Brad DeLong's Semi-Daily Journal (2004)

Making the point rhetorically is a challenge because so many people--even smart people like Steve Roach--seem convinced that outsourcing is to blame. But shouldn't it be possible to show with back-of-the-envelope calculations that outsourcing is not to blame? I venture that if we took job categories for jobs that have been outsourced and calculate a counterfactual where the job growth rate for 2001-present in those categories was equal to the corresponding rate for 1993-2000, we'd still end up with net negative job growth under Bush. One might worry, however, that people would take this calculation to say, incorrectly, that outsourcing is responsible for X% of job loss under Bush.

An article at BusinessWeek here http://www.businessweek.com/magazine/content/04_12/b3875603.htm claims that the increases in productivity are a large factor in the slowdown of new jobs creation. The gist of the article (among other things) is that, as companies become more efficient, they're able to accomplish the same things (or more) with a reduced work force.

Why lie?

Get beyond the obvious causes and start working on the solutions.

For a start, everyone that is willing to work should be able to find a job.

I keep hearing that about 200,000 high-tech-type jobs have been outsourced. If that's so, then that only accounts for 5% of the shortfall of ~4 million jobs. (IIRC, the 4M figure is Krugman's.) So right there, you can see that outsourcing doesn't explain much.

But being the populist sort I am, I'm not averse to using the outsourcing and manufacturing job losses, along with John Edwards' "Two Americas" rhetoric, as a starting point for some serious social negotiation.

I agree that under protectionism, the pie doesn't grow. But if the costs of growing the pie (job loss, dislocation, lower pay) are felt in the America most of us live in, and all the growth in the pie winds up in the laps of the rich America, then what is the incentive of the typical American to be for free trade?

I think it's time for the Dems to say to the corporatocracy that the price of free trade is, at minimum, a return to a much more progressive tax structure, and much stronger laws protecting union organizing. A few job-retraining programs aren't enough to cut the mustard anymore.

I think you need help from Brother Brink:

http://www.freetrade.org/pubs/briefs/tbp-019.pdf

http://www.cfeps.org/pubs/wp/wp18/

"But being the populist sort I am, I'm not averse to using the outsourcing and manufacturing job losses, along with John Edwards' "Two Americas" rhetoric, as a starting point for some serious social negotiation."

The problem is that the Republicans have their own rank-and-file protectionist faction, it's mainly their business interests that are pro-free trade. If Democrats really harp on the evils of trade and try and "negotiate" for improved social programs based on that, what will actually happen is that the Democrat and Republican factions opposed to free-trade will simply end up implementing protectionist measures as the one thing they can both agree on, with populism overriding business interests.

And at the end of the day the third world gets fucked.

It really amazes me how many people who consider themselves "progressive" and generally in favor of improving the lot of the poor, will turn around on trade policy and blatantly screw over the third world poor to prevent average Americans from having higher job turnover.

The "outsourcing" debate makes this hypocrisy VERY apparent. It used to be that people protested trade using the excuse that American corporations were oppressing the workers to make sneakers, promoting terrible working conditions, damaging the local ecosystem, and whatever. But Indian tech workers (the favorite evil baddie of outsourcing) are not oppressed by US companies by any stretch of the imagination! Their working conditions are very good. They are not exploited. Their jobs are environmentally friendly and have very positive effects on the development of the Indian economy. They are poster children for the benefits of trade to third world economies.

There's a table
Outsourcing versus Headcount Reductions: The Case of India

which compares expansion in India versus layoffs/cutback in the USA for particular companies.
The link is:
http://www.morganstanley.com/GEFdata/digests/20031006-mon.html#anchor0
Scroll down. Take a look at our offshored future.

I find it peculiar that people talk about how offshoring is not a significant factor in our current jobs drought -- as if that is supposed to be comforting. We are in a terrible jobs drought, and offshoring is supposed to vastly ... increase.
This is comforting? What are you people on??

Every day an armada of container ships arrive in our ports, they disgorge vast amounts of stuff and then depart....carrying our jobs.

And the jobs will NOT return...EVER. They are gone. And this isn't slowing down nor diminishing, it is shooting straight up. Our trade deficit grows by the day, our job losses rise by the hour.

Pretending this is no big deal is insanity.

How about asking opponents of outsourcig if they would like some 25 year old Indian to be hired to replace Bush. I sure would.

A major difference between what is happening in the US and the results of free trade policies previously is that WE are sending OUR capital offshore to produce goods and services which are sent BACK to the US. The net effect is there are fewer jobs in the US and less capital.

Compare this to earlier happenings. Japan, after WWII, had low labor costs and little capital. They used their advantage in labor costs to build up capital through exporting. This was plowed back to modernize their plant. Labor gained in proportion as wages and benefits went up supported both by internal and external sales. At the point where they had built their capital stock up, they were able to specialize in certain areas of high tech exporting. They had built a significant internal market, and their labor costs among the highest in the world. At that point the US had lower labor costs, etc. The same thing has happened wrt European auto manufacturing in the US. The same thing is happening wrt the US and Korea.

This is not what is currently happening wrt the US and India or China. Capital is flooding in from the US, to build up capacity to export to the US. Labor costs remain low, and indeed labor is subject to coercion. While the number of service jobs offshored may be (up till now) low, the number of manufacturing jobs is

If you think this is the old time free trade, enjoy the smoke.

RT writes:

"I keep hearing that about 200,000 high-tech-type jobs have been outsourced. If that's so, then that only accounts for 5% of the shortfall of ~4 million."

Early last year Cisco prez Chambers said approximately this (from memory):
>

Accordingly to Chambers logic 2M service jobs are lost due to losses of high-tech jobs.

I don't know if I fully buy this logic, but it does sound reasonable.

Taking them one at a time:

Patrick Sullivan and D. Barnes - Sorry, fellas, but it's incumbent on you to summarize those arguments here, to give us a reason to go there. I'm happy to respond to what another poster has to say, and check out his links for greater detail or corroborating evidence. But to just say "here's a link, go look at it" in lieu of an argument, is worthless.

Ian Montgomerie - I agree with your basic concern: we shouldn't be screwing the Third World in order to defend our own standard of living.

I think the likelihood of hard-core protectionists on the left and right uniting to implement protectionist measures, period, is essentially nil. There just aren't that many hard-core protectionists on either extreme in the US, and the two extremes really detest each other. I'd be impressed as hell if my program could get enough support to get the big boys to even pay attention, even in a year such as this one. I think it's a longshot that there's enough support to even halfway realize my goals, but I think it's about as good a shot as any. But I think the likelihood of having the political strength to go to the other extreme and slam a wall of tariffs around the country is best measured in infinitesimals.

camille roy - I share with Ian a dislike of the alternative of telling Chinese and Indians that we're gonna try to hog all the prosperity for themselves.

Globalization is happening; the only question is, on whose terms? I think the best deal we can cut is to insist on a top-to-bottom sharing of wealth within the US economy in return for letting jobs flow overseas. I don't think it's right to prevent programmers in India from having a shot at these jobs, and in the end I don't think it can be done anyway. But when our corporations make more money as a result, I think we can demand that that added profit be treated in large part like a national resource rather than a strictly private one.

Elaine - the trade deficit worries me, and I know it worries Brad DeLong; type in "trade deficit" into the search engine here.

But what are the possible responses to an out-of-control trade deficit? In all the worried pieces I've read about the potential problems of trade deficits, dating back to the Reagan era, I can't recall anyone saying, here's the standard economic prescription for a country with large trade deficits. I assume there has to be one, but econ isn't my forte.

Eli, how in the world can India accumulate capital and keep its wages eternally constant? (In fact, the main reason Indian wages today are higher than they were, say, three decades ago, is because of capital accumulation, there is no secret.)

There is ZERO economic difference that I can notice between job outsourcing and standard imports. Just because you outsource production overseas instead of closing down a steel plant and reopening it in an other country, doesn't change the nature of the story.

In fact, I bet that very soon, most of these outsourcing Indian companies will be owned by the Western companies that use them, if that's not the case already. The plus with outsourcing is, of course, greater flexibility with procurement. A plus for US corporations, that is.

Software programming and other jobs educated Indians can do well is nothing else than an other intermediary good the US is now better off importing, just like auto parts for example. At the end of the day -ok some days feel longer than other- US software engineers who have been laid-off will be hired by expanding US sectors. Would we better off today is American cars would still be entirely US-made? Seriously?

Professor DeLong: Paul Krugman has published the ultimate vulgarized antidote to protectionism. The title is: Pop Internationalism (MIT Press, 1996). Pretty much all his arguments and back of the envelope calculations should be applicable to outsourcing.

"But what are the possible responses to an out-of-control trade deficit? In all the worried pieces I've read about the potential problems of trade deficits, dating back to the Reagan era, I can't recall anyone saying, here's the standard economic prescription for a country with large trade deficits. I assume there has to be one, but econ isn't my forte."

That one is easy, RT. If you consume more than you produce, it means someone is giving you something extra on top of your of your consumption for you to consume. Sounds like a trusim? Well if it is, why do I keep reading that the way to close the deficit is to prevent this or that part of the world from supplying the excess of US consumption of its production?

Say you have taken the habit of eating 4,000 calories a day, giving up on chocolate alone isn't going to make you eat less than your 4,000 calories. You'll eat more donuts probably. If you care about the deficit -say, because the amount you increasingly owe your neighbours for all that nice extra stuff begins to worry you at night, and them as well...- well, Sir, the only solution is to start living within your means.

Let's start here: budget deficits are a major reason lately why the US is leaving beyond its means. Every dollar of deficit you cut represents potentially a dollar of trade deficit reduction, and thus some production coming back to the US. Not that I think trade matters so much for jobs but if you absolutely want to believe so, deficit reductions are one realistic way to get at that.

oops: ...giving you something extra on top of your of your PRODUCtion for you to consume.

Philip, that is the point, US capital is using Indian labor. The development of the internal Indian market is secondary, and slower than it would be in the "normal" free trade scenerio.

The economic difference is that fewer people in the US have jobs, and the capital that would have been invested in the US economy is invested in the Chinese/Indian/Malaysian economy. Surely that is a difference.

In some cases there is not even an exchange of money as entire plants are packed up and moved.

And the hope that other jobs in other fields will appear is equivalent to the note in a play script "here a miracle occurs"

100 years from now I expect that a lot will be said on how badly Bush handled 9/11. It wasn't a big shock; the government gave up. Instead of keeping the planes and trains going, the entire country came to a stop. It reminded me of the "Day the Earth Stood Still" that great Sci Fi.

Basically, business said, "It's over here; let's grab what we can and run for the doors. That has been our policy, ever since. Cut taxes, no investment here, outsource and offshore."

What would help would be a little honesty--Economists really don't know much about how to create economic growth. If you read the growth literature, such as it is, its pretty clear that growth doesn't spring from economics--which is mostly like being a farmer (all economics can do is plow and weed the field and put out the seed and fertilizer). Pretty much the "majic" in farming is water; the "majic" in economics is technological innovation. The simple fact is that we have run that course--there is nothing new under the sun (no NEW New thing) that will employ the numbers of people who need jobs.

Eli Rabett sez:

"If you think this is the old time free trade, enjoy the smoke."

They may or may not be smoking a funny stuff, although at Berkeley they probably do.

But generally, it is a strickly economic self-interest. With a life-time job security and very high incomes, academics benefit enormously and will defend free trade, free immigration and outsourcing till hell freezes over or California joins Mexico whichever is sooner.

RT wrote:

"Ian Montgomerie - I agree with your basic concern: we shouldn't be screwing the Third World in order to defend our own standard of living."

Help me out guys, I don't know much of economics. When I'm at farmer's market shopping for carrots I can buy them from farmer Bret Short or farmer Pierre DeFrog. I avoid farmer Short as I suspect he is always drunk and buy from farmer DeFrog.

Did I screw farmer Short? Did I violate any laws or ethical rules or what?
Am I allowed to deal with whomever I want or FreeTrade Gestapo will come around and beat me?

Please help.

"camille roy - I share with Ian a dislike of the alternative of telling Chinese and Indians that we're gonna try to hog all the prosperity for themselves."

hello? who is talking about hogging 'prosperity'?
I'm talking about saving yourself and your family from slipping into the gutter.

The american system is set up so that losers lose everything (health insurance, house, savings, 401K, retirement, college dreams for the kids), and are expected to suffer silently and shamefully. If that happens to enough people the likelihood is that they will react with a rage which may well be politically de-stabilizing.

You were warned.

The last refinery built in the U.S. was built in Louisiana in 1976. We have been importing gasoline from refineries built in places like Venezuela and Trinidad.

The U.S. in effect outsourced the construction jobs for those refineries. The operating jobs have also been outsourced but, we are still paying for them. Those foreign operating jobs show up in our balance of payments deficit.

Jean-Philippe - I'm for running surpluses rather than deficits for other reasons, like saving up for when the Baby Boom generation (which I'm in) retires. But I don't see the connection between budget deficits and trade deficits as clearly as you do. For instance, take a look at this graph here which shows the US trade deficit tanking just as Clinton was bringing the US budget into balance. (On a side note, I mentioned DeLong's concern about the trade deficit earlier; I drew that from here, not there.)

camille roy - don't need no warning; I've got eyes. This is what I'm responding to.

It's like when two women are fighting each other over some two-timing guy. Dumb, right? Same here: if American and Indian workers fight each other over jobs that the corporatocracy wants to move to the next country at the drop of a hat, the problem for us isn't the Indian computer geeks, the problem is the corporations that are getting rich off sending jobs abroad, while we get unemployment. My point here is that the risks and rewards of globalization must be more equitably shared within the American economy.

Homer Pile - I tried to fit your analogy to the discussion, but it didn't match up well that I could see. Please try again.

Without a considerable effort put into developing new industries here in the US, I don't see any real potential for new jobs. Outsourcing will continue. It seems like an extension of our expanded travel and communications, the result of technology (internet for one)

Taxes, the burden can't fall on those who earn less and whose jobs are most susceptible to the axe. The CEO is less likely of losing his/her job and earns the higher wage ergo, no special tax bennies for the +300 K crowd.

The Fed, Greenspan seems to be trying his damnedest to get retired by someone. With that in mind, it's hard to know who is really minding the store.

As far as shocks go, 9-11 just pushed the car over the edge. Problem was, it was already sitting on the cliff.

But then, I'm not an economist. So what do I know.

On the one hand, some bemoan the flow of "US" capital to India, to provide equipment for workers there. On the other, we have this:

http://www.j-bradford-delong.net/movable_type/2003_archives/003037.html

from Brad some time back, hinting that the US could be considerably less capital rich, less productive, so with lower living standards, if things had gone the way they "should" have. Before criticizing the outflow of capital from the US, take a gander at the net. The US has been sucking capital out of the rest of the world for a long time. Our living standard is higher as a result. If a trickle heads to India, Mexico, China and the rest, well it wasn't "our" money to begin with.

Slack US job demand is a problem. International payment balances are a problem. Developing country poverty is a problem. We cannot solve them all in the same period, nor can we solve any one of them by suspending the laws of economics. Indian wages are low, returns on capital, in some applications, are high. Education in India, for some, is excellent. Non-Indian capital will head for India, creating jobs. That's it. Done. If we want to fix the problem of slack us labor demand, it cannot be by pretending the attractions of Indian labor don't exist or can be overcome somehow.

An outsource-proof job?

http://news.bbc.co.uk/2/hi/entertainment/3504584.stm

Break out the Berlitz tapes - It’s about time Americans learned that speaking a second language is not un-patriotic

Can someone help me find the model or theory that supports Brad's assertion (iii) that tax cuts for +$300k tax payers are not job creating? The +$300K tax payer will save his tax cut and this additional liquidity at the bank will lower money rates and result in additional disposable income to anyone borrowing money (presumably the <$300k crowd). They will then spend it. So the question is why does a tax cut to the "poor" (<$300k) result in higher consumption (and related job creation) than the same tax cut to the "rich" (+$300k). Appreciate the help.

John,

If you want to understand money creation and money multipliers check out www.mosler.org. Even though Brad and Warren don't agree on how money is created, they do agree on the end result.

Sorry, Brad but Warren's presentation is just way easier for people to understand and it makes sense.

"A major difference between what is happening in the US and the results of free trade policies previously is that WE are sending OUR capital offshore to produce goods and services which are sent BACK to the US. The net effect is there are fewer jobs in the US and less capital."

There seems to be some confusion here between trade and capital flows. Outsourcing itself does not involve sending capital offshore: a U.S. company fires some programmers and hires an Indian firm to provide it with the programming services instead. This is just regular importing. If the money that is paid to the Indian firm is not immediately spent on U.S. exports, it shows up as a capital *inflow* into the U.S. As this capital is deployed in, oh let's say building condos in Florida, it leads to more jobs for construction workers, electricians, etc. Not much comfort to the programmers who lost their jobs, but not 'fewer jobs in the U.S.' either.

Eli: You state, "A major difference between what is happening in the US and the results of free trade policies previously is that WE are sending OUR capital offshore to produce goods and services which are sent BACK to the US."

Wrong. We are an importer of capital, hence the trade deficit. Here's a simple algebraic proof if you have a few lines' worth of patience; this is one of those things where three lines of algebra saves twenty pages of blather. You do seem like an intelligent guy so I'm willing to try this on you.

Y + M = C + I + G + X. That is, GDP plus imports are either consumed, invested, spent by the government, or exported. This is the first equation that macro students ever learn; it's an accounting identity.

S = Y - C - G. That is, savings is production minus private and government consumption. It's another accounting identity. Substituting in...

S = I + X - M, or I - S = M - X. In words, this means that the capital account (or net imports of capital) is the negative of the current account (or net exports of stuff).

Think of the current account as being the opposite of the trade deficit. So net imports of capital are equal to the trade deficit. Not at all intuitive if you're willing to use just words. This right here is why economists use algebra. The result is exactly the opposite of what intuition suggests.

Certainly “offshoring” is not solely responsible for our current lousy labor market. Among the factors I see at work are:

-Inappropriate international finance arrangements that allow for capital mobility that is the stuff of “rights without responsibilities.”

-Inadequate or no theory of distribution (of income and more) to compliment economics theories of allocation, as pointed out long ago by Joan Robinson. See Kevin Phillips book Wealth and Democracy, for example. We are right back where we were in 1929 w/r/t income distribution.

-US monetary and fiscal policies/programs that pushed us (or allowed us to move) to a debtor-nation status, running-up huge personal and public debts as the world’s consumers of last resort.

-Competing partial theories of economics with true-believers thinking that they have a lock on truth and would correct the world’s ills if only they could be in control for a while.

We need is a few more “Chaoticians,” intellectually informed naysayers. Remember Dr. Ian Malcolm’s interchange with John Hammond in dialogue from the movie Jurassic Park 2: The Lost World?

Hammond: Yes, the animals won't even know they're there. Very low impact. Strictly observation and documentation. Our satellite infrareds show that the animals are FIERCELY territorial. The carnivores are isolated in the interior of the Island; so the team can stay on the outer rim. Don't worry Ian! I'm not making the same
mistakes again!

Malcolm: No, your making all new ones!

Why are so few shouting: “Unsustainable! Irresponsible!” Why are so many keeping one eye on the exit hoping to beat others in case of panic as they harvest speculative rewards from bubbles? Why are so many “authorities” saying if effect, “Be patient” and without stating it, “Hope for a miracle?”

It appears to me that we have a real mess on our hands, not dissimilar to the one that happened in the wake of the crash of 1929. Perhaps naively, I throw in with Stephen Roach, Otmar Issing, the folks at The Economist. http://www.economist.com/finance/displayStory.cfm?story_id=2461875

I think we are creating bubbles in the wake of the NASDAQ bubble that burst. I believe, that we should have done something sooner (1995?, 1997?) about the NASDAQ bubble and that we ought to be “very afraid” of creating more so soon after that one. Trust is so painfully built over long periods of time, so easily and quickly destroyed…

PS.. Anybody want to help me better understand whether Paul Davidson is right, and according to whom, in his remarks on “comparative advantage,” suggesting that:

"… if there is anything economists should have learned since Keynes, it is that one cannot prove that there will be gains from trade that both economies will share unless one assumes that there is full employment in both economies both before and after trade.

That brings us to a second problem in applying the law of comparative advantage to the real world. The textbooks assume that the gains from trade due to the law of comparative advantage occurs only if neither capital nor labor are mobile across national boundaries. If capital is internationally mobile than the usefulness of this "law" in determining trade patterns is diminished. With free international capital mobility, a good will be produced where it is most profitable, i.e., where units labor costs are lowest. Thus in your two economy model if one country has an absolute advantage in that unit labor costs are lower for the production of both bicycles and computers, then that nation will attract enough foreign capital to produce all the bicycles and computers for the global market. Production and employment in the other country will decline to zero."

http://csf.colorado.edu/forums/pkt/jan98/0124.html

Dabbler Dave: As far as I can tell Paul Davidson does not have it right. You don't have to assume full unemployment to demonstrate gains from trade. It is important to distinguish between increases in national income and how those increases are distributed to understand this point. The Heckschler-Ohlin (H-O) model of international trade states that returns from trade will accrue to the producers of exported goods. A country's aggregate income will always increase as a result of trade, but those income gains will go disproportionately to the workers who produce the exported goods, while the workers who used to produce the goods that are now imported will suffer a loss. This explains why CEO's and i-bankers have done pretty well over the 80's and 90's, while steel workers are out of luck.

Davidson's claim that comparative advantage does not exist under international capital mobility is also off-base. This is actually a classic fallacy. Let's say that country A has an absolute advantage over another country in the production of two goods, computers and bikes. The economy WITHIN country A, however, will still be more efficient at producing one good than the other, COMPARED to A's trading partners. Let's say they are better with computers. It makes more sense for A to devote all available labor and capital to producing computers, and trading computers for bikes on international markets. A capitalist with international investment opportunities would be passing up a better opportunity if he invested in a bike factory rather than a computer factory. By making computers, and trading them for bikes, he would end up with more bikes (i.e. real wealth) than if he simply opened a bike factory.

Still, Davidson means to make a good point. Workers in outsourced industries do lose as a result of free trade, even if the total amount of wealth in the economy increases. The debate shouldn't be about whether trade is good or bad, but how we, as a society, want to divide up the gains from trade.

Chris points to the fact that the US imports more capital than it exports and says that this invalidated what I said. To do so IMHO he would have to show that the imported capital was invested into production of goods and services in the US, rather than into say treasury bonds or real estate.

Richard, I think misses how populous China and India are wrt the US. Consider the same argument, for example, for manufacturing in the US, vs say Switzerland. The US could swamp Switzerland in bikes and computers without breaking a sweat. Moreover, where does that kind of argument go if the capital is being provided by US bike and computer manufacurers. Should the bike makers all switch over to computers??

RT wrote:

"Homer Pile - I tried to fit your analogy to the discussion, but it didn't match up well that I could see. Please try again."

I know it is a difficult concept. I thought is is me.
I will try again.

You and others stated that "we shouldn't be screwing the Third World in order to defend our own standard of living."

Please, kindly explain how, for example, refusal of the USA to import cheap drugs from India (incidentally all produced by ripping off US patents) could be costrued as screwing Indian standard of living.

In similar fashion, how the USA not importing mission critical software for goverment functions from China or India is screwing those countries?

What legal or moral rules USA would violate if we decide not to import Chinese bikes?

If you are so concerned about all those people living in various dumps, shouldn't you contribute your money to a charity instead of cheerfully throwing your countrymen over board?

Don't mix 2 unrelated things: job loss in 2001-2002 occured because IT investment had fallen. There is no new US IT jobs created in US despite the recovery and growth in IT investment in 2003-2004 because they are created in India and China.

Brad: To whom (i.e. what group) are you addressing your "interventions into the current political debate"? E.g., other economists, or policymakers, or voters on the street?

A great article in NYT: http://www.nytimes.com/2004/03/21/business/yourmoney/21wipro.html?hp

THE story of Wipro is as unconventional as that of its chairman. Upon the death of his father in 1966, Mr. Premji dropped out of Stanford to return to India and take care of the family's cooking oil company.
...
Today, software and related services account for 92 percent of Wipro's revenue, though most Indians identify the company's brand by other products that it now makes: soap, diapers, light bulbs and medical equipment.
...
To his compatriots, Azim Premji is the Bill Gates of India. By transforming his family-owned vegetable oil business into a global technology powerhouse, Mr. Premji has become the country's richest citizen, with a net worth hovering around $8 billion.
...
MR. PREMJI, Wipro's chairman, has also spent the last few weeks collecting a variety of statistics. In an interview, he rattled off a few of them: India's technology industry employs 800,000 people, he said, while the American technology industry employs 10.2 million. And 300,000 people work in Indian call centers, compared with six million in the United States.
...
So far, at least, there are few signs that the controversy is hurting Wipro's business. On one recent day, the company had 17 clients visiting at once, and a mad scramble ensued for conference rooms. Over all, the company said it expects revenue to reach $1.3 billion in the 12 months through March, up 44 percent from the previous 12-month period.

Summary: 5% of American call-center jobs and 5% IT jobs are outsourced to India. The size of the large outsourcing company is close to the size of Sun, Oracle or Cisco (Camille, thanks for the reference http://www.morganstanley.com/GEFdata/digests/20031006-mon.html#anchor0). It doubles every 2 years and there is no change in the trend so far. Its owner is worth $8 Billon.

Conclusion: In 2004 Presidential election I am voting for any candidate that promises to stop American IT jobs producing billionaires out of the owners of Indian cooking-oil companies.

Brad writes: What I want to figure out some way of convincingly saying in my interventions into the current political debate ....

http://news.corporate.findlaw.com/prnewswire/20040221/21feb2004124320.html

NEW YORK, Feb. 21 /PRNewswire/ -- Sixty-eight percent of registered voters polled say American jobs and foreign competition will be very important in determining their vote for president this year; 22 percent say it will be somewhat important, according to the latest Newsweek Poll.

Eighty percent of those polled say a major reason for the loss of American jobs to foreign competitors, is that people in other countries are willing work for lower pay and 77 percent say a major reason is investors and CEOs want profits and don't care where they come from.

<<<

So you can say it any way you want - this is THE issue of the election.

Almost missed it - from the same NYT article:

The break came after India's government kicked I.B.M. out of the country in 1977. Wipro eventually stepped in with a homegrown alternative. The large research and development team assembled by Mr. Premji would later offer technology services, billed by the hour, to big American companies like Intel and Texas Instruments.
...
Over all, the company said it expects revenue to reach $1.3 billion in the 12 months through March, up 44 percent from the previous 12-month period.

This is incredible. Indian company survived and was able to build the expertise because India kicked out American company. And now that Indian company prospers using free trade as a way to access American market and displacing US IT engineers.

Lets bleat "protectionism is baad, free trade is gooood" together again.

"I keep hearing that about 200,000 high-tech-type jobs have been outsourced. If that's so, then that only accounts for 5% of the shortfall of ~4 million jobs. (IIRC, the 4M figure is Krugman's.) So right there, you can see that outsourcing doesn't explain much."

Misses the multiplier effect of those lost jobs.

Outsourcing is a symptom, not the problem. It is a symptom of misallocated investment supply, and that is caused by

1. Production overhang from the boom
2. Tax cuts which create investment demand without generating new investment supply.
3. Lack of new consumer demand.

How to say it

"We've entered a cost cutting economy - and while outsourcing of high tech job is a symptom of this - it isn't the cause. Instead, the cause is that the US economy isn't moving fast enough, which means that given a choice between fast here, and cheap there, companies will take cheap there. But you won't fix this by blocking outsourcing - you'll fix this by accelerating the US economy."

Richard,
(re: March 19th)

My credentials are nowhere as good as the “London School of Economics” (I ran over to your blogspot to find out a bit more about you). But I have read a bit of Lord Robbins, Mark Blaug (Univ. of London), Joan Robinson (Cambridge), etc. so I may not be as ill-informed as I might otherwise appear. Like everyone else who has dabbled with economics, I’ve read a lot about Keynes, Smith, Marx, Marshall, etc, even though I’ve never read their original works. I tried to read Wealth of Nations once, but found it just about as boring as Marx’s “Capital” which I also tried to read once. I did only marginally better with Karl Polanyi’s The Great Transformation.

Back to Davidson and your H-O Theory. Here’s a reference http://csf.colorado.edu/forums/pkt/2001/msg02262.html to Paul Davidson’s teaching/learning advice for those wishing to adhere to Joan Robison’s classic advice: “The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.”

Davidson prompts us to pay much attention to underlying axioms. My quick look at the internet relative to the H-O theory leads me to believe that it’s yet-another theory that is grounded in grand assumptions of free trade, general equilibrium, perfect competition, atomistic agents, full employment etc. Such makes for interesting graph-making in college courses, but what does it tell us about the real world? For that education, I’ll stick closer to things like Polanyi’s the Great Transformation, Robert Heilbroner’s Beyind the Veil of Economics, Mark Blaug’s The Methodology of Economics, Andres Sayer’s Method in Social Science, etc. to get a feel for what might help unstuck us from “assume a ladder” problems in applied economics.

As to specific failings in real-world applicability of the H-O theory, here’s just one, http://www.levy.org/1/docs/summary/sumfall99.html:

"Steven Machin, of University College, London, discussed the hypothesis that the recent increase in inequality in developed nations can be attributed to increased trade with less-developed nations. The Heckscher-Ohlin theory predicts that opening of trade between a more-skilled nation and a less-skilled nation will cause the more-skilled nation to move toward specialization in skill-intensive industries and the other nation to move toward specialization in other industries. This would imply an increase in wage inequality in the more-skilled nation and a decrease in wage inequality in the less-skilled nation.

"According to Machin, however, the observed data do not support the theory. First, the wage differential has not risen in all OECD nations that have recently liberalized trade with non-OECD nations. Second, the bulk of the shift in wages has been within, not between, industries, as the theory predicts. Third, there is no correlation between skills upgrading and measures of trade intensity. Fourth, nontradable goods industries are demanding more highly educated workers, contrary to what one would expect if trade was the causal factor. Fifth, there is little evidence in most OECD countries that producer prices are going up more in skill-intensive industries than in other industries. Sixth, and perhaps most damaging, equality is not increasing in less-developed countries, as the theory predicts. Machin concluded that some of these inconsistencies could be attributable to the Heckscher-Ohlin theory's faulty assumption of full employment in all nations."

If any of us want to discuss this stuff in depth, a good place to start might be Robert A. Blecker’s “Financial Globalization, Exchange Rates, and International Trade (2003) http://www.american.edu/cas/econ/faculty/blecker/financial-revised.pdf
Blecker says this generally: International economists entered into the brave new world of financial globalization and floating exchange rates with analytical apparatus inherited from the past that ill equipped them….

Finally, I must take exception with your point, Richard, that: ”The debate shouldn't be about whether trade is good or bad, but how we, as a society, want to divide up the gains from trade.” What I believe is that we ought to be debating both whether particular particular “trade policy” will be on balance good or bad (good enough relative to spin-off harms), AND how best to divide up gains. dave.

Sorry: In my preceding post I meant to say "... unstick us from 'assume a ladder'problems in applied economics." I always blow it when trying to edit-on-the-fly.. d.