I know that a version of that quote about recession vs. depression is said to go back at least as far as Reagan's 1980 Presidental campaign, where he said: "A recession is when your neighbor loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his." Attributed for example, here.

It is considered a pretty old joke, though, so the general idea probably goes back even farther.

It's all a version of the old statement "I am firm. You are obstinate. He is a pig-headed fool," which is variously attributed to British journalist Katharine Whitehorn or to the frequently attributed Bertrand Russell. (The latter may well be a case of the same problem that causes all quotes to be eventually attributed to progressively more famous sayers, eventually reaching Winston Churchill or Mark Twain.)

I understand that the idea is that "old" jobs get outsourced to be replaced with new "innovative" jobs. But why on earth would any sane innovator hire high-priced Americans (or Canadians) to implement their innovation?

Unless we're *all* expected to become innovators (which, realistically speaking means needing capital), then this model only works when the innovations are small enough that outsourcing is not viable. And as outsourcing shops become more sophisticated and are able to offer services to smaller and smaller shops, this area grows smaller and smaller.

We'd better hope that everybody else gets rich enough to afford our services pretty quickly.

To see a prime example of globalization for the small business, go to http://www.elance.com . This site offers the ability to outsource almost all back office and marketing work for pennies on the dollar.

Tom

You start with a small pilot program before you do layoffs and outsourcing on a large scale. If this works, maybe we'll see angry journalists in several years, just like we see angry IT geeks now.

The phrase "serves you right to see you suffer" goes through my head.

I'm no economist, but, if I owned a business and could get anything do cheaper, to the same quality standards and level of customer satisfaction overseas I would do it. Given that a simple question from a simple mind: given its really expensive to live in the U.S., Europe, etc. how can the first world keep any jobs except highly specialized ones seeing that worker quality in other countries is as good as ours, in many cases hungrier than ours and cheaper than ours?

I really like that word given.

Dan, thanks for the post. Be interesting to see how things develop at Reuters. But some of the comments here are a bit silly.

Tom West: innovators don't start by hiring expensive Americans or Canadians, they start by using their own labor, and then that of family and friends. They also don't start with expensive North American office space, they start in their garages.

Eventually, successful firms move out of the garage, and then many of them fail. Conceivably a few will move right into out-sourcing; maybe they won't fail quite as fast.

Richard Cook: I venture to suggest you neither own a business nor have done contract work. (Which is no slur on you, but makes it easy to overlook the problems with out-sourcing.) It is frequently harder to convey your requirements than it is for the contractor to do the work. Communicating with your out-source employees (or contractor) when they're halfway around the world, and speaking with a charming accent, would be a full-time job in itself.

I think the communication problem will limit out-sourcing to the point where it won't impact our employment stats much. But let's say that tens of millions of jobs are outsourced, and we're all lining up to work at Walmart. The dollar would fall against the Indian rupee (it's started already!) until it would not pay for US firms to out-source (and presumably Indian firms would start out-sourcing work to us!).

John Thacker: or Napolean.

PJ writes: "Conceivably a few will move right into out-sourcing; "

If they seek investors, it will probably be a requirement for receiving funding.

As a contribution to the ongoing debate on trade, I have a ground breaking new proposal. Let's outsource all the branches of government. That's right, we can hire Bangladeshis, Chinese, and Indonesian legislators, President, aides, and federal justices. This will boost American productivity and create more American jobs - even if we can't find them ... don't worry ... they're out there ... somewhere!. Since American competitiveness needs to remain high for us to advance into a prosperous future, we can pass the necessary Constitutional ammendments quickly ... As proof of the brilliance of this idea anyone can see that this act will save American jobs by preventing the jobs in the Capitol parking ticket squad and the Presidential honor guard from being shipped overseas as well ... if anyone can't see that this is job creation they just don't understand economics ... why anyone can see that if you exchange a dime for a nickel you can always make it up on volume trade ... Vote for a new and competitive America for the 21st Century!!! Call or write your local congressman today and if they protest, they're just protectionist anti-free-trade Luddites trying to protect their jobs at the expense of the American economy! :-) [ironic sarcasm]

Given that a simple question from a simple mind: given its really expensive to live in the U.S., Europe, etc. how can the first world keep any jobs except highly specialized ones seeing that worker quality in other countries is as good as ours, in many cases hungrier than ours and cheaper than ours?

A good question, and it requires a bit of studying economics. The first question to ask yourself: Why is it really expensive to live in the U.S., Europe, etc.? In a related question, why are the wages high in these countries? Yes, there's some effects because of taxes and tariffs and so forth, but the basic reason is simpler.

Productivity. In equilibrium (an important caveat, and economists argue and attempt to determine how long it takes to reach equilibrium), wages are determined by marginal productivity of labor. This in turn helps determine prices.

If the third-world countries reach the same productivity as the US, then their wages will also rise to meet US wages. Remember, too, wages are relative things, and that the point of trade is to get stuff, not have more stuff than some other poor sap. When productivity rises, we all become wealthier.

The second thing to understand is the concept of comparative advantage. There's always something that's the most efficient thing for your labor to be doing, relative to everyone and everywhere else. Countries should specialize where they have comparative advantage; this raises everyone's productivity, and makes everyone better off.

Free trade is not about unemployment or creating jobs; it's not really about exporting "more," either. It's about specializing in what's the most efficient thing for your country and your labor to do, relative to everyone else, which increases everyone's productivity, which increases the wages and wealth of everyone, down to the lowliest workers.

PJ writes: "Conceivably a few will move right into out-sourcing; "

If they seek investors, it will probably be a requirement for receiving funding.

Jon, I expect a sensible investor to want to see a business plan that includes profits. Neither sending your customer service department halfway around the world, nor budgeting for regular flights to Delhi, strikes me as particularly profitable.

The sort of outsourcing we're seeing really works best on a large scale, where the communication difficulties are worth overcoming. What small company would, say, out-source a call center that handles 20 calls a day? It's really the large corporations that will be the main users of this outsourcing for the next decade at least.

Interesting comment relating to this by Stephen Roach of Morgan Stanley (http://www.morganstanley.com/GEFdata/digests/latest-digest.html)
He notes the industries in the US where job growth is significantly lagging where it should be at this stage in the cycle.

I believe that we are entering an era where technology is permitting literally millions of additional people to enter the global labour market. Highly educated and capable people in India, China and elsewhere are now in direct competition with US (and Europeans and Japanese etc) workers for the right to carry out particular functions. This simple demand and supply effect will not only cause job losses in the developed nations, but increasingly result in global wage equalisation.

As hinted at above, the technology that is driving this is based around the ability for large files to be distributed through the internet rapidly so collaberation is possible. New technology that is emerging, particularly digital compression technology from companies such as Matrixview (www.matrixview.net) is likely to only accelerate this process.

For example, this company has successfully demonstrated high lossless compression in mammograms. There is a severe shortage of qualified specialists everywhere from the US to Singapore to diagnose these mammograms. The compression that has been developed now allows Indian or Chinese doctors to take on much of this work as they can be 'zapped' internationally). As such, the shortage of specialists in the US which has pushed up their salaries significantly suddenly reverses.

Based on dealings with India-based call centers, Reuters is going to get (little) what they are willing to pay (little).

The Indians may understand English, journalism, and financial statements but I doubt greatly that they have enough understanding of US culture to do much more than recycle quarterly reports and press releases.

Based on dealings with India-based call centers, Reuters is going to get (little) what they are willing to pay (little).

Based on economic principles, Reuters will be willing to pay for what they get, little or large.

This simple demand and supply effect will not only cause job losses in the developed nations, but increasingly result in global wage equalisation.

Global wage equalisation, yes, if productivity can be enhanced everywhere. That would make us all richer. Job losses, not really. Short term adjustments, yes, but trade does not cause job loss in the long term.

John Thacker writes:

"If the third-world countries reach the same productivity as the US, then their wages will also rise to meet US wages."

India and China each have more people unemployed or virtually unemployed (collecting firewood or something equally productive) than total USA jobs. With probably half a billion people just in those two countries available to work for $2/day, how long is the infamous long run is?

30% of Indians (300 mil) are illiterate. Care to guess when they start making $5000-$10000/year?
Will you be alive by then? Myself, I doubt that I will see that day.

PJ/Maryland writes: " What small company would, say, out-source a call center that handles 20 calls a day? It's really the large corporations that will be the main users of this outsourcing for the next decade at least."

I'm not talking about a call center, I'm talking about development. The scenario would be an entrepreneur who isn't an engineer having the technical work (all of it) done in India, while only management, marketing, and sales are in the US.

Travel to India might be expensive, but it might be worthwhile if hiring a larger, cheaper staff in India reduces your time-to-market significantly.

That said, I would bet some Indian company will provide call center services bundled in such a way that they are economical for small US businesses. Perhaps a large call center subdivided among multiple small customers, with infrastructure costs divided up between them.