Brad is living in denial. You too.

"Oh no, it's not outsourcing's fault."

Here's Paul Krugman:

Let me spare you the usual economist's sermon on the virtues of free trade....

Yet it's bad economics to pretend that free trade is good for everyone, all the time. "Trade often produces losers as well as winners," declares the best-selling textbook in international economics (by Maurice Obstfeld and yours truly). The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.

Look, you can make an argument that there's an opportunity cost to keeping the "old jobs", you can make an argument that the "old jobs" will be gradually destroyed by cheaper costs around the world, but the "job shifting" is not automatic, it's not a Newtonian action/reaction, and it's not as day follows night.

"Job shifting" is a long run phenomena, and depends on a healthy infrastructure. And "job shifting" does not begin to describe if three jobs are replaced with one job, or if one job is replaced with a job of lesser quality.

Outsourcing is a short term phenomena and depends more on exploiting the environment, taking advantage of tax benefits, exploiting labor, than it does on the arbitrage of inequal prices for equal goods.

"Oh no, it's not outsourcing's fault."

Yes, it is. Once you admit that, then you can move on to reasonable solutions that allow us to take advantage of fair trade by shaping it, that can lessen the short term and real injuries of trade.

Movable byte is simply craptacular.

Wow, citing Paul Krugman as evidence that free trade is bad! It's not like he's held in low esteem among trained economists for politicizing his trade. Oh wait...

Um, it's the Battle for White House.

IF an incumbent president and his megaphone bully pulpit, and a GOP-controlled Congress, the RNC, and, yes, Fox News, and the Wall Street Journal, et al., can't mount an effective counter-offensive, then you're doomed! lol

And, frankly, it was too tempting NOT to use Chairman Mankiw's truthful, yet inpolitic statements; that's just politics!

Ok. I'll bite.

If Dems are supposed to promote how jobs are moving from one industry to another, then please explain where the jobs are moving *to*?

I'm waiting.

I'll second that.

"....rather than that it shifts jobs from one industry to another,"

to which other industry(ies) exactly??

oops -- missed the next line:

"hopefully from lower-paying to higher-paying"

Never mind, 'hopefully' means he doesn't know either! LOL

AND that, my dears, is the crux of the problem here and explains the anxiety.....exploited by the Dems, you bet; but certainly not created by them!!

Furthermore, Why ignore the PIPA study published in USA Today -- it's just below this post, after all.

It covers trade issues in depth and since the 1st survey was conducated in 1999, and this one late 2004, it accurately reflects the trade issues anxiety and serves as a net effect tracking poll.

http://www.pipa.org/

To admittedly nit pick on a common grammatical error, Brad show's his loose thinking (norm for economists) when he writes,

"rather than that it shifts jobs from one industry to another, hopefully from lower-paying to higher-paying"

"Hopefully"? At first I was thinking that Brad views this as an automatic reaction of the mechanical action of the market, but now I realize he's ascribing conscious, sentient thought to job shifting.

It's a human tragedy that a subject as important an economics is primarily practiced by guys that couldn't hack real science and engineering.

"t's a human tragedy that a subject as important an economics is primarily practiced by guys that couldn't hack real science and engineering."

That seems a bit of an unfair stab.

Economists are not hacks, but rather, Economics itself is unlike other empirical sciences. After all, unless countries were willing to serve as experimental subjects to apply systematic variations of parameters, there is just no way to do anything other but to make up models and compare them to the current historical record of economic data. Since real "free trade" has never existed before, "HERE and NOW" is really the experiment. Brad should be applauded for his honesty, since he disclosed where experience transited into modeling. In this context, "hopefully", meant "hopefully my model is right".

Sincerely,

I'm basicly a conservative, and for the most part a Bush supporter. By nature I'm extremely skeptical of Democratic canidates for high office.

That said, can someone explain to me how adopting an isolationist anti-outsourcing economic policy could help American workers? More to point, how exactly does one go about adopting such a policy, by which I mean how does gov't *forbid* outsourcing?

I know a little about economics, even less about economic policy. I plead ignorance if the answer is simple, but I just don't see how it's done, for starters, or how (assuming it's possible) it can do anything but stagnate current economic conditions. That's not to say I think globalization (and lets be honest here, anti-outsourcing is at it's base anti-globo in nature) is the end-all/be-all of economic prosperity for all of Earth's children, I just see it as the way it is, and as such the way it's gotta be. Sorta like a one-way road, if you will...

Apps, *no one* is talking of forbidding outsourcing. Folks are debating how and if it should be shaped and regulated.

For some folks it is anathema to try and shape or regulate it. For these folks free trade is religion, and ideal, and these cultists would never dream of blaspheming it. Drezner and DeLong are our holy captains in charge of driving our cruise ship full tilt into the iceberg all the while mumbling that open seas means the iceberg isn't really there.

If it is to be shaped and regulated, presumably it would be through tax policy in general, and perhaps banning certain products made in unfair conditions. Tax policy might tax outsourced jobs, or might provide benefits to staying in the US or retraining workers. Bans would keep products that benefit from child labor or pollution exemptions out of the country. Taxes or tariffs should not go into the general fund, and should not be given to companies, but should be invested in retraining programs and research in new industries.

"...DeLong are our holy captains in charge of driving our cruise ship full tilt into the iceberg all the while mumbling that open seas means the iceberg isn't really there."

Brad DeLong is now a member of the reactionary right wing conspiracy. I knew we would get him sooner or later. They call him "Bush Lite" on the Berkeley campus. When will they burn him in the public square?

We don't burn people, only flags. We leave burning people to the reactionary right wing.

Our middle class is doomed if our white collar labor pool is opened up to include most of the third world's educated people. These "higher paying", "new technology" jobs were supposed to be the ones toward which blue collar workers here aspired when their jobs were outsourced. We might as well save those relatively few dollars we spend on community colleges if this process doesn't get more tightly regulated. And yes, regulation is an essential part of effective capitalism.

Also, I've gotten the impression while listening to various talking heads on TV that there are actually tax incentives to send jobs abroad.

Does anyone here know if this is the case? Wouldn't this be argued in this political season if true?

Finally, we have gotten down to the real world here.

The argument for free trade, like all arguments for small government, low taxes, free markets, and freedom of contract always face an uphill battle for one simple reason:

Real free markets are always being compared with imaginary government where a magic wand is waved and all of societies problems are solved, with no side effects. Imaginary government usually wins a lot of popularity contests.

"If it is to be shaped and regulated, presumably it would be through tax policy in general, and perhaps banning certain products made in unfair conditions."

First I have to get the philosophical argument out of the way: Why should the government interfere with a citizen's or business' free choice of who they will contract with and at what price?

Ok, now you say tax policy would do the "shaping", or I would say distorting. What is that tax policy? Be specific.

What is an "unfair" condition? Who gets to decide what is unfair? Politicians? What keeps the politicians from defining "unfair" as anything that would hurt the interests of their biggest campaign donors? Why wouldn't the definition of "unfair" simply be used to prop up failing businesses at the expense of successful ones or play off more politically connected competitors aginst less politically connected ones?

Assuming that you can take a subjective term like "unfair" and convert it into an objective standard, who gets to decide what specifically is "fair" or "unfair". Would we set up a court to determine if each product coming in to America was produced "fairly" or "unfairly"? How cumbersome would that be? What would be the costs of such a court? Would those costs exceed the benefits?

DO you have any actual numbers on what how much is produced "unfairly", after you have established a definition of course. You wouldn't be advocating a policy without knowing the actual numbers involved, right?

What are the economic benefits of restricting "unfair" competition. I want numbers. Prices, employment, GDP, I want a logical and well-thought out prediction of what would be the results under these new policies.

"Tax policy might tax outsourced jobs,..."

What is the definition of an "outsourced" job? In order to tax something you have to define what it is first. Again who gets to decide? If a job is eliminated in America by a company and the same company creates a job with similar duties in another country, don't you have to prove that that is the "same" job? If a job has similar duties but pays differently is it the same job? If a company creates a position overseas then later eliminates one in America, is that outsourcing? Don't you then have to prove intent not just coincidence? What if a company closes a facility in America and opens up an unrelated facility in another country? What if as a result of a growing overseas market a company opens a facility in another country instead of opening one in America? Do they get punished for "outsourcing"?

"or might provide benefits to staying in the US or retraining workers."

How does that work? Does every company (or only the ones who give large campaign contributions to influential politicians) get a tax break for every employee they have? Isn't that simply a gigantic corporate welfare give-away? The tax benefit would have to be large enough to be more profitable for the company to keep the job in America (again, even if you can prove what that means), otherwise a company could send half it's workforce overseas and still collect a nice tax benefit too. Hardly what you were aiming for , right?

I'm all for reducing taxes on businesses and corporations (consumers, stockholders, employees and suppliers pay these taxes in reality) so it sounds great to me. But it won't have the effect that it's creators would intend (which is the case with most such policies).

Government retraining dollars haven't historically lead to much retraining. They generally turn out be useless pork.

"Bans would keep products that benefit from child labor or pollution exemptions out of the country."

Sounds simple, but child labor results from the fact that children and their families don't have enough money to eat or live. Not because greedy corporations take advantage of them. Taking away that measily income would be cruel. Jobs, even low-paying ones are the single biggest way to pull poor people out of poverty, not foreign aid. Of you were really a champion of the world's children why would you try to take away their jobs that will help them and their families survive? Hardly a "compassionate" postition.

The single biggest determinant in the amount of pollution a country's industry creates is their wealth. Keeping poor countries poor is a recipe for environmental degradation.

"Taxes or tariffs should not go into the general fund, and should not be given to companies, but should be invested in retraining programs and research in new industries."

First, everything goes into the general fund. Period. Earmarking, trust funds and teh like are just political games meant to decieve.

Coincidental benefits of basic science research, miltary spending or space exploration aside (like Tang or Velcro), government spending throughout the world has at best a checkered past as far as creating "new industries". The whole concept is anathema to the way government works. A dollar confiscated from the productive sector will likely never return a dollar of productive capacity to the real economy, although there are rare exceptions. It's just shuffling dollars, nothing more. Productive capability is lost in the process, and little government "industrial reasearch" yields anything of worth to industry. Certainly not enough to justify taking today's dollars in order to produce a dubious benefit in tomorrow's depreciated dollars. The productive capacity that the private sector can produce with that money will be far superior. So why bother?

"And yes, regulation is an essential part of effective capitalism."

Regulation distorts and reduces economic activity in a capaitaist society. You should feel the obligation to prove that the distortion and reduction are more than offset by the benefits of regulation (in some cases that case canbe made). Unfortunately this is rarely done.

Most if not all of the proposals above, if they were even feasible to implement, would cause the country as a whole to become poorer and would create unemployment, not reduce it.

The great irony here is that if you are trying to preserve employment, protectionist policies are job killers, not creators. They may "save" a few jobs in a few industries, but they will simply spread the job losses more evenly throughout the workforce. The unfortunate effect is that when people lose their jobs due to protectionism, the policies that created the problem in the first place will rarely get the blame.

Throughout history this scenario has played itself out repeatedly: The government, through unwise policies creates a problem. Then, when the voters get angry and want the problem fixed, the government uses that problem that they created to grab more power for the government. Of course the answer is to fix the bad policy, not graft another bad policy on top of it.

The protectionism that America already practices (agricultural subsidies, sugar subsidies, steel tariffs, etc, etc, etc), coupled with needless taxes, regulation a monsterous product liability system, have produced a situation where America is an expensive place to do business, compared with other places around the globe. Instead of fixing the root causes, many want to compound them.

Finally we get to have an intelligent debate on trade with BOTH SIDES arguing specifics.

"protectionist policies...may "save" a few jobs in a few industries, but they will simply spread the job losses more evenly throughout the workforce."

I agree that we need intelligent debate. A big part of the problem till now is that the only discussion taking place on this has been in theory, and among those whose livelihoods are not on the line. This has always been and (correctly) will always be decided by politicians. And donors have always had a direct influence on political decisions. But blocks of voters trump donors. And more and more blocks of voters are beginning to share in or fear those "job losses spread more evenly throughout the workforce" that are occurring right here, right now.

"Retraining" sounds fine when it's used to describe someone else, but when it applies to you, indebted, at 40 and with a family, it begins to influence votes.

This is a pendulum, folks, and it's beginning to swing against unfettered free trade.

anne.elk said

We don't burn people, only flags. We leave burning people to the reactionary right wing.

Well anne.elk, let's do a body count

Look at the Soviet Union, China, Cambodia, North Korea, Nazi Germany, and Iraq for a few examples. All highly regulated, highly centralized, left wing governments, the result was millions upon millions of citizens murdered by their own governments.

We need to apply the precautionary principle to left wing, utopian, ideas for governing. The results have always been consistently disastrous and it is simply to dangerous to try anymore.

Yes, TJ you're right.

All democrats, all socially liberal fiscally conservative republicans, we're all NAZIs and COMMIEs.

TJ, where should I report to for my burnination?

(Jebus Dan, for a professor, you sure do pull in the ignorant and illogical nutcases....)

Well, you could start with a subscription to the Weekly Standard, Anne - since you're all for education and logic.

By the way, what's a burnination, and where do you see TJ asking you to get one?

Curiously, the word you're somehow reluctant to write is 'Jesus'. But hey, get your own doctor.

Thank you, DSpears, for saying everything I wanted to say.

"Jebus Dan, for a professor, you sure do pull in the ignorant and illogical nutcases..."

That is the most unintentionally funny thing I've read all week. Cheers.

The point is that we already have government intervention - both domestic and foreign. People who bash regulation compare it to some ideal that doesn't exist. We have dumping in markets, we have currency fixing, we have tariffs, and we have protectionist policies and subsidies up the wazoo. Free trade is not a mutual suicide pact.

The political viability of free trade is going to end if there isn't some redress of unfair trade policies. And people who talk about the current account balance being countered by capital flows back in are nuts. First of all, that capital is still owned by overseas hands which means that they recieve the profits from it. Thus the returns accrue to non-US hands, and as everyone knows the "magic of compound interest" depends on compounded reinvested returns. This would depress the growth if nothing else, since a dollar spent in a foreign ownership of a stock or a bond is not the same as a dollar spent buying a product or a service. Furthermore these profits can easily flee our country since most major commodities are denominated in dollars - they can make a profit in the USA and trade it for oil to ship home if nothing else.

Second of all, the secondary market in purchasing mature company stocks is primarily speculation upon future returns rather than investment in capital assets. A dollar spent on a product or a service is much more likely to show up in investment in an export industry company's growth, than the dollar spent buying an already issued stock. Since everyone agrees that government returns are abysmal compared to private investment, a dollar spent on a T-bill or bond is an almost complete waste from the point of view of capital investment.

So there is no freaking way that a systematic trade deficit made up by capital inflows whose ownership and repatriation of profits go nowhere near real capital asset investment is going to balance out in the long run. What you will get is what we are seeing. A long term suppression of job growth.

Trade only transfers jobs from one industry to another if and only if imports equal exports or capital inflows approach full vestment in actual business expansion rather than financial speculation.

This is doubly true when profits can so easily be redeemed for real commodities that can be physically transferred to other economies, or form the basis of extra-national trade loops. "Dollar hegemony" and dollar-denominated commodities make this a reality rather than a theoretical speculation.

Buying more than you take in, and then charging the difference to your providers or selling them the deeds to your most productive assets is hardly the way to get ahead. All things being considered, trying to make money from exchanging dimes for nickels on volume might be a smarter idea. You're going to lose less money that way for one thing.

"And people who talk about the current account balance being countered by capital flows back in are nuts. First of all, that capital is still owned by overseas hands which means that they recieve the profits from it. Thus the returns accrue to non-US hands, and as everyone knows the "magic of compound interest" depends on compounded reinvested returns."

But those profits are still in dollars. So ultimately they can still only be used to buy dollar denominated goods or securities. Even your oil example, the dollars are not destroyed, somebody will still have to either buy dollar denominated goods or invest in dollar denominated securities in order for those dollars to have value.

Look at the Japanese. For decades they have trun a trade surplus with the US. The result: huindreds of Japanese factories in America employing American workers. We are "stealing" jobs from Japanese workers! These Japanese companies really had no choice since theior government doesn't allow them to spend these dollars on American goods (which would complete the natural circle of free trade). So they have to invest it to get a return. With interest rates going down over the last 20 years in America, manufacturing plants were the best way to invest that money.

In this process we have imported hundreds of thousands if not millions of jobs, and that's just from Japan. We're making out like bandits. Meanwhile Japan is stuck in a dead end economy for a decade.

Also, the profits go abroad, but the argument here isn't that America doesn't produce enough profits, it's that America doesn't produce enough jobs. Again, those profits are in dollars, so the process continues. Right now we get subsidised goods cheaper than they would otherwise have been. That can't be all bad.

The moral of the story is that ALL balances of trade, surplus or deficit carry trade-offs and benefits. Artifically shifting the balance through government action will cause as many (different) problems as it solves.

Your fear of a trade deficit is a relic of the Gold Standard.

Anne I enjoy reading your well reasoned arguments. First you said in a non -inflammatory manner (a pun bonus points!)

"We don't burn people, only flags. We leave burning people to the reactionary right wing."

And then I pointed out, (without mentioning you, democrats, or socially liberal fiscally conservative republicans), that highly centralized, left wing, governments had killed millions and millions of their own citizens. I further pointed out that if you are a believer in the precautionary principle then left wing highly centralized governments have been so highly lethal that it is utterly reckless to experiment with them anymore.

I am still trying to sort out how my post resulted in your reply since the two seem to be completely unrelated. I did find your creative use of capitalization "NAZIs and COMMIEs” and vocabulary "burnination" highly entertaining. Keep up the good work.

Thanks,
TJ

ps What exactly is "burnination", is it anything like ear candling?

Boortz notes this morning:

"**The peak unemployment rate during the recession that began in Clinton's term was 6.4 percent. The current unemployment rate is 5.6 percent.

**In the last year more than 2,000,000 new jobs have been added in the United States.

**Between 1983 and 2003 outsourcing went from 6.5 million jobs to about 10 million jobs.

**Between 1983 and 2002 jobs in-sourcing -- jobs coming TO the United States -- went from 2.5 million to 6.5 million.

**If you subtract the jobs coming to the United States every year from the jobs going out every year you come up with a 'net' figure. The net outsourced jobs reached its peak in the early 1980's; a peak of about 4 million jobs. In other words, things were worse at the end of the Carter Administration then they are right now.

**During this same period ... from '83 to '03 a total of 38 million jobs have been created by private businesses in the United States. No other industrialized country in the world has matched this number. "

Hmmm. One wonders: What's all the hubub, bub?

Hmm.

1. We don't burn people, only flags. We leave burning people to the reactionary right wing.

Sorry but people are just too soggy to burn. We reactionary right-wingers already knew that.

I wonder how many reactionary left-wingers are still out there striking matches. Remember. If the match doesn't catch, use more lighter fluid.

2. "**In the last year more than 2,000,000 new jobs have been added in the United States. ... etc, etc etc"

Sorry but all those are just imaginary statistics. Somebody polled a small set of people, did some multiplication and then pulled some numbers of out a aft aperture.

Besides need I point out that 10 million jobs lost, to outsourcing, doesn't seem to compare very well with 6.5 million jobs gained from in-sourcing? And again these numbers are just completely suspect.

It's only because their own ox is being gored that outsourcing opponents fail to recognize the magical thinking involved in their position. If they were right, we could boost our standard of living even more by closing the borders and agreeing to pay each other higher salaries. Right. Meanwhile, back in the real world, paying too much at home for goods or services that could be acquired more cheaply abroad cannot fail to decrease the national wealth, at least until the protectionists repeal the laws of arithmetic. As theories go, the theory of the gains from trade is a pretty easy one to understand, provided you really want to understand.

"a dollar spent on a T-bill or bond is an almost complete waste from the point of view of capital investment."

Really? So the boom in, say, housing investment has nothing to do with the low interest rates that are a consequence of foreigners' appetite for Treasury bonds?

And why is the Federal Reserve seemingly completely impotent in your model? Even if the rest of use their dollars only as wallpaper, why can't the Fed simply print more dollars and stimulate investment that way?

Remember, capital markets are linked. Foreigners building an American factory, buying an American T-bond, stuffing their American dollars under a mattress: all these are capital inflows. With properly functioning capital markets and central bankers, they all finance domestic investment in the U.S.

"If they were right, we could boost our standard of living even more by closing the borders and agreeing to pay each other higher salaries."

That line of thinking has been tried before. It even had an official name: the "High Wages Theory". The result was that a stock market crash (which had happened numerous times over the years without long term consequences) and the resulting recession were turned into the Great Depression, a period of time marked by some of the most wrong headed and misguided government policies (Hoover and Roosevelt) in American history, many of which we still live with today. These policies lead to double digit unemployment for 10+ years, the unprecedented occurrance of a depression (1937-38)following right on the heels of a depression (1930-33), and the needless suffering of basically the entire globe which indirectly lead to among other things the assention of the Nazi Party and World War II. It would be 20 years after the stock market crash of 1929 that the American standard of living returned to it's previous level.

The history of the Smoot-Hawley tariff aught to be required reading for every budding young protectionist. The shock wave it set off around the globe ground the world economy to a halt. The productive output of a generation was wasted while socialists tried their grand experiments here and abroad on nations of lab rats.

Here in Dan's Illinois we've seen television ads for three Republican candidates for the Senate expressing anti-trade sentiments, especially regarding outsourcing, (Jack Ryan, Jim Oberweis, and Andy McKenna), compared to just two Democratic candidates (Blair Hull and Dan Hynes). It's not just the Democrats succumbing to this temptation.

Dear Mr. Lam,

The FEd is not impotent but limited. For instance, the Fed cannot change actual profitability or real investment returns by simply printing more dollars. This is because an increase in money supply greater than "GDP+" will simply be inflationary. It is the risk versus return that determines actual business investment decisions. The fact that you fail to comprehend why buying a T-bill or an already issued stock doesn't do anything for the underlying business fundamentals is a sign of your ignorance. Generally only corporate debt and IPO's go directly to a company's expansion. And corporate debt is a doubtful proposition, because it usually finances shortfalls and not expansions.

A housing market boom which is correctly identified as being related to interest rates, is stimulatory in that it enhances the housing market and that passes money into the economy. However if business fundamentals, like say demand for export industry goods, are not sound then no amount of money passed into the system will result in the job growth that would offset job-losses due to imports.

Any way you slice it, "capital investment" is a misnomer since it refers to very different things. Buying a T-bill is nowhere near building a factory, and even the stimulatory effect of low interest rates doesn't divert itself into export industry growth - it just get's passed around in the domestic consumption market.

As that market is penetrated more and more by imports, then the remaining domestic companies must grow faster and faster if they were to compensate for import job loss. As a matter of fact, they have failed to do so long since.

Funny stuff.

The reason why foreigners like the T-Bill is because the Chinese government is buying most of them. Why? Because they can get them cheap and by doing so they prop up the value of the dollar. As long as the dollar is propped up more and more industry will relocate to China.

Frankly all this discussion is boring the hell out of me. Not one thing mentioned by any pro-outsourcing person has made any real sense at all. Here's the deal. You got answers, I got questions.

The real question is whether or not you can answer those questions or just continue changing the subject.