Brad DeLong's Semi-Daily Journal (2004)

Brad, I've read about jobs up to the Ph.D. level being outsourced, since it costs far less to hire somebody from India/China/etc. When one is talking about Ph.D.-level work, how will education help? For jobs which don't require a HS diploma, sure.

Care to stop inflating free trade and free investment for two seconds?

I wonder how much of my problem with outsourcing has to do with the fact that a large part of it is American corporations using free investment to buy (usually) or build (much less common) businesses in places like India, higher the labor there for much less, and then take all the profits back to America or whatever their offshore tax exempt home is, rather than Indian corporations starting companies and hiring Indians. I wonder how much this totally utterly affects every trade model I can think of (including the Hecksher-Ollin model) in ways that by and large have gone utterly unaccounted for in terms of the benefits from trade, and the winners and losers from trade?

For that matter, where is the evidence for the bigger better jobs theory anyway? I don't see it in a 30 year downward trend in real incomes, but maybe I'm not looking at the right thing.

Or where is the evidence to be found in all the employment surveys going back a decade or so showing the overwheleming proportion of the job growth in the U.S. being in low-paying service sector jobs?

Would one solution to outsourcing be devaluing the dollar? A 50% drop in the value of the dollar would pretty much eliminate the cost advantage of Indian or Chinese labor for many outsourced jobs, since the labor-costs are partly offset by increased management costs. If the decline happened slowly (perhaps over twenty years) then rising Chinese and Indian wages would meet falling US wages half-way, and the drop wouldn't have to be as great.

Would this be an economic catastrophe? Imports would be more expensive (so perhaps Americans would be employed producing replacements for those imports --- which is part of that outsourcing story, again). Importing energy would also be a problem. Food prices would increase --- though, interestingly, US agricultural subsidies would have a less perverse effect on the global agricultural economy. Many of the other things Americans pay most of their incomes for (services, housing) would not need to increase in price because of a fall of the dollar.

In some respects, that seems pretty Democrat-friendly: more employment, a good excuse to work on energy independence.

There must be some significant down-sides to this, or everyone would want to do it.

Interest rates are likely to be a serious problem: right now the US economy is kept running by being the only place to invest those trade-surplus dollars. In order to make such an investment attractive, the money has to generate a rate of return that greatly overcomes the depreciation in the value of the currency.

Why hasn't it happened already (in a big way)? We've been running monster trade deficits for a long time. Why isn't a growing supply of dollars chasing a dwindling supply of goods and pushing the value of the dollar down?

Well, it has happened to some degree. The dollar has declined a fair amount with respect to the Euro. China wants to keep strong US demand alive, so they haven't let the value of the yuan rise. I don't know about the Indian currency.

I do hope this doesn't come off sounding too ignorant or cranky. I know Prof. Delong has raged at ignorant Bushites who haven't expressed sufficient fear of a devalued dollar. But I assume that's because loose lips can sink exchange rates over night, which would no doubt create a good deal of dislocation all over the world.

So, you feel that was a fair assessment of tort reform (such as loser pays), market based reform in education, medical savings accounts, and privitizing a portion of social security? I have no doubt that these proposals have problems, but the descriptions the young lad gets are a wee bit facile, don't you think?

I note there was no mention, even at this level of criticism, about how the Pachyderms will be much worse on the outsourcing issue.

What Barry said. I am no protectionist, but I am wondering if the real studies are being done. Japan and Europe are highly educated societies, perhaps more than the US, do their standards of living, or more importantly, something like relative projected standards of living demonstrate this? It is very nice that we import DVD players and PCs and running shoes at commodity prices, and I suppose this makes it possible for housing and health care to become a larger portion of the average family's budget, but at some point free trade may not help in those areas.

What are we exporting? Are those things we export really education dependent? I think of movies, music, entertainment.

I am not sure we know what the world economy will look like when India or China become developed nations. There may be no sane alternative to free trade, but I am also not as sure as you seem to be that education and free trade will solve all our problems.

Outsourcing isn't a problem, it is a blessing. I suspect that the majority of comments in this thread will do nothing so much as reinforce Brad's concerns that Dems can't do anything but act wrongly on this issue due to the concerns of their constituency.

"I've read about jobs up to the Ph.D. level being outsourced, since it costs far less to hire somebody from India/China/etc. When one is talking about Ph.D.-level work, how will education help? For jobs which don't require a HS diploma, sure."

This is an ominous question, for if education is not a solution does this mean the extent of work is limited or likely to be poorly paid at every skill level in which a skill is transportable?

It seems to me that the imminent rise in the price of oil will have more impact on the U.S. than outsourcing and other like woes. As global oil production peaks and then begins to fall, demand will quickly outstrip supply. Then petroleum products in this country will go from being ridiculously cheap to prohibitively expensive.

As an illustration, if you go to one of those convenience stores with an attached filling station, you'll find that the price of a gallon of gasoline at the pump is actually LESS than the price of a gallon of milk inside the store. That's not so in most other countries because of taxes on energy. As a result, the rest of the world is better prepared for higher gas prices than our citizens. Not coincidentally, we use far more than our share of the planet's petroleum output. It's only logical that we will have more than our share of problems when the price starts to rise.

How the party in power deals with this potentially show-stopping problem will determine the future of our country - or, more accurately, whether it has a future at all.

It seems to me that the imminent rise in the price of oil will have more impact on the U.S. than outsourcing and other like woes. As global oil production peaks and then begins to fall, demand will quickly outstrip supply. Then petroleum products in this country will go from being ridiculously cheap to prohibitively expensive.

As an illustration, if you go to one of those convenience stores with an attached filling station, you'll find that the price of a gallon of gasoline at the pump is actually LESS than the price of a gallon of milk inside the store. That's not so in most other countries because of taxes on energy. As a result, the rest of the world is better prepared for higher gas prices than our citizens. Not coincidentally, we use far more than our share of the planet's petroleum output. It's only logical that we will have more than our share of problems when the price starts to rise.

How the party in power deals with this potentially show-stopping problem will determine the future of our country - or, more accurately, whether it has a future at all.

One other area to look at: Social services, especially for low-income individuals. An acquaintance of mine has a Masters in Psychology, and works as a child and family therapist for a private agency that services state-paid clients - mainly children born of drug-addicted parents, sexually or physically abused children from poor families, and basically any "at-risk" population which doesn't have any money to seek treatment.

These are the children, that if left alone without EXTENSIVE guidance, will become the next generation of rapists, serial murderers, etc. - and treating them now is relatively inexpensive when you compare the cost of treatment to the cost of police services to catch the individual, lives lost, and a lifetime spent in prison.

Before 2000, she serviced 16 clients at a time. Now, with budget cutbacks, she's up to 28 clients, and has a full load of state and insurance-mandated paperwork to go along with each of those clients - and she is not allowed to work more than 40 hours a week. How much does she get paid for this socially important work?

Less than 2/3rds of what a second-year teacher in our state makes.

On the outsourcing issue, I have a simple proposal. Free trade means that labor should have the same mobility as capital - otherwise, capital can play off the disparity in economies and governments to take advantage of inequities in the labor market. My solution?

Open the borders. As long as trade is free, people need to be free to move wherever they want, and seek employment and governance under the terms they want. Yeah, I know, unrealistic.

In actuality, the whole "outsourcing" debacle is only going to get worse. When I was training for my Computer Science degree, I dreamed about living deep off in the woods, and using a high-speed internet connection to work remotely. Well, the technology is here, but the pointy-haired bosses of the world want their minions present and accounted for, since they don't think we're capable of being productive without them being able to growl at us in person. So, what does the technology get used for?

It gets used to send ANY job that is "doable" by a warm body to any place that the labor is cheapest. In essence, it's a race to the bottom, and the "loser" is the U.S. middle and lower classes, who do not have significant amounts of investment income. The only real winner in all this is the investment class, which will have improved it's ability to suck profit out of everybody else.

(Wow, I'm surprised how much bile came out. Didn't realize I was that resentful of the situation.)

A naive Libertarian friend thinks that America should just open our borders and allow unrestricted immigration. My view is that this would drop wages in the US to Third World levels overnight. He asks: How is this really any difference than oursourcing?

Jobs at the Ph.D. level are H-1 ed and green carded.

The H-1s are working in you local high tech industry.

You should also take a look at the faculty of your local community college, or comprehensive university. (The reason is that a full time tenure track faculty offer automatically qualifies a person for immigrant status. Thus people with Ph.D.s who want to immigrate or stay in the US will accept a faculty position that pays very little for a lot of work.)

>A naive Libertarian friend thinks that America
>should just open our borders and allow unrestricted
>immigration. My view is that this would drop wages
>in the US to Third World levels overnight. He asks: >How is this really any difference than oursourcing?

I think your "naive Libertarian friend" is about as naive as those promoting completely unrestricted free trade and outsourcing as the panacea to cure global ills.

For that matter, where is the evidence for the bigger better jobs theory anyway? I don't see it in a 30 year downward trend in real incomes, but maybe I'm not looking at the right thing.

Aha!

I believe know the answer to Lorenzo's question.

The main cause of the decline in real wages is declining returns to unskilled labor, due to technology. Most of the productivity gains we've seen have arisen because of machines.

Brad says:
> a world in which Indians and
> Chinese in fifty years are
> taught that the U.S. tried to
> keep them poor will be a very
> unsafe world

Is there any evidence for this?

Surely in the last fifty years
lots of countries have tried
protectionist policies of one form
or another. Are there any countries
in the world today that are seriously
at odds because of some long ago
protectionism?

Or will the only effect be that the
economics professors of India and China
fifty years from now will be saying,
"Feh! Those silly Americans of long ago."

While the rest of the Indians and Chinese
will be saying "Americans? Who cares about
Americans?" If they think of them at all,
of course.

Given current levels of growth in incomes and GDP in India and China how many decades will it take for them to reach first world status? (a nebulous term I admit). It seems instead of people being inspired by the prospect of rich consumers in these countries buying American intelectual property, agricultural products and other high tech items they are scared to death of this hobsian race to them bottom.

It sounds reminiscent of all of the angst around here (Detroit) about auto plants moving to the sunbelt in the 80's and 90's. Amazingly the midwest still managed to survive and grow in the Clinton years. Granted these were dislocations inside our national economy but it seems not a great feat of science fiction to imagine a fairly integrated world economy in the next half century. It will be a great challenge in trying to manage this transition for our entire political system but we simply can not pretend we are fighting over a single block of cheeze with the rest world.

"This is an ominous question, for if education is not a solution does this mean the extent of work is limited or likely to be poorly paid at every skill level in which a skill is transportable?"

Finally someone gets it here. Brad and all the other free traders at any cost have the red herring of education. You don't need more education when there are no jobs.

Just have 4 years of grad school, watch your job go to India, lose retirement and medical benefits, send out resumes and hear "you are too smart, overqualified, old, experienced" you pick the excuse.

I fell for that "good for the US crap" when the first Bush was president and I lost my job during a "hostile takeover". I am not better off for that and I can assure you that at 55 I am damn sure not better off now. What do you suggest Brad? 3 years of law school maybe?

There is no middle class squeeze, it is the elimination of the middle class. The key word everyone ignores is "convergence". That means wages will plummet until the US is at third world levels. It is just like Chrysler drug down Daimler, not Daimler dragging up Chrysler.

When the magnitude of jobs lost is finally realized it will be too late.

I say again Brad, retrain for what???

Nothing wrong with outsourcing that a progressive consumption tax and wage subsidies can't fix. Get hip Brad; we've got to divy up the gains of trade.

I have to disagree about the formulation of the issue. "Out soursing" is not a 'one-size-fits-all' package. It offers only heat, but no light, to look at it in this way. Reminds me of ERISA which tries to fit health care and retirement under the same blanket simply because thew were both traditionally types of insurance.
In fact, if you look at the history of the phrase, its a good example of corporate branding run amok. In the '70 and 80's and even the early 90's "Out soursing" meant that corporate jobs were given to outside contractors, who cost less, were due no overtime, healthcare or pension benefits. It was an enourmously successful strategy, but with a few sectacular set-backs like the Microsoft overtime class-action law suit. Then corporate strategists began sending work to overseas facilities, therby doing an end-run around U.S. employment, osha, and environmental laws. It was a different strategy, but they called it the same thing.

Here's one of the rubs. Some jobs "outsoursed" to other countries still are subject to U.S. laws, while others are not, or not to the same degree. For instance, manufacturing jobs are subject to significantly fewer regulations than outsourced service jobs. So I say don't cede the phrasemongering to the corporatists.

"as long as people see themselves as being pulled into better-paying jobs in other industries (rather than being pushed out of where they want to be by cheap foreign competition)"

what jobs would these be ? How would these people become qualified for the jobs, given that extensive retraining will be necessary to switch from one profession (let us say programming) to a better-paid one ? What will they do for money and food and education fees while retraining ? Once retrained, what's to stop their new job from going overseas as well ?

I think the Democrats will not be alone in finding this hard.

Douglas, one difference between the Democrats and the GOP is that the GOP *doesn't* find this hard. They're quite content with it, as long as they can fire up the un(der)employed base with 'God, guns, gays and abortion'.

"We can't afford to do that--a world in which Indians and Chinese in fifty years are taught that the U.S. tried to keep them poor will be a very unsafe world. A world in which we try to block expanded world trade will be a world in which we will be much poorer than we need to be."

We tried to keep them poor: it didn't work, thanks in good part to their protectionist policies.
They won't be angry they'll be laughing. Our own need for a 'soft landing' will be obvious to them. But then they'll say "We told you so."

I think I begin to see the argument against trade. Productivity doesn't help anyone but the investor class, and the result of comparative advangate is that everyone is poor in a race to the bottom. Wages will be so low that no one can buy anything becuase that is how markets work. Full employment making our own houses, growing our own food, and sewing our own clothes, and a living wage for everyone, now that is good livin'. That about sum it up?

Brad, how do you feel about all this? As an aside, do you feel better or worse about the Dems being able to act rationally about trade?

The battle to prevent labor restrictions has already been lost, ideologically. Speaking as a cosmopolitan leftist I have been utterly dismayed at how the outsourcing issue has revealed that the American left is, when it comes to jobs, just as much a bunch of nativist isolationists as the American right. Pretty much every leftist public figure I know of or have read books by, is completely in the "outsourcing is EVIL" camp. This position is strong enough that in articles about unrelated subjects, people will stick in a crack bitching about outsourcing. If anything, the left demonstrates MORE hostility toward it than the right. It's already been completely and totally accepted that the orthodox position of any pro-worker, anti-corporate-greed person should be to oppose outsourcing. It makes me want to puke.

I used to think that when people complained about free trade because Nike could pay third world workers peanuts to make shoes, it was a somewhat misguided sentiment but genuinely came out of concern for people in the third world. After all, the argument seemed to imply that if Nike paid third world workers a generous salary (at least by the standards of their country) and gave them good working conditions, that it would be fine and dandy for them to manufacture their shoes wherever they want.

The outsourcing issue proved my assumption completely and totally wrong - the mainstream attitude, left as well as right, really is "fuck those darkies in the third world, America first and I'll rationalize it however I want". Because according to the "anti-Nike" style arguments, the ideal situation would be one where third world workers weren't at all exploited, but instead had the skills to be competitive for jobs that offered good working conditions and good salaries. But when people actually noticed that happening, the OUTSOURCING PANIC started. (And I put it in all caps because it's so overblown, it relies on a series of anecdotes about jobs going offshore with zero perspective on the size of this effect compared to the economy and zero perspective on any countervailing tendency of the US to expand in new industries and sell new products to the developing world).

Essentially I have not seen any opposition to outsourcing which is not precisely equivalent to the worst sort of nativist protectionism. Even the rhetoric of the rationalizations is much more strained and transparent than the anti-Nike, anti-child-labor movements. Because fundamentally, people don't care about the reasons so they aren't paying much attention to making their rationalizations plausible. As soon as middle class Americans seemed to be directly losing their jobs to developing world labor, it was full on panic mode. Reason doesn't vaguely enter into it. I actually heard of a protest against a software company that layed off a bunch of people in silicon valley to move the jobs to Montreal, Canada. Problem: it was a Canadian company and it was moving the jobs to its head office in Montreal.

Homework for Mr. DeLong: find empirical evidence that shows salary is correlated with student achievement.

Homework for Mr. DeLong: find empirical evidence that shows teacher salary is correlated with student achievement.

Homework for Mr. DeLong: find empirical evidence that shows teacher salary is correlated with student achievement.

Homework for Mr. DeLong: find empirical evidence that shows teacher salary is correlated with student achievement.

But, I thought free trade was supposed to help everyone and prosperity was supposed to reign on the fruited plain because of all the capital coming back to the U.S. because of lower prices.

Did someone lie to me? Is this mythical fruited plain located somewhere by the weapons of mass destruction?

I detect a hint of panic in this post. I also notice that the sainted Clinton's are backing off of their free trade agenda. Bill's remark about the Chinese last night and Hillary's op-ed in the WSJ today.

I have also noticed that countries seem to get rich by limiting imports and building up a business base on their own. At least, that is how I understand that the U.S. did it. In fact, I read (I don;t know if this is true or not) that one of the first laws passed by Congress was a tariff law.

I suppose we can tell the Chinese military when they get here that we just wanted to help them get prosperous? What will we tell our children, though?

Sometimes I feel like I am reading the AEI editorial when I show up here.

For a long time, fair traders have appealed to education as a way to preserver high value-added jobs within the United States. But as some of the comments above suggest, this may be reaching a limit.

Is it perhaps time to reframe the question? (I'm serious here, not being polemical). Perhaps the decline in prosperity that is evident in the US and other "developed" nations is in fact evidence that economic forces are working. After all, my understanding (admittedly unsystematic) of economic theory is that, other things being equal, the values of various economic factors will tend to reach equilibrium. (This does not seem to apply to 'markets', which seem to have boom-bust characteristics, but lets not go there for a moment). What I'm feeling is, other things being equal, the wage for an unskilled laborer or a mid-level manager or a skilled engineer should be about the same everywhere (whether this should be calculated in monetary terms or consumption power is something I leave to specialists). But of course, for a long time, these wages have NOT been equal at all. The United States in particular has had (fairly) high wages, (very) low commodity and consumer good prices, and as a result, very high relative prosperity. The fact that the US still consumes a vastly disproportionate amount of consumer outputs to its population confirms this.

So, what allowed this disequilibrium (on the global scale)? Transportation costs are perhaps a small part, along with other forms of geospatial friction allowing disequilibrium, but it's hard to argue that most of the disequilibrium had political causes: fiscal and tax policy, tariff and international policy, regulation or not of capital accumulation and flow, and so forth. The US was for a long time a better place both to make money and sell consumer products.

But if that was the case, then it's not surprising that there are good reasons for economic change in the direction of restoring equilibrium, especially since some of the 'frictional' factors -- including the power of nation-states -- have been declining for some time.

In short: perhaps we need to get used to the idea that we can't stay _much_ richer than everyone else forever. And since the overall wealth of the planet is not increasing all that fast, the most likely way we will stop being much richer is not that everyone else will catch up to us (the free trader's model), but that average prosperity in the US will decline. (I'm NOT suggesting that this is a zero-sum game: on the contrary, for all of my leftist leanings, I'm persuaded not only that the world as a whole, but even the median person in the world, is richer today than 100 or 500 years ago). All I'm saying is that it is NOT likely that total consumer prosperity of everyone can increase fast enough to allow the average (or middle-class or whatever) US prosperity to remain stable in the face of equilibrium-promoting declines in political friction. Most Americans (and Europeans) can look forward to getting at least relatively less prosperous for a while, while many Indians and Chinese and Malaysians etc. will get quite a bit more prosperous.

It may not feel good, but it's hard to argue that this is entirely unfair. Nor does this mean that the average US consumer will be impoverished: but not as many will be able to keep affording big houses and 3 cars and so forth. Moreover, in the longer run, the trend towards global equilibrium now may (or may not...I'm not sure) encourage acceleration of overall growth. Hmmmmmm...wonder which?

Am I (economically) crazy or overpessimistic?

JD: "Homework for Mr. DeLong: find empirical evidence that shows teacher salary is correlated with student achievement."

Ah, yes--unlike every other endeavor known to economics, the quality of education bears no relationship to the resources expended on it. In stark contrast to the rest of the economy, which goes in the tank if the top earners aren't rewarded even more with tax cuts [Homework for JD: find empirical evidence that shows executive salary is correlated with corporate performance]. And all the people I know who move to the wealthy 'burbs because the schools are supposedly better, or struggle to get their kids in pricey private schools for the same reason, haven't the foggiest idea what they're doing. Actually, JD, I think they know something you don't; in education, as in everything else worth having, there is no free lunch.

"what jobs would these be"? [Better-paying jobs in other industries]

As Brad posted about before, there was another major movement of US jobs offshore about a decade ago. Basically a large portion of computer hardware jobs, especially silicon manufacturing, went to places like Taiwan, Korea, and China. Everybody just forgot about it pretty fast because it was followed by the greatest domestic tech jobs boom ever. Not in the offshored industries - asia still dominates computer manufacturing - but in software, hardware design, and communications infrastructure.

So basically, the best and most recent example we have of mass movement of US tech jobs to the developing world is one which did not lead to a net loss of tech jobs or tech profits in the US.

The burden of proof is clearly on anyone who thinks outsourcing will lead to a net reduction in job quality in the US (the federal reserve will certainly make sure it doesn't lead to a long term reduction in the absolute number of jobs).

If you want to stop being a complete economic illiterate, one of the first things to learn is that jobs are not a finite resource, not a zero sum game.

And one of the first things to do if you want to be morally literate is to stop treating the wellfare of Indian workers as if it was worth less than the welfare of American workers.

And stop worrying about highly paid US workers when the biggest fucking over of US workers is done by low wage employers such as Wal-Mart which have zero competition from other countries and get by purely by taking advantage of domestic policy.

>And stop worrying about highly paid US workers...
My oh my, aren't you a little shrill.

My biggest beef with the republicans is that their policies are all in line with the "americans treat americans like sh*t" philosophy. In this respect your opinions remind me of the republicans. Over 300,000 jobs were lost with the tech bust in my area. Before you start flinging contempt on the unemployed tech workers, I dare you to find a few middle-aged unemployable broke guys without health insurance and sit down and ask a question...

So what is it like to lose everything at 55?

If you don't have the guts to do this, please spare our sweet little sand box your infantile rages.

DAVID: " [Homework for JD: find empirical evidence that shows executive salary is correlated with corporate performance]"

There is none.

Then again, there's a significant difference between the State-run education system and executive salaries, which are market driven.

Or is that what you're trying to imply--that if the education market were significantly more open, salaries for teachers would increase?

"I have also noticed that countries seem to get rich by limiting imports and building up a business base on their own."

This statement is incomplete. All developing countries that have successfully become developed in the modern era (Japan, Taiwan, Korea, Singapore, etc.) have done so with some import limits, but with lots of encouragement of exports. Basically the only quick road from poverty to development is to be able to tap the developed world export market, and it may help in the meantime to keep some other industries protected against first world competition.

Now read what I just wrote again. Nowhere does it imply that the US today should restrict imports. The US is not a developing country trying to catch up to the rest of the world, and its domestic market is not small relative to the world market. The US cannot use export-led industrialization.

It can, however, be used for export-led industrialization by other countries. Closing the US to imports is precisely equivalent to closing off the major economic opportunity to the developing world. And the only way to prevent "outsourcing" is to essentially close the US to service sector imports.

"Perhaps the decline in prosperity that is evident in the US and other "developed" nations"

Hold it right there - what "decline in prosperity"? If you mean the stagnation of real wages in the US, with a steadily increasing share of productivity going to profits (so that while average prosperity has continued to increase, most people don't see much benefit from it), then this isn't a universal trend and has basically nothing to do with trade. This is US domestic policy. The freezes and rollbacks of social programs in the Reagan era and onwards, and the many deregulations of business, have decreased the bargaining power of workers relative to employers. The middle class is shrinking in the US, for example, but this is mainly an American trend. It isn't even happening in Canada. Skyrocketing CEO pay is an American trend - look at European countries or Asian countries and they don't have anything like the pay acceleration.

"But of course, for a long time, these wages have NOT been equal at all."

This has mainly been due to a very simple reason - the developing world hasn't had the various factors (from reliable legal systems to broad education to a stable finance sector to etc. etc.) that allow one to maintain a technologically advanced economy. Wages and worker productivity are actually pretty similar in the fully developed world (US, Canada, Western Europe, Scandinavia, Japan). They are quite similar despite a wide variety of cultures and governments.

The only risk rising developed-world incomes have to the US is through commodity prices. Oil, mineral resources, and so forth will be in more demand. There is absolutely no sense in which we're all going to be pushed down to the income level of India or China. Remember, commodity prices are lower than they would be in a richer world, but the developing world gets those same low commodity prices right now. They're poorer because they have less "social capital".

"And all the people I know who move to the wealthy 'burbs because the schools are supposedly better, or struggle to get their kids in pricey private schools for the same reason, haven't the foggiest idea what they're doing."

Actually this has been studied scientifically. The reason kids get a better education in wealthier districts is entirely attributable to the fact that the kids are mostly from wealthy families. Being surrounded by kids from wealthy, well-educated families who are likely to place higher emphasis on education and expect their kids to attend university, has a powerful beneficial effect. This appears to be the whole reason for the difference in achievement between public and private schools as well - IIRC, there was no significant effect found for private vs. public schools once socioeconomic status of the individual and the student body was controlled for.

I would like to draw attention to a couple of thoughtful remarks that were posted but not elaborated in the discusson:

Luke Lea:
"Nothing wrong with outsourcing that a progressive consumption tax and wage subsidies can't fix. Get hip Brad; we've got to divy up the gains of trade."

Liberals should aggressively pursue the type of policies that Luke recommends. Divvying up the gains from trade will ease resistance to trade, improve consumer well-being in the U.S., and increase earnings for very poor people abroad. But -divvying- the gains is as important as the -creating- the gains. It's cold comfort that someone somewhere is being made more better off than you are being made worse off. ("Pareto criteria for the powerful, Kaldor-Hicks for the rest of us.")

Leftists should back these policies and take the critique a step farther. Outsourcing and trade are sham threats to well-being at home. Greedy corporations and their bought politicans right here at home are really the problem. A high social wage is way more important than trade pressure and a strong labor movement trumps tariffs hands down.

Ian Montgomerie:
'Pretty much every leftist public figure I know of or have read books by, is completely in the "outsourcing is EVIL" camp.'

I am not sure about the universality of the sentiment that Ian observes on the left, but it is widespread. It's really important for the left to shed this position. See above.

Finally, let me highly recommend the highly engaging and neutral-toned New Yorker article on outsourcing to Chennai, India (July 5).

Best,
M

It seems to me that the Asian economies depend on exports and not domestic demand. The American economy seemed to depend on domestic demand for a long time. I think that allowing American corporations to control foreign economies is just another form of imperialism. I don't believe that they can;t get rich without us, I do believe that corporate interests don't want them to

Furthermore, I am unwilling to sacrifice my children to our military machine to keep worldwide trading sea lanes open. Let the Chinese do it and bear the costs.

Luke Lea wrote, "Nothing wrong with outsourcing that a progressive consumption tax and wage subsidies can't fix."

Wrong---right way to go is land value taxation.

jd wrote, "Then again, there's a significant difference between the State-run education system and executive salaries, which are market driven."

LOL!

Executive salaries are *market* driven? What market is that?

You say the solution to outsourcing and continued high standards of living for everyone here is education. But waht about those who can't, or won't, be educated? They still have to find a way to afford live somehow, in this land of ever-higher basic living expenses. Guns and bullets are still pretty cheap.

Brad, with every passing day, each time you mention outsourcing as a good thing for America it is less and less well received, and this on your own blog by intelligent and well educated people. This should tell you something. Time to go back to the drawing board on this one or produce some specific verifiable data to back your position.

You say the solution to outsourcing and continued high standards of living for everyone here is education. But waht about those who can't, or won't, be educated? They still have to find a way to afford live somehow, in this land of ever-higher basic living expenses. Guns and bullets are still pretty cheap.

For god's sake, people!!
How many times will we have this conversation?? Had this discussion in the '80: the Japanese are taking all the manufacturing jobs. We will be de-skilled. "Computer chips or Potato chips?"

http://www.reason.com/0407/fe.bl.truths.shtml

Thank you, liberal. The idea that executive salaries are set by anything but small, inter-connected circles of mutual back-scratchers is ridiculous.

dm
Outsourcing middle class service jobs evens the pain of competing on wages. You didn't complain when we shifted our primary and secondary production jobs overseas, or imported immigrants to do lower class service jobs, so why are you complaining now that we are sending our middle class service jobs overseas?

dm
Well, yes, reducing the value of the dollar versus the rupee or yen or whatever will indeed reduce outsourcing. It will also reduce immigration. Less remittances sent back from the US because the dollar has dropped against the local currency and less incentive to send your kid to America to get a good job and send money home. Probably less incentive to send them to school to get an education, too.
That's not a difficult problem. The difficult problem is figuring out why the dollar hasn't dropped to a more reasonable level already. Flight capital by overseas elites looking for an extradition free place to retire? Bush selling off the Ft. Knox reserves? At least that last would explain why the gold price is going down.

ian
R+D drives commodity prices. Investment in basic and applied research in, commodity prices going down out. Want to reduce the cost of gasoline? Design better methanol catlysts and stronger/cheaper pressure vessals.

Thank you, Ian Montgomerie, for all the hard work of trying to enlighten the folks of the 'looney left' about some basic priniciples of world political economics. Hopefully, some of the points stuck.

Yes, the world is a much more competitive place now than in the 1950s. Then, the US produced 50% of the world's manufactured good. Europe and Japan had just destroyed their industrial base for a generation, and the other Asian economies were still in the cocoon. Life was easy then. Who wasn't going to buy Boeing? Where else could you buy cars from?

Things, as some of you might have noticed, are different now. If we put protectionism in place for Boeing now, for example, we might be able to force American aircarriers to buy American. But when Airbus makes a better product that costs less, do you think any other country in the world will buy Boeing? And what about the American air companies which are forced to pay more for an inferior product- certainly it will make them less competitive, and their international markets will suffer.

Before you know it, one ends up in the situation of some overburdened, corrupt South American-type industrial base, where everything costs twice as much for crappy quality. And we can all see how well that works.

Brazil has some of the most restrictive pro-union and protectionist legislation in the world. Great for those who have one of the precious few jobs. Bad for the 20% of the unemployed.

Economics is serious business, and he who blindly ignores the exigencies of the world does so at his own peril. And applying 1950s-era solutions to millenial problems is almost certainly doomed to fail.

My solution? Restore the progressive income tax, more government-supported educational opportunities for those in need of retraining, nationalized health care, and a better social safetynet to help those inevitably destined to suffer due to economic changes not in their control. In short, a bit more like Canada. We Americans will in all likelyhood have to accept that we will never reclaim our place of world prominence that we once had, due to political and economic factors out of our control. Europe is unlikely to blow themselves up again. Asia seems to have caught on to the arcane western science of economics quite well. And we will have to work hard to ensure that our economy is able to keep up with the rising stars.

But the world is a better place for everybody. Were it not for the stupidity of the current government's cold-war inspired dinosaurs, we could look forward to never having our children die in a foreign war again. A world of peace and prosperity as has never existed before. And ourselves as one of those peoples, no better and (hopefully), no worse. What is so bad about that?

[[
The only risk rising developed-world incomes have to the US is through commodity prices. Oil, mineral resources, and so forth will be in more demand. There is absolutely no sense in which we're all going to be pushed down to the income level of India or China. Remember, commodity prices are lower than they would be in a richer world, but the developing world gets those same low commodity prices right now. They're poorer because they have less "social capital".
]]

Question for the floor: What would(/will?) 4, 5 or 6 billion rich people look like?

Commodity prices - They sure would be higher. That's actually a big thing. Pretty much all prices resolve to commodity prices. Much higher commodity prices is almost exactly the same as much poorer us.

Politics - The Al Qaeda destroys the WTC (wasn't the white house going to release the evidence that proves this?). The US issues an ultimatum the Afganistan. Rich-China says the US isn't invading anybody. Rich-China can back it up. Afganistan ignores the US. Now what?

Technology/Education - 10's of millions of IQ 130+ people currently destined to be peasant farmers or local merchants have access to 1st world education. Technology develops faster on one hand. Western institutions such as Harvard/Berkeley either lose their roles as world leaders or their staffs become a purer sample of the worlds smartest people than they are now - (think much less European)

Do Americans want a rich world or not? Are the growth of China and India and others really good for us?

DeLong: "And as long as people see themselves as being pulled into better-paying jobs in other industries (rather than being pushed out of where they want to be by cheap foreign competition), we can make the coming generation's expansion of world trade--the coming generation's "outsourcing" boom--a source of wealth and development."

This will not happen unless there is a reasonable way for the following to occur. A 45-year-old with a 20-year career in, say, software development, can take three years off from work, pay the tuition and fees for education, not lose their house, maintain the family in a reasonable lifestyle, and then start in their new position as, oh, a statistical financial analyst (assuming we need fewer programmers and more statistical whizzes in financial planning) at a salary that allows them to accumulate sufficient wealth for their kids' first round of college fees coming up in five years.

People see themselves being pushed out of positions where they can accumulate sufficient wealth to afford a house and a family and a middle-class lifestyle and expectations of helping their children get started in life. They will continue to feel they are being pushed out until changing careers is not an impoverishing act.

I will argue that you can't have it both ways. If the new jobs require education, then the system has to allow someone in the middle of their life to acquire that education. The current system makes it all but impossible.

Nobody here says anything about what lower-IQ or lower-skilled citizens here will do. They have to live, too.

Ian wrote, "So basically, the best and most recent example we have of mass movement of US tech jobs to the developing world is one which did not lead to a net loss of tech jobs or tech profits in the US."

FYI, product engineering is also now moving overseas:

http://www.awprofessional.com/articles/article.asp?p=173977

I actually saw this firsthand when I interviewed for a technical writer job here in Shanghai. It's an American company, headquartered in Palo Alto. All their products (thin-client workstations) are sold in North America. But all product engineering is done here in Shanghai. In a year or two, they'll be selling those products in Asia; but for now, they only need manuals in English for their English-speaking customers. However, they wouldn't pay more than 8,000 RMB (<$1,000 USD) per month - I mean, after all, that's about what their product engineers make.

Ian continues, "The burden of proof is clearly on anyone who thinks outsourcing will lead to a net reduction in job quality in the US ..."

Last year I taught English at three different Chinese public middle schools in Beijing. All my students attended school from 8:00 a.m. to 5:00 p.m. They were studying English, math, physics, and hard sciences; older students ("middle school" there includes what we would call high school) were all taking math and science classes that were optional when I was in high school. Some students spoke better English than their Chinese English teachers. In China, there is one child under the age of 15 for every man, woman, and child in America.

Tell me this: if you build plant and facilities overseas, hire cheap local talent that understands the technology and can do the product engineering on their own, how long will it take before their talent exceeds the talent in the nation from which the original investment came? If offshoring extends to all industries where knowledge is at premium, how long can that nation sustain its "comparative advantage" in those high-margin industries without significant reductions in wages for *all* workers? (Because if these jobs pay less than lower-skilled jobs, workers won't be attracted to learn them.) Or do you think that a nation of mortgage brokers, real estate agents, nurses, police officers, and grocery baggers will maintain its collective purchasing power _ad infinitum_?

"... (the federal reserve will certainly make sure it doesn't lead to a long term reduction in the absolute number of jobs)."

Do you mean the absolute number of jobs everywhere, or the absolute number of jobs in America? The Federal Reserve hasn't been very successful of late in sustaining employment at home. They *have* succeeded in creating asset bubbles and incenting a rise in household debt, which just raises our workers' expectations and makes overseas labor that much more attractive.

"If you want to stop being a complete economic illiterate, one of the first things to learn is that jobs are not a finite resource, not a zero sum game."

Actually, the first thing I learned in my very first economics class was the relative scarcity of resources, which includes labor.

"There is absolutely no sense in which we're all going to be pushed down to the income level of India or China.... They're poorer because they have less 'social capital' (from reliable legal systems to broad education to a stable finance sector to etc. etc.)."

This is not a fixed condition in the U.S. or either of those countries. In any case, it's insufficient as evidence that income equilibrium won't be found far below present wages in the U.S.

“One of the big problems with American education today is that we still imagine that we can underpay teachers ...”

What evidence do we have for this statement? Is there a teacher shortage at the current levels of pay? If a school system places an ad for teachers does it get applicants” If we can import hundreds of thousands of H1-B visa immigrants to take the jobs of computer programmers, why can’t we import teachers and save the taxpayers some money?

What’s going on is the teachers are a constituent group for the Democrats, and so they and their partisans constantly try to play the education card. When a PhD in physics with 15 years of experience loses his job to an H1-B or his job gets outsourced, the Democrats tell him: “you need more education!” Well it won’t wash anymore. People realize that the Democrats are just as bad as the Republicans on this issue, and less honest to boot. Check out Kerry’s position on the H1-B problem you will find it’s perhaps even worse than Bush’s. He wants to eliminate all caps!

"Ah, yes--unlike every other endeavor known to economics, the quality of education bears no relationship to the resources expended on it."

Well actually it is true that paying the bad teachers more doesn't help their students. And you can't fire the bad teachers. I would be thrilled to spend more money on the teachers I know are good. But we aren't allowed to test for that, and even when we identify bad teachers through other means we can't fire them. I don't see any reason to waste higher salaries in an indiscriminate fashion like that.

walter willis wrote, "The difficult problem is figuring out why the dollar hasn't dropped to a more reasonable level already."

Difficult? I thought one big reason was the purchase of dollars by Japan and China these days.

A. Zarkov wrote, " 'One of the big problems with American education today is that we still imagine that we can underpay teachers ...'

"What evidence do we have for this statement? Is there a teacher shortage at the current levels of pay?"

I reckon there is a shortage of qualified teachers in *urban* school systems. While the pay might be comparable to that in surburban systems, the cost of living in an urban area (or the similar cost of commuting into an urban core), and more importantly the fact that there's almost certainly a premium required to teach in an urban area, imply that equity dictates urban teaching salaries should be quite a bit higher.

Not that I think the US educational system is efficiently run, overall...

I would think that Prof. Delong's kids might be getting a little old for fairy tales.

I am a bit mystified that nobody seems to have noticed that the US has benefited from in-sourcing. Among the best manufacturing jobs in the US are provided by Honda, Toyota and Nissan. Foreign-owned financial institutions hire a bunch of people here, etc.

In fact, given that we rely so much on foreign capital for domestic investment, it must be the case that we gain more jobs via insourcing than we lose via outsourcing.

A most extraordinary coincidence has occurred. Jason and Anne posted back-to-back, and both make good points (course, Jason goes on to spout facetious nonsense in later posts). The knee-jerk response to outsourcing is that it must be bad. Every disciplined look at outsourcing since its becoming a political issue during the jobs slowdown has found outsourcing is a small source of job loss. We mostly import goods, not labor services. We export services to a far greater extent than we import them. Ask anybody involved in providing financial services to foreign clients how they feel about putting an end to outsourcing. But still, bring up the issue and outsourcing is a problem.

If it turns out that education isn’t going to assure the vast majority of G7 workers a good living, then there is a real problem. If returns to education fall, we aren’t going to have as many run-of-the-mill brains seeking education. There are important externalities to education that we should be worried to lose. Beyond that, if education won’t work, what will?

At the level of Ph.D, I’m not surprised that we are importing labor services. I know too many people who, at a fairly young age, are the at top of their profession. Their profession emerged at about the time they were writing a dissertation, (I have in mind particular slices of hydrogeology, environmental geology, and the like), and bingo, they are the ones you have to call if you are serious about fixing a problem. If the services you need happened to come from the brain of somebody living in India, or Poland, or Thailand, be glad you have access to them.

More commoditized Ph.Ds have shown up in press reports of outsourcing both as successes, and as failures. Sometimes, narrow cultural differences (the management or research culture of an individual firm) turn out to be so important that it just isn’t productive to send work out to where the culture doesn’t exist. Sometimes, it works out fine. The balance is not yet clear.

Military readiness--I think we're going to need a draft.

Reaction to global climate disasters.

Reaction to the emergence of powerful regional federations in the world on scale of, or larger than, the USA.

Reaction to global habitat destruction and loss of biodiversity.

Global population growth.

Some of these will be immediate issues in the next eight years, some not. But they're going to make all the usual issues look small.

A. Zarkov,

Shame on you. Really. You aren't that dumb. Getting enough teachers to fill all the seats is not the issue. There have, in fact, been teacher shortages in lots of school districts, but that says nothing about quality. Brad's comment clearly had to do with the quality of teaching, not the number of teaching jobs filled, without regard to who fills them.

A friend of mine who is a DIA anti-terrorism specialist just told me that Boston would not be attacked and New york probably would be. I asked him why and here is what he said:

http://pep.typepad.com/public_enquiry_project/2004/07/al_qaeda_target.html

Right rajeev, manufacturing employment has increased in this country, oops I mean Japan and China and ...everywhere but here.

And after reading 60 some posts, no one answered the question retrain for what?

Here's what I think the Dems will have trouble with:

The collapse of the US military position in Iraq in the next year. Since April I've considered this inevitable. It's all over but the optional massacre. Recent reportage has confirmed my gut feeling that the US doesn't have a real friend in Iraq and that US forces are basically trapped in a number of ever-shrinking zones. Eventually communication between these zones will be imperilled and the choice of withdrawal or withdrawal-after-massacre wil have to be faced.

Next July there will be an enemy regime in charge in Baghdad, running a public judicial process on US war crimes.

I could be wrong, but I don't think so.

If I am right, then there will be a tremendous and deleterious effect on the US. Your guess is as good as mine as to how either Bush or Kerry will handle it.

I have the opinion that when economists are outsources, somehow, free trade will be determined to be harmful with great and glorious evidence to support that.

"Tell me this: if you build plant and facilities overseas, hire cheap local talent that understands the technology and can do the product engineering on their own, how long will it take before their talent exceeds the talent in the nation from which the original investment came? If offshoring extends to all industries where knowledge is at premium, how long can that nation sustain its "comparative advantage" in those high-margin industries without significant reductions in wages for *all* workers?"

Reality check. You are basically saying "what if China turns into a big version of Japan", seeing as how Japan is just such an Asian country where the education and skills are fully competitive with the US and people are willing to work longer hours. As another poster pointed out, twenty years ago people were panicking that Japanese development would impoverish the US, despite this being contrary to the basic nature of world trade. Of course today Japan and the US have a high volume of mutual trade, including high-tech trade, to the mutual benefit of both populations.

As I try to point out, one of the areas where your basic economics textbook is actually quite right is that there are not a fixed number of jobs out there. As one person becomes more productive (whether in the US or China), they also buy more products and services from others. The economic wellbeing of the US is _increased_, not decreased, by its trading partners becoming richer. And the paranoia over the sheer population of China is a peculiarly American blindness. So what if hundreds of millions of Chinese are becoming wealthy? That's not going to impoverish the US any more than three hundred million wealthy Americans impoverished the thirty million Canadians next door. (Or any more than California is impoverished by the wealth of the rest of the US).

The "outsourcing panic" is the same sort of horseshit that happens every time a developing nation goes through a big round of trade-fueled development. The natural consequence of this is an increase in specialization - some products previously made by US domestic producers will now be made in that country, and the resulting wealth in that country will allow them to expand their purchases of US products. Every time, what happens is that there is a job shift - some industries lose jobs and others gain them. Every time, there is no change at all in net employment, and no change in the trend that average wealth grows. Yet every time, people ignore what has always happened before, and predict that the US is going to go into a perpetual high unemployment or crappy jobs funk.

The actual problems of trade are a lesser version of the problem of technological change, and the problems of change in general - shifting jobs from one industry to another means an increasing number of people will lose one job and have to find another.

The solution is not to try and stop change, but to work to create a system where change doesn't destroy lives. One fact seldom recognized by Americans is that the US economy is heavily isolated from the effects of trade compared to most of the developed world. The US domestic economy is so big that trade flows are small in comparison. Other developed nations have trade flows larger relative to themselves, and they have to cope with one of their foreign competitors being the huge, rich, innovative, and politically powerful US. And yet they maintain the same overall prosperity as the US, with more extensive social programs and better conditions for the poor.

The very existence of Sweden, France, Canada, and other such countries shows the obvious stupidity of the view that the US will be impoverished by the development of very large foreign economies. The only thing that can impoverish US workers is US domestic policy.

>are taught that the U.S. tried to keep them poor

I've asks this again and again, but how the fuck have we "tried to keep them poor"???? Really, how? Did we bomb their infrastructure? (no, that was Latin America). Did we blockade their ports? (uh, Cuba yeah, but not China or India).

The West fucked over India good during the Colonial Era, but that ended 50 years ago. Why do they still have people willing to go through 20 years of schooling for a 20K/yr. job? They and China outnumber the West by what, a factor of 3 or more? What is wrong with their internal demand?

The Mexicans can tell us how we kept them poor - we sucked them into the maliquadoras, crushed the peso with liberalization, and then sent their jobs to China.

This is even dumber than the Thomas Frank post.

After last night, I'd say the Democrats biggest problem is they have to rely on Republicans. Ron Reagan, son of a Republican president. Teresa, widow of Republican senator John Heinz (and quoting Republican Abraham Lincoln, to boot). First choice for a running mate; John McCain.

Maybe the farm system needs an overhaul.

At least you've solidified the self-absorbed, wealthy, self-indulgent, designer dressed, borderline-elderly female demographic.

"A naive Libertarian friend thinks that America should just open our borders and allow unrestricted immigration."

How is he or she "naive?" What do you (think that you) know that (you think) he or she doesn't?

And this is what really kills me:

Ok, so I'm a policy maker for Zamnibiarumba and Prof. DeLong tells me I should offshore to China much of my current industry, and upgrade my schools. He tells me that when I replace a 50K domestic widget with a 20K imported widget then 30K stays in my country for investment.

This is so cool, I think.

So I go to "upgrade" my schools. Here's a funny thing - people aren't volunteering to refurbish labs or upgrade their teaching credentials and class time for free!! Weird, huh? Damn unpatriotic Zamnibiarumbians. So I need some cash. Taxes, we're talking.

Well, people don't like income taxes much, and I like my votes. But hey!! Didn't moving that widget sourcing save me big $$$?? How about I grab a little of that back, put a tariff on those widgets!! Sure, I can grab 10K a widget and the investment community is still way ahead!!! This stuff is fun...

What, Martha? You say Professor DeLong is on the phone, raging incoherently?

Yup, incoherent is truly the word.

kharris:

"A most extraordinary coincidence has occurred. Jason and Anne posted back-to-back, and both make good points (course, Jason goes on to spout facetious nonsense in later posts)."

I'm glad you're keeping score. Those were for you, man!

The number of people on this board who are anti-trade is truly scary. Free trade benefits everyone with lower prices, more jobs, more diverse and specialized goods and services, and more innovation. If you think free trade destroys jobs you must think that high tarriffs and government restrictions creates jobs. However, if you examine countries where there are severe restrictions (N. Korea, Burma, much of Africa, Cuba) you don't exactly see tons of jobs, high standards of living, and constant innovation. Instead you see people living on less than $1 a day. Please see the following link that really sums up why we need free trade:

http://www.reason.com/0407/fe.bl.truths.shtml

We need to be more precise about what we mean by education and training. Do degrees in communications count? I firmly believe that if you know no Latin, you haven't been liberally educated, but knowing Latin doesn't train you for an actual job.

I have questions about free trade/ outsourcing that have never been adequately answered by theory.

1.) The more we trade perishable foodstuffs, do we risk spreading diseases and importing new bugs into our environment?

2.) How much of this depends on cheap fuel, and are we including the externalities of pollution in the costs?

Finally a little anecdotal question about outsourcing and and the quality of the product you get. Not that long ago you dialed 411 and got a local operator. (I think you got 4 or 5 "free" directory assistance calls per month.) Sometimes you didn't know the exact name you were looking for, but you remembered the neighborhood or you couldn't remember that Boston Garden had been renamed the Fleet Center, but the operator actually knew the area and could help you out.

Now we have the internet which is a wonderful thing, although not always as efficient as that wonderful old operator. But when you do call directory assistance, you don't get any better service than you would if you went to smartpages.com, because the woman is in Utah and you have to pay a pretty penny for it.

I'd much prefer to buy my vegetables from a local farmer. They taste better, and there was less fuel used to get them to me.

All you really have to do to convince opponents of outsourcing of its benefits is to tell them exactly in what field this flood of new, better, higher-paid jobs will occur. They need this information to decide on their inevitable re-education. Without this information, they are quite reasonable to regard the proponents as living in a dream world.

http://www.nytimes.com/2004/07/28/international/asia/28china.html?hp=&pagewanted=all&position=

July 28, 2004

New Boomtowns Change Path of China's Growth
By HOWARD W. FRENCH

DONGGUAN, China - The cranes peek out from behind skyscrapers in every direction, wheeling and nodding in a slow-motion ballet as crews work around the clock to fill in an already crowded skyline.

Newly planted palms line the sides of broad, newly traced avenues where the traffic lights have not been turned on yet.

Dongguan has exploded from a mere town to a city of seven million in a little over 20 years. But the city officials are not content with a 23 percent annual economic growth rate. They are putting the finishing touches on a vast, entirely new annex city that they hope will draw 300,000 engineers and researchers, the vanguard of a new China.

'We are the first in China to pursue this kind of vision,'' said Wang Jianya, deputy director of the development, called Songshan Lake Pioneer Park. 'We're not trying to be the biggest, only the best.''

Dongguan is one of a score of Chinese megacities whose extraordinary growth reflects China's boom and its challenge. The country's rapid urbanization is helping to lift hundreds of millions of rural Chinese out of poverty. But at the same time, these new second-tier cities are locked in a ferocious competition, spawning ambitious development plans that escape the control of the central government in Beijing.

Economists like Tang Wing-shing, a specialist in urban development at Baptist University in Hong Kong, worry about the consequences: waste of resources, loss of arable land, fiscal crises, corruption and pollution.

'Every city wants to develop into a world city, and every one wants to have an international airport, six-lane highways and export zones, rather than integrated growth,'' Professor Tang said. 'This is what we are observing in China today. All of the cities have been turned into vast construction zones, and the government has not contemplated the consequences of this yet.''

China has 166 cities with populations over one million, compared with nine in the United States. China's urban population is growing at 2.5 percent a year, among the fastest rate in the world, according to the United Nations Population Division. That compares with 0.8 percent in India, another large, fast-developing nation.

In fact, Beijing has found its powers to slow runaway growth to be surprisingly limited, in part because provinces and cities resist efforts to rein in their investments.

Although the central government allots money to pet development projects, provinces raise money for their own projects by selling rights to develop real estate. In many cases, local officials are judged in part by economic measures - how many jobs they create, how many big buildings spring up.

That means that many provincial officials are trying the same formula: manufacturing and export zones, research parks and self-styled Silicon Valleys like Pioneer Park in Dongguan.

Dongguan's officials, in fact, have even bigger plans.

'In the future our goal is 10 million people,' Dongguan's deputy mayor, Zhang Shenguang, said almost nonchalantly. 'Beyond that, we may have problems with electricity and water.'

So, after 70+ posts, anyone who actually knows as much as this undergrad or more about economics want to address the point that there is NO theory currently existing that addresses free investment along with free trade and that even in theoretical terms we have NO idea how much benefits from trade and the winners and losers of trade is affected by the businesses in both countries being owned by one country? I mean, the Hecksher-Ollin model, as far as I know the most current world trade model, doesn't address the effects of free capital mobility. No international trade theory I know of does.

Blind faith and conflation of terms is the sum total of the backup for supporting, uncritically, outsourcing. Not to mention that current events in Europe (where workers are losing their shorter hours, social benefits, vacations and wages) is doing well in proving the "race to the bottom" theory of wages totally correct, but, leaving that aside:

Can ANYONE provide an explanation of why the outcomes of free investment+free trade are the exact same as free trade in terms of benefits from trade and winners and losers that has the SLIGHTEST grounding in economic theory or empirical evidence?

"All you really have to do to convince opponents of outsourcing of its benefits is to tell them exactly in what field this flood of new, better, higher-paid jobs will occur. They need this information to decide on their inevitable re-education. Without this information, they are quite reasonable to regard the proponents as living in a dream world."

Approximately half of the current U.S. working population are in jobs that didn't exist 50 years ago. Nobody can predict what the jobs will be 50 years from now, but they are very likely to be a lot different from those that are here today. That is why it is so crucial for governments to get out of the way and allow the economy to evolve as the markets see fit. Ultimately, people will find work in the professions that pay them the most given there skill sets.

Another fact: For a time in the 1960's North Korea had a higher per-capita income than South Korea. This was before South Korea opened its economy. Back then, the vast majority of South Koreans did not have in-home refigeration, televisions, telephones, computers, cell phones, cars, etc. Now the vast majority of South Koreans have those types of products and their per-capita income is 10x that of North Korea.

If a Presidential candidate ran on a free trade platform, and by this I mean truly free trade. If they announced that once they were elected they would immediately, unconditionally, and unilaterally seek to end all quotas, tarriffs, restrictions, price supports, etc. on all goods coming into and going out of the U.S., I would vote for them. I would vote for them even if every social policy they advocated was against what I believed. Free trade lifts all boats.

Could it be that continued growth in China and India for several decades could actually spur job creation in America? There would seem to be countless trade opportunities for us, and China and India have endless needs for consumption as middle classes grow.

"Could it be that continued growth in China and India for several decades could actually spur job creation in America? There would seem to be countless trade opportunities for us, and China and India have endless needs for consumption as middle classes grow."

Yes!!!! Poor foreigners cannot buy anything from U.S. companies or U.S. employees. Rich ones can buy a lot from us. Here are some country specific export statistics from the U.S. census website:

U.S. exports to:

CANADA (1989) $78B (2003)$170B
MEXICO (1989) $25B (2003) $98B
JAPAN (1989) $44B (2003) $98B
U.K. (1989) $21B (2003) $34B
CHINA (1989) $6B (2003) $28B
S. KOREA (1989) $13B (2003) $24B
TAIWAN (1989) $11B (2003) $17B
FRANCE (1989) $11B (2003) $17B
SINGAPORE (1989) $7B (2003) $17B
BRAZIL (1989) $5B (2003) $12B
HONDURAS (1989) $500M (2003) $3B
RUSSIA (1989) $<500M (2003) $2.5B
VIETNAM (1989) $10M (2003) $1.5B

wtf, all I can say is that from what I know South Korea did not get where they are today by practicing free trade. They practiced exporting and no importing, which is something different.

Tim H.,

South Korea purchased approx. $24 Billion of goods and services from the United States last year. Hardly no importing. Just for the record, here are some countries at the bottom of the list:

LIBYA (2003) $226K
LAOS (2003) $5M
BURMA (2003) $7M
RWANDA (2003) $8M
NORTH KOREA (2003) $8M
SWAZILAND (2003) $8M
ALBANIA (2003) $10M
BOSNIA (2003) $21M
SUDAN (2003) $27M
CONGO(2003) $31M
TURKMENISTAN (2003) $34M
YUGOSLAVIA (2003) $50M
CAMBODIA (2003) $58M
AFGHANISTAN (2003) $61M
BELARUS (2003) $84M
IRAN (2003) $99M

Notice any patterns?

DeLong: "One of the big problems with American education today is that we still imagine that we can underpay teachers--we still imagine that for teachers (and nurses) we have this large pool of constrained high-quality female labor to draw on. We need to upgrade the salaries of teachers--and we need to do this while at the same time upgrading the quality of teachers."

There is a growing body of evidence that for secondary education, in math and the hard sciences, students in classes taught by people who studied math/science at University, and worked in jobs that required math/science skills on a daily basis, learn more than students in classes taught by people who majored in education and do not have that work experience.

I know a number of retired engineers who would like to teach high-school math and science. As retirees, they can afford to do it at the salaries paid by the school system. But at least in this state, it is quite difficult for them to even get a foot in the door, since the NEA has convinced the legislature that an education degree is far more important than experience with the material to be taught. I can agree that our second-graders should be taught by professional educators; I have much more trouble with that claim when the issue is teaching algebra or trig or calculus or computer programming in high-school.

Higher teacher salaries is NOT the solution to this particular problem in the system. Taking proper advantage of the resources that are available is at least part of the solution.

JD -- you asked for studies showing a correlation between income and student achievement.

If you will accept the assumption that degrees measure student acheivement the evidence is overwhelming.

high school graduates outearn dropouts
AA degree earners outearn high school graduates
college graduates outearn AA degree holders
Grad degree holders outearn BA degree holders

The evidence for that is massive. And that is against clear knowledge that many other things besides the things that determines student achievements are play significant roles in income.

After last night, I'd say the Democrats biggest problem is they have to rely on Republicans

And the republicans have to rely on deomrcats Zell Miller and John McCain.

lower prices, more jobs, more diverse and specialized goods and services, and more innovation

Get real, there are millions less working now than 3 years ago.

All you really have to do to convince opponents of outsourcing of its benefits is to tell them exactly in what field this flood of new, better, higher-paid jobs will occur.

Tim, I have asked that several times and all that I see is claptrap about how great free trade is. When I can buy Australian sugar I may begin to believe in free trade. When CEO pay is up 22% and workerd pay and the market are down there are bad decisions being made.

Ian doesn't seem to understand that India invests in India, and the US through the tax code invests in India.

So where are the jobs Ian?

"Get real, there are millions less working now than 3 years ago."

Three years ago we were in a bubble. There is something called the "business cycle" that occurs regardless of free trade. Free trsde helps to lessen its impact as foregners step into to buy our products when domestic demand falls.

"Ian doesn't seem to understand that India invests in India, and the US through the tax code invests in India."

Tell that to all of the people in this country that work for foreign firms. How many foreign auto manufacturers have plants here? BMW in South Carolina, Honda in Ohio, Mercedes in Alabama, etc. How many Airbus planes have General Electric engines?

Foreign companies employ more U.S. citizens than U.S. companies employ foreigners.

wtf, I was a solid "free-trade" supporter once, but it was mostly so-called arguments like yours that changed my mind. Paper-thin at best, complete falsehoods (yeah, Japan and the rest of the Pacific Rim got wealthy by opening up its markets, sure they did) at worst... you haven't offered a damn thing except apple pie and free pony rides. Just a bunch of magical thinking.

I don't believe in magic or free anything.

So it wasn't the "protectionists" that swayed me, or (immediate) fear for my job, it was the holes in the neo-liberal bloviating big enough to drive an unsafe Mexican tractor-trailer through that sent me out of your camp.

Maybe you should quit "you don't know anything about economics/you guys are so stupid" - and realize that the truth is quite the opposite. We can think for ourselves, and you aren't bringing us the type of information we need, aren't even - like a good auto mechanic - convincing us you really know something we don't, to come to your side.

Like I said, the fact is I've literally been driven away. Like JFK, I "voted for it before I voted against it." I suspect a few other people here can say that, too.

I think the Democrats will have a hard time getting the country out of the next recession when half the demand growth and the jobs that go with it are going overseas

Actually, wtf, three years ago we were in a recession. And this post-recession job creation/destruction cycle is worse than any post-WWII cycle.

Interesting article in this week's New Yorker:

"Winners and Losers
Is free trade really a good thing?"
by John Cassidy

Brad is quoted extensively in the New Yorker article.

"So it wasn't the "protectionists" that swayed me, or (immediate) fear for my job, it was the holes in the neo-liberal bloviating big enough to drive an unsafe Mexican tractor-trailer through that sent me out of your camp."

What holes would those be?

Maybe you should quit "you don't know anything about economics/you guys are so stupid" - and realize that the truth is quite the opposite. We can think for ourselves, and you aren't bringing us the type of information we need, aren't even - like a good auto mechanic - convincing us you really know something we don't, to come to your side."

Maybe you and people like you should quit with the "we aren't going to allow you to buy products from anyone you want because then I cannot extort higher prices out of you" arguement. What really pisses me off about the anti-free traders is that they want to tell me how I can spend my money. Who are you to tell anyone anything? If I want to strictly buy from Chinese companies, that is my decision and you shouldn't have anything to say about it. You can, if you would like, try to offer me a better product or a better price, but don't try to force me to do something. If you only want to buy American with your money, that is your decision. If everyone in the country shared your narrow views, we wouldn't be having this discussion, but it appears by the volume of imports coming to our shores that more people here are for free trade than against it.

So all of you pro-free traders: Should we open US borders and allow anyone who wants to move here to do so like my naive Libertarian friend suggests?

If you say no, then I say maybe you and people like you should quit with the "we aren't going to allow you to hire anyone you want because then I cannot extort higher wages out of you" argument. What really pisses me off about the anti-immigrationers is that they want to tell me how I can spend my money and who I can hire. (sarcasm)

wtf I find it interesting that the only example yiu can offerup is auto companies that the only reason they are here was due to voluntary restraints.

You can spend your money where you like but I fucking resent you using my tax dollars to subsidize offshore labor. Indians don't pay soicial security, have benefits, telephones or even roads. And they are not as productive when I spend 10 times longer on a call because I cannot understand them. Labor arbitrage is not free trade. It is US business's way of dumping pension obligations and health benefits. Yeah we promised you these bebefits for the last 30 years you worked he but now we found this guy offshore that will work for next to nothing. Free trade is like a free lunch - it doesn't exist.

"So all of you pro-free traders: Should we open US borders and allow anyone who wants to move here to do so like my naive Libertarian friend suggests? "

I would say yes. So there is no arguement.

"wtf I find it interesting that the only example yiu can offerup is auto companies that the only reason they are here was due to voluntary restraints."

How about Deutsche Bank, CSFB, Credit Lyonnes or ING? They employ thousands in high paid positions in the U.S. and they could just as easily do there work elsewhere since they really produce more of a service than a good.

"You can spend your money where you like but I fucking resent you using my tax dollars to subsidize offshore labor. Indians don't pay soicial security, have benefits, telephones or even roads. And they are not as productive when I spend 10 times longer on a call because I cannot understand them. Labor arbitrage is not free trade. It is US business's way of dumping pension obligations and health benefits. Yeah we promised you these bebefits for the last 30 years you worked he but now we found this guy offshore that will work for next to nothing. Free trade is like a free lunch - it doesn't exist."

How are your tax dollars subsidizing free trade? If anything, you subsudize the opposite. (Ever heard of farm subsisides?) They don't pay social security because they don't collect social security (I guess that one went over your head huh?) I pay for my telephone and if an Indian worker wants one in his home, he can pay for one too if he has a job. The same with roads. Indian workers don't use our roads, why should they pay for them? (I don't pay for roads in Delhi.)

"And they are not as productive when I spend 10 times longer on a call because I cannot understand them."

Exactly! That is why Americans get paid so much more. Good job contradicting yourself! If you don't want to deal with a call center in India, then do business only with companies that locate all of their call centers in the U.S. it is your choice.

Oh, and one last thing. Nobody owes you anything simply because you exist and you are American anymore than we owe the guy in Delhi something simply because he exists and he is Indian.

"I firmly believe that if you know no Latin, you haven't been liberally educated"

Thats what I call a conservative view of liberal education.

Michael C.,

You note that teachers coming from professions that use math tend to turn out better math students than teachers with education degrees, and then conclude that paying teachers more is “NOT the solution to this particular problem in the system.” I’m not sure that the “particular problem” you are trying to solve is the problem Brad raised. We have no reason to think that ret