Responses to the Off Shoring/Outsourcing Post

There are a number of comments to my post on off shoring/outsourcing and most of them highlight the emotional type of response vs. a more thoughtout response.

For example is this comment,

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.

This is a classic strawman argument. I nowhere implied that people who are adversly effected by off shoring/outsourcing should be ignored or thought of as part of the problem. The thing is that people become unemployed everyday. Becoming unemployed is something that is happening right now, but where is this commenter right now? Where is his outrage at the guy who became unemployed yesterday? Nowhere. He is curiously AWOL. But if somebody is unemployed because a company moves its operations over seas, well that is somehow different than the company that simply decideds to shut down permanently or cut back on employment due to modernization.

The next comment is amazing in its level of nonsense.

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

Errr…what? It must be nice to be the type of person who can divide the world into two groups: those that agree with me, and the Regurgitating Rush Limbaugh crowd. Amazingly it seems to have never dawned on poor Mac here that perhaps the term “zero-sum” isn’t something that is unique to Rush Limbaugh, but is known to every economist who has studied game theory.

But it doesn’t end there,

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”

Apparently it didn’t dawn on Mac that the point of my post was that the impact of outsourcing/off shorring is basically and empirical one. We don’t know what the ultimate costs are going to be until we get the data. Further, it is highly unlikely that impoverishing the rest of the world will be good for the United States. As the incomes and wealth in other countries increase their demand for goods will increase. Many of those goods will be domestically produced, and some will be produced in other countries.

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.

Yes, but Rush Limbaugh has a very successful radio show, writes or has written for magazines (which ones I don’t know and frankly don’t care) and we know what Mac thinks of Rush Limbaugh, but apparently the success of Lou Dobbs is an indicator that he is right. Have I got this argument from authority right?

And it just keeps going.

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.

This is just wonderful. Notice what Mac calls “research”. All of the above is nothing more than the costs of off shoring/outsourcing. There is no attempt to try and measure the benefits. Not that I expect Mac to even have the intellectual honesty to admit that things like increased corporate profits are a benefit. When economists, yes even those Harvard trained ones, measure the impact of something like off shoring/outsourcing they look at the net cost/net benefit. And something awful like corporate profits are indeed part of the benefit column. Further, there are the new jobs that might be created by increased trade which could very well include off shoring/outsourcing.

And Mac’s list of sources to get better informed on this topic is also telling,

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

Pat Buchanan? Is he a trained Harvard economist too? (By the way, that was sarcasm for those who missed it.) And Dr. Ravi Batra…say isn’t this the same guy who predicted a great depression in 1990? Why yes it is! (Oh and get a load of the used price for Dr. Batra’s book: $0.01. I think that pretty much sums it up.) Let me see…two kooks and a television show host. Yep, that is a stellar list of academics who plough through gigabytes of data and do peer reviewed research. Yep. Okay then.

I also find it amusing that somebody who claims to be a “libertarian/true conservative” also promotes a book that calls for “a five-year plan for economic“. Guess as a libertarian I’m just not up on the latest libertarian ideas.

Commenter Dave Schuler is always good for a rational comment though,

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.

Frankly, I hate the U.S. approach to intellectual property. I think it is massively over-protected if anything and that could be one reason why there is less investment in R&D/intellectual property than there otherwise would be. Think about, the U.S. approach basically creates a temporary monopoly for the firm that discovers something useful. What do we know about monopolies? They increase their profits by restricting output. Is it a big leap from this observation to the conclusion that firms that engage in R&D might not want to produce as much new R&D lest they reduce their profits from past investments? A massive re-thinking of how the U.S. (and other countries) handle intellectual property needs to take place. Not that I expect this to happen.

Rick DeMent also usually comes through with good comments.

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.

This is quite true, but it is true of any and all unemployment. So why not simply rail against unemployment in general? Probably because it wouldn’t have the same appeal/draw that railing against off shoring/outsourcing has. Oh and Rick, its Verdon. 🙂

There is a concern with off shoring/outsourcing. It does displace people and cause them to suffer, and if something can be done to reduce/eliminate it great. However, making laws to simply prohibit off shoring/outsourcing aren’t going to work in the long run. The market is an impersonal and unfeeling place. Money goes where the profit is and no laws will change this. A law that prevents off shoring/outsourcing will only work in the short run, and will likely not prevent unemployment even in short run. Firms will always have the option of shutting down permanently. So unless commenters like Dale and Mac can come up with a way of suspending the laws of supply and demand, they are basically pissing up a rope.

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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. Dave Schuler says:

    One more point that may threaten my standing as a rational commenter: a pet peeve of mine in this discussion (it’s not something you’ve mentioned but it’s a pet peeve of mine nonetheless) is the assertion that the economic future of workers in the United States and the U. S. economy must be based on education�what’s been referred to as �knowledge workers�. This was a mantra during the Clinton Administration and the same people are pushing the same idea now through the Hamilton Project. I didn’t believe it then and I don’t believe it now.

    I think it’s incontrovertibly true that people with more education have prospered more economically over the last ten years or so. Unfortunately, that doesn’t prove that it’s due to the education. Or that they’re �knowledge workers�. You see the problem is that, along with the education, there’s a ton of protectionism. Certification, barriers to entry, regulation, and a host of other measures aren’t intrinsic features of educated workers. The key question: would they have prospered as much without the protection? I don’t believe so and I’d like to see some proof.

    Yes, physicians, lawyers, teachers, and other professionals have prospered. Physicists, chemists, mathematicians, and engineers haven’t (at least not nearly as much) and they’re just as much �knowledge workers� as those who have prospered. It’s not the education that’s determinative: it’s the markets, subsidies, barriers, and so on. We shouldn’t be treating policies (which we can change) as though they were laws of physics (which we can’t).

  2. RJN says:

    I agree with Dave, above.

    Steve: What about an $800 billion per year deficit in our balance of payments vs. the rest of the world? This is a heavy burden to carry with no end in sight.

    Also, patent protection is a vitally important element, for society, in obtaining new technology. Why should anyone spend, and spend, for research if the use of the research can go to anyone free of charge. Understanding that we need patent protection is so elementary. I am surprised you don’t agree.

  3. floyd says:

    steve ; so tell me , how do i quit paying for a government which now does none of it’s base functions. what historical support can you find for pure laissez-faire economic policy? i think today’s policy is more toward “laisser faire” anyway. don’t you?

  4. floyd says:

    good job dave

  5. Olive says:

    remind me never to cross you

  6. Boyd says:

    I had a similar reaction to RJN regarding your comments regarding protecting intellectual property, Steve. It seems to me that you focused on a secondary, downstream element of protecting IP while ignoring the primary rationale for it: if I don’t get to take advantage of my development of new knowledge, why should I bother spending all the money for its discovery?

  7. Steve Verdon says:

    RJN and Boyd,

    The patent protection argument is wrong, IMO. I am quite well aware of the conventional wisdom: Without patent protections on intellectual property then there will be virtually no way for the creators of intellectual property to reap the benefits. Hence grant them a temporary legal monopoly to provide an incentive to produce intellectual property.

    The problem is that historically, intellectual property has been created prior to the protections for intellectual property, and two just because I don’t like how we do it now, doesn’t mean that we have no intellectual property laws. RJN’s argument is basically a strawman. He assumed I meant that we need to have no intellectual property laws/rights when in fact this is not true at all.

    As for the trade deficit, that could be an issue down the road. The thing is that there doesn’t seem to be a consensus view point on this and both sides make good arguments. Personally, I’m not sure which side is right.

    Dave,

    No problems here mate. I agree to a large extent. Education may very well act as a signal. A high level of education may say:

    1. I’m smart.
    2. I work hard.
    3. I know handy information.
    4. All of the above.

    Only number 3 really pertains to education (you go to school and learn specialized knowledge). The others are hard for an employer to measure directly, but educational level may act as a proxy.

  8. floyd says:

    what level of formal education did these guys have; henry ford, thomas edison, albert einstein alex bell, orville wright, wilbur wright?just to support your point.

  9. RJN says:

    I think Steve is saying that we need protection for intellectual property, but we don’t want to have protection if it protects.

  10. Steve Verdon says:

    RJN,

    No, I’m saying that we should try to come up with a method of protecting intellectual property, but at the same time promoting competition. One should always be very reluctant to grant monopoly status to any entity.

  11. Boyd says:

    Steve, correct me if I’m mischaracterizing your position on IP protections, but it sounds like you’re saying that there’s a better way to protect IP, but you don’t know what it is.

    My response to that is, until we find that “better way,” the way we’re doing it is the best way we currently know how to do it. Railing against the current approach to protecting IP is rather pointless until you recommend an alternative that can be evaluated against the status quo.