July 27, 2004

What the Democrats Will Have Problems Doing

"Dad?"

"Yes?"

"You said the Democrats will have problems doing some things. What will they have trouble doing?"

"Well, dealing with outsourcing for one thing. It's coming--it's coming over the next generation. And the Democratic Party will have a very hard time figuring out how to deal with it constructively. It's likely to begin thinking that people in India who want jobs processing document-images for U.S. companies are our *enemies*. 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. 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. But Democrats will have a hard time doing this.

"The most important way to open paths to opportunities is through education. And the Democratic Party will have a very hard time improving American education. 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. The Democratic Party can do the former, but it will have a very hard time doing the latter. The latter means that lots of current teachers get fired, and a Democratic Party that has close links with the National Education Association cannot do that.

"Health care. The Democratic Party will have a hard time doing health care right. This is because health care is inherently difficult.

"Social insurance. John Edwards did very good work for his clients, and even the money he got them didn't make them "whole" in any sense. But our current lottery system by which those lucky enough to get John Edwards for a lawyer have some chance of getting the resources they need after a catastrophe while others don't--that system s****. And the Democratic Party will have a hard time reforming it.

"Now let me hasten to say that even on these issues where the Democratic Party will have a very hard time making progress, the Republicans are worse. The current Republican Party is a sick joke: its idea of class-action reform is to eliminate corporate liability rather than to provide social insurance; its idea of health-care reform is to fatten the profits of pharmaceutical companies; its idea of educational reform is to pay our teachers less and demand more of them; and its idea of foreign policy is for us to stick our national head as far down the toilet as possible and flush repeatedly.

"But don't think that a Kerry administration and a Democratic congress would be perfect. There will still be plenty of occasions to bang our heads against the wall."

Posted by DeLong at July 27, 2004 12:52 PM | TrackBack | | Other weblogs commenting on this post
Comments

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.

Posted by: Barry on July 27, 2004 01:14 PM

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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?

Posted by: Lorenzo on July 27, 2004 02:02 PM

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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.

Posted by: dm on July 27, 2004 02:03 PM

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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.

Posted by: Jason Ligon on July 27, 2004 02:04 PM

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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.

Posted by: bob mcmanus on July 27, 2004 02:09 PM

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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.

Posted by: Jason Ligon on July 27, 2004 02:10 PM

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"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?

Posted by: Anne on July 27, 2004 02:23 PM

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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.

Posted by: Ralph on July 27, 2004 02:25 PM

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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.

Posted by: Ralph on July 27, 2004 02:32 PM

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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.)

Posted by: Thane Walkup on July 27, 2004 02:35 PM

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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?

Posted by: Kosh on July 27, 2004 02:36 PM

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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.)

Posted by: Eli Rabett on July 27, 2004 02:37 PM

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>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.

Posted by: Thane Walkup on July 27, 2004 02:44 PM

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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.

Posted by: praktike on July 27, 2004 03:09 PM

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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.

Posted by: abc on July 27, 2004 03:27 PM

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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.

Posted by: Dex on July 27, 2004 03:32 PM

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"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???

Posted by: me on July 27, 2004 03:34 PM

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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.

Posted by: Luke Lea on July 27, 2004 03:52 PM

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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.

Posted by: 2fair on July 27, 2004 04:36 PM

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"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.

Posted by: Douglas on July 27, 2004 05:05 PM

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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'.

Posted by: Barry on July 27, 2004 05:27 PM

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"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."

Posted by: seth edenbaum on July 27, 2004 05:41 PM

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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?

Posted by: Jason Ligon on July 27, 2004 05:47 PM

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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.

Posted by: Ian Montgomerie on July 27, 2004 05:48 PM

____

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

Posted by: jd on July 27, 2004 05:56 PM

____

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

Posted by: jd on July 27, 2004 05:56 PM

____

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

Posted by: jd on July 27, 2004 05:58 PM

____

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

Posted by: jd on July 27, 2004 05:59 PM

____


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.

Posted by: Lynne on July 27, 2004 06:07 PM

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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?

Posted by: PQuincy on July 27, 2004 06:36 PM

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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.

Posted by: David on July 27, 2004 06:38 PM

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"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.

Posted by: Ian Montgomerie on July 27, 2004 06:42 PM

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>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.

Posted by: camille roy on July 27, 2004 07:40 PM

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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?

Posted by: jd on July 27, 2004 07:41 PM

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"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".

Posted by: Ian Montgomerie on July 27, 2004 07:42 PM

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"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.

Posted by: Ian Montgomerie on July 27, 2004 07:47 PM

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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

Posted by: westernmass on July 27, 2004 07:50 PM

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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

Posted by: Lynne on July 27, 2004 07:52 PM

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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.

Posted by: Lynne on July 27, 2004 07:55 PM

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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.

Posted by: liberal on July 27, 2004 08:27 PM

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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?

Posted by: liberal on July 27, 2004 08:30 PM

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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.

Posted by: Jeff Lawson on July 27, 2004 08:45 PM

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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.

Posted by: Dubblblind on July 27, 2004 08:45 PM

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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.

Posted by: Jeff Lawson on July 27, 2004 08:47 PM

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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

Posted by: Rajeev on July 27, 2004 08:57 PM

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

Posted by: howard on July 27, 2004 08:58 PM

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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.

Posted by: walter willis on July 27, 2004 09:15 PM

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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?

Posted by: non economist on July 27, 2004 09:43 PM

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[[
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?

Posted by: anon on July 27, 2004 09:50 PM

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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.

Posted by: Michael Cain on July 27, 2004 10:00 PM

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

Posted by: Jeff Lawson on July 27, 2004 10:17 PM

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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.

Posted by: William (no longer in Beijing) on July 27, 2004 10:19 PM

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“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!

Posted by: A. Zarkov on July 27, 2004 10:52 PM

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"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.

Posted by: Sebastian Holsclaw on July 27, 2004 11:50 PM

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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.

Posted by: liberal on July 28, 2004 04:39 AM

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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...

Posted by: liberal on July 28, 2004 04:42 AM

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

Posted by: Tim H. on July 28, 2004 06:18 AM

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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.

Posted by: Richard Green on July 28, 2004 06:36 AM

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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.

Posted by: kharris on July 28, 2004 06:40 AM

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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.

Posted by: Randolph Fritz on July 28, 2004 06:44 AM

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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.

Posted by: kharris on July 28, 2004 06:46 AM

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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


Posted by: Adrian Spidle on July 28, 2004 06:57 AM

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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?

Posted by: me on July 28, 2004 07:11 AM

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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.

Posted by: sm on July 28, 2004 07:34 AM

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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.

Posted by: James Goodfellow on July 28, 2004 08:33 AM

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"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.

Posted by: Ian Montgomerie on July 28, 2004 08:35 AM

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>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.

Posted by: a different chris on July 28, 2004 08:35 AM

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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.

Posted by: Patrick R. Sullivan on July 28, 2004 09:08 AM

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"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?

Posted by: Mark Bahner on July 28, 2004 09:11 AM

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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.

Posted by: a different chris on July 28, 2004 09:21 AM

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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!

Posted by: Jason Ligon on July 28, 2004 09:26 AM

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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

Posted by: wtf on July 28, 2004 09:48 AM

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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.

Posted by: Abby on July 28, 2004 10:01 AM

____

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.

Posted by: Tim H. on July 28, 2004 10:10 AM

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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.'

Posted by: anne on July 28, 2004 10:11 AM

____

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?

Posted by: Lorenzo on July 28, 2004 10:28 AM

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"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.

Posted by: wtf on July 28, 2004 10:32 AM

____

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.

Posted by: anne on July 28, 2004 10:42 AM

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"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

Posted by: wtf on July 28, 2004 11:04 AM

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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.

Posted by: Tim H. on July 28, 2004 11:07 AM

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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?

Posted by: wtf on July 28, 2004 11:14 AM

____

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.

Posted by: Michael Cain on July 28, 2004 11:22 AM

____

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.

Posted by: spencer on July 28, 2004 11:24 AM

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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?

Posted by: me on July 28, 2004 11:29 AM

____

"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.

Posted by: wtf on July 28, 2004 11:39 AM

____

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.

Posted by: a different chris on July 28, 2004 12:02 PM

____

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

Posted by: marku on July 28, 2004 12:02 PM

____

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.

Posted by: Barry on July 28, 2004 12:08 PM

____

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.


Posted by: bhaim on July 28, 2004 12:09 PM

____

"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.

Posted by: wtf on July 28, 2004 12:13 PM

____

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)

Posted by: Kosh on July 28, 2004 12:37 PM

____

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.

Posted by: me on July 28, 2004 12:40 PM

____

"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.

Posted by: wtf on July 28, 2004 12:54 PM

____

"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.

Posted by: Rob Sperry on July 28, 2004 12:56 PM

____

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 retirees, alone, fill the need for advanced math teachers. Pointing to retirees and ignoring currently employed engineers looks a bit like misdirection. In fact, the appropriate conclusion to reach from the story you have told seems to be “so we need to pay math teachers wages that are competitive with wages in alternative professions, such as engineering, to attract people from those fields into teaching.” There are lots of quibbles about job security and the emotional rewards of teaching and the like that we can add to the story, and we probably do need to cut back on barriers to entry to teaching, but the basic economic story is -- to attract people with good math skills to education, we have to pay wages that attract people with good math skills. Pay chemists to teach chemistry, too. The solution to this particular problem may well be higher teachers’ salaries.

Posted by: kharris on July 28, 2004 01:05 PM

____

a different chris wrote, "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?"

But that doesn't say anything---you have to know what kind of *lifestyle* 20K/yr will buy you in India.

Posted by: liberal on July 28, 2004 01:26 PM

____

Tim H. wrote, "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."

wtf replied, "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:..."

Of course, to really answer the question you need to know these entire time series: S. Korean GDP; S. Korean exports; S. Korean imports.

Also note that the issue is im/ex with the entire world, not just with the US. For example, IIRC, China's numbers don't look nearly as rosy as the US-only numbers indicate because they import a lot of stuff. (I believe that they often import from other Asian countries, add some value, then e.g. export it to us. But they don't add *all* the value.)


Posted by: liberal on July 28, 2004 01:30 PM

____

kharris wrote, "In fact, the appropriate conclusion to reach from the story you have told seems to be 'so we need to pay math teachers wages that are competitive with wages in alternative professions, such as engineering, to attract people from those fields into teaching.' There are lots of quibbles about job security and the emotional rewards of teaching and the like that we can add to the story, and we probably do need to cut back on barriers to entry to teaching, but the basic economic story is -- to attract people with good math skills to education, we have to pay wages that attract people with good math skills."

Absolutely dead-on!

Also remember---a lot of people with some special skill like math/science/etc are also going to be people who don't particularly like teaching kids. So you'd have to pay them a large premium. There are also people who both like kids *and* have a "special skills," but a first-order assumption is that they're rarer than people with one quality but not the other.

Posted by: liberal on July 28, 2004 01:35 PM

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Lorenzo:

On factor mobility/immobility,

http://www.marginalrevolution.com/marginalrevolution/2004/01/does_the_case_f.html

Posted by: Jason Ligon on July 28, 2004 01:47 PM

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How are your tax dollars subsidizing free trade?

When Corning closes a profitable plant in NY and writes oiff the replacement plant overseas that is bullshit. Let them write it off on their overseas taxes.

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.)

Talk about going over YOUR head. The point is they don't pay for telephone or roads because they don't have them.

If you don't think that Americans owe More to Americans than other countries you are sadly mistaken. Your attitude and lack oif knowledge show you must be a CEO or a pie in the sky libertarian.

Posted by: me on July 28, 2004 01:52 PM

____

Actually, India has the following:

562 Television broadcast stations
312 Radio Stations
63 million radios
3 million cell phones
43 Internet providers
28 million regular phones

1.5 million km Highways
234 Airports
64,000 km of railroads


"When Corning closes a profitable plant in NY and writes oiff the replacement plant overseas that is bullshit. Let them write it off on their overseas taxes."

Is it bullshit if Corning closes a profitable plant in NY and builds a new one in a different state?

If it is such a profitable plant, why did they close it? Obviously it wasn't profitable enough.

Does Corning recieve money from our government to build that overseas plant? Being able to write off depreciation expense and getting "subsidies" are two totally different things.


Posted by: wtf on July 28, 2004 02:05 PM

____

Well, the development dynamic may already be forever changed for us. There are markets of 2.4 billion people in China and India, they appear to be markets that can grow rapidly for decades. We are going to increasingly need access to these markets, and the Chinese and Indians will be tough trade negotiators. The questions will be how we expand trade with India and China, and how we protect employment and wages and benefits of American workers. Both objects should be obtainable through negotiation and strong domestic economic policy.

Posted by: anne on July 28, 2004 02:10 PM

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wtf writes, "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."

Every single Libertarian candidate for President since the party was formed in 1972 has supported unilateral elimination of trade quotas, trade restrictions, price supports, etc.

Michael Badnarik, the Libertarian candidate in 2004, is no different:

http://www.badnarik.org/Issues/FreeTrade.php

If you really support free trade (heck, if you really support freedom at all) you should vote for Michael Badnarik.

"I would vote for them even if every social policy they advocated was against what I believed."

Michael Badnarik is against the federal government being involved in *any* "social policy" (e.g. support *or* opposition to abortion, support *or* opposition to marriage of any kind). Nowhere in the Constitution is a President or the Congress authorized any power regarding "social policy."

Mark Bahner (yes, of course I'll be voting for Michael Badnarik)

P.S. Regarding tariffs: The federal government needs SOME method to pay for its expenses...though the current U.S. federal government could be slashed in size by more than 70%. Many Libertarians regard tariffs as a less offensive method to pay the federal government's expenses than by taxing income.

Posted by: Mark Bahner on July 28, 2004 02:14 PM

____

Kosh asks, "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?"

As I asked before, Kosh, why do you think your Libertarian friend is "naive?" What do you think you know that you think he or she doesn't know?

Mark Bahner

P.S. I support opening borders and allowing anyone who wants to live here to do so. But if I read a good argument about why that's "naive," maybe I'll change my mind.

Posted by: Mark Bahner on July 28, 2004 02:16 PM

____

KHarris wrote, "There are lots of quibbles about job security and the emotional rewards of teaching and the like that we can add to the story, and we probably do need to cut back on barriers to entry to teaching, but the basic economic story is -- to attract people with good math skills to education, we have to pay wages that attract people with good math skills."

No, that's the spin you want to put on the story. But the real story was that there are already retired people who have good math skills, would be good math teachers, and are willing to work for the current wages. The NEA has simply worked with the state governments to make sure such people can't get into the classroom.

In other words, it's a story entirely about unnecessary barriers to entry in the teaching profession. It's not a story about wages needing to be raised.

Posted by: Mark Bahner on July 28, 2004 02:22 PM

____

As I mentioned earlier, the effect of opening US borders to anyone who wanted to move here would have the effect of reducing US wage levels to that of a Third World country overnight, not to mention the burden on social services.

I understand that Libertarians would pretty much do away with social services anyway, so this wouldn't be a problem for them, but most Americans aren't Libertarians and believe that the government should provide a safety net for its citizens.

Posted by: Kosh on July 28, 2004 02:31 PM

____

KHarris is most certainly right. There is a need to raise pay levels significantly for teachers to attract high quality applicants at all levels, and to ease certain entries to the fields. Much of the American growth spurt 100 years ago was a result of more broadspread education than in Europe. Time we learned this anew, and treated teachers to wages that are competitive with a host of other occupations.

Posted by: anne on July 28, 2004 02:35 PM

____

"As I mentioned earlier, the effect of opening US borders to anyone who wanted to move here would have the effect of reducing US wage levels to that of a Third World country overnight, not to mention the burden on social services."

How so? Could a Mexican immigrant without a college degree and without English skills become a doctor? A lawyer? A Wall Street trader? How about a teacher in a public school? Maybe write software for Microsoft? How about design telecom equipment? What about a television producer? Real estate developer?

Rather than a race to the bottom, I think most people would hardly notice and the ones that did notice would be the ones that realized that they could now afford to hire someone to do their yardwork or house cleaning for them.

Most jobs that could be done by the typical immigrant have already moved off shore anyways or they have been automated.

Posted by: wtf on July 28, 2004 02:37 PM

____

"We are going to increasingly need access to these markets, and the Chinese and Indians will be tough trade negotiators."

There's nothing to negotiate. The U.S. government should allow U.S. citizens to buy as many goods and services from Chinese and Indian firms as U.S. citizens desire. With low or no tariffs.

Just because the Chinese and Indian governments hurt their citizens by not allowing them to buy goods and services from the U.S. is no reason for the U.S. government to hurt its citizens.

Posted by: Mark Bahner on July 28, 2004 02:38 PM

____

Badnarik is a nutcase.

Badnarik believes that the federal income tax has no legal authority and that people are justified in refusing to file a tax return until such time as the IRS provides them with an explanation of its authority to collect the tax. He hadn't filed income tax returns for several years. He moved from California to Texas because of Texas' more liberal gun laws, but he refused to obtain a Texas driver's license because the state requires drivers to provide their fingerprints and Social Security numbers. He has been ticketed several times for driving without a license; sometimes he has gotten off for various technical legal reasons, but on three occasions he has been convicted and paid a fine. He also refused to use postal ZIP codes, seeing them as "federal territories."

More at:

http://www.washingtonmonthly.com/archives/individual/2004_07/004315.php

Posted by: Kosh on July 28, 2004 02:40 PM

____

"As I mentioned earlier, the effect of opening US borders to anyone who wanted to move here would have the effect of reducing US wage levels to that of a Third World country overnight,..."

Woohoo! Prices for goods and services will fall like meteors! "Potatoes are cheaper, tomatoes are cheaper, now's the time to fall in love..."

"...not to mention the burden on social services."

Your Libertarian friend isn't being "naive" about "the burden on social services." If he or she truly IS a Libertarian, he or she doesn't support the government providing social services anyway. So if "the burden on social services" becomes too severe, perhaps the government will stop providing them completely. Good idea.

"I understand that Libertarians would pretty much do away with social services anyway, so this wouldn't be a problem for them, but most Americans aren't Libertarians and believe that the government should provide a safety net for its citizens."

According to your account, your Libertarian friend merely told you what the government SHOULD do...not what it will do. He or she is not being "naive" by pointing out what the government SHOULD do. Calling that "naive" is like calling people who say, "the government shouldn't waste money" "naive."

Posted by: Mark Bahner on July 28, 2004 02:51 PM

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"Badnarik is a nutcase. Badnarik believes that the federal income tax has no legal authority and that people are justified in refusing to file a tax return until such time as the IRS provides them with an explanation of its authority to collect the tax."

I admit that I don't agree with that particular assessment of the U.S. Constitution.

But John Kerry and G.W. Bush think that Social Security, Medicare, Medicaid, and the departments of Education and Energy are all Constitutional. Would you classify them as simply ignorant (or stupid)...or are they also "nutcases"?

Posted by: Mark Bahner on July 28, 2004 03:00 PM

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But John Kerry and G.W. Bush think that Social Security, Medicare, Medicaid, and the departments of Education and Energy are all Constitutional. Would you classify them as simply ignorant (or stupid)...or are they also "nutcases"?

Duh....

Posted by: Ari on July 28, 2004 03:31 PM

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Ari writes, "Duh...."

I don't know what that means, in this case.

You don't know the answer? You don't understand the question?

???

Posted by: Mark Bahner on July 28, 2004 03:42 PM

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wtf I see you again conveniently left out the facts. India has barely 50 million TV sets, 75% of which are black and White for over a billion people.


Since you are such a free trader, what does india buy from us? Can you move to India and set up business? That is my point - a one way street is not free trade.

Posted by: me on July 28, 2004 03:44 PM

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Mark, stamping your rhetorical feet does not make what you say true. Not every problem is best analyzed by reaching into Mark’s bag of pet gripes - blame the unions, blame regulation.

There a market for teachers’ labor, like there is a market for other things that we buy and sell. You know that simplest of microeconomic charts – supply, demand, price, quantity? When I suggest we look at the market for teachers in terms of those simple fundamentals, “spin” is the nonsense response. Why are barriers to entry all that matters? Why is it “not a story about wages needing to be raised”? Because Mark says so. Why? Well, ‘cause that’s pretty much all Mark knows how to say.

Let me make it easy for you. It’s an agency problem. Those nasty elected officials (see, doesn’t that make it easier?), faced with voters who demand lots of services but don’t want to pay for them, decide they can simply cut quality in a few areas. The biggest cost over which state and local politicians can exercise much control is wages, so that’s a good place to start. Politicians hold down public sector wages, which naturally drives down the quality of public sector labor and then they pretend everything is dandy. Since parents have a hard time gathering sufficient information to judge educational quality, and have a hard time doing much about it in any case, this dodge works pretty well. The place where public budgets are most binding, due to balanced budget requirements, is at the state and local level, where teachers’ salaries are paid, so the story gets annoyingly consistent here.

Is the NEA a benign institution? Probably not, but let’s not forget, the NEA wants higher wages, too. So, assuming prices matter, and unless the NEA has a secret goal of keeping US kids dumb as stumps, giving the NEA its druthers on wages should improve the quality of teaching by default, since it would create more competition for teaching jobs. There is no rule saying an engineer with a knack for teaching high school students can’t pay NEA dues, so the NEA, for all its faults, doesn’t make a very good devil in this story.

I’m perfectly willing to grant that there are barriers to entry in education. Where is your evidence that such barriers are the whole story? Where is the evidence that prices don’t work in the market for math teachers? Where is the evidence that there are sufficient retired, math-savvy individuals who are in other ways adequate to teach in public schools, who are willing to work for the pay that the current system would provide?

One last little problem. By specifying retirees, you are looking to a class of people that usually either subsidizes itself or is being subsidized from some other source. That is a glaring oddity, don’t you think? We don’t need higher pay for teachers because we have a scam in mind that will allow us to hire people who don’t need a full income. We can hire people who are not full participants in the labor market, so market wages become irrelevant. Then, we can claim that wages don’t need to be raised. You don’t like the math instruction that is available in public schools, but you don’t want to pay market prices to get better. Yeah, retirees should have a shot at teaching, but it is just plain dishonest to make up a story in which wages for teachers are set in a special little subsidized labor market, then claim there is no problem with wages.

Posted by: kharris on July 28, 2004 03:46 PM

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kharris writes, "Mark, stamping your rhetorical feet does not make what you say true. Not every problem is best analyzed by reaching into Mark’s bag of pet gripes - blame the unions, blame regulation."

I wasn't "stamping my rhetorical feet." It's abundantly clear from Michael Cain's post that the problem he was describing is NOT about raising teacher's salaries. The problem is clearly the NEA persuading the legislature (in his state) not to allow qualified teachers to teach. Here is the paragraph, again:

"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."

kharris continues, "I’m perfectly willing to grant that there are barriers to entry in education. Where is your evidence that such barriers are the whole story?"

In the case Michael Cain was posting about, it's clear from his post that the "whole story" is the NEA erecting unnecessary barriers to qualified teachers entering the profession. Mr. Cain first posts about how specialist in math and science are equally or better qualified to teach math and science than those who have degrees in education (but not degrees or experience in math or science).

He then describes how there are retirees from math and science backgrounds who are willing to teach at CURRENT wages...but the NEA has persuaded the legislature in his state not to allow those individuals to teach.

So in this particular case, it's clear that the problem is NOT low wages for teachers (since the retirees are apparently willing to work at prevailing wages). It's the barrier to entry created by the legislature (at the urging of the NEA).

"Where is the evidence that there are sufficient retired, math-savvy individuals who are in other ways adequate to teach in public schools, who are willing to work for the pay that the current system would provide?"

Michael Cain's post says that those people exist. One way to find out how many there are would be to get the state legislatures to drop the requirement that the teachers have a degree in education, and instead allow teachers who don't have degrees in education, but who are otherwise qualified.

If you also support legislatures dropping the requirement that teachers have a teaching degree if the potential teachers have some other way of being qualified (e.g. education and experience in math and science for math and science teachers)...then I don't think we have any disagreement.

I never claimed low wages for teachers weren't *ever* a problem. I only noted that it wasn't the problem described in Michael Cain's post. His post was describing a problem caused by unneeded barriers to entry.

Posted by: Mark Bahner on July 28, 2004 04:20 PM

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"If it is such a profitable plant, why did they close it? Obviously it wasn't profitable enough."

Or perhaps the new plant is nearer to the big boss's house.

Funny how that works...

Posted by: Randolph Fritz on July 28, 2004 04:27 PM

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wtf, thanks for constructing a outstanding strawman version of me. Maybe I can stick it in my cubicle and goof off tomorrow, which is supposed to be sunny. Find one post where I've said one thing you've claimed. One goddamn post.

You don't have the slightest idea what I'm saying, because you can't shut up long enough to listen. I see you have yet to tell us how to raise the money for these better schools, for instance.

As for the other guy, if an Indian makes 20K it's 20K - don't give me that "local cost of living" crap. You are the same people who say he needed "more" money- why have you put an upper bound on it? 20K is 500 barrels of crude at the present rate. Do it in gold if you wish. Why should a guy with a PhD get 500 barrels of crude for putting in a year's worth of hard work? He could recieve similar recompense by moving here and working at Costco. His services should have a world market value, not be tied to how or where he wishes to live.

Do you save a lot of money? Do you "live below your means?" All you conservatroids always claim you do - which makes me wonder why you are so desparate for these cheap consumer products, let alone tax cuts. But ok, then, guess I can just pay you less.

Heck, we've done it to women for the entire record of human history.

What, you say? You're saving for retirement? Well, isn't Achmed going to retire someday, too?

Meanwhile, some poor sucker is born in the US and he can't become a PhD 'cause he just doesn't have the talent. So he makes 20K a year and lives like crap. He should be able to move to India and live the middle class life of a professional engineer, no?

What is wrong with this picture? What's wrong is that you say you all about improving their standard of living, then you pay them shit and say "hey, they have a low standard of living so we can toss them a few crumbs." Incoherent, I say again.

Oh, and check out this shit: http://www.stlouisfed.org/publications/re/2004/c/pages/fear_of_hell.html

Here's what orthodox economics has really come to - a morality play. Great, just great.

Posted by: a different chris on July 28, 2004 04:43 PM

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"wtf I see you again conveniently left out the facts. India has barely 50 million TV sets, 75% of which are black and White for over a billion people.

Since you are such a free trader, what does india buy from us? Can you move to India and set up business? That is my point - a one way street is not free trade."

You mentioned telephones and roads in your previous post. And I agree with you that most Indians (most of the world for that matter) has a standard of living a fraction of what we have here. Look at the numbers of cars and cell phones and you will see similar levels relative to population. A lot of this ahs to do with the fact that India has had independce for a fraction of the time that we have and they have only recently begun to open their economy. As a result, their standard of living is lower. Hopefully it will continue to improve. If you look at the big picture you will see that it will be good for us and them. They will want TV's and cell phones, and cars, and computers. Did you ever stop to consider that maybe Qualcomm's CDMA technology will be in the cell phones that they eventually will buy? Or that as they grow more wealthy they will want to travel like us and fly on Boeing airplanes? Or that they might buy Cadilacs? or maybe their computers will run the Hindi (sp?) version of Windows? Oh and for 2003 here is a list of products purchased by India from the U.S. (again from the census department's website)

In no particular order:
Coffee
Sugar
Fruits and preparations
Vegetables and preparations
Nuts
Tea
Grains
Fuel Oil
Paper and paper Products
Tobacco
Cotton cloth
Synthetic cloth
Finished textile
leather
Plastic materials
Fertilizers and perticides
Industrial organic chemicals
Stone, sand, cement, and lime
Glass (excluding automotive)
Steel
Advanced manufactured metal
Generators, transformers, and Accessories
Drilling equipment
Electic Apparatus and parts
Nonfarm tractors
Machine tools
Engines, pumps, and compressors
Textile sewing and leather working machinery
Pulp and paper machinery
Photo equipment
Agricultural machinery and equipment
Computers
Computer accessories
Semi conductors
Telecom equipment
Medical and hospital equipment
Aircraft including engines and parts
Railway equipment
General engines and parts
Automotive tires
Apparel
Household goods
Footwear
Sporting and camping gear
Pharmaceuticals (including dental)
Books and magazines
Toiletries and cosmetics
Writing and art supplies
Furniture
Glassware, chinaware, cookware and cutlery
Household appliances
Rugs and floor coverings
Motorcycles
Toys and bicycles
Musical Insturments
Televisions
Jewelry and watches
Artwork and antiques
Military equipment

Posted by: wtf on July 28, 2004 05:13 PM

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A different Chris:

There is a difference in the cost of living and differences in pay result. It happens here too. That is why someone in NYC is paid more than someone in rural Alabama. It is also why a car factory was built in rural Alabama but not in NYC. People livingin places with high costs should be doing more value added jobs. That is how you get paid more.

As another example, a friend is working in East Timor. He is U.S. college educated and makes less than $1,000/ month. But he has a home bigger than mine and a cook and maid. So yes there is a difference in living costs and it is huge.

"Why should a guy with a PhD get 500 barrels of crude for putting in a year's worth of hard work? He could recieve similar recompense by moving here and working at Costco. His services should have a world market value, not be tied to how or where he wishes to live."

He should be paid what the market will bear just like everyone else. if I go out and get a PhD does that entitle me to a six figure salary? He could come here but then he would probably find work requiring a higher level of education than Costco and as a result his income would rise.

"Meanwhile, some poor sucker is born in the US and he can't become a PhD 'cause he just doesn't have the talent. So he makes 20K a year and lives like crap. He should be able to move to India and live the middle class life of a professional engineer, no?"

If he moved to India and PhD's there were paid $20k, he would probably make less than that. As other people have said, education is the key to higher incomes. It always has been and always will be.

"Do you save a lot of money? Do you "live below your means?" All you conservatroids always claim you do - which makes me wonder why you are so desparate for these cheap consumer products, let alone tax cuts. But ok, then, guess I can just pay you less."

That really has nothing to do with the arguement, but I will address it anyways.... People that make $20k a year here should be the most outspoken proponents of free trade because it will increase their standard of living the most because it will lower prices and allow them to stretch their income. People who have disposable income can still buy more stuff even if prices rise due to flawed protectionist policies. That is why the average Wal Mart shopper is probably not a millionaire. Millionaires are less price sensitive.

"But ok, then, guess I can just pay you less."

I am paid what the market will bear just like everyone else. I am free to quit at anytime. I can go work elsewhere at anytime.

Free trade DOES improve the lives of people in developing countries. Their incomes (and probably the cost of living) will rise as more trade occurs.

Posted by: wtf on July 28, 2004 05:30 PM

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http://www.nytimes.com/2004/07/24/international/asia/24indi.html?pagewanted=all&position=

Indians Go Home, but Don't Leave U.S. Behind
By AMY WALDMAN

BANGALORE, India - Snigdha Dhar sat in the echoing emptiness of her new home, her husband off at work, her 7-year-old son prattling on about Pizza Hut. The weather outside was California balmy. Children rode bicycles on wide smooth streets. Construction workers toiled on more villas like hers - white paint, red roofs, green lawns - and the community center's three pools.

Six years ago, Mrs. Dhar and her husband, Subhash, a vice president at Infosys Technologies, the Indian software giant, migrated like thousands of Indians before them, to America's Silicon Valley and its suburban good life.

But Silicon Valley is not where their gated housing colony, Palm Meadows, sits. Like growing numbers of professional Indians who once saw their only hope for good jobs and good lives in the West, the Dhars have returned home to India.

Drawn by a booming economy, in which outsourcing is playing a crucial role, and the money to buy the lifestyle they had in America, Indians are returning in large numbers, many to this high-technology hub.

What began as a trickle in the late 1990's is now substantial enough to be talked about as a "reverse brain drain.'' By one estimate, there are 35,000 "returned nonresident Indians'' in Bangalore, with many more scattered across India.

For this still developing country, the implications of the reverse migration are potentially vast.

For decades, it has watched many of its best-educated move abroad, never to come back. Now a small portion of that talent is returning, their influence amplified beyond their numbers by their high-level skills and education, new cultural perspective and, in many cases, ample wealth. They are both staffing and starting companies, 110 of which set up shop in Bangalore in just the year that ended in March.

In some cases, they are seeking to refashion India implicitly in America's image. It takes leaving and returning, said Arjun Kalyanpur, a radiologist who returned in 1999, to ask, "Why should my country be any less than the country I was in?''

This impulse is not universally welcomed by some Indians who never left and who see a globalized elite - many of whom now carry American passports, not Indian - importing a Western culture as distorting in its way as British colonialism.

Still, returned reformers are already sparking change. Srikanth Nadhamuni, who helped design the Intel Pentium chip, is now applying his formidable skills to designing a software platform that could revolutionize the administration of India's local governments.

Lathika Pai, one of the few women in India's high-technology sector, is trying to bring America's best practices for working mothers to the B2K Corporation, her business-process outsourcing company. Others are trying to encourage schools to teach critical thinking, or force government to be more responsive to citizens.

S. Nagarajan, an entrepreneur, calls it "brain gain." "They have not come back just as they went there," he said.

He came back because he saw in India the business opportunity he once saw in America, where he struck it rich in the 1990's. The call center he and his partners started in Bangalore in 2000 with 20 employees now has 3,600, and $30 million in annual revenues.

Others have been drawn back by the tug of family and the almost atavistic pull of roots, or pushed by diminishing job opportunities in Silicon Valley and tightening Americans visa regulations.

Many of them are returning to communities like Palm Meadows, whose developer, the Adarsh Group, advertises "beautiful homes for beautiful people.'' The liberalization of India's state-run economy over the last 13 years has spawned a suburban culture of luxury housing developments, malls and sport utility vehicles that is also enabling India to compete for its Americanized best and brightest.

"It is amazing what you can get in terms of quality of life,'' Subhash Dhar said of the India to which he and his family returned about two months ago.

Posted by: anne on July 28, 2004 05:34 PM

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Mark,

I can’t speak for what Michael C meant by his post. I can only know what I took from his post. I did, however, say in my response to him that “I’m not sure the “particular problem” you are trying to solve is the problem Brad raised,” because it was not entirely clear to me whether he had steered away from Brad’s point, or was attempting to answer it. Brad’s point was that we are underpaying teachers. My response to Michael C had to do with the original post. That, and my reference to basic economics in the problem Brad posed, was “spin” in your response to me. You quote me, saying “to attract people with good math skills to education, we have to pay wages that attract people with good math skills,” then answered “No, that’s the spin you want to put on the story.” Now, if Michael’s were the only “story” under discussion, that would be fine. It wasn’t. Plead poor writing if you want – unclear antecedents to your pronouns – but in the end, you sure seem to have come down on the side of “it ain’t wages, it’s the unions.”

Posted by: kharris on July 28, 2004 05:40 PM

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kharris and liberal: Let's run an experiment. Let's hire high-school math and science teachers on the basis of (1) REQUIRED practical experience or college degree in the subject to be taught or one closely related (eg, mechanical engineering is suitable for physics), (2) preference given to previous teaching experience but it's not required, and (3) preference given for an education degree, but it's not required. No union membership required. Current salaries, three-month summer vacation, and job security. I'll take either end of a bet on whether you get enough people to fill the jobs, and either end of a similar bet on whether such teachers produce "better" results than we get today. I know how I think it would come out, but I could be wrong. Please note that I am not opposed to higher salaries for teachers of specialized subjects, but believe that "opening the shop" should be tried first.

Of course, one of the points Prof. DeLong was making in his original statement -- and he should correct me if I'm inferring something he didn't mean -- is that the Democrats can't propose such an experiment because the NEA would be violently opposed to it.

Posted by: Michael Cain on July 28, 2004 06:18 PM

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What I want to know is, why do true libertarians choose to live in the USA, at all? Surely they'd be much more comfortable in Somalia, or Sudan, countries with almost no effective government. I think most of you here just make waaay too much money to appreciate the other side of life here in the sunny old USA.
There was no social net of any kind before FDR, and we almost had a revolution. Read some history.
Bullets are cheaper than rent...

Posted by: Jeff Lawson on July 28, 2004 07:53 PM

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I do agree with Ian that raising the living standard over the globe would be beneficial to us...in some respects, and if global energy use required for that could be supported. But if the living standard in other countries is -more- important to you, morally, or whatever, then you should move somewhere else.
Or work for a true global government, or whatever.
Almost anyone, from almost any country, can apply to move here, and become a citizen. Of course, not all can be accepted. But check on how easy it is to do the reverse. I have.

Posted by: Jeff Lawson on July 28, 2004 08:11 PM

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""Health care. The Democratic Party will have a hard time doing health care right. This is because health care is inherently difficult."

Not it isn't. You can cut it by 1/3 just by going single payor. What's difficult are the politics, since that additional 50% you pay for your health care is making a lot of people rich.

Posted by: Ian Welsh on July 28, 2004 08:22 PM

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Looks like Edwards just threw down the gauntlet on outsourcing. Enjoy

Posted by: Eli Rabett on July 28, 2004 08:26 PM

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Most of those benefits of "free trade" are going to higher CEO salaries, and such, and as such are not much of a boon to the average worker.

Posted by: Jeff Lawson on July 28, 2004 08:38 PM

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http://oldman1787.blogspot.com/2004/07/trade-free-markets-and-tinstaafl.html

Posted by: Jeff Lawson on July 28, 2004 08:41 PM

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kharris:

“There have, in fact, been teacher shortages in lots of school districts, but that says nothing about quality.”

Which school districts have a “shortage?” If any district has a shortage it means they have unfilled positions that no one applies for. I am very skeptical this happens.

As to “quality” I have the following comments. Suppose we raise teachers’ salaries. This should increase the number of applicants for teaching jobs. Now how will the public schools bureaucracy decide which of the applicants are the best qualified, and what criteria will they use? Our current public school system really does not recognize any notion of merit beyond experience (years as a working teacher) and highest degree (Bachelors and Masters). Teachers don’t get merit raises; all teachers with the same experience and degree get the same salary (for a given district). The only way a teacher can increase his salary is to change districts, get a higher degree, or simply accrue more experience. A teacher cannot increase his salary by changing his subject from (say) English to Mathematics. The rules and procedures that mandate these limitations are built into the contracts that the unions negotiate with the school districts. Given such a system how can they upgrade “quality” from an expanded applicant pool? Then we have the matter of cost. A significant salary increase across the board would be extremely costly and do nothing to upgrade the quality of the existing staff. If it doesn’t apply across the board then you will have new teachers being hired at salaries greater than current working teachers and the unions will not allow that, as the membership would protest very loudly. Perhaps my information is out of date, if so please update.

In summary I don’t believe we can upgrade teacher quality (assuming we can agree on what “quality” means) within the existing system by simply raising salaries. It would take a major reform contrary to the interests of working teachers, and they won’t let that happen.

Posted by: A. Zarkov on July 28, 2004 08:48 PM

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Here is the ultimate question about increased trade.

What if the US found itself trading freely with a nation with a larger population, equal or better education and worker productivity, superior innovation, powerful industries, and worst of all, its horrible government cheats by providing less social programs for its workers?

That's the ultimate horror story of a developing rich India/China, right? Nations with larger populations and less social programs, that could eventually reach full first-world levels of productivity and competitiveness?

The US economy would be destroyed, its jobs bled away, its workers impoverished, wouldn't it? The developed Indians/Chinese would take away lots of US jobs, and the US wouldn't be able to sell them anything in return, would it?

Reality check: in all of the above, replace India/China with "United States of America" and the US with "any other country in the western world". Every other country in the western world faces, in the US, the "larger population, equally productive, less social programs, people work longer hours" horror story. Every other country in the western world trades much, much more as a portion of its economy than the US does.

And yet they're all doing just fine thank you very much. Including and especially Canada which has had a free trade deal with the US, and has trade with the US accounting for something over 25% of its economy (more than the US trades with the entire world).

Is the Canadian middle class shrinking? No.

Is Canadian CEO pay skyrocketing? IIRC it's increasing, but not at nearly the US rate.

Is the Canadian government becoming a fiscal basket case? Can you say "budget surplus"?

Is the Canadian economy losing ground? No, Canadian economic growth continues to keep long term pace with the US despite one country or the other pulling ahead from year to year.

Are Canadians failing to sell goods to the US economic colossus to make up for the vast array of goods they buy from the states? Hell no, Canada exports significantly more to the US than it imports. (This is balanced out by Canada being a big net importer from the EU).

If every other country in the western world can put up with this "free trade nightmare scenario", why don't you think the US could?

Posted by: Ian Montgomerie on July 28, 2004 09:26 PM

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I don't think that trade will produce a sweet, peaceful world the way economists think. From the signs that I see, China has MAJOR military ambitions. I can forsee China, Pakistan, India, and the ME in a big blow out in a few years over oil, baby, oil. I do think that China will hit a wall because they are not a free society.Our founders were intensely practical, cynical men and they were all in favor of tariffs. Oh yeah, I forgot, the world is global now, but I say that the more things change, the more they stay the same. The world has never been a peaceful place, and I don't think that the internet will change basic human nature.

If you have to rob Peter to pay Paul, things are not good in happy land. If you know textile plants are closing, why not require these companies to take their profits and different jobs BEFORE plants are closed? Surely workers ought to count just a much as investors.

The markets of China and India are way overestimated in my view. Not being stupid like us, they will buy products made in their own countries (or American products made in their countries before they will buy exports from us.) Just watch.

There is hope here, though. No organization or group who collects too much power keeps it forever. Not the monarchy, the church, the Inquisition, or the aristocracy. The multinational corporation is now in the position of the aristocracy of a few years ago, but remember that power corrupts and those with too much power always go too far eventually. The world moves faster now than before, I predict that in 50 years the corporation will not be as powerful. If they want to leave America, let them go. Just Don;t let them reimport things to our market. Contrary to statements of those who want an excuse to diss Americans, this country is full of smart, ambitious people and we will do fine on our own.

I wonder how many donations from corporations the economic department at Berkeley receives? Could this explain our position on outsourcing?

Posted by: Lynne on July 28, 2004 10:27 PM

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Universal health care? Better safety nets, for less displacement?

Posted by: Jeff Lawson on July 28, 2004 10:44 PM

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No organization or group who collects too much power keeps it forever
In 50 years I'll be long dead, I imagine. Since I don't (can't) have kids, that's small comfort.

Posted by: Jeff Lawson on July 28, 2004 10:50 PM

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Ian Montgomerie wrote:

"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."

We are dealing here with the question of what the United States Government should do. The United States Government claims the right in extremis to have me or my children lay down our lives to perpetuate it. Why on Earth should I do such a thing if this same government gives no higher priority to my interests than those of any other person in the world? For that matter, why should I risk my live to protect my neighbor, if that neighbor, who may be an employer, has no more obligation to me than to some random person in the world who could never be called upon to do this? Yet, how can any nation sustain itself that cannot call on its citizenry to defend it? A nation can only function if its citizenry feel an obligation to one another that exceeds whatever they may feel to the human race generally.

I'm not talking about flag-waving here. Jingoism in America is compensation for the sense of community that does not really exist. The lack of genuine commonality of interests has a lot to do with why the nation is so dangerously polarized.

What is the theory of morality underlying your claim? Universality of this sort is a commonplace notion in our culture, at least rhetorically, but that just makes it familiar, not valid.

My own theory of morailty is based on evolutionary psychology and game theory. It holds that morality is an evolutionary adaptation that enables human beings to live together in groups with a high level of trust. To cut to the chase, social groups have an implicit contract of reciprocity and of self-sacrifice for shared goals. It is always imperfectly enforced, of course, but the extraordinary thing is that it exists at all. It does not exist except potentially between any random two people on Earth - it exists between people who have some sort of perceived commonality that makes them bind their fates together - a nation, a religion, a political ideology.

The idea of a universal morality applied equally to all is a Christian innovation that has left a strong mark in our culture even with non-Christians. The notion that all people have souls, are beloved of Jesus, and deserve to have their souls saved, served the propagation of the Christian meme very well. It made evangelism possible and gave it a sales pitch. However, these principles were always applied very selectively (see Darwin's Cathedral by David Sloan Wilson for a superb analysis of religious belief systems, including Christianity, as evolutionary strategies). A society of pure Good Samaritans would be a society of pure victims. One artifact of this, however, is that a notion of universality in morality lies infused in the culture of the West, living in uneasy juxtaposition to the tribalism that also exists in the West (and everywhere else).

In brief, morality and social obligation exist primarily within social groups that have established bonds, not between them. The bonds are the precondition of the morality. I do believe that some level of moral behavior is possible between groups - for purposes of recruitment, or to solve common problems efficiently - but the allegiance within the group must always be stronger or the group has no purpose.

Now, this is the kind of thinking that is easily distorted, so let me sweep out some straw before it is cobbled into men. I bear the Indians and others no ill will. I do not see war as a viable expression of human interest, given modern weaponry, though I think it once was and survives as an artifact that has outlived its evolutionary utility. In general, I would prefer cooperation to conflict, provided it can be achieved without tyranny, which is not always the case.

But if America is governed by people who think they need give no more priority to the interests of Americans than they do to Chinese or Romanians, then the country is doomed. No one will defend it, and it will fall.

Posted by: Martin Bento on July 29, 2004 12:58 AM

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[[
If every other country in the western world can put up with this "free trade nightmare scenario", why don't you think the US could?
]]

I guess thats the question we're trying to answer.

What is it worth to prevent the US from becoming to China as Canada is to the US?

Canada is a perfectly respectable country (and run by people who look like us) but do we as US Americans really want to be in their place (except that the new Americans won't look like us)

If we don't want to become Canada - how can we stop that, or at least hold it off as long as possible?

Posted by: anon on July 29, 2004 03:59 AM

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"What is it worth to prevent the US from becoming to China as Canada is to the US?"

You mean what is it worth to prevent the US from becoming to China as Canada already is to China? Hasn't Canada been colonized by the Hong-Kongese? It looks like Li-Kashing and Hutchison-Whampoa are running the place now. (Google it yourself, mister.)

Posted by: someone you know on July 29, 2004 05:26 AM

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Mark Bahner wrote, " 'As I mentioned earlier, the effect of opening US borders to anyone who wanted to move here would have the effect of reducing US wage levels to that of a Third World country overnight,...'

"Woohoo! Prices for goods and services will fall like meteors!"

Except that land rents would go up due to increased demand. Then government would be shovelling even more land rent into the pockets of landowners.

I'm sure that's fine with so-called libertarians like yourself who are really feudalists. (For an account of an intellectually coherent version of libertarianism, see http://members.aol.com/_ht_a/tma68/geo-faq.htm .)

Posted by: liberal on July 29, 2004 06:22 AM

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Ian said
The US economy would be destroyed, its jobs bled away, its workers impoverished, wouldn't it?

According to this in todya's paper it looks like you are correct for once.

The New York Times, reporting data from the Internal Revenue Service, said gross income reported to the agency fell 5.1 percent to $6.0 trillion in 2002, the most recent year for which data is available, down from $6.35 trillion in 2000. Because of population growth, average income fell even more, by 5.7 percent, and adjusted for inflation the decline was 9.2 percent.


Meanwhile the average income of those filing returns with incomes between $25,000 and $500,000 saw the average income little changed, somewhere between a 0.1 percent decline and a 0.2 percent gain, depending upon the income category, the Times said.

Wow, our standard of lving is just booming.

Posted by: me on July 29, 2004 06:29 AM

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Jason Ligon,

I read the link. If that is the best treatment an economist can give of the effects of capital mobility on free trade, then it seems that blind faith is the best explanation for why economists believe that the winners and losers from trade remain more or less unchanged under free capital mobility.

Posted by: Lorenzo on July 29, 2004 07:18 AM

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Those of you mentioning Canada as an example...Canada has been, to some extent, cheating. There's no denying that we have been to a large extent hewers of wood and drawers of water. Take Alberta, for instance...

Posted by: Mandos on July 29, 2004 07:21 AM

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wtf: Re: Mexicans w/o degree & English skills, $1K Timorians

The first part may shed some light on what you think about people living in other countries, which strikes me as ignorant, self-content, and arrogant. There are many smart and educated people, many of whom speak some degree of English, in developing countries around the world. But I grant you they their majority would probably not be the first out the door. Nevertheless, a good portion of them are not doing too great, so they will probably come as long as they can see a benefit in the US, which is not necessarily so forever.

The second part, yes, people higher up the food chain can have maids, drivers, and cooks in Asia, as well as in the US. In the US it takes just way more money because of relatively higher living standards at the bottom, and the remnants of a safety net. But then maybe one motivation of the massive-immigration proponents is to have servants themselves? (Which for business would translate into cheap labor.)

Posted by: cm on July 29, 2004 08:27 AM

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Lorenzo:

You read the links in Cowen's piece, too? The point is that there is nothing different, that factor immobility is NOT an assumption of Ricardo.

http://www.tnr.com/etc.mhtml?pid=1155

Posted by: Jason Ligon on July 29, 2004 08:49 AM

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We should also acknowledge that economics has geopolitical implications, and that making economic choices, we are also making longterm geopolitical choices. While wealth is not a zero-sum game, political power almost entirely is, and the former largely translates into the latter. What matters from the viewpoint of power is *relative* economic position, which is indeed a zero-sum game. I actually am much more favorable to India than China because of the politics (I have no personal background in either country). India is a Democracy, however imperfect. To some degree, I'm willing to sacrifice my self-interest to see India prosper as a counterbalance to China. A world with China in the current position of the United States does not look good for Democracy and Human Rights.

Posted by: Martin Bento on July 29, 2004 09:34 AM

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Michael Cain states:
"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 searched a database that I have access to and could not find any peer reviewed articles that made this claim. What I did find is several articles that find teachers who are not trained in teacher education programs have a lower sense of efficacy and a higher washout rate.

If you have an article for me, I'd appreciate a link, or a title.

I live in Ohio where there is an alternate certification program for folks such as those you mention. My sense is that the few candidates available for math positions don't meet that description.

Also, I think there is a fundamental misunderstanding of the NEA's role demonstrated by other posters. All contracts are negotiated locally; the NEA has zero involvement in negotiations. The NEA's role is confined solely to national PR and lobbying the Federal government. Lobbying at the state level is the state association's province.

Mark

Posted by: Mark Hill on July 29, 2004 10:49 AM

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Brad,

Outsourcing is our domestic corporations taking advantage of improvements in communication technology, and the removal of barriers to capital movement, in order to escape the costs of doing business in a civilized society. It's just another way to get around unions, environmental laws, minimum wage laws, social security, workplace protections, child labor laws, pensions, and all the other benefits that were so hard won by the working class over the last century. If, as a liberal, you care about these things, then you should work to put the manacles back on corporations.

Don't be a cheap labor conservative.

And education as a panacaea? Please. Education won't make us more competitive with comparably educated workers in India or China who are quite capable of doing the same job for a small fraction of the wage required by an American. In such a case, education only leads to debt. What you are really advocating is re-education into a non-competing industry. That means either joining the Mandarin classes (lawyer, doctor, professor), or getting a service job that can't be outsourced. Joy.

Posted by: Aurelian on July 29, 2004 01:08 PM

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At least some of us believe that economics is still a subpart of politics, political economy.

And as such some of us believe that we created the middle class in America, and are once-again losing it. Suggesting the need to protect what’s left, and in some way recreate it, while not falling into jingoistic behavior. See Michael Lind’s “Are we still a Middle-Class Nation?” http://www.theatlantic.com/doc/200401/lind

In an earlier post Anne posed our political problem well: “questions will be how we expand trade with India and China, and how we protect employment and wages of American workers.”

As we ponder that we might want to think about the three questions Robert Pollin raised in his 2000 article, “Globalization, Inequality, and Financial Instability: Confronting the Marx, Keynes and Polanyi problems in Advanced Capitalist Economies.”
http://www.umass.edu/peri/pdfs/WP8.pdf

Pollin abstracts the three problems as follows:
“the expansion of the "reserve army of labor" (the "Marx problem"); increased financial instability and corresponding fluctuations in aggregate demand (the "Keynes problem"); and a diminishing capacity for governments to promote stability and norms of social solidarity (the "Polanyi problem").”

And we must remember, finally, that if we crash the American economy in the process of whatever we attempt, we risk the type global meltdown we say in the 1930s. Or maybe it really is as easy as "get out of the way and let the markets work their magic." But I doubt it.

Posted by: Dabbler Dave on July 29, 2004 01:19 PM

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"What is it worth to prevent the US from becoming to China as Canada is to the US?"

And here we get to the pure bigoted fear-the-darkies reality of it (stripped of the "evolutionary psychology, nations must stick together" rationalization another poster used for his fear-the-darkies ideology).

What Canada is to the US, is a country with an equivalent standard of living that is smaller and thus has less sheer power. My whole point is that in terms of economics, in terms of _worker wellbeing_, Canada is a great place to live. Economically and in terms of worker wellbeing, Canada is BETTER off for having close access to the huge and advanced US market, than it would be if the US did not exist or if the US was a Mexico-style poor country.

The only disadvantage to being Canada is relative power on the international scene - Canada is not a big dog because there is a much bigger dog in the neighborhood.

The absolute only way for the US to be big dog forever is if billions and billions of people in the third world remain impoverished forever. The US has only five percent of the world's population. It can remain sole superpower only by keeping everyone else down. And US economic power isn't enough to do that, if you want that future you have no choice but to nuke the world right now.

Posted by: Ian Montgomerie on July 29, 2004 01:44 PM

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[[
The absolute only way for the US to be big dog forever is if billions and billions of people in the third world remain impoverished forever. The US has only five percent of the world's population. It can remain sole superpower only by keeping everyone else down. And US economic power isn't enough to do that, if you want that future you have no choice but to nuke the world right now.
]]

Forget about forever. How about one extra generation as the sole superpower.

I'm sure some degree of smart protectionism can help accomplish that.

Let's say there are opportunity costs as it takes longer for us to benefit from the increased wealth of the Asians.

Depending on how much we value being a superpower compared to how much we value the lost benefits, it may well be worth it.

Historically increasing wealth and prosperity is not even making us happier. I would trade a substantial amount of unrealized wealth to prevent people I don't really like from taking our number 1 international spot.

What about you? Let's vote on it in this democracy.

Posted by: anon on July 29, 2004 03:03 PM

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Brad DeLong, are you running a monthly thread just to pull in the Anti-Outsourcers to gas up, or what! You need always to run a proviso: " * ALSO IN FAVOR OF DISPLACEMENT MITIGATION SERVICES!"

Posted by: Lee A. on July 29, 2004 03:57 PM

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Lee I am not sure what words go over your head. I would bet that most people here would be for free trade if there were such a thing. Having 500 Indians write technical manuals for Boeing, replacing all the writers at Boeing is not free trade. It is labor arbitrage. The Indians do nothing better, and I would argue with my experience with Dell, Delta and Intuit, that the Indians do far worse. If they did something to value add the product and returned it that is one thing but they are just doing it for less and not buying anything in return in the way of trade unless you believe wtf and think they buy coffee from us.

Yes mitigation services would be nice but to pull the rug on older workers is bullshit not free trade.

Perhaps you agree witht he Bush campaign adie that said today unhappy workers should get another job or take Prozac.

And add Lee to the list of over 150 that have still not ideltified all those glorious opportunities created by free trade. Why just today we leqarn Microsoft is sending hig level jobs offshore.

Posted by: me on July 29, 2004 05:14 PM

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Lee I am not sure what words go over your head. I would bet that most people here would be for free trade if there were such a thing. Having 500 Indians write technical manuals for Boeing, replacing all the writers at Boeing is not free trade. It is labor arbitrage. The Indians do nothing better, and I would argue with my experience with Dell, Delta and Intuit, that the Indians do far worse. If they did something to value add the product and returned it that is one thing but they are just doing it for less and not buying anything in return in the way of trade unless you believe wtf and think they buy coffee from us.

Yes mitigation services would be nice but to pull the rug on older workers is bullshit not free trade.

Perhaps you agree witht he Bush campaign adie that said today unhappy workers should get another job or take Prozac.

And add Lee to the list of over 150 that have still not ideltified all those glorious opportunities created by free trade. Why just today we learn Microsoft is sending hig level jobs offshore.

Posted by: me on July 29, 2004 05:14 PM

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Lee I am not sure what words go over your head. I would bet that most people here would be for free trade if there were such a thing. Having 500 Indians write technical manuals for Boeing, replacing all the writers at Boeing is not free trade. It is labor arbitrage. The Indians do nothing better, and I would argue with my experience with Dell, Delta and Intuit, that the Indians do far worse. If they did something to value add the product and returned it that is one thing but they are just doing it for less and not buying anything in return in the way of trade unless you believe wtf and think they buy coffee from us.

Yes mitigation services would be nice but to pull the rug on older workers is bullshit not free trade.

Perhaps you agree witht he Bush campaign adie that said today unhappy workers should get another job or take Prozac.

And add Lee to the list of over 150 that have still not ideltified all those glorious opportunities created by free trade. Why just today we learn Microsoft is sending high level jobs offshore.

Posted by: me on July 29, 2004 05:14 PM

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A couple of off-topic suggestions:

1. When quoting numbers (and, actually, whenever quoting anything) please post the link to the source. Or identify it in some other way.

2. Clearly separate excerpts from other posts from your commentary.

3. Clicking on "Post" results on a very lengthy process of actually posting your notes to the board. Some people (myself, at some point, included) think it didn't work and post again, which results in duplicated messages. Instead of reposting, it's better to refresh the screen to see if the message is there (in most cases, it will be.)
---------------------------------------
On topic: I still don't see anyone even attempting to specifically answer the question posed by "me": retrain for what?

Posted by: check on July 29, 2004 07:42 PM

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“...still not identified all those glorious opportunities...”

Well I would think the way to go about this would be get involved, mobilize, publicize, Buy American, vote Democrat, ensure local investment, reverse the tax breaks to the wealthy, stop tax breaks to outsourcing corporations, stop the joke that medicine can be wholly administered by the market, enhance education, identify new productivity areas, and get worker and environmental protections into the trade agreements, to level the field at once. Then more opportunities will present themselves. But that’s just me. When things get tough, as now, let's alleviate it. Whatever it takes, let’s get involved and do it.

But don’t forget that as an arithmetic necessity, restricting trade over the long term will lower our material standard of living, from what it might have become. "Free trade" is in essence a mathematical syllogism, governing matter-energy flow between ANY two organelles, organs, organisms, organizations, at any level of biology or society. IF they specialize AND trade, they WILL have MORE together.

“Free trade” appears to have nothing to say, one way or the other, about the effects of ownership concentration and the distribution of income and wealth, which may perhaps be part of our current problem.

(The theory also might expect that jobs would be “outsourced” back to us, as is very slowly happening. It also cannot disallow that we might like our present standard of living so much that we slow down to smell the roses.)

Sometimes I think economists are too proud of their concept of free trade, since it is really an axiom of a more general systems theory, predicated perhaps of all living things (even if they don’t always enact it entire). For one of countless examples, it’s a framework for how and why the inside parts of your own body have co-evolved, to make such an advanced being...

And sometimes I think economists get too worried about the short-term patterns of contravention. Of course they compute that it impacts the standard-of-living by a multiplicative procession that adds up quick (I always wanted to write that). I suppose I don’t agree with Brad that the Democrats will have much problem with outsourcing really, because I think our society will adopt a new tempo and attitude, we will allow it for some things and we won’t allow it for others--and that will be the way it will be.

With free trade, over the long-term, you're buying more with less money, as has ALWAYS happened up until now. Are we looking at massive worker displacement, until new work is found? Then when somebody hurts, help them.

Posted by: Lee A. on July 29, 2004 09:23 PM

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Ian Montgomerie wrote:

"stripped of the "evolutionary psychology, nations must stick together" rationalization another poster used for his fear-the-darkies ideology"

In other words, you have no argument whatsoever and hide behind childish ad hominem name-calling.

The claim that the US cannot retain hegemony forever is true, though. That is why I said I'm willing to sacrifice some self-interest to help India. I favor democracy and human rights and so choose a group unity towards those more likely to further them (reciprocation unlikely, as of yet, but it may come. Tit for two tats is a viable strategy). India is highly imperfect in that regard - though so is the US nowadays - but it is much better than China, and those seem to be the players (by the way, ever notice that the Indians are much more "darkies" than the Chinese are?).

Lee A. wrote:

"“Free trade” appears to have nothing to say, one way or the other, about the effects of ownership concentration and the distribution of income and wealth, which may perhaps be part of our current problem."

What I would like to see is an analysis of the effects of free trade that looks at utility for given individuals summed up, rather than nominal wealth of a nation. Brad had a post about this a while back, wherein he posited that the marginal utility of wealth (a subjective quantity measured by opportunity costs) declines logarithmically as an individual accumulates wealth (IIRC). Your first dollar keeps you from starvation; your millionth lights a cigar - these two dollars are not really equal in value to you, though they are nominally equal. This provides a distribution-sensitive way to measure wealth. I would like to see studies that address whether and in what circumstances free trade increases wealth by this measure.

" Are we looking at massive worker displacement, until new work is found? Then when somebody hurts, help them."

But this amounts to redistribution of wealth. Can such a thing be compelled in a globalized economy? Rich individuals will be able to (indeed, largely are able to) operate the same from anywhere - why would they not flee countries that attempted to redistribute their wealth? And for corporations, "location" is largely an artifact of paperwork - witness the fiction that most large US corporations are based in Delaware. Of course, if people felt a sense of group solidarity, you could have voluntary redistribution, but as we see from this discussion, the globalizers specifically reject that.

Posted by: Martin Bento on July 29, 2004 11:18 PM

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Re the "math teacher earnings problem":

One solution is to import teachers who have the requisite skills & experience. Indians & Chinese come to mind. Perhaps 50k aditional math teachers competing to swell the middle school and high school faculties would take care of the problem, and drive prices down for these teachers to boot, so no premuim would be necessary.

Posted by: Bruce Cleaver on July 30, 2004 06:33 AM

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Aurelian:

"What you are really advocating is re-education into a non-competing industry. That means either joining the Mandarin classes (lawyer, doctor, professor), or getting a service job that can't be outsourced. Joy."

And that assumes that lawyers, doctors and professors can't be offshored. A huge chunk of legal work could be; some medical work and most professorial work.

In the case of lawyers, legal obstacles might not help much, because it'd be the established senior lawyers and large law firm partners who'd be doing, to replace entry-level associates. Universities have already trashed most of the old tenure system, so finishing off most of the rest wouldn't even require much of a cultural change.

Posted by: Barry on July 30, 2004 07:21 AM

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Martin Bento: redistribution of wealth IS compelled, all the time. Bush's tax cuts, for example, just impelled it upwards. But the answer to your question is: more information in the marketplace. Find out which corporations are cheating or hiding in tax havens, educate the public, start a boycott.

Posted by: Lee A. on July 30, 2004 07:39 AM

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"One solution is to import teachers who have the requisite skills & experience. Indians & Chinese come to mind."

That pretty clearly falls into the category of, "What the Democrats will have trouble doing."

The teachers' unions would *not* be happy with importing a bunch of teachers who would be willing to work for lower wages.

Posted by: Mark Bahner on July 30, 2004 09:48 AM

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"Rich individuals will be able to (indeed, largely are able to) operate the same from anywhere - why would they not flee countries that attempted to redistribute their wealth?"

There's always the Cuban solution: turn the country into a prison. (It's a little easier when the country is an island, though.)

Posted by: Mark Bahner on July 30, 2004 09:53 AM

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Lee wrote:

"Martin Bento: redistribution of wealth IS compelled, all the time. Bush's tax cuts, for example, just impelled it upwards. "

Well, yes, it's easier in that direction obviously, since the middle-class and poor have less ability to relocate without penalty. Corporations are the biggest problem as their "location" is largely a legal artifact.

And the postwar period in the first world saw a lot of successful redistribution. But that was in world economy less integrated than the one we are building now, in fact, less integrated than before WWI. Though Mark Bahner is being flip, he's correct in a sense: people do have a right to relocate, and it's difficult both practically and morally to compel them to leave their money behind.

Posted by: Martin Bento on July 30, 2004 10:14 AM

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I admire your son's patience.

On trade issues, I think that insecurities over trade are just a synechdoche (as Mickey Kaus would say) for the larger insecurity in the capitalist system. People don't like losing their jobs to an Indian, no matter how much retraining an compensation is available, and they don't like losing their job to a robot or streamlined business process either, again, regardless of the compensation. Almost no one, though, will say "let's stop business streamlining, automation, and other sources of job loss," whereas someone WILL say "let's stop outsourcing."

I'm not sure I see a solution, but, while I don't agree with it, I think that a reasonable case can be made that we should tax emerging industries that are creating a lot of new jobs and subsidize industries that are losing them (whether they are actually importers or exporters is irrelevant: an industry can be a big exporter and still lose lots of jobs (see agriculture), and still has the human costs, and can likewise be a job creator and an importer if it's a new, rapidly emerging industry) to slow the rate of change in the economy generally, particularly for an advanced nation like the U.S. I disagree with the case, and think it's a terrible idea, and think that we should actually be trying to INCREASE the rate of change and productivity growth in our economy. This is not because, as Kahneman fans will be quick to point out, because I think people will get happier and happier as they get richer and richer, but because, I wanna live in a sci-fi-ish world and have a personal preference for new ideas, services, and technology. It's not more rational than my proposal for slowing change, but it's what I want, damnit, and I'm sticking to it.

Posted by: Julian Elson on July 30, 2004 10:16 AM

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Note on China running the world: I'd trust Hu Jintao to run the world more than I'd trust George W. Bush, but I'd trust the American system more than I'd trust the Chinese system.

Personally, though, I see (China becoming a democracy AND developing, economically, into something like the U.S. x 3) OR (China falling apart politically AND falling short economically), but I cannot see (China maintaining the current system politically AND turning into something like the U.S. x 3 economically). Maybe my imagination just sucks.

Posted by: Julian Elson on July 30, 2004 10:23 AM

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Julian, there's a third way - China develops economically, but the political system changes from (what it is now) to (something different, but also different from ours).


Posted by: Barry on July 30, 2004 02:10 PM

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Re the Democrats' problem with outsourcing: Say a couple of Americans invent the widget in 1904 and set up a little factory in Podunk USA. Soon they're employing dozens of Podunkers and selling widgets across the US. The company grows and incorporates, drawing in American investors and setting up plants around the US employing thousands of Americans whose hard work over generations enable the company to grow and prosper. Then, in 2004, the company's CEO (only one of thousands of employees) decides that the oppressed and impoverished nation of Elbonia would be an ideal and cheap place to make widgets because a newly signed free-trade agreement with the US ensures that the cheap widgets can be exported back to the US (the miserable Elbonians can't afford to buy widgets, even on their projected factory pay). My question is, why are the Elbonians entitled to these jobs? And just exactly what is the connection between their misery and our reluctance to let them have our jobs? They didn't invent the widget; Americans did. They didn't invest in the widget company; Americans did. They didn't work for generations in the widget plants enabling the company to grow and prosper; Americans did. They didn't even buy the widgets; Americans did, plus perhaps a few prosperous nations with standards of living comparable to that in America. If these miserable countries wish to prosper, let them invent their own widgets.

Posted by: Schuyler on July 30, 2004 02:13 PM

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If one wants to reduce outsourcing then best way to do so would be to make immigration easy. Increased immigration will reduce the wage gap and hence the incentive for outsourcing.

No doubt, nominal wages will fall because of increased immigration but cost of products and services will go down too! And this will help everybody because combination of "cheaper" goods and services and lower nominal wages is better than higher nominal wages and higher cost to pay for goods and services. This is because the later option will keep the capital here.

In the former case, there is huge risk of outflow of capital from US to lower-wage countries.

Ashish

Posted by: Ashish Hanwadikar on July 30, 2004 06:24 PM

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"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. But Democrats will have a hard time doing this."
.
Wait up here. Why will the Dems have a hard time doing anything? My job hasn't been outsourced yet, but I'm sure that if it is, I'll immediately find--Glory be!--a better job at higher pay, for surely this is the way of the Lord. Right? So what's the problem for the Dems, since the Iron Law of Outsourcing dictates such a happy outcome? Perhaps it has something to do with not paying teachers enough so our education system stinks and we can't re-educate ourselves fast enough to take advantage of these wonderful new job opportunities being created by the bushelful? Just think, if we doubled teacher pay tomorrow, why, in the course of a mere 3 or 4 generations, this problem would vanish!

Posted by: schuyler on July 30, 2004 06:36 PM

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Responding to the poster who, citing economic tendencies toward equilibrium, said that the West is likely to see its standard of living decline under globalization as the developing world makes gains: Why is this only fair? Poor nations have not developed the science and technology and the open-minded and intellectually advanced societies that have led to the West's prosperity. WE have. Just because we in the West can't work up the backbone to restrain the greed of those among us who advocate outsourcing doesn't mean that the suffering masses of the Third World are entitled to our jobs. They didn't earn them. We did. If they develop their own technologies and industries (or if we're stupid enough to continue giving them the means through tech transfers), then they'll deserve whatever they get.

Posted by: Schuyler on July 30, 2004 07:29 PM

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I tend to search threads on this subject for the phrase "Iron Law". This is the first time I actually found it, but it didn't refer to the Iron Law - the one that says that without regulation to prevent it, wages will level out at subsistence.

I have an excellent education, and I am reasonably adept at what used to be regarded as valuable skills, and I have a question: Exactly what better job am I supposed to be training for?

Posted by: Avedon on August 2, 2004 11:29 AM

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