Increasing World Prosperity = Bad for America

That is how Don Boudreaux characterizes the likes of Lou Dobbs and Paul Craig Roberts and their views on “outsourcing”.

In short, Roberts alleges that the American standard of living is threatened by the world’s growing prosperity, improved education, better governance, and greater fluidity of capital and resources to move in search of higher returns.

The problem with this, as Don points out, is that the game here is not zero-sum. India’s gain does not have to be America’s loss. It could be that there is a loss, but we also have to look at the benefit to consumers of the services that include the outsourced jobs. Also, there is the increased trade due to the rising standard of living in India and other countries that are the recipients of the outsourced/off shored jobs.

Only by assuming that things like non-human capital is fixed can we get the zero-sum result. That is by assuming that factories, laboratories, phone centers, and so forth are always and everywhere fixed in size. That this notion is false is obvious to just about everybody.

Now this doesn’t mean that outsourcing is neccessarily good, or that there isn’t a net loss to the U.S. However, people like Lou Dobbs and Paul Craig Roberts have not done the research neccessary to come to the conclusion that outsourcing/off shoring is a net loss. Instead they take what can be called a neo-mercantilist viewpoint that outsourcing/off shoring has to be a bad thing anywhere and everywhere.

Also, there seems to be implicit in this veiw that jobs lost to oursourcing/off shoring are permenantly lost. This too is false. Those who have lost jobs due to outsourcing/off shoring will look for employment elsewhere. That is resources are freed up to engage in production that prior to oursourcing/off shoring were not as profitable. This has happened here in the U.S. many time before. The industrial revolution and the advent of farming machinery freed up large amounts of labor that previously had been engaged in farming. Prior to the recent off shoring of call centers there was the decline in manufacturing jobs. This decline has resumed and continuing a decades long trend.

The idea that the economy can be frozen in amber is a ridiculous notion. The economy is dynamic, and many don’t seem to appreciate the implications of that word. It means the economy is changing, and that means that jobs in one generation may disappear a few generations latter. I can understand why Lou Dobbs would not understand this kind of thing, but Paul Craig Roberts is an economist, and the idea of a dynamic and changing economy is somethig economists learn about.

FILED UNDER: Economics and Business, ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Dale says:

    It is sad when people get in the way of the economy. One should be excited about losing one’s job to a foreign work force because it offers so much more to others and perhaps even an opportunity for you.

    People are the problem, I see it now.

  2. Mac says:

    This is Free Market Extremism carried to it’s horrifying logical end-point. Complete with Regurgitated Rush Limbaugh “zero-sum” platitudes.

    In every paragraph above there is the admission that outsourcing is, in fact, costing Americans their jobs, followed by a big bucket of “But – but – but’s”

    And with all due respect Mr. Verdon, in this particular piece you’ve tried to throw yourself on the floor… and MISSED :

    I can understand why Lou Dobbs would not understand this kind of thing, but Paul Craig Roberts is an economist, and the idea of a dynamic and changing economy is somethig [sic] economists learn about.

    Excuse me… but Lou Dobbs IS an Economist. A HARVARD EDUCATED Economist. Are you? Did you get your degree in Economics from Harvard? Yet you feel at peace running down someone who has.

    In addition he writes for Money Magazine, US News and World Report, and owns his own Financial News Report as well as a Financial Radio Show broadcast on over 700 stations.

    Do YOUR ‘street creds’ measure up to THAT?

    Now this doesn�t mean that outsourcing is neccessarily [sic] good, or that there isn�t a net loss to the U.S. However, people like Lou Dobbs and Paul Craig Roberts have not done the research neccessary [sic] to come to the conclusion that outsourcing/off shoring is a net loss.

    In a word. BullSh!t.

    Mr. Dobbs has most certainly done his research, and you would have known this if you had taken the time do do YOURS.

    His 2004 book “Exporting America” painstakingly details the research you callously accuse him of NOT doing.

    It also explains that it isn’t just “call center” jobs that are being “off-shored” (use the right word at least). It’s jobs in the MEDICAL and LEGAL and FINANCIAL professions too. Prestigious WHITE COLLAR jobs are being off-shored at a frightening rate in Corporate America’s rush to catch the last boat to China. But you don’t seem inclined to mention those.

    I have a review of “Exporting America” on my blog – you can read it here.

    Respectfully, perhaps doing YOUR research first before accusing someone of Dobbs stature of not doing his might have been a good idea.

    Let me get you started in the right direction :

    “Exporting America” By Lou Dobbs
    “The Great Betrayal” By Pat Buchanan
    “The Myth Of Free Trade” By Dr. Ravi Batra

    Just like the National Association of Manufacturers cockroaches who hate the light that Dobbs gospel of “stop outsourcing America” shines on them, Donald Boudreaux is equally exposed when you realize that he regularly rails against any and all anti-trust laws as “protectionist”.

  3. Dave Schuler says:

    My sole concern in the outsourcing debate, Steve, is that more and more jobs here are relying on what’s being referred to as “IP production”. Most engineering jobs in the States these days, for example, aren’t producing stuff they’re producing designs for stuff or (in many cases) software. The reason for my concern is that in China and India and much of the rest of the world there isn’t robust support for the protection of intellectual property nor is there the legal or social infrastructure for doing so. Well, so what?

    The so what is that there isn’t enough R&D spending in the U. S. as it is. Check the stats on business investment. They’re still lagging.

    Also check where the increases in jobs have been here: government, health care (60% of every health care dollar comes from taxes), and retailing. No, the economy isn’t frozen in amber. But current managers make their hiring decisions based on current trends and, as I see it, the current trends leave us pretty darned vulnerable.

  4. Rick DeMent says:

    While I agree with Mr. Vardon that the economy is not a zero-sum game, it is also not “bandwidth on demand” and this is a point that no one ever talks about. Outsourcing displaces many workers who may or may not be in a place in their life where they can quickly replace the income they were receiving by a job that has been outsource. With time many can, some will never be able to replace it due to circumstances but the social consequences in either case create negative externalities that are rarely, if ever, accounted for by the faithful free market cheerleaders simply because it is so difficult to quantify in to a reliable or useful metric.

  5. Dave Schuler says:

    That’s a good point, Rick. I believe the economists’ buzzword for that is “elasticity”.

  6. LJD says:

    I can’t wait to see the ‘outsourcing problem’ come back to commentary about a Bush/Rove grand strategy on world domination and corporate greed.

    Anybody venture to guess WHY jobs are outsourced?

    Americans cannot compete. We generally expect more benefits, and abuse those benefits. Costs are driven up by our affinity for lawsuits. Profit motives drive manufacturers and the middle men to take shortcuts. We prefer to buy cheap crap made in China over that made in the USA. The breakdown of the family has created a class of uneducated and unmotivated workers. TV and movies perpetuate their apathy about work.

    Want jobs to stick around? Educate yourself. Work harder (but smarter). Buy American.

  7. Todd says:

    Those who have lost jobs due to outsourcing/off shoring will look for employment elsewhere.

    OK. The ex-factory worker gets re-tooled to be a radiology tech then finds out his job as a radiologist is outsourced to India. That’s the problem with todayâ??s work force, most grunt workers can be re-educated but most likely the new job they learn can also be outsourced.

    The industrial revolution and the advent of farming machinery freed up large amounts of labor that previously had been engaged in farming.

    True, but the industrial revolution provided good jobs for many of those displaced farmers. What is there to fill the void today…service work at Wall-Mart!!!

  8. floyd says:

    lou dobbs is a lone voice of sanity in a world where, to quote paul simon, “everybody got the runs for glory; nobody stop and scrutinize the plan”

  9. floyd says:

    “but paul craig roberts is an economist”…..i told my kids that they should be either psychologists or economists. then all they would ever need was a diploma and an opinion without the burden or necessity of ever being right. they didn’t listen to me; each has useful employment.

  10. RJN says:

    I have not seen any mention, here, of the enormous balance of payments problem we have. Do we keep inflating our currency to keep pace with our imports? Where is this going? Do we have a dollar worth a dime, or do we have foreigners owning half of America?