allocated one way or the other. Refusal to acknowledge the question altogether (or moving the discussion into costs on unrelated parties) is simply a way to keep the current distribution of the costs by default.

Posted by: Leopold on December 27, 2003 11:44 AM

____

The employment rate in the US is currently 94%. The 6% unemployment is 2% higher than its low. Outsourcing is not responsible for all the job loss. The outsourcing was happening even in the 90s boom. What has changed is rate of job creation. This is where the current administration has failed. Their policies have stimulated the economy at great fiscal cost to the government while failing to stimulate job creation. In other words, we are paying a lot in $300 billion deficits and not getting the job creation that a responsible fiscal policy would create. There are many things that could be done that would be useful but are not being done because the states lack the money.

Posted by: bakho on December 27, 2003 11:46 AM

____

There is another significant cost to h1b/outsourcing of high tech jobs besides considerations of national security. It’s one thing to destroy low-skill jobs that require minimal training, but professional careers that require as much as ten years of education is another. Both the individual student and society at large has an investment in the training of a high tech worker. The individual pays both the opportunity cost of not earning while studying, and the direct cost of tuition and fees. The society at large subsidizes students with loans and scholarships, and through state schools like UC. If these jobs are thrown away then we lose a tremendous investment in human capital. Thus some “job shifts” that result from globalization might have a net negative benefit. It’s like pollution. A company will discharge toxins into the environment if we let them because they don’t have to pay the subsequent costs; other people pick up the tab. I’m surprised to see Brad not recognizing this, and treating people as mere commodities.

BTW get rid of that small type face.

Posted by: A. Zarkov on December 27, 2003 12:10 PM

____

Zarkov -- did Brad change his typeface, or did our browsers change? (I use MS Internet Explorer, Windows 98.) This is not the only site where I've seen the fonts get smaller. My own included, and I'm having trouble updating since I don't kno anymore what the reader is seeing.

MS just announced they're not supporting 98 any more. Perhaps Bill Gates has sabotaged our browsers in the dark of night too, as a little hint to upgrade.

Posted by: Zizka on December 27, 2003 12:31 PM

____

"If there is a cost of layoof to an employee it needs to be accounted for. "

I don't have a problem with that.

But that's not the same as making the employer pay the software engineer it lays off for the difference between the engineer's salary and and cabby income that the engineer gets after layoff. If you do that, then the employer will simply leave the country and will never come back again.

Cost of layoff to an employee is a matter of insurance. In fact they call it unemployment insurance. But social safety net has gone beyond that.

Now is time to expand social safety net even further, as well as expanding higher education coverage.

----

I don't know exactly what h1b visa is but as far as I know you can't use that facility to hire foreign nationals at substandard wages. In fact you have to produce evidence that you have tried and failed to recruit US nationals for the opening you have at market wages because US nationals with right qualifications are simply not there.

As to outsourcing, that's a whole different story. You see refraining from outsourcing would be pretty much like refraining from investing in Central Asian oil fields because they are not in America -- if you won't, then Europe will.


Posted by: Bulent Sayin on December 27, 2003 12:44 PM

____

Doctor G:
My admiration for using such polite words towards this Kyle-guy.
The terrible thing with guys like these is that they will only learn about these issues by experiencing real problems; it is so hard not to wish that for them.

Posted by: FransGroenendijk on December 27, 2003 01:13 PM

____

Bulent Sayin writes: I don't have a problem with that. But that's not the same as making the employer pay the software engineer...

Good, we are getting there. Before we decide who _should_ bear what share of that cost (making the employer to pay...), we need to ask ourselves 2 questions:

1. How is this cost allocated _now_ - between the employeer, employee and society. My contention is that most of this cost is allocated to the employee. This can be measured and proven or disproven.

2. If you account for all the costs - borne by employeer, employee and society at large with the benefits of the transaction, is it still efficient?

If the transaction is inefficient, that has a large political ramifications (and I get my PhD). If it is efficient, only than can we ask ourselves: _should_ the costs be re-allocated, how and to what extent?

Posted by: Leopold on December 27, 2003 01:24 PM

____

I'm not willing to get into a discussion on
trade (folks, go back and read your Krugman
from a few years back. Better yet, understand
him). But I want to respond to the shallow but
often made claim that economist only advocate
free trade, outsourcing etc. because they
themselves are not threatened by globalization.
The comment above which states:

"Oh what wonderful theories will economists come up with when their jobs are sent overseas?"

is examplary of such an argument which of course
is completely irrelevant as to whether trade
or outsourcing is beneficial or not. But let's
take it at face value. Is it really true that
American economists do not compete with economists
from other countries?

American students comprise about a third of
all graduate students in the deptartment where
I'm at. Asians, Europeans and others make up the
rest. Those are openings which could've been
filled with American graduate students! Ones who
invested many years in acquiring their previous
education! (So what?)
Of the faculty about half are Americans. Wait,
scratch that, I'm counting Brits and Aussies as
Americans. So it's also a third. Two third is
them damn forn workers. Again why aren't those
jobs going to American professors (outsource them
from the English department, as long as they're
native!)?

Look through any economic journal. You'll find
that good many articles are by people who live
and study in other countries. In pure theory
it's pretty much 90% people with funny names.
Why isn't the space reserved for American writers?

American economists do compete with economists
from other countries. They have for a long time
now.

The decision an economics department faces when
choosing between a less qualified American born
economist and a better qualified foreign economist
is exactly the same as the decision a firm faces
when choosing where to hire labor from.

Posted by: radek on December 27, 2003 01:35 PM

____

Leopold, you are again reverting to language alien to me. What do you mean by "efficient transaction"?

Of course you know that social safety net costs are born by employers as well as employees, in other words, by the entire society.

As I said, it is "insurance", unemployment insurance.

When a plant has to be shut down, it is not entirely the fault of shareholders or company owners or comnpany managers either. It just happens, like accidents, natural disasters, etc... it is essentially insurance and what is what in insurance is pretty well known...

Posted by: Bulent Sayin on December 27, 2003 01:50 PM

____

To Radek:

The university is hiring few people at US rates. The effect on US economists as a whole is small. The IT outsourcing is going to affect (Forrester, IDC) 25% by 2007, hired at 20% of US rates. The effect is much larger. If you really study economics, you got ways to go.

Posted by: Leopold on December 27, 2003 01:54 PM

____

Sayan you are not correct with respect to your conjectures about H1b visa workers. First an employer need not show he was unable to hire a US citizen or (green card resident). That is a common misconception about the H1b visa program. Second while the program does require employers to pay “prevailing wages,” this requirement is filled with loopholes. It is the employer that determines the “prevailing wage.” and enforcement of this provision is extremely weak. As a practical matter employers are completely free and fire as they see fit. In fact US nationals and (green card) residents are frequently replaced by H1bs and told they must train their replacements or forfeit any chance of severance pay. What an employer cannot do (although I have them do it) is adverstise that a job is only open to H1b visa holders.

Ziska I am running MS 2000 and IE version 6. I don’t know for sure what changed the type face size, but it’s nearly unreadable.

Posted by: A. Zarkov on December 27, 2003 02:02 PM

____

Radak while many American economists do compete (in various ways) with their foreign counterparts, some do not. For example a tenured professor of economics at an American University does not face any competition. He has a job for life unless he somehow breaks the terms of his contract or the University eliminates the position. Thus our tenured professor is immune from the vagaries of the job market or competition from H1bs or anyone else. If the UC eliminated tenure would not the taxpayers of California save money?

Posted by: A. Zarkov on December 27, 2003 02:18 PM

____

Bulent Sayin writes: Leopold, you are again reverting to language alien to me. What do you mean by "efficient transaction"?

Happy to serve. For example from Google (http://www.daviddfriedman.com/Academic/Marshal_Pareto/Marshal_Pareto.html):

A net improvement in the sense used by Marshall--what I have elsewhere called a Marshall improvement--is a change whose net value is positive, meaning that the total value to those who benefit, measured as the sum of the number of dollars they would each, if necessary, pay to get the change, is larger than the total cost to those who lose, measured similarly. ... A situation is (Pareto/Kaldor/ Marshall) efficient if it cannot be (Pareto/Kaldor/Marshall) improved.

Posted by: Leopold on December 27, 2003 02:19 PM

____

I find all that hard to believe, Zarkov, I mean, "what is this world coming to?" sort of thinking, but I obviously don't doubt the truth of what you say, I was, after all, guessing, extrapolating from 20 years back -- in fact I guess this hb1 thing is something new... any way...

America has indeed become a country completely owned by big money, I guess.

I mean if things like you have described happened in France, for example, or Germany, even UK, any country but US, people would turn the whole country upside down.

Hah!

You know what?

It's all them Britts' fault! They should have never taught the English language to Indians!

Jokes aside, A. Zarkov, the US business circles are already implementing their own "New Deal" -- and they are not asking for any body's opinion!

Perhaps it is time now for the people to demand their own New-New Deal -- and this time go for it with a global reference.

You think Howard Dean would go for it?

CAN he go for it?

Posted by: Bulent Sayin on December 27, 2003 02:26 PM

____

Now I see, Leopold, I see more or less, at least, what you mean by "efficient transaction".

In this case, however, Game Theory applies: Force the employer to compensate redundant employee for outsourcing his job, the employer will then simply close business in US and re-open it overseas -- or just leave the sector and start a gambling operation or something.

Besides, US lawmakers are clearly on the side of employers: hb1 (?) visa thing. They don't even have to outsource the job; they can simply fire the American and hire the GD furrenner! At half the salary!

Posted by: Bulent Sayin on December 27, 2003 02:50 PM

____

Please make the font larger. Please! Annoy Brad nicely for us.

Posted by: anne on December 27, 2003 02:56 PM

____

Perhaps Mr. Herbert and Mr. DeLong will personally avoid having their jobs exported, but eventually their children or grandchildren will face the finish line at the race to the bottom--if they are not already doing so. The day is coming when the present theoretical mental masturbations will seem quite hollow--regardless of their elegance, logic and extreme profitablity in the short term.

Competition is great, folks--but it's all about quality of life. Maximized profits and economic efficiency are not the penultimate achievement of a civilization, nor the engine of humanism. The vision of a worldwide temp agency providing ever-cheaper labor for highly mobile captial is a vision of human hell. You may personally avoid the hottest flames, but the middle of the bell curve won't give a damn about the beauty of Austrian cum Chicago theory--they'll be too busy committing home invasion robberies on you and yours to buy diapers for their babies, or narcotics to escape their miseries.

What is remarkable is that no one seems to remember Henry Ford's response to why he paid his workers more than the barest minimum: "How else will they be able to buy my cars?" Not just a utilitarian "I want to keep my workers happy, productive and attract better workers"--but that it was crucial to create a healthy marketplace by essentially paying surplus wages. Demand-side economics in general is going to become the cornerstone of the future and I pray that day comes sooner than later.

The present reign of social Darwinism, and the economic dogma undergirding it, will eventually come to be regarded as the moral equivalent of eugenics. Humans will not live as rats without serious consequences, regardless of how high the stock markets climb for a while in various countries.

Posted by: Silent Majority on December 27, 2003 02:59 PM

____

To Bulent Sayin:

You are jumping to the factors we should consider in reallocating the costs (Force the employer to compensate redundant employee for outsourcing his job...). If it means you agree not only that the cost exists but also that the employee bears the most of it and it is not accounted for today - great, we made further progress.

Posted by: Leopold on December 27, 2003 03:05 PM

____

Sayin, I seriously doubt whether Dean would oppose the H1b program because virtually every Democrat also supports the program. Why? In some cases for the same reason Republicans support the program—campaign contributions from the industrial employers who benefit from the cheap labor. But there are additional reasons. Anyone who opposes the program runs the risk of being labeled “anti-immigrant.” Never that mind green card holders also suffer when they get replaced. So even the AFL-CIO has remained strangely mum on this issue lest they get accused of being xenophobic. Ditto for the IEEE who first opposed the program, but then fell silent. Try bringing this up with any politician and you will get a lecture on the need for more education. If you say: “But I have a PhD and I can’t get a job at any salary.” He will either change the subject or give you another lecture on how this is a country of immigrants. Finally what about other countries? Amazingly even Germany wants and is getting it’s own type of H1b program. Ditto for Australia. It seems no one can resist the siren call of cheap technical labor. BTW neither any family member nor myself has been victimized by the H1bs. I am opposed because I don’t want to see the middle class destroyed, and I don’t want the US to be dependent on foreign countries for technical skills. At one time a tool-and-die maker was a secure well paying blue-collar job in the US. Now that work has moved off shore and we are losing that industry.

Posted by: A. Zarkov on December 27, 2003 03:07 PM

____

Jim Glass whacks another red herring on the table: "CAFE requirements have reduced demand for gasoline, the revenue for gas stations, and thus the amount of wages avaialble for low-pay gas station workers."

As I recall, what happened a bit earlier than CAFE standards, is that all those low wage earners were fired and the stations went to self service. Except, of course in New Jersey, where by law self service is not allowed. Gasoline is cheaper there than almost anywhere in the Northeast, and they pump it for you.

Yet, the net amount of gasoline used for personal vehicles in 1970 was 80.1 billion gallons and in 2000 it was 130.7 billion gallons, so maybe there would have been lots of jobs for those low wage workers and cheaper gas if we all lived in New Jersey which has market regulation for pumping gas.

Posted by: Josh Halpern on December 27, 2003 03:50 PM

____

Yeah, Germans are hiring IT people even from Turkey! An that means Germans consider IT work truly a, uhm, second class kind of work. I did read before that the Germans simply could not get their youth to go study informatics.

Come to think of it, programming is very much like old fashion drafting, I mean technical drawing. And network management is really sort of clerical job. And hardware thing is basically -- they'll want to kill me for this -- equivalent to plumbing jobs.

And because the fruit of this labor can be transmitted over optic fibers to the other side of the world in a flash, jobs go to where they can get done for the least cost.

And this is going to be true for all jobs in the future, as automation expands, because all jobs will become essentially one of "spec writing".

We're all going to become spec writers.

I mean if India produces super duper pharmacists willing to work for salaries at a fraction of salaries in US, you got no choice but to hire them, for if you don't, then Europeans will hire them or else they themselves will start their own companies and sell pharmacy to you.

There is only one solution to all this: A New-New Deal with a global reference.

Can Howard Dean envision it and pursue it?

Posted by: Bulent Sayin on December 27, 2003 04:01 PM

____

I will vouch for A. Zarkov's statements on how the H1B visa program works. Any stated protections for domestic workers in the guidelines are not enforced.

But I would disagree with regards to IEEE and AFL/CIO. The IEEE has long voiced concerns over how the visa program is being used, but it is not a political organization and can't be expected to be effective at this type of advocacy. The AFL/CIO has also opposed the way the program has evolved and has proposed reforms (I refer you to washtech.org, a CWA affiliate which is part of AFL/CIO). But frankly there are very few members of the AFL/CIO that are affected by H1B visas and I can understand that they are going to focus on legislative issues that are of highest concern to their members.

The IEEE (and I) recognize that immigrant engineers, programmers, and scientists have made and will make valuable contributions. But I think if people look into it they will find that the current use of the H1B/L1 visa programs is a corporate manipulation/perversion of the post 1964 immigration system.

Posted by: Joe Blog on December 27, 2003 04:06 PM

____

Anyone who goes to work for a large corporation of any theoretical nationality lacks a basic understanding of commercial reality: large companies hate their employees, and will do anything they can to replace them with someone or something cheaper.

If you are a technically competent person, why would you want to work for any of them? You like cubicles, ridiculous deadlines, unpaid overtime and employers who have no clue about what you are doing?

Go to work for yourself, or for a small company. Quit IBM.

You have nothing to lose but your chains.

Posted by: Masaccio on December 27, 2003 04:15 PM

____

WRT the Brad DeLong lecturing doll, the opportunities for Prof. Gupta are increasing. I refer you to Steve Pearlstein's column in Wednesdays Washington Post
http://www.washingtonpost.com/wp-dyn/articles/A6462-2003Dec16.html
http://tinyurl.com/2x3rw

The opperative paragraph of which is
"So, asked Taylor and Allen, why don't we identify these extraordinary lecturers, put their lectures on CDs, and sell them to universities that could supplement them with faculty-led tutorials or discussions? The advantages seemed pretty clear. Colleges that employed the celebrity lecturers could help defray the cost of superstar salaries while enhancing their own reputations. And schools that purchase the lectures could lower costs while improving the quality of their educational offering."

Posted by: Josh Halpern on December 27, 2003 04:16 PM

____

Masaccio you are correct avoid working for a large industrial enterprise, better to be the owner so you can hire those cheap H1bs. But what if you are too old too start a business from scratch? Even better-- stay away from high tech altogether. Evidently German youth has gotten the message. Why stay up to 3:00 am debugging your code in school so when you graduate you get to compete with a low paid Turk? I realized a long time ago that if the Roman Empire were still in force, slaves would write C code. I’ve talked to programmers who work under virtual sweat shop conditions, only there is no hope of a union.

Posted by: A. Zarkov on December 27, 2003 04:42 PM

____

Bob Herbert is the last person who needs a lecture on compassion for the less fortunate. To imply that Herbert's somehow stupid or deliberately wants India to remain impoverished is an argument beneath the otherwise the high standards of this site.

Leave it to the marketing executives to argue whether it should be called a job shift or a job loss. As has already been explained above, the idea that exporting high-paying jobs from the U.S. to other countries means that "other Americans who would have had no jobs or else lower paying jobs [will now] have higher paying jobs" is fantasy. Two-million-plus jobs lost during the current administration and counting. The more I read the arguments defending free trade, the more I feel it's no less faith-based than supply-side economics.

Perhaps criticizing the tenets of free trade cuts too closely to DeLong's own livelihood. Afterall economics is the area of expertise for which he makes his own living and if he's wrong... Well we're all a little protectionist when it comes to our own job.

Posted by: Scott on December 27, 2003 05:33 PM

____

I see something missing in this entire discussion.

Science is supposed to DEscribe, not PREscribe. The economics discussed here are not descriptive of human behavior, only of economic behavior of transactions occurring within certain parameters of a well-organized society, organized around those economic theories. They are a sort of "if only people would behave like this, so and so would result" kind of wish-making.

Kyle summed up the Right's view of this, when he described helping others as stealing from him -- the right's description of any government at all. Taxes are theft, etc... And his description of people who lose jobs as losers, and saying that helping them is a disincentive... If Kyle encountered a sick old man in the street, it would not benefit him economically to help. In fact, the guy is a drain on resources and productivity etc would increase with the non-contributor dead. Right?(wow, Kyle better HOPE that right-wing economics really is the one true religion!)

Here is what I think is left out of this discussion: If Kyle didn't help the guy, the guy's family might have a HUMAN reaction. My DEscription of this reaction is they might not want to suffer KYLE to be around anymore.

Experiments have shown that people will sacrifice their own economic good if they feel it isn't fair - and will instead do things to mess up the gains of people who are doing better. That is a descriptive experiment, describing what HUMANS do. It contradicts right-wing economics, but what the hell...

Anyway, here is what I think is being left out of this discussion. Perhaps it has been long enough that many have forgotten the origins of our political and economic system. Think about what ALWAYS happens when enough people are poor and hungry and treated as peasants. Think about what happened in France, when the guillotines started operating. THAT is where our system came from. (Our revolution antedated theirs, but it was based on the French enlightenment.) Think about what happened in Russia and Germany and China as a result of the depression years. THAT is where the New Deal came from, and it saved us from that. Revolutions happen - that is a description of human behavior.

You can't talk about wages reaching MARKET levels in a world with hundreds of millions of unemployed! MARKET solutions mean many people will starve off and the remaining people will work for subsistence wages.

So we HAVE TO look for government interventionist solutions.

Posted by: Dave Johnson on December 27, 2003 05:45 PM

____

Bravo, Mr. Johnson. Are there any historical precedents for what's happening right now? Isn't the sort of outsourcing that IBM is proposing, i.e., moving knowledge-industry jobs paying from $75,000 to $100,000 a year to India and China, qualitatively different from previous job-loss trends?

Consider Detroit in the 1950s. Well paid, unionized assembly line workers bought homes, had medical insurance and retirement plans, and sent their kids to college. These Detroit workers didn't necessarily envision their kids one day replacing them on the assembly line, but saw a college education for their kids as the ticket to more challenging, interesting and well-paying employment, and a lot more choices. When assembly-line jobs dried up it was sad--but these were never high-status jobs by any means.

On the other hand, today's well-paid software engineers see their kids' college education more as a necessity than as a path to better-paying, more challenging and interesting jobs. The parents have already achieved the American, high-status dream.

Is there a historical precedent for this wholesale and permanent elimination of American society's best and most challenging jobs? When is the last time an about-to-be-redundant class of blue-collar workers were asked to shed their designer shirts? And what will these college-educated street people do for an economic encore?

Posted by: sylny on December 27, 2003 06:38 PM

____

Bravo, Mr. Johnson. Are there any historical precedents for what's happening right now? Isn't the sort of outsourcing that IBM is proposing, i.e., moving knowledge-industry jobs paying from $75,000 to $100,000 a year to India and China, qualitatively different from previous job-loss trends?

Consider Detroit in the 1950s. Well paid, unionized assembly line workers bought homes, had medical insurance and retirement plans, and sent their kids to college. These Detroit workers didn't necessarily envision their kids one day replacing them on the assembly line, but saw a college education for their kids as the ticket to more challenging, interesting and well-paying employment, and a lot more choices. When assembly-line jobs dried up it was sad--but these were never high-status jobs by any means.

On the other hand, today's well-paid software engineers see their kids' college education more as a necessity than as a path to better-paying, more challenging and interesting jobs. The parents have already achieved the American, high-status dream.

Is there a historical precedent for this wholesale and permanent elimination of American society's best and most challenging jobs? When is the last time an about-to-be-redundant class of blue-collar workers were asked to shed their designer shirts? And what will these college-educated street people do for an economic encore?

Posted by: sylny on December 27, 2003 06:39 PM

____

Bravo, Mr. Johnson. Are there any historical precedents for what's happening right now? Isn't the sort of outsourcing that IBM is proposing, i.e., moving knowledge-industry jobs paying from $75,000 to $100,000 a year to India and China, qualitatively different from previous job-loss trends?

Consider Detroit in the 1950s. Well paid, unionized assembly line workers bought homes, had medical insurance and retirement plans, and sent their kids to college. These Detroit workers didn't necessarily envision their kids one day replacing them on the assembly line, but saw a college education for their kids as the ticket to more challenging, interesting and well-paying employment, and a lot more choices. When assembly-line jobs dried up it was sad--but these were never high-status jobs by any means.

On the other hand, today's well-paid software engineers see their kids' college education more as a necessity than as a path to better-paying, more challenging and interesting jobs. The parents have already achieved the American, high-status dream.

Is there a historical precedent for this wholesale and permanent elimination of American society's best and most challenging jobs? When is the last time an about-to-be-redundant class of blue-collar workers were asked to shed their designer shirts? And what will these college-educated street people do for an economic encore?

Posted by: sylny on December 27, 2003 06:40 PM

____

There seems to be some confusion on the meaning of trade here. Trade occurs when I make something someone else finds of value that they need and they have constructed something that I find of value and need. If my government or company gives my job to someone else, I can no longer trade because I no longer have a job and now have nothing to trade.
The citizen of Mexico, China, or India, no matter how worthy, will never contribute anything to our local economy: They will not shop at our local businesses, they will not pay state, federal, social security, or property taxes to our governments. The work and the dollars we send them have no multiplier effect in and add no jobs to our economy.
The twenty-dollar an hour job that is sent overseas to a two-dollar an hour person impoverishes both our local and nationwide economy. It should be obvious, even to an academic theoretician, that a two-dollar an hour person will never be able to buy the same quantity of goods and services from the American that the American could have purchased from the cheaper source. The American who held that job must find another, which will invariably have a lower wage. Unless one is a member of the investment class or one of their trust fund babies, the economic future of America is a downward spiral.
We read in the newspapers that the number of people in poverty is increasing. The number of malnourished people is increasing. The number of uninsured is increasing. The number of jobs is decreasing. The percentage of American wealth that is held by the upper 10% of Americans is increasing.
While some of the people here, Free Traders, apparently think that the Haitian economic model is the desirable one for American, decreasing the middle class and increasing the working poor will not, in the long term, lead to a better nation or a growing economy.

Posted by: Mike on December 27, 2003 07:32 PM

____

Doctor G,

Since you were polite (e.g. didn't immaturely dismiss me as "just delusional") you get a thoughtful response. Thank you, you're a credit to the discussion here.

You've invested thirty years of your life in your career. Did you spend some of that thirty years thinking about the future and considering "what if I lose my job?" It need not have been in connection with globalization, although that's been plain to see for many years, and in fact you must have been aware of it because you've seen a lack of raises/promotions/hiring for years.

Other reasons for job loss might have been in connection with some technological change or business shift that made your skills less necessary. But I do hope you acknowledge your individual responsibility in planning for your own economic future. It is always foolish to assume your career is totally safe. Remember, only the paranoid survive.

With thirty years to watch the business world evolve, you should have enormous perspective and enough saved resources to make a new educational investment and go into another field, if that's what it takes. One of the points I made in my essay (linked to way way above) is that the people most negatively affected by dislocations caused by economic change are precisely, like you, the people most able to afford the transition.

I'm still in my 20s and only have a bachelor's degree, but I make a good living. I know from experience that it only takes 4 years of study to enter a field successfully. If I were laid off tomorrow I would have no problem pulling myself up by my bootstraps and going back to school. In fact, I'm already anticipating the need for a significant career change before I turn 40.


Dave Johnson,

"If Kyle didn't help the guy, the guy's family might have a HUMAN reaction. My DEscription of this reaction is they might not want to suffer KYLE to be around anymore."

Interesting rhetorical trick, but weirdly it comes across as if you're advocating the legalization of murder. You might not want to use that one in the future if you care about how you're perceived.


Question for everyone else: How is all this wrangling over lost jobs and low wages due to outsourcing/globalization any different, in principle, from lost jobs and low wages due to technology and automation? Are we all luddites, here?

If all that's important is creating jobs it's trivially easy to employ people to dig holes and fill them up again. But remember, you'll employ more if they have to use their bare hands instead of shovels. Happy digging!


And please, please, nobody insult me by calling me right-wing. I am most certainly not. The right wing doesn't believe in personal responsibility any more than the left wing does.

Posted by: Kyle Markley on December 27, 2003 10:14 PM

____

Kyle,

You started by saying that you should not be made responsible for other people's choices. Maybe, but in this case why should I be made responsible for someone's choice to kick (or screw) your ass? I can protect myself just fine. And if not, do we really need the police? Why should I be made responsible for someone's choice to blow your ass? My ass is safe, thank you very much. And if not, why do we need the Army? In other words, the society you want to live in is JUNGLE.

Now, you are nice little bachelor in your 20s making a good living. I lived in the jungle and you are not going to last a day there. You are going to be COMPOST.

This is why I said you are delusional. Nice little bachelors should keep to nice safe society. Nobody really wants to live in every man for himself society - not once you undersatnd that it means a lot of pain, humiliation and early death.

Posted by: Leopold on December 27, 2003 11:02 PM

____

Kyle - thanks for your links and website. It's got some interesting stuff. I think some of the point that Mr. Johnson was making is that many of the ideas that 'taxes are stealing' ignores the subsidies that are provided hard working bootstrapers like yourself, in their training at state supported engineering colleges. But in the end, I agree with trying to continously figure out our own personal 'plan B'. Part of that is spending as little as possible and making as much as possible.

Posted by: ohyeah on December 27, 2003 11:20 PM

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Kyle - thanks for your links and website. It's got some interesting stuff. I think some of the point that Mr. Johnson was making is that many of the ideas that 'taxes are stealing' ignores the subsidies that are provided hard working bootstrapers like yourself, in their training at state supported engineering colleges. But in the end, I agree with trying to continously figure out our own personal 'plan B'. Part of that is spending as little as possible and making as much as possible.

Posted by: ohyeah on December 27, 2003 11:20 PM

____

Soooo.... let's see.

Job goes to India. Pays 1/3 the wage. Sells the same product to the US - presumably for less. Thus benefiting those who are employed by allowing them to have their items cheaper. (Though, in fact, there is much evidence that prices don't go down - profits go up.)

That Indian has more money to spend - which he spends mostly on non US goods since the US sells little except commodities to India. (Don't feed me any shit about the accounting ledger of US dollars - US dollars can be used to buy anything anywhere and do not have to be used to buy US goods. Anyone who says otherwise is full of shit.)

The added profits likely go back to the US - where they wind up in the hands of the rich - and various institutional investors.

Meanwhile in the US there is less non investment demand. Because even if we assume that all the profits go back to the US - the rich don't provide as much demand - and some of that money is in Indian hands and NOT being used to buy American goods (though it may be being used to buy American government debt.)

So - lower demand domestically, perhaps a very slight increase in foreign demand (but nowhere near dollar for dollar demand). More money to fund the US debt.

Will an equilibrium be found? Well no - because economists' obsessions aside there is never a macroeconomic equilibrium in the real world. But in another sense - sure. In a few generations it'll all even out. Americans will be considerably poorer, Indians and Chinese will be considerably richer. They'll meet somewhere in the middle (lets not talk about oil here).

Is this good for humanity as a whole? Sure. Is it good for Americans as a whole - especially the middle class and the working class (and the enlarged lumpen proletariat?) Well, no. Is it inevitable? Well, that's not been proven yet. Certainly it's hard to stop - but it's not impossible. Free trade (and just as importantly free capital flows) is a human artifact and like anything else it can be changed by human decisions.

And frankly, I don't see why the US middle and lower classes should just sit back and take it on the chin. But hey, economists assure us that free trade is always good.

Ricardo didn't agree, by the way. But whatever. Rock on - and I'll laugh myself silly when economists jobs start going oversees. I'll be sure to assure them that as an accounting matter it all evens out in the big picture and that consumers of economic theories and classes will be better off - since they'll be able to get their economics cheaper.

Posted by: Ian Welsh on December 28, 2003 12:18 AM

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Ian Welsh,

The pitfall in your thinking is that the resource is there, in India, software engineers who can do the job at low cost. It is there. Like a natural resource, an oil field.

What the American firms are doing is to move in there their managerial ability to exploit that resource.

If American companies don't do that, then European conpanies will. If they won't move quickly enough, then the Indian themselves, perhaps in partnership with Japan, for example, will develop the managerial ability and exploit that resource.

Therefore it is inevitable that some informatics jobs will have moved to India one way or another.

American response to that kind of development should be to go for a population 100 percent college graduate and engaged in life long learning and engaged more in intellectual and cultural activity and a sensible mode of consumption like relying more on public transport and less and less on petrol engine and a more equitable society with universal system of conscription for military service. And talk more with the Europeans.

In short, America needs to become a more level headed nation.

If America can't develop a new form of world leadership along those lines, then the whole world, along with America, may very well find itself in deep dot dot.

Posted by: Bulent Sayin on December 28, 2003 01:20 AM

____

The arguments are wonderful and I understand when I am not competitive I should have my job replaced by someone hungrier and more efficient than myself. THE PROBLEM I HAVE IS THAT THE LOSS OF MY JOB AND MY LACK OF COMPETIVENESS IS DIRECTLY RELATED TO GOVERNMENT POLICY PROGRAMS. I FINANCED (TAXES) MY DOWNFALL.

The military is a large purveyor of high technology equipment and during the 70’s and 80’s, it was required to do business with minorities; however, America had not invested in the educating it’s minorities, therefore they were uncompetitive in the process. In order to meet the quotas, the programs were opened to other minorities; mainly sub continent Asians (Indians) and Asians. These naturalized citizens had the skills and skin color to satisfy the minority check boxes and the programs achieved all they were designed to achieve. As the naturalized minority lost his preferences, he imported other friends and family, set them up in business and continued incubating small business. These naturalized citizens were not the “poor and tired” with no connection to the homeland. These people were connected and dedicated to the home country and began sending capital to their home country. These Indians and Asians now have a competitive advantage over their American counterparts, due to connections in their countries with capital from our country. They have connected companies that allow transfers through the HB-1b process thereby exacerbating the issue.

Solution – Send me to India, which should give me a minority contract. I will hire Indians cheaply to do programming for the American Military and then send the profits back to America. Now that’s my kind of globalization.

As a side comment, the minority set aside programs were obviously a good idea as many small businesses have flourished into large businesses through this process. It shows that if that US Taxpayer money had flowed to American Indian and African American communities, instead of overseas, we might not have such a large divide in our country.

The Japanese automakers did not beat us on cost, they beat us with quality. Their employees had a similar standard of living as compared to the Detroit counterpart. This cannot be said of the Indian software programmer, who is only beating us on price.

Posted by: Greg Hunter on December 28, 2003 04:45 AM

____

Brad, I admire you a lot, but I don't know why my priorities should be the benefits to workers in other countries at the expense of my own country, my community, and my family. And, come to think of it, myself.

When jobs leave an area to go somewhere else, it tears communities apart. It costs everyone there. Why am I supposed to take this lightly because complete strangers in some other country are now in better shape as a result of new jobs?

The movement of jobs to other countries is cheaper for a lot of reasons, but one is that employers don't have to treat their employees as well. So what you seem to be saying is that it's okay to encourage jobs to move to places where employment is more like slavery than it is (or was) in the United States. Getting rid of worker protections of all kinds (including safety regulations) is a good thing. So we should also do that in the US, I guess, in order to compete with those other countries.

Aside from driving down the comforts of working life, what does this really accomplish? It's all very well to say that I can buy a computer cheaper, but this is only true if I have an income to start with. Move my job to another country and I can't afford a computer at all.

Most of the people I know who have lost jobs in the fabulous new economy have found new jobs - for less money. Their real buying power is closer to half what it used to be. They are most emphatically not experiencing more real wealth.

Additionally, many of them are experiencing far more demanding employers who afford them less respect, free time, and freedom generally. They don't seem to have real time off anymore - they are expected to carry beepers or company cell phones and be available at all times. Some of them actually have to arrange in advance to leave work on time, because they are expected to work late (often illegally). They dare not complain.

This doesn't sound to me like it really improves the rest of the world. What it seems to mean is lowering the bar universally on what is deemed to be acceptable employment practice. The money "saved" doesn't go to me as a consumer, it goes into the pockets of shareholders who don't spread the wealth - they aren't using that money to hire me, either, so I still can't afford that cheap new computer I need.

Feeling virtuous about helping Chinese people get jobs doesn't compensate me at all for these things. And while I'm all for doing what we can to make life better elsewhere, I think US policies should be first and foremost for improving, or at least maintaining, the quality of life in the US. I think charity is a good thing, but you don't give what you can't afford. And it's not the people who can afford it who are being forced to make the sacrifices.

So you'll have to go a lot farther to explain to me why it is good that jobs in my community are moving somewhere else.

Posted by: Avedon on December 28, 2003 04:50 AM

____

Very good, very strong streams of thought here, coming from people who know how and from where things came to this... well, I say it again, read my lips:

Higher taxes.

And a "New-New Deal" with a global reference.

Can Howard Dean envision and pursue it?


PS: Yes, I said "New-New Deal". What better medicine than that against the "Neo-Con"?

Posted by: Bulent Sayin on December 28, 2003 06:02 AM

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Yep, it is Howard Dean.

Wesley Clark should support Howard Dean and serve as Governor before seeking top job.

America could greatly benefit from coalition of doctors and soldiers.

You think that's a strange thought?

Well, look, what do you expect? I'm just a stranger!?

Posted by: Bulent Sayin on December 28, 2003 06:46 AM

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Leopold, I am neither an anarchist nor an anarcho-capitalist.

Posted by: Kyle Markley on December 28, 2003 09:10 AM

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>>Don't feed me any shit about the accounting ledger of US dollars - US dollars can be used to buy anything anywhere and do not have to be used to buy US goods. Anyone who says otherwise is full of shit>>

Think about this for a moment.

If the money doesn't come back to the US, we've got something for nothing - we've bought something useful from overseas without having to pay for it. We've traded a scrap of paper for an item of value.

This is unlikely. More likely the dollar is traded through one or more countries and eventually ends up back home, buying US goods or services.

Posted by: richard on December 28, 2003 12:12 PM

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Avedon, you are right on! We have enough poverty right here in the US. American policy should be for Americans first. These economic models fail are 'static' and assume fairly simplified connections between cause and effects, with assumptions that are CLEARLY not accurate. Why do we forget that the nations that have increased their standards of living fastest - including the US - have used protectionism of some form to create their base of wealth. While I'm on it - tariffs are frequently said to hurt everyone - if this is true then where is the data to prove it? Japan and the Asian tigers have done well by their citizens by ignoring that theory. It seems that the the phase lag between bringing on 1 billion new workers at low wages, with no bargaining power to raise wages, will require a good 50 years of someone suffering more.

Heres some idea balloons for the team...
1) If you want to sell in US, then you must build here.
2) If you are a US multinational corporation with>25% of employees in other nations, then you no longer are a US corporation. You will then be charged for the US defense departments work to protect your investments. Eliminate corporate taxes on corporations that employ all US citizens.
3) Set 'control limits' for the complex dynamic system of our economy - full employment would be 4% unemployment rate. Any amount above this - we implement sales tax based incentives to purchase US products or set quotas. If trade deficit is higher than 3% of GDP, then tariffs are applied to nations that don't trade enough(buy enough) of our goods. The tariffs would be weighted. So if one nation has 20% of our trade defict - they have 20% of the tariff burden. Once deficit is <3% of GDP, then we eliminate the tariffs.
4) Abandon the WTO and split the 'experiment space' into 3 regions for free trade development. Asia, Europe, and Western Hemisphere (NAFTA/FTAA). This allows us to seperate and slow the time domain impact of absorbing new labor. Each region has enough economic leaders to pull the laggards along. Then, rather than the US pulling the global consumption engine alone, Japan can pull in Asia, Germany/France/Britain can pull eastern Europe, and US can pull up the Western Hemisphere - where at least we have democracies.
5) Don't trade with anyone that disallows unions, has child labor, or inadequate protections for labor and the environment. These are externalized costs.

Thanks for your inputs on these ideas - I expect they will be shredded. If you have links or data to support the shredding - I'd appreciate seeing it.

Posted by: ohyeah on December 28, 2003 12:45 PM

____

Avedon, you are right on! We have enough poverty right here in the US. American policy should be for Americans first. These economic models fail are 'static' and assume fairly simplified connections between cause and effects, with assumptions that are CLEARLY not accurate. Why do we forget that the nations that have increased their standards of living fastest - including the US - have used protectionism of some form to create their base of wealth. While I'm on it - tariffs are frequently said to hurt everyone - if this is true then where is the data to prove it? Japan and the Asian tigers have done well by their citizens by ignoring that theory. It seems that the the phase lag between bringing on 1 billion new workers at low wages, with no bargaining power to raise wages, will require a good 50 years of someone suffering more.

Heres some idea balloons for the team...
1) If you want to sell in US, then you must build here.
2) If you are a US multinational corporation with>25% of employees in other nations, then you no longer are a US corporation. You will then be charged for the US defense departments work to protect your investments. Eliminate corporate taxes on corporations that employ all US citizens.
3) Set 'control limits' for the complex dynamic system of our economy - full employment would be 4% unemployment rate. Any amount above this - we implement sales tax based incentives to purchase US products or set quotas. If trade deficit is higher than 3% of GDP, then tariffs are applied to nations that don't trade enough(buy enough) of our goods. The tariffs would be weighted. So if one nation has 20% of our trade defict - they have 20% of the tariff burden. Once deficit is <3% of GDP, then we eliminate the tariffs.
4) Abandon the WTO and split the 'experiment space' into 3 regions for free trade development. Asia, Europe, and Western Hemisphere (NAFTA/FTAA). This allows us to seperate and slow the time domain impact of absorbing new labor. Each region has enough economic leaders to pull the laggards along. Then, rather than the US pulling the global consumption engine alone, Japan can pull in Asia, Germany/France/Britain can pull eastern Europe, and US can pull up the Western Hemisphere - where at least we have democracies.
5) Don't trade with anyone that disallows unions, has child labor, or inadequate protections for labor and the environment. These are externalized costs.

Thanks for your inputs on these ideas - I expect they will be shredded. If you have links or data to support the shredding - I'd appreciate seeing it.

Posted by: ohyeah on December 28, 2003 12:51 PM

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"American policy should be for Americans first. "

What's good for General Motors is good for America! :)

"Abandon the WTO and split the 'experiment space' into 3 regions for free trade development. Asia, Europe, and Western Hemisphere (NAFTA/FTAA). This allows us to seperate... "

That includes oil fields as well?

Posted by: Bulent Sayin on December 28, 2003 01:34 PM

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"The military is a large purveyor of high technology equipment and during the 70’s and 80’s, it was required to do business with minorities; however, America had not invested in the educating it’s minorities, therefore they were uncompetitive in the process. In order to meet the quotas, the programs were opened to other minorities; mainly sub continent Asians (Indians) and Asians. "

What is this nonsense? It's called "just making sh*t up". To meet minority quotas the military had to do business in Asia? Are the Republicans circulating this stuff?

Posted by: Dave Johnson on December 28, 2003 01:58 PM

____

Avedon, you are right on! We have enough poverty right here in the US. American policy should be for Americans first. These economic models fail are 'static' and assume fairly simplified connections between cause and effects, with assumptions that are CLEARLY not accurate. Why do we forget that the nations that have increased their standards of living fastest - including the US - have used protectionism of some form to create their base of wealth. While I'm on it - tariffs are frequently said to hurt everyone - if this is true then where is the data to prove it? Japan and the Asian tigers have done well by their citizens by ignoring that theory. It seems that the the phase lag between bringing on 1 billion new workers at low wages, with no bargaining power to raise wages, will require a good 50 years of someone suffering more.

Heres some idea balloons for the team...
1) If you want to sell in US, then you must build here.
2) If you are a US multinational corporation with>25% of employees in other nations, then you no longer are a US corporation. You will then be charged for the US defense departments work to protect your investments. Eliminate corporate taxes on corporations that employ all US citizens.
3) Set 'control limits' for the complex dynamic system of our economy - full employment would be 4% unemployment rate. Any amount above this - we implement sales tax based incentives to purchase US products or set quotas. If trade deficit is higher than 3% of GDP, then tariffs are applied to nations that don't trade enough(buy enough) of our goods. The tariffs would be weighted. So if one nation has 20% of our trade defict - they have 20% of the tariff burden. Once deficit is <3% of GDP, then we eliminate the tariffs.
4) Abandon the WTO and split the 'experiment space' into 3 regions for free trade development. Asia, Europe, and Western Hemisphere (NAFTA/FTAA). This allows us to seperate and slow the time domain impact of absorbing new labor. Each region has enough economic leaders to pull the laggards along. Then, rather than the US pulling the global consumption engine alone, Japan can pull in Asia, Germany/France/Britain can pull eastern Europe, and US can pull up the Western Hemisphere - where at least we have democracies.
5) Don't trade with anyone that disallows unions, has child labor, or inadequate protections for labor and the environment. These are externalized costs.

Thanks for your inputs on these ideas - I expect they will be shredded. If you have links or data to support the shredding - I'd appreciate seeing it.

Posted by: ohyeah on December 28, 2003 02:25 PM

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"1) If you want to sell in US, then you must build here."

In 1970, 80s US got Japanese automakers to open plants in America.

Does that help?

Posted by: Bulent Sayin on December 28, 2003 03:53 PM

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It's incredible to me that economists of a liberal stripe are so deficient in patriotism that they think nothing of stripping this country of one of it's crown jewels, the software industry. Already enrollment in computer science departments has fallen substantially, up to half, as a result of the off-shoring of the industry. The future of this industry has left this country.

I agree that companies such as I.B.M., HP, Oracle and so on should pay for their own armies, their own diplomats and the like. They should not reap benefits associated with being a corporate citizen of the United States if they behave in a way that impoverishes this country.

Posted by: Camille Roy on December 28, 2003 04:31 PM

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"More likely the dollar is traded through one or more countries and eventually ends up back home, buying US goods or services." EXCEPT, by the time all that round robin ends, the US$ has depreciated quite a bit more. To that extent the USA would have got something for nothing - only, US industry has declined correspondingly, the Spanish disease of the great days of the Spanish Empire.

Posted by: P.M.Lawrence on December 28, 2003 05:15 PM

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"I agree that companies such as I.B.M., HP, Oracle and so on should pay for their own armies, their own diplomats and the like. "

You want them to become "sovereign powers", then?

Posted by: Bulent Sayin on December 29, 2003 10:07 AM

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"Don't feed me any shit about the accounting ledger of US dollars - US dollars can be used to buy anything anywhere and do not have to be used to buy US goods. Anyone who says otherwise is full of shit."

Sure, the dollars can be used to buy, say, Saudi oil and Japanese cars. What do the Saudis and Japanese do with their dollars then, if they don't want to buy US exports? Invest it in US capital assets, either directly or by buying stocks and bonds. So the money comes back.

In fact, thanks to the magic of central banking, the money comes back even if it doesn't. Just by holding on to the dollars the foreigners are lending to the United States, interest-free to boot! Any adverse impact on domestic demand from the disappearance of dollars overseas is fully offset by the Federal Reserve.

Sorry to be 'full of shit', but an accounting identity is not something that one is free to disregard just because it contradicts one's intuition or personal preferences.

Posted by: Daniel Lam on December 29, 2003 02:00 PM

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"In the buggy-maker/car-maker case, yes - it would still make sense for Ford to make cars even if he had to compensate buggy-makers."

Yeah, right.

What would have actually happened is that Henry Ford would have made his cars in a friendly little town a couple miles southeast of Detroit. A place called Windsor, Ontario.

And that little attempt to extort money from Mr. Ford would have cost the U.S.--not to mention the U.S. government--a couple trillion dollars.

It is not the legitimate obligation of the leaders of the new industry to compensate the leaders (or workers) of the obsolete industry.

"Can someone say Chomsky?"

I can. But I can't say Chomsky without wondering why he doesn't move to Cuba. Or France. Or anywhere else that is at least out of the U.S.

Posted by: Mark Bahner on December 29, 2003 02:42 PM

____

"Seems to me that as in most such projects you'll probably have to get the government to use eminent domain on your behalf -- which will require a quite persuasive showing by you that your mill will produce net benefits to the whole community."

Oy, vey! Eminent domain to replace one set of private owners with another set of private owners? There oughta be a law against that!

http://www.cbsnews.com/stories/2003/09/26/60minutes/main575343.shtml

Luckily, at least for Randy Bailey, the courts recognize that there IS a law against that:

"Randy Bailey is also celebrating. The Arizona Court of Appeals ruled that the city of Mesa cannot force Bailey to move his brake shop to make way for an Ace Hardware store."

And luckily for *all* the citizens of Lakewood, Ohio, the residents are smart enough to know that, if the City can take their neighbor's land to give to another private citizen, the City can do the same to anyone:

"Last month, Lakewood residents voted down the proposed development and voted out Mayor Cain."

Posted by: Mark Bahner on December 29, 2003 03:10 PM

____

Brad asserted: "First of all, it's job shift--not job loss. "[S]ome Americans who otherwise would have had high paying jobs either have no jobs, or else lower paying jobs," but other Americans who would have had no jobs or else lower paying jobs have higher paying jobs.."

Is there any hard evidence for this ? Are there any studies showing the net benefits of globalization in terms of USA employment ? Anecdotally, it appears to be generating only an army of underemployed - I don't see evidence of those new 'higher paying jobs'. What are those new jobs going to be ? Who is going from unemployment to a 'high paying job' ? If there is no evidence from the past (which is of course as the mutual fund companies say, 'no indicator of future performance), and no-one can tell what the new jobs will be, then this appears to be merely faith-based economics..

I'd note too that all the articles I've read in the software business magazines harp on the same old folderol, 'more training for American workers'. However none of them seem to have any idea what the training should be in; or how it would help to have more training, which has to be bought at USA education prices (not cheap) to compete with those buying their education at India prices; or how a mid-career professional could retrain for a new profession while attempting to support a family and save for retirement (can't be done).

Posted by: Douglas on December 29, 2003 04:15 PM

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>I wonder about Bob Herbert: is he smart enough to have, when he looked in the mirror this morning, thought, "I see a man who is trying to keep India a desperately poor country?"

I hope that if you ever meet Bob Herbert in person he doesn't give in to the urge to kick your ass. Really, that was low.

The irony is that I'm reading a man who could do more than Mr. Herbert could dream of, but instead is doing nothing to change the fact that India is a desparately poor country.

Because Brad, it's YOUR profession that's keeping it that way.

No, I don't really know how. But I do know that India is an old country with well over 1 billion people. And yet somehow there is very little internal demand for software programmers or skilled engineers in general? They should be up to their ears in domestic work, I would think.

India is desparately poor because its domestic economy is a failure, not because other countries are protectionist. Since economies are basically directed by economists, then I think Prof. DeLong should look a little closer to home.

And I repeat, I have no idea if Indian economic thought is dominated by Marxists or Neolibs, or maybe the problem is that they have too many viewpoints and the squabbling gets them nowhere... you know the old joke about "put a thousand economists end to end and you still won't reach a conclusion."

But I do have good reason to suspect that all this cash going to India is like repairs on a beater car--- it keeps it moving but it ain't gonna change anything for the better.

Posted by: a different chris on December 31, 2003 10:07 AM

____

Valid points, Brad!

It's so refreshing to read somebody who actually uses logic in analyzing this. What always irritated me in the "anti-outsourcing" crowd is that they make it sound like they're fighting for a good cause when in reality all they care about is their wallets.

Their "logic" seems to be: let those Indians die of hunger - I don't care, let everybody else pay higher costs for software - no, actually, MAKE everybody else pay more for software, make US companies less profitable and less competitive, all this doesn't matter, just keep paying me!

Truly disgusting! There are so many bad things wrapped in here - racism, protectionism, etc etc and all miraculously presented as some righteous fight.

Also, do these anti-outsourcing people even realize that almost HALF of IT industry's revenue is from OVERSEAS markets? So, let's say hypothetically that the crazies win and that all foreign software is banned or heavily taxed in the U.S. Guess what - two months later, all U.S. software will be pushed out from the world market - and that will hurt MUCH more than outsourcing.

Posted by: slava on January 2, 2004 01:11 AM

____

Valid points, Brad!

It's so refreshing to read somebody who actually uses logic in analyzing this. What always irritated me in the "anti-outsourcing" crowd is that they make it sound like they're fighting for a good cause when in reality all they care about is their wallets.

Their "logic" seems to be: let those Indians die of hunger - I don't care, let everybody else pay higher costs for software - no, actually, MAKE everybody else pay more for software, make US companies less profitable and less competitive, all this doesn't matter, just keep paying me!

Truly disgusting! There are so many bad things wrapped in here - racism, protectionism, etc etc and all miraculously presented as some righteous fight.

Also, do these anti-outsourcing people even realize that almost HALF of IT industry's revenue is from OVERSEAS markets? So, let's say hypothetically that the crazies win and that all foreign software is banned or heavily taxed in the U.S. Guess what - two months later, all U.S. software will be pushed out from the world market - and that will hurt MUCH more than outsourcing.

Posted by: slava on January 2, 2004 01:15 AM

____

Here's what an economist from UC Santa Cruz proposes. Dr. Kletzer holds a Ph.D. in economics
from UC Berkeley.

Wage Insurance Needed to Counter Large Earnings Losses Experienced by Trade-Displaced Workers

October 11, 2001

Washington, DC Two-thirds of trade-dislocated workers earn less when they find a new job than they did on their old job. One quarter of these workers experience earnings losses in excess of 30 percent. Our political process should do a better job of recognizing these costs of
freer trade to individual workers and implement effective mechanisms for easing the necessary adjustments. A program of wage insurance that would replace a substantial portion
of the lost earnings, for up to two years following the date of initial job loss, would directly address these costs and should be adopted.

Source: Institute for International Economics
http://www.iie.com/publications/newsreleases/kletzer.htm

Posted by: AReader on January 7, 2004 11:19 AM

____

Lori Kletzer an economist with a Ph.D. in economics from Berkeley has an interesting
proposal for workers hard-hit by trade competition.

Wage Insurance Needed to Counter Large Earnings Losses Experienced by Trade-Displaced Workers


Two-thirds of trade-dislocated workers earn
less when they find a new job than they did on their old job. One quarter of these workers experience earnings losses in excess of 30 percent. Our political process should do a better job of recognizing these costs of
freer trade to individual workers and implement effective mechanisms for easing the necessary adjustments. A program of wage insurance that would replace a substantial portion of the lost earnings, for up to two years following the date of initial job loss, would directly address
these costs and should be adopted.


http://www.ucsc.edu/news_events/press_releases/01-02/10-22.kletzer.html

Posted by: AReader on January 7, 2004 01:04 PM

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Seems to me that what we have here is a gloves-off Hobbesian climax to our capitalistic economic system that will end in anarchy. The guys at The Top are cashing in the accumulated Blue Sky, Goodwill and Personal non-monetarized Capital of US society that was built up over the past 50 years. Heck, with the great enthusiasm they show for looting the SS fund to finance various traditional maniac desiderata we can see they are cashing in even monetarized capital.

What to do, what to do? How can an old scarred veteran survive and even prosper? What can one learn from life experience to help in the future?

Well, suppose one had worked 20 years for IBM under the full employment policy, building loyalty capital as encouraged and exhorted by IBM managers and executives, only to hear one day: "Oops, we didn't really mean it. You'll have to go. Here. Here's a bag of bread crumbs we swept from the Executive Dining Table for you as a symbol of our appreciation for your years of service"?

Adapt! That's what. Become a consultant. Start a new company. Work hard, Horatio, stay up nights, go without pay, hock your house, survive divorce. Partner with some smart salesmen, experienced startup guys, clever VCs. Push it over the top to success! Ahhh, now to collect the fruits of all the hard work and personal sacrifice capital! What's that the beautiful well-dressed new CEO is saying? The company was sold by 51% of the shareholders to a new company and you're not in it? And you make more on the vesting plan than an engineer is worth? You'll have to go, and don't complain or you'll be charged with stealing from the company? What's that? You'll never work in this valley again, you rotten lazy incompetent shirking stealing SOB?

Adapt! At age 65 you should be pretty experienced at adaptation by now. What to do, what to do? Parasitize the Rich! For all their demonstrated competence at contriving mad economic schemes to put someone elses money in their own pockets, they are amazingly naive about almost everything else. Lacking any real knowledge of aesthetic and quality they are dominated by ghostly ad messages, thus The Ultimate Driving Machine has an incredible grip on the psyche of these child-kings. Learn to exploit it! Learn to use your small remaining capital to goldplate something and pitch it as Something Special. Learn to turn the entrained American Consumption Compulsion into $$CASH$$! I know at least one ancient battlescarred engineer who's doing this.

Ultimately this leads to an asymptotic capitalistic society of clever entrepeneurs selling egregious consumption junk to each other, which is designed and produced by disorganized below-subsistence workers in countries with unpronounceable names.

It's great to be alive in these interesting times.

Bliffle

Posted by: Bliffle on January 8, 2004 07:59 AM

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The theory that Americans can "retrain" when their jobs are sent overseas by the corporate aristocracy is false. Most American applicants are rejected by US universities when they apply for advanced training, while two thirds of the graduate positions in American universities are given to foreign applicants. The US government provides enough student visas to insure that advanced training positions are unavailable for the vast majority of US citizens who apply for retraining. Instead, these advanced educational resources are used for the outsourcing purposes of global corporations in transfering advanced skills to their future foreign workforce. In the meantime, advanced jobs in the US are given to H1B Visa holders as a means of implementing age discrimination in high tech, ending the careers of US tech workers over the age of 40, and providing an experienced foreign workforce which global corporations can then use to facilitate the transfer of industries developed in the US to cheaper labor countries which previously had been unable to participate effectively in advanced industries.

Academic economists are not free to take positions which criticize the global corporate "free trade" outsourcing agenda, precisely because, as radek points out, two thirds of the graduate students and half the professors are foreign in American Universities. Taking a position critical of free trade orthodoxy would end the career of any academic economist in the US university system, and the dominant foreign presense makes it crystal clear to every American student that dissent will not be tolerated. If all the professors, and nearly all of the graduate students were Americans, then the economics profession might be free to consider the interests of the American people as a valid topic, and US universities might have been of some use to the nation during this time of wrenching global change, but that is not the case.

Notice how the arguments change. Deindustrialization during the 1980's was defended with the canard that displaced American industrial workers would retrain in high tech, which was possible then since even every junior college at the time had a computer science program. It was a convenient way to cover for deindustrialization policy, but it only worked because the economic advantages of rapid expansion of the computer industry were so obvious that educational programs had already been massively deployed and were widely available. But the result of deindustrialization was massive trade deficits, government budget deficits, the conversion of America from the world's largest creditor to its largest debtor, decades of income stagnation for eighty percent of the population, and the rise of a disenfranchised underclass and homelessness in every city in the country. The computer industry absorbed only a fraction of displaced industrial workers, relying mostly on young new workers, and later on foreign imports, and implementing age discrimination to prevent the entry of older Americans to the profession, only later to dismiss them entirely.

The argument this time is different. Obviously, "take new training in high tech" rings hollow when it is high tech itself which is being sent out of the country, and when the majority of high tech training positions in American schools are closed to American citizens. American workers, this time, are trapped, and there are no obvious choices of fields to enter, no direction to turn that can be credibly represented as having any hope more valid than a lottery. The trend is obvious: Every field will be outsourced, and soon. Advanced training is an extravagent expense, unavailable, and will not pay off before it is outsourced. So now the argument of the economists shifts to guilt and pathos: "Why should Americans deserve these jobs when Chinese and Indians work so hard to provide less expensive products for American consumers?"

This, my fellow Americans, is the true consequence of allowing a privleged aristocracy to reach for Empire. Mass invasion, economic stagnation, civic debt, the road to opportunity falsified or closed, the bravest of the young dead or maimed on the streets of foreign cities, our nation despised, our leaders' cronies stealing billions from state treasuries, and nowhere, nowhere hope for our people that could be believed by anyone but fools.

It will not be an American century. Our industries are shut down, our treasury is bankrupt, our currency debased, our cities invaded, the advice of our professoriate corrupt, and our elite selling the nation for private gain in a vain attempt to stave off or survive the deluge. But survive they will not. Nor will we. The aboriginals whom we once replaced said it best: "How can you own the sky, the land?" There will be a place here, a people here, but the death of a way of life is upon us, history has arrived at our door, God is coming.

Oh foolish leaders with your pure ideas, have you no feeling for the ways of man? Then comes the carnivore, who eats your dreams.

Posted by: Prophet on January 8, 2004 09:24 AM

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