Brad DeLong's Semi-Daily Journal (2004)

More coal to Newcastle.

Funny, I just got off the phone with the wife of an unemployed friend, and we traded notes on the deadness of the job market. Dead, dead, dead. American engineers are new members of the (discarded) working class. The companies we used to work for are hiring like mad -- in India. And the academics toot their little toots as we go marching, marching. Brad you are in a parade as silly and heartless as the march to war in Iraq.

I think the paradigm shift from professional / consumer to working class is going to require lots of pain, and unfortunately we need to make that shift before there is any hope of organizing to defend the (former) american middle class.

This read more like a lawyers brief than a serious economic discussion. The "Facts" are really a series of lies

Example:

Between 2000 and 2003, manufacturing
employment dropped by nearly 2.8 million,
yet imports of manufactured goods
rose only 0.6 percent.

Naturally, no source given for the claim nor is there any discussion of where would we have been, had we not lost those 2.8 million jobs

Why oh why does every tract fulminating on the bright future of tech use the BLS as the source of its projections?

It's clear that the BLS data is tainted by the bubble; it's like we're projecting buggy whip sales based on data gathered in the three years previous to the introduction of the Model T.

This paper acknowledges that tech employment has recently been in contraction; I'd feel better about the BLS data if someone could show me where the BLS actually predicted this contraction; if not, the BLS predictions are of pretty dubious quality.

He also quotes a figure of $1.2 billion in imports for computer/db related services, yet wipro and infosys alone bring in $2bln, and $13bln are projected for the entire Indian tech sector.

So US companies only account for 10% of the Indian tech market? Do economists really believe that?

http://www.boston.com/business/technology/articles/2004/04/16/wipro_reports_increase_in_2003_earnings/

How high is the pile? And should you consider some seismic reinforcement?

Rise to the top of the pile? I thought a pile (as a data structure) was synonymous with a stack. Unless your book piles are really queues.

But that's a problem sticking new books on the bottom. Goddess, it must be horrible having a blog--every idiot gets to deconstruct your every word.

Brad writes: Yet Another Thing I Need to Read

Go, baby. You'll find such useful things as:

Page 2, on the left side: "The total number of jobs in the U.S. economy is first and foremost a function of the size of the labor force."

Page 4 on the right side: "IT-related employment is expected to see healthy increases in the years to come."

When you take an indefensible position, you are condemned to seek comfort from complete loonies.

I couldn't get past "Old jobs are constantly being eliminated as new positions are created."

West Wing tackled the issue on this week's show, and spouted the same pabulum.

Of course all the commentaries I've run across don't address the fact that it's cheaper to create those new biotech and nano-tech jobs overseas. And, so, why wouldn't they?

If someone could explain this in small words the President and I could understand...

By the way, look at all the side ads for Taurus on http://www.j-bradford-delong.net/movable_type/index.html. Magic of Google resurrects Brown Car of Doom!

I first lost interest when I checked the last part and saw center for trade Poicies with the names Larry (coke) Kudlow and James (Dow 36K) Glassman. Not a lot of credibility there.

The part that really proves that this is another guy that has no clue is in his conclusion "The innovation and productivity
increases that render some jobs obsolete are
also the source of new wealth and rising living
standards."

Let's get real here. AT&T outsourced my job to IBM so that it could be off-shored to India, which it was two years ago - only for cheaper labor and nothing else (hence it is not obsolete). I am still waiting for all these miraculous, high paying opportunities to appear. But I suppose I shoud add to my 4 years of grad school so I can become priced out of the market even further.

Wake up people. In the Financial Times yesterday the head of Infosys says no way is he setting up shop and paying Americans, it would destroy his low cost business model.

These guys are cutting out the multinational enablers that are exporting our future, and Brad it is not for the best. The Indian government is investing in India, China in China, while US tax policy favors exporting our jobs.

I guess I'm honored that it only took a little over a month to be listened to:

http://www.j-bradford-delong.net/movable_type/2004_archives/000493.html

----------quote-----------
I think you need help from Brother Brink:

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

Posted by: Patrick R. Sullivan on March 18, 2004 02:40 PM
-----------endquote----------

I am having a hard time deciding how to limit my critique of this view of our economy. Where to begin? I could say that from ground level it seems that many of the jobs created in the past 10 yrs. are either part-time, temp, or short term contract positions--hardly a springboard to financial stability. I could also say that I find it unlikely that many of the "future" industries of America (BioTech is the darling in my area of the corn belt) will provide nearly the employment impact that experts and pundits are predicting. I could even speculate that employers may simply refuse to hire (even assuming demand increases strongly) when they know that a combination of technological innovation, general labor flexibility (read: weakness), and employee fear (of unemployment) can keep productivity at more than reasonable levels. However, my most serious critique is that the authors assume that policy can compensate for unemployment via a strengthened social welfare system, which would include substantial resources for retraining. I find this suggestion to be laughable, as this would require a societal investemnt that the neoconservative anti-tax/smaller gov't crowd would never allow. To my knowledge, the current administration has done everything in its power to limit programs and initiatives of this type, including hyping a token jobs training program aimed at Community Colleges. America is rapidly becoming a "high stakes" land where one either wins big or loses pretty much everything.

So much for the theory that creative high-value design tasks would remain in the US while only grunt-level engineering tasks would be outsourced.

...................

AMD Setting Up Design Center in India

http://www.newsday.com/technology/business/wire/sns-ap-india-amd-offshore,0,7008262.story?coll=sns-ap-technology-headlines

Free trade sounds too much like free lunch to me. I will believe it more when I can buy sugar from Australia, cigars from Cuba and prescription drugs from Canada.

Here's a good quote from Donald Boudreaux looking at the moral implications of trade instead of just the practical:

"Six-billion kudos – one for every person on this globe – to Michael Kinsley for his superb explanation of the merits of free trade (“Free Trade But...,” Jan. 9th). He’s correct that theory and evidence solidly support it. But many people are unaware of, or reject, theory and evidence.

When I encounter such people I ask the following question:

If we agree that no good will result if I stick a gun to my neighbor’s head and promise to shoot him unless he buys my pottery rather than pottery from a producer across town, then please identify the crucial difference that comes into play when (1) I use the government to act as my strongman, and (2) my competitor lives not across town but in another country?

I still await a compelling answer."

http://www.fff.org/blog/djb2004-02.asp

Patrick:

It's all well and good to toot your own horn, but most folks posting here don't see the where the benefits are going to come from. If we outsource them, more will come? As Stossel says: "Give me a break!"

Friedman has a good op-ed piece in the "New Pravda" today.

As it's apparently the only one I have, let me beat this dead horse again:

If I'm starting a bio-tech firm, or nan-tech firm, why would I not set up my reasearch and development in Inda? Why would I not produce my products in China? Why would I even bother with the US?

If the products are being developed, designed, and produced overseas, where are the new jobs "creative destruction" promises going to come from? Where where where where?

THAT'S the danger of the outsourcing trends. And no one seems to want to talk about them. Friedman only gave it one sentence: "U.S. firms are moving serious research and development to India and China."

Sadly that's a closer reading of the tea leaves than almost anyone else has managed.

I'd feel better about this if our politicians would at least be honest:

Jobs are leaving, and there's nothing we can do about that.

And had a plan:

Massively increased government investment in college and university science programs. Low cost loans to small business owners, tech start ups, and entrepreneurs. Increased grants and low cost loans for college education, including masters and doctoral degrees. Loosen the restrictions on allowing the best and brightest from around the world to attend our colleges and universities.

This isn't rocket science. It's flipping common sense.

It don’t make much sense
That common sense
Don’t make no sense
No more
-- John Prine

PM why do you use a one way street for your premise? Nothing you said addresses why I can't buy sugar from Australia, drugs from Canada or even move to India to start a business. With half a question you will be waiting a long time for an asnwer that suits you.

me:

Two wrongs don't make a right. We should be able to buy sugar from Australia, drugs from Canada and move to India to start a business. It comes down to voluntary exchanges and if governments are preventing them by the use of force.

PM I went first two years ago and I am still waiting for the recession to end, or the new technology to develop or??? Or what? 3 million private sector jobs lost and still not replaced except with temp crap. Sorry, excuses not good enough.

What's more depressing is that the American people currently seem willing to trust this Administration with our collective future. Really I may immigrate if Bush gets re-elected. This is not pious liberal disapproval but a frank look at where my economic security lies. Not in the USA, where the voters seem to have rented their a**holes (and the a**holes of their children) to the corporate elite that Bush represents. The latest Bush bump in the polls is not only shocking, it's pathetic.

It's unfortunate that while Kerry has the stamina of a real trooper, he has no instinct for the jugular at all.

me:

So should the government use the barrel of a gun to protect your job from the competition of people who happen to be born in a foreign country? If your answer is yes that's where our disagreement lies.

Not that Brad needs my help, but I suspect the reason Brad is looking forward to reading the paper he cites is that he was so taken with Lindsey's book "Against the Dead Hand." If you like the first cookie, you look forward to the next.

Oh, and for those who find the latest Lindsey piece more like a lawyer's than an economist's view, you shoulda read his arguments for going to war in Iraq. I am not entirely certain, but I believe Lindsey is a lawyer.

If the our gov't refuses to use policy tools (the silk glove) to both negotiate deals with foreign powers/markets and minimize the domestic (negative) impacts of said deals, then I would say that the use of force (your proverbial gun) for coersion is warranted. I believe that in a perfect world, free trade would be an absolute "good" that would benefit all parties involved. Unfortunately, we live in a flawed world: one in which someone must win and another must lose. For free trade to function as its proponents envision would require a social welfare system that, frankly, doesn't exist. "Creative Destruction" of jobs could work, but without the resources needed to retrain displaced workers, what you will have is simply a net loss of jobs. Show me the systems, policies, and institutions to allow workers to transition from job to job without great hardship, and you will have won a convert over to the free trade side of the fence. Until then, I'll take the gun.

Reading the comments on an outsourcing/trade
related issue = a groan, followed by a big sigh.

Jason:

You'll take the gun? Wonder if your decision was influence by the fact that you envision it in your hand instead of the other way around. If a German company wanted to hire you and their government forbid it I'm sure your tune would change.

Far more jobs are lost due to domestic competition than international. This process can be painful. But as stated many times before by Brad on these boards this is one of the reasons that 19 out of 20 of us don't work in the agricultural anymore as used to be the case. Competition work... and it's moral when it's based on voluntary exchange

So is it really the case that creative destruction always ensures that balance is achieved by poor nations rising up to the level of the more prosperous?

Is it really true that there is no historical precedent for a simple reversion to the mean?

And if there *are* examples of prosperous nations reverting to the mean, what criteria can be used to predict whether a nation is more likely to fall into this predicament?

For example, Indian and Chinese societies hold education in high regard, while in the US there's a strong undercurrent of anti-intellectualism, an attitude which in no small measure is being sustained by Republicans for electoral advantage.

It would seem to me that because of this, we're at somewhat of a disadvantage in a competition of ideas.

http://www.invisibleheart.com/Iheart/TradeHooverOutsourcing.html

"Back in the early 1990s, when people were up in arms about Japan, we ignored the alarmists. We mostly kept to our naive policy of letting people buy freely from around the world. It turned out fine. The alarmists were wrong. Japan didn't steal our jobs or ruin our country. Employment in the United States grew steadily, as did wages, helped in part by imports from Japan and the rest of the world. Japan, in the meanwhile, has stagnated. "

If everyone is to be free to buy sugar from Canada, drugs from Columbia and move jobs to Somalia, why don't we all print our own money?

The issue is how one perceives the prosperity of others in your community/country affecting you. We are not all independent, although some refuse to recognize this. Folks who are outsourcing jobs are worse than free riders and there is no reason the rest of us should tolerate their anti-social behavior.

Could it be that Japan stagnated due to increased competition from low-cost producers like Korea and China? Why did creative destruction fail in Japan? Doesn't this imply that creative destruction is rendered inoperative in certain caustic environments? If so, maybe the US is entering just such an environment.

djs:

"So is it really the case that creative destruction always ensures that balance is achieved by poor nations rising up to the level of the more prosperous?"

As long as they don't screw things up.
Like become protectionist.

"Is it really true that there is no historical precedent for a simple reversion to the mean?"

There is. Argentina.

"And if there *are* examples of prosperous nations reverting to the mean, what criteria can be used to predict whether a nation is more likely to fall into this predicament?""

Well, in the case of Argentina, it would be:

initially: bad shock in the form of WWI which
cuts of capital inflows from abroad.

then: Peron and his protectionist policies.

then then: bad macro policies and inability
to overcome the crappy economic policies of the
Peron era (or in some cases too little too late)

There's also something to the idea of "leapfrogging" - that the most succesful nation
gets superseded by another. UK surpassing Holland,
US surpassing UK. But in all those cases, it's
not that the country getting leapfrogged became
poorer. It's just that the other country grew
faster. Not a bad thing.

Eli:
"If everyone is to be free to buy sugar from Canada, drugs from Columbia and move jobs to Somalia, why don't we all print our own money?"

Sure, why not? I've got some Radikis I'll trade
you for dollars. Really cheap. The current
exchange rate is 1,000,000 Radikis to 1 US $.
Really good deal. Won't last long. Apply now.
How many you want?

"The issue is how one perceives the prosperity of others in your community/country affecting you."

That's not the issue, but let's pretend it is...

"We are not all independent, although some refuse to recognize this. Folks who are outsourcing jobs are worse than free riders and there is no reason the rest of us should tolerate their anti-social behavior."

No, no, no. The free riders are the folks who
insist that society pitch in and give'em a high
paying job via banning outsourcing/trade protection.

Outsourcing isn't what bothers me; it's the fact that people in tech looked at the economic landscape, responded to the appropriate signals and worked hard. Then the owners of capital bought off the government who allowed 400,000 additional H1B's/L1's to flood into the country just as we went into a tech recession; and once the H1B's were trained, they went back to India and made possible the acceleration of the outsourcing trend.

Policies that cause the corruption of economic signals and incentives is what personally infuriates me. It's like a macro bait and switch, and bad policy made it impossible for people to adjust and prepare for the collapse.

The Fed expends so much time and energy in preparing the owners of capital for trivial quarter point moves in interest rates, but when it comes to policies that affect the labor market no quarter is given and it's basically "sorry pal, sucks to be you".

No Radek, the problem is that you won't survive if all around you are ground down. To avoid that you are going to have to accept that you can't have everything for WalMart prices made by Chinese labor.

You can mistate it as everyone but you is greedy.

Now AFAIK civilized countries start from the assumption that they should provide their citizens a reasonable standard of living and ask for a reasonable effort from their citizens. If this is not the case, besides force, why bother obeying any law.

Jason typed:

"Creative Destruction" of jobs could work, but without the resources needed to retrain displaced workers, what you will have is simply a net loss of jobs.

It's not about retraining. What are you going to retrain as when even the R&D and development for new technologies is being done overseas?

John; the quicker those uppity overpaid engineers get to understand the business end of a bedpan, the brighter their future will be.

With any luck at all they'll land a cushy job tending to the corporeal needs of some bloated over-paid economist. ;-)

The next time someone tells you that there's no recession in tech, show 'em this site:

http://f*ckthatjob.com/index.php

replace the '*' in the url with the first thing that comes to mind...

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