Successful outsourcing saves money. The company can then redirect this money into more productive options. Thus, the odds are overwhelming that new jobs will be created. Why is it that is so hard to understand? I’m afraid that too many Democrats, and and a few Hoover style Republicans, sill believe in fallacious economic zero sum thinking.

“"I don't know what reality the Bush administration is living in, but it's certainly not the reality I represent, from one end of New York to the other."

Hillary Clinton is making a total fool of herself. This state is suffering from the large taxes imposed on both businesses and individuals. No company should remain in New York unless it truly has no other choice. Oh by the way, New York State is losing jobs via outsourcing---to other states! Should we therefore outlaw the moving of companies from one state to another? I think I read somewhere that New York City has not created even one net increase of jobs in the private sector in the last twenty years.

Dear Mr. Drezner:

I don't think this study demonstrates what you think it does.

1. The job creation rate they cite of 90,000 jobs is below the level required to offset the increase in the size of the workforce. It will need to be at least twice as large just to keep up. This suggests that either the unemployment rate will rise or the number of "discouraged workers" will rise or both.
2. The rising real income figures they cite are average income figures. The median real income is either stagnant or falling (according to the BLS). This just means that some people are making more money. It's not good news for the American people as a whole.

Offshore outsourcing is a fact of life and, as I've said, I don't think we should panic or introduce protectionist measures. But we should face the issue squarely and encourage more investment in the U. S..

From the executive summary, I can't tell much about the methodology that was used to generate these numbers. The conclusions are basically presented as assertions.

I would guess that what was done was to estimate price elasticities for exports in various industries, then apply the estimated savings due to outsourcing to the cost levels for those industries and then calculate the resulting volume changes. But IT is in most industries a fixed cost--so, to what extent can a reduction in a fixed cost make up for a cost disadvantage in variable costs like direct labor?

“But we should face the issue squarely and encourage more investment in the U. S”

Nope, we should not directly do anything to either encourage or discourage more American investment. The free market can handle this problem. Our politicians should essentially shut their mouths and stay out of the way. The concept “But we’ve got to do something” often causes far more harm than good.

“It's not good news for the American people as a whole.”

Baloney. Most Americans live very well. We spend so little for food, for instance, that obesity is now a major health problem. It’s not just a matter of how much one earns in absolute terms---more importantly, it's how much we spend for our products and services.

“From the executive summary, I can't tell much about the methodology that was used to generate these numbers. The conclusions are basically presented as assertions.”

You need to study Economics 101. These company leaders can only buy so many more personal luxury items. And they are not going to bury the savings in a hole in their backyard. Thus, businesses which save money inevitably invest these funds in more productive pursuits.

Dave Schuler writes: "The job creation rate they cite of 90,000 jobs is below the level required to offset the increase in the size of the workforce."

That is true only if you consider that outsourcing is the only source of new jobs here. For example Bharti Televentures of India just inked a deal with IBM ($750 millions worth) that will creat many jobs here. So, outsourcing here produces jobs here and in India, and outsourcing in India produces jobs in India and here. A win-win proposition. In my own small counseling agency, I plan to add 3 new counselors this year and 5 next year bringing the total to 13 therapists. Not bad considering I had only 3 just a year and a half ago.

It’s not just a matter of how much one earns in absolute terms---more importantly, it's how much we spend for our products and services.

Exactly. And since, according to the BLS, average incomes have risen in real terms while median incomes have been stagnant in real terms for roughly 30 years, it just means that people in the upper income levels have made a lot more money while the average joe has not. As I'm sure you know real income takes into account buying power as well as income growth.

The free market can handle this problem.

I would agree with you 100% if we had a free market. We don't. We have a managed economy like every other country in the world. Ours may be a little less so than other countries but it's still a managed economy. And, like all managed economies, it picks winners and losers. My preference would be for our government to eliminate the management which takes the forms of licensing, patents, copyrights, subsidies, restrictions on capital flow, and 1,000's of other measures. But that's politically impossible. So it's only prudent to ask that the economy be managed a little better.

gmroper:

That is true only if you consider that outsourcing is the only source of new jobs here.

Agreed. For the last, what, 5 or 6 quarters most of the net new jobs have been in government. Is that sustainable?

“And, like all managed economies, it picks winners and losers.”

Oh wow, did you actually say something that absurd? The United States economy is so unpredictable that investors must spend enormous time studying the new trends. No business entity is safe from the forces of creative destruction. There is not even one economic investor, like Warren Buffett, who feels overly confident predicting the winners and losers even a few years into the future.

David T....an insult is not an argument.

Not all topics are so simple that they can be assessed at the level of sloganeering. Some of them actually require analysis and systematic thought.

Without reading the story, I have to say that the Democrats really annoy me on this issue. It is like they want to turn the "outsourcing debate" into another Social Security. They want people to stay afraid, while not proposing any good solutions, and just use the issue to hammer the GOP everytime one of them is stupid enough to say something.

I think we deserve better than this from the Democrats. (But we deserve better from the GOP on many, many more issues). I wonder what Bill Clinton, a loyal free trade advocate, has to say on this issue?

Hmm.

1. "C'mon, this study was sponsored by the IT industry -- can it be credible?--ed."

In a situation where there's an increasing amount of anguish and anger, on the part of the voting public, over companies outsourcing, I cannot believe, even for one moment, that any industry would try to deflect growing anger by the creation of a heavily spun research document. Not at all. Couldn't believe it at all.

Really. Cross my heart. A *scientist* wrote it! They're not easily bought are they? Look at the tobacco company scientists! Didn't they say that nicotine was good for acne?

I know I believe'em!

2. "Successful outsourcing saves money. The company can then redirect this money into more productive options."

Interestingly enough you assume that these supposed profits would be redirected to domestic employment.

Why *exactly*?

Aren't there highly educated english speaking workforces available for highly technical work? Aren't there low wage workers for less technical labor?

So continue the explanation and answer the question posed. Why would any company turn around and invest in domestic operations when they are busily moving their current operations overseas?

3. "Should we therefore outlaw the moving of companies from one state to another?"

It doesn't take you long to bring up an issue long since derided as idiotic.

4. "The cost savings and use of offshore resources lower inflation, increase productivity and lower interest rates,"

Hmmm. That's important. God knows the interest rates aren't nearly low enough now. The big plus though is the effect on the rate of inflation. Why I took $100 out of ATM yesterday and I'm lucky as hell it's still $100 today! Then there's the productivity issues. American workers just aren't productive enough it seems. Productivity is growing at the glacial rate of only around 5% a quarter.

What we need is the Spanish Inquisition!

5. "Global Insight estimated that U.S. firms will spend about $31 billion in offshore IT services in 2008, compared with about $10 billion in 2003, mainly due to expected cost savings, which could reach $21 billion in 2008. "

Good GOD! Stop it Drezner! Just stop it! You're killing me!

So the total number of jobs outsourced in the last *decade* is 300,000 to 700,000 right? And that's in ALL industries and professions right?

Man those must have been some seriously f-ing well paid workers.

5. "According to this study, these benefits "ripple" through the economy, leading to about 90,000 net new jobs through the end of 2003."

ROFLMAO!

Ok. Seriously though. How is it possible to have a NET positive job creation of 90,000 when the BLS* is telling me that the net number of Information jobs created for 2003 is 18,000?

I'm I looked at several series of data and they all pretty much tell a different story than that article. So what's up doc?

Of course the BLS might be completely wrong. The study might be wrong. Or I'm looking at the numbers wrong. Somebody is wrong here.

Who dunnit?

(*
Go to this site first:

http://www.bls.gov/jlt/home.htm

Which leads you to JOLTS. From there you can look at several series of data.

Hires levels by industry and region:
http://www.bls.gov/jlt/jlt04_1203.htm

Total separations levels by industry and region:
http://www.bls.gov/jlt/jlt06_1203.htm

Adding them up, for category Information, we've got: (in thousands)

Total Hires for 2003: 757
Total Separations for 2003: -879
------
-122

Then you can go to (Java enabled browser required):
http://data.bls.gov/labjava/outside.jsp?survey=jt

This is an interactive page that let's you determine what data you want to see.
a. Choose 'Information', 'Total US', 'Hires' and then click "Add to your Selection".
b. Choose 'Information', 'Total US', 'Total Separations' and then click "Add to your Selection".
c. Select "Levevl in Thousands".
d. Now click on "GetData".
e. You now come to a survey results page.
f. Now view the data for 2003.

Do you see 90,000 net job creation?
)

6. "These company leaders can only buy so many more personal luxury items."

Considering that the Tyco trial is going on right now, that statement could be used as the definition of irony.

7. "Without reading the story, I have to say that the Democrats really annoy me on this issue."

Would it make you feel better to know I'm a Republican? That, in my life, I've never donated a penny to any candidate other than a Republican?

Hmmm.

"According to this study, these benefits "ripple" through the economy, leading to about 90,000 net new jobs through the end of 2003. This effect, the study said, should produce a total of 317,000 net new jobs through 2008. "

LOL!

I just noticed. The study "shows" that 90,000 net jobs were created in 2003, but that the average number of net jobs created for the next five years is *less* than that.

hehehehehe. This is getting too funny.

I was just debating with one of my liberal friends about outsourcing. He was attacking the president for losing American jobs. I can understand why isolationist, America-first conservatives can oppose outsourcing, but I am confused as to how liberals, and more specifically those who define themselves as activists for social justice, can honestly attack outsourcing. Don't people in India and other developing countries deserve nice, well paying jobs? Not only do our companies save money, but high tech, non-sweatshop jobs are given to people who need them. My friend did not enjoy it when I pointed out the selfish and American-centered nature of his view.

This is not to say that I think outsourcing is bad for America. I think it is very good, but when debating with my friend I gave him the benefit of the doubt concerning the effect of outsourcing on American jobs.

As the oldman recalls, there was a "Nobel Prize winning economist" involved with Long Term Capital Management (LTCM) as well, and that didn't stop THEM from melting down. As the case may be, the real world often is more complicated than economists can model properly. It's funny how a few misplaced data points can suddenly cause a market threatening firesale that requires the personal intervention of Alan Greenspan and the Federal Reserve Board in order to broker a solution to.

http://mondediplo.com/1998/11/05warde2

I imagine that if Dan were to place his hopes in the above study he might find a few facts here or there left out that might also be pertinent to the risk at hand.

Hmm.

"This is not to say that I think outsourcing is bad for America. I think it is very good, but when debating with my friend I gave him the benefit of the doubt concerning the effect of outsourcing on American jobs."

Frankly. Perhaps outsourcing is good. Perhaps it is bad. I don't know and I doubt anyone else does either. There's a lot of speculation and quite a bit of theory-mongering. But it all comes to a hope that past theories still work.

The problem is if those theories are complete garbage now.

People like to point to technology and it's effects on job destruction and creation. The problem is that technology can both create and destroy jobs by it's very nature. A job picking fruit, a popular example BTW, can be destroyed by a machine that picks fruit faster and cheaper. But the existence of that machine also creates jobs for making, selling, maintaining and scrapping the machine.

But all this presupposes that any jobs created will be created in the domestic market. A presupposition that I cannot see the reason for.

Assume that a company wants to maximize profits by reducing costs to the absolute maximum. Then the only option is to move jobs from a high cost area to a lower cost one, with the assumption that lower cost area is technically proficient enough to do the tasks involved. But that is entirely a one-way shift. The only reasons left to move jobs to a high cost area are those that require a level of technical proficiency that is not available in a low cost area. But that's a ridiculous assumption as education costs are extremely low in other countries. And for exactly the same reasons why jobs are shifted there in the first place.

Low wages.

In India, a recurring example with me, a four year engineering or computer science degree costs $1,700 USD. An American degree, even at a cheap school, is at least ten times that, or more. And any reasonably stable country can accomplish the same thing as India by simply following the same pattern. Produce a nucleus of educated workers that will be insourced to jobs. Then repatriate the experienced workers back to their home country. Use their experience to train up a cadre of workers that will lure companies.

The Phillipines is doing just this to win jobs from India. Would you believe that India is now too expensive for some companie's tastes? India where an experienced computer programmer makes about $8,000. So now they're moving to China or the Phillipines where they are paid less.

Now are jobs insourced to America? Sure they are, from Germany and the rest of Europe. But I view that as an extremely temporary thing. Each and every day workers gain experience and knowledge. Companies learn how to deal with local cultures. Executives learn how to plan and execute in other domestic labor markets. And people get more and more comfortable with outsourcing to a third world nation.

Now in this scenario do you see anyone permanently moving jobs to America?

Hmmm.

"My friend did not enjoy it when I pointed out the selfish and American-centered nature of his view."

You expect Americans to not have an American-centered viewpoint? You expect people to not have a selfish viewpoint?

Then why did Europe reluctantly intervene in the Balkans when people were getting murdered by the thousands?

Then why did France, Germany (and others) not participate in the liberation of Iraq?

Why is France insisting on the new Iraqi government honoring the Saddam approved oil contracts? The ones that would steal about $100 billion worth of oil from Iraq?

Perhaps it's not an isolated thing eh?

ed...yes, people will permanantly move some jobs to the US even given the wage cost differentials that you describe. Some reasons:

1)Transportation costs. Unlike moving bits, moving physical objects doesn't even approximate being free or instantaneous. In many cases, it makes sense to do final assembly reasonable close to the point of demand.

2)Labor as % of overall cost mix. For businesses that are very capital-intensive, wage costs may be fairly small compared to depreciation and capital costs on the fixed assets. In these cases, the other benefits of being located in the US may outweigh even a fairly substantial differential in wage rates.

If you are a subscriber to the WSJ, check http://online.wsj.com/article/0,,SB108060509775368478-search,00.html?collection=autowire%2F30day&vql_string=outsourcing%3Cin%3E%28article%2Dbody%29.

They have some of the numbers in a handy chart of job "gains" for 2003 and 2008.

Under the category "Publishing, Software, and Communications", the number for 2003 is -24,860. For 2008 it's -50,043.

Further, Dan, the study only considers outsourcing of computer-services jobs, not "manufacturing, call centers, or medical X-ray reading."

If they don't consider those industries, then their estimates are worthless.

They claim 25,010 jobs will be created in manufacturing in or by 2008 from outsourcing IT abroad, but that's without taking into account outsourcing of manufacturing.

They claim 32,066 for financial services, but don't subtract jobs lost due to outsourcing of financial services tasks.

They claim 47,260 for Education and Health Services, but don't subtract jobs lost due to outsourcing those jobs.

The study is, frankly, worthless.

gmroper writes: "For example Bharti Televentures of India just inked a deal with IBM ($750 millions worth) that will creat many jobs here. "

What makes you think those IBM jobs will be in the US?

They have operations all over the globe, and plenty of employees in India.

1) Why does no one address the real facts?
2) FACT 1: Globalization only works while the US spend $400 billion/year maintaining global order.
3) Fact 2: as a result of Bush's policies, he's now projecting a federal debt in 2008 that is $3.8 TRILLION higher than what he promised only three years ago. In personal terms, that's at least $70,000 of additional debt per household when spread over the households that can pay.
4) Notice how high gasoline is getting lately?
Well, expect the same for other products.
Fact 3: The high price of gas is not due to OPEC's actions --it due to the fact that the dollar has lost over 25% of it's value in the past two years.
5) That's because the two-faced "free trade" assholes are , for their personal benefit, letting foreign nations screw us. As a result, we're running a trade deficit approaching $500 billion/year.

6) Why have Republicans turned into a bunch of drunken spenders?? --- advocating that the US act like an irresponsible teenager: run up huge debt, piss the money away on foreign adventures, spend money we don't have on foreign gewgaws, make no effort to compete with foreign competition, and freely give our hardwon technology to foreign competitors.

The only thing that explains such moronic behavior is deep corruption -- that a few can profit from Bush's empire even as it bankrupts the American people.

Our dollar has no value for the same reason that Argentina's currency has no value.

Plus, recall the massive real unemployment that's present even while Bush is burning money like made. His explosive runup in debt is not sustainable -- and when the party stops, unemployment will shoot through the roof.

Ed,

I mentioned the "America first" view because my friend who I was debating constantly talks about the need for us to help poorer countries and to take the view of world citizens.

Moreover, I agree with him. I was pointing out to him that he was violating his own principles. Yes, of course most Americans will look at America first and of course politicians have to focus on America. However, remember that we are a tremendously prosperous and blessed country and we should not get overly upset and angry if some of our wealth and jobs go to countries that sorely need them.

Furthermore, I am not an idiot. I know that what motivates most people is self interest. That doesn't necessarily make it right in all cases. However, social justice activists like to think they are acting for the good of the world. I was pointing out a discrepancy.

Your point that "perhaps it isn't an isolated thing eh?" is certainly true. But a "but everybody does it" argument doesn't imply that we should as well.

Procedural Queston: What is ROFLMAO? Plus, with a post that long, one abbreviation seems a little pointless.

ROFLMAO
"Rolling on floor, laughing my ass off"

Hillary's bashing of Bush is nonsense.
I'd call it dis-ingenous, but you have to be a genious for that to work.
Here is the link and the quotes:

http://cranialcavity.net/archives/000390hillary_takes_an_opposing_stand_on_outsourcing.html

"Hillary Clinton has defended the practice of offshoreing when confronted by CNN’s Lou Dobbs about Tata Consultancy Services she opened in Buffalo. This despite the company’s reputation as an "outsourcer."

"Of course, I know they outsource," Clinton retorted. "But they have also brought jobs and they intend to be a source of new jobs in the state."

Outsourcing works both ways, she told Dobbs and his constituency of anti-free traders who tried to corner her on the issue. While not minimizing the problems of job flight, she said free trade also provided opportunities for the US to attract jobs from around the world if they got the domestic diagnosis right.

She goes on to say...
The administration and the Congress needed to figure out changes in tax codes and trade laws to provide incentives for companies to keep jobs at home and create new jobs instead of blindly striking out against outsourcing.

This study clearly shows how beneficial outsourcing can be for the American people. We need to start looking at ways of increasing outsourcing in industries other than the ones to which it is currently confined so we can see more of these benefits. If some outsourcing is good, then more outsourcing must be better. I think a wonderful candidate to look at next would be health care. Surgeons and physicians in other countries are willing to work at far lower wages than the high priced ones in the US. Emergency care would not be able to move, but everything else would. Same thing goes for other high priced services like engineering, law, university education, etc. Having people performing these jobs in the country where they cost the most is just ridiculous.

I received a letter from Hillary Rodham Clinton inspired by Bush's "shocking" claim that outsourcing helps the US.
Enclosed was a donation slip to help throw the bums out.
I live in Minnesota.

Hmm.

1. "1)Transportation costs. Unlike moving bits, moving physical objects doesn't even approximate being free or instantaneous. In many cases, it makes sense to do final assembly reasonable close to the point of demand."

Which is about the only reason I can think of for anyone to create a single job here in America. So in essence our future employability is based on how difficult we can make it to ship things to America? So the tougher it is, and the costlier it is, to ship the more jobs are created? It's an interesting dynamic that's for certain.

But the most important dynamic is that technology will evolve to reduce transportation costs over time. Isn't that the great transformative effect that everyone is spouting about technology?

2. "2)Labor as % of overall cost mix. For businesses that are very capital-intensive, wage costs may be fairly small compared to depreciation and capital costs on the fixed assets. In these cases, the other benefits of being located in the US may outweigh even a fairly substantial differential in wage rates."

Hmmm. Aren't capital depreciation rules simply an aspect of tax law? Didn't a number of people state that corporations do not solely base their business decisions on tax law due to their volatility? Doesn't that pretty much make hash of your #2 leaving you with only #1? Doesn't that sound rather obscene if taken out of context? :)

3. "The study is, frankly, worthless."

The issue is starting to heat up. Consumer confidence is edging down, 45% of respondents in a recent poll state that finding a job is getting harder. *shrug* The backlash is coming and companies don't want to get left holding the bag.

4. "5) That's because the two-faced "free trade" assholes are , for their personal benefit, letting foreign nations screw us. As a result, we're running a trade deficit approaching $500 billion/year."

The reason I'm ignoring you is that your blaming just Republicans is nonsense. Republican's love outsourcing because it's pro-business. Democrats love outsourcing because it's pro-third world. If you're going to blame, then blame them all. All of those bastards are culpable.

5. "Your point that "perhaps it isn't an isolated thing eh?" is certainly true. But a "but everybody does it" argument doesn't imply that we should as well."

Quite frankly, and in as honest a manner as I can, I must state that I don't give a rat's a** about any other country but my own. I immigrated as a child from South Korea and I couldn't care less about that country either.

IMHO (In My Honest Opinion) they can all go to hell. There isn't a single country in the world that doesn't have it's hand out and, at the same time, publicly insults my country. IMHO we should end all foreign subsidies, abandon NATO and the UN and then let them sort out their own problems. And if any of them even so much as looks cross-eyed at us, carpet bomb the bastards.

Not friendly, not nice and not liberal.

BTW I didn't think you were stupid. If that's what came across in my reply, my apologies.

6. "Procedural Queston: What is ROFLMAO? Plus, with a post that long, one abbreviation seems a little pointless."

There are a number of popular abbreviations used in online conversations.

7. I noticed that nobody refuted my data analysis. That's a nice change of pace. :)

Hmmm.

So who else is eagerly awaiting the March employment data analysis from the BLS? It's supposed to be available this coming Friday.

Cost of capital is a reality independent of tax law. If you buy a stamping press (for example), you need to (a)pay for the capital that it cost to buy (interest, if you used debt capital), and (b)make provision for the fact that it will eventually wear out or become obsolete (depreciation). If you pay $500,000 for the press, then the wages of the operator are obviously a lot less in proportion to total cost than are the wages of a programmer whose only capital requirement is for a $2,000 computer.

People who are seriously interested in understanding this subject should read an article on the current Forbes on why GE has chosen to manufacture its high-end CAT scanners in the US.

As always, "the love of money is the root of all evil." "Penny wise and pound foolish." Paying third world countries Danegeld not to challenge us militarily will untimately backfire on us. Is the bully ever happy with just your lunch money?

America was much better regarded when we were more isolationist. Interfering with other countries just causes them to resent you and doesn't buy friendship either. I'm glad to see some more sensible people posting on this thread.
I'm I the only one that thinks all this India stuff is about buying their help in the Middle East?
Also, a country or government that doesn't take care of it's own first, is bound to fail.
They are not respected at home or abroad.
I do think we will have tariffs back because the voters will demand them. I say, bring them on. With the exception of oil, and we can get around quite a bit of that, we can make everything we need here. We can certainly feed our populace if we need to, maybe because of the much maligned farm subsides?
Critical mass is approaching on this point.

What's the "Novel" Prize? Is that a cheap knock-off of the Nobel? If so, should we call the TRIPS Council?

It's a little known prize offered by a little known software company in Orem, Utah.

:-D

"I think a wonderful candidate to look at next would be health care. Surgeons and physicians in other countries are willing to work at far lower wages than the high priced ones in the US. "

That would kick butt.

"Same thing goes for other high priced services like engineering, law, university education, etc. Having people performing these jobs in the country where they cost the most is just ridiculous. "

The neat thing is that if we can get foreigners to educate us more cheaply than American universities do, we Americans can then drop our prices without dropping their standard of living, and we can switch fields more easily as everyone on the planet and their dog learns how to do our current jobs.

Dan, Great article in foreign affairs, clear writing, clear thinking.

Would appreciate your thoughts in our debate over at TechPolicy, newish blog by MIT technology and policy grad students.

Trying to assemble a list of practical options dealing with outsourcing.

http://techpolicy.typepad.com/tpp/2004/02/what_to_do_abou.html

brief comments on your article here:
http://techpolicy.typepad.com/tpp/2004/03/outsourcing_bog.html

Cheers!
adam

ed,

The only other reason that I can think that companies would create jobs in the US as opposed to creating them overseas is that the jobs that they're creating can only be performed by Americans.

Specifically I'm thinking about jobs that require something that Americans tend to do better than anyone else in the world: innovate. If IBM is going to open a new laboratory (or add jobs to an existing one) that is tasked with developing new products it makes sense to add those jobs in the US rather than adding them abroad. But once those products reach the stage where they are being produced then it's a matter of where they can be produced in the least expensive manner.

Why can't we outsource our politicans?

Come to think of it, why should the average person have any loyalty whatsoever to the US government, given the policies of the Republicans? Were Aldrich Ames and the FBI spy onto to something?

Why support a government which has no loyalty to the citizens? Which allows millions of its citizens to go without work so that plutocrats can get richer by hiring Asiatic rice farmers.

How about the next time Bush wants a war to grab some oil patch, we tell him to go hire some Chinamen for infantry?

After all, what if we had LOST the Cold War? Would the average person be worst off? Is there a difference between a Russian commissar taking our wages for tribute versus a Republican Congressman taking our wages to pay off $7.1 TRILLION in Reagan/Bush1/Bush2 debt?

Come to think of it, why respect the law if it is just a con game created by Congressional whores? Why respect property rights?

Why not tell Al Qaeda that if they will leave the average American alone, they are welcome to come in and blow Microsoft's buildings to hell. If our plutocrats have NO obligation to their fellow citizens, why should their enormous wealth be protected with American lives and American tax dollars?

Could an argument be made that the real tragedy of Sept 11 was that Al Qaeda hit the World Trade Center --and missed the US Capitol?

This kind of job-counting exercise may be useful politically, but analytically it is quite pointless. It is as nonsensical to say that "outsourcing creates American jobs" as it is to say that "outsourcing destroys American jobs". Of course, it destroys some jobs and creates some jobs, and by making the assumption that certain other variables remain constant, you can make your model spit out a number for the net number of jobs created or destroyed.

But in the real world the other variables are not constant: the aggregate number of jobs in the economy relative to labor supply is a function of domestic demand conditions. These are subject to all kinds of cyclical shocks, with the Fed doing its best to smooth out the fluctuations and maintain full employment. If outsourcing turns out to have the net effect of causing the creation or destruction of a few hundred thousand jobs, the Fed will simply act to offset it, the same way it does the much larger shocks that buffet the economy constantly.

We might as well be debating whether today's wind conditions on the highway constitute a net headwind or tailwind and the consequent impact of the winds on the speed of your car, when you can simply maintain the same target speed at all times by adjusting the pressure on the gas pedal.

“Could an argument be made that the real tragedy of Sept 11 was that Al Qaeda hit the World Trade Center --and missed the US Capitol?”

Wow, you are a real nut case. I don’t know what else to add. You said it all.

Manufacturing and construction are currently being idled (I have neighbors on layoff and others at work with no work) because of a worldwide steel shortage. It seems that China has bought up most of the supply, with money made by forcing our companies to invest in infrastructure in China.

Let's restate: US and multinational companies are laying off US workers AND raising prices because the Chinese government is forcing them to invest money in Chinese companies and infrastructure. They get our workers jobs, our shareholders capital, and we consumers don't even get lower prices this time around. It's an even better deal than just moving workers wages into shareholders returns.

Here the economists told us were were trading worthless paper for shiny, valuable devices. It turns out the Chinese were trading 10 years worth of cheap devices for 80 years worth of capital and intellectual property.

Re the comment above: "These are subject to all kinds of cyclical shocks, with the Fed doing its best to smooth out the fluctuations and maintain full employment."
--------
What a steaming crock. We've had a lackluster economy for three years, in part, because Alan Greenspan ran the economy into the ditch in 2000. Think of a drunk driver swinging from one end of the street to the other --that pretty well displays Greenspan's control of the money supply in late 1999-2000. First, he kicked hundreds of $billions of hot money into the economy in 1999 -- to forestall bank runs and panic when Y2K hit (hee hee). When that turned out to be a farce, he started yanking money out in Feb 2000. By
August 2000, the yield curve had inverted (short term rates were higher than long term rates.). An inverted yield curve is an infallible predictor of a recession 6-9 months in the future, but Alan kept tightening. Then, in late Dec 2000, he panicked and cut the wheel the other way --making two large interest rate cuts in a futile attempt to avoid the trainwreck he had created. The senile old fool should have been fired and put into a home.

Hmmm.

1. "Cost of capital is a reality independent of tax law. "

The schedule of Depreciation is generally set by the IRS. Which makes it tax oriented.

2. "The only other reason that I can think that companies would create jobs in the US as opposed to creating them overseas is that the jobs that they're creating can only be performed by Americans."

And they would be?

I hate to point this out but India, China and the Phillipines are looking to bootstrap into biotech and drug testing. Perhaps the next big thing is nanotech rather than biotech, but I don't see any real impedence to outsourcing of nanotech either.

Now the issue with innovation is that it's largely job dependent. If you're not employed it's rather hard to innovate, at least in high tech industries. If the ROI of outsourcing is high enough and broadly effective enough then I don't see why there would be sufficient engineers or scientists to warrant depending on innovation.

3. "If outsourcing turns out to have the net effect of causing the creation or destruction of a few hundred thousand jobs, the Fed will simply act to offset it, the same way it does the much larger shocks that buffet the economy constantly."

Your assumption that outsourcing and it's deterimental effects on employment are cyclical is based on what exactly? Please don't suggest "technology" is to blame. I'll be pretty disappointed.

And, considering the current absurd interest rate, just what is the Fed really able to do now? Are there any other arrows in the Fed quiver? Can they reduce the prime rate to 0.25% perhaps? Right now the primary driving force of the economy is housing and construction. Eventually the interest rates must rise or else we'll end up with another bubble. So what do you think will happen when the interest rate starts rising again?

Jeffrey Utech writes: "Specifically I'm thinking about jobs that require something that Americans tend to do better than anyone else in the world: innovate"

You mean like with LCD displays?

Americans don't make them.

That's the point. Americans don't make the LCD displays, but they invented them. So there will always be a need for American labor so long as Americans are thinking up new products and ideas. Then they'll ship the actual production of those overseas where the labor is cheap while they think up the next one.

China seems to me to have morphed from a Marxist country into an old-fashioned monarchy type situation complete with serfs and aristos and we are helping them. Talk about your sins and chickens coming home to roost. American business has always brought Americans trouble abroad and caused much Anti-Americanism. The government needs to keep them under control. Right now, they have lost the power to do this or are not interested.

I wonder why the economists who said that China could produce steel better so we didn't have to are silent on the rising steel prices? Have you ever heard of a monopoly?

WE are such fools. Do we have the government we deserve?

Jeffrey Utech writes: "That's the point. Americans don't make the LCD displays, but they invented them. "

Maybe the primitve ones, but not the latest, big, fast LCDs.

Innovation in display technology isn't happening in the US.

Lynne..you say "I wonder why the economists who said that China could produce steel better so we didn't have to are silent on the rising steel prices? Have you ever heard of a monopoly?"

I don't understand what today's steel prices have to do with monopoly. There is plenty of competition in the steel industry. What's happening is that very large amounts of steel--both finished steel and steel scrap--are being used in China. You can argue that this is a bad thing and that the steel should stay here, but that's not an issue of monopolization.

Of course, people in the steel and scrap industries are doubtless thrilled to have China as a major customer for their products...

"This effect, the study said, should produce a total of 317,000 net new jobs through 2008. "

FOUR YEARS to make up TEN PERCENT of jobs lost over the past TWO.

That is NOT progress, growth, or recovery. Gimme a break.

Mr. Drezner, explain it to me better. Help me understand how this is good news. I do the math, others do the math -- the real world math, not the isolated positive-value math -- it doesn't work. You apparently do the math in a way that makes it work. Show me this math.

"...[O]utsourcing lifts the wages of U.S. workers, according to the study, though minimally -- real wages were 0.13 percent higher in 2003..."

Wow. Just today, Fast Company completely disagreed with this, and I wasn't even looking for something to use here. (http://www.fastcompany.com/magazine/81/offshore.html):

"A January 2004 study by Foote Partners shows that IT compensation has fallen for four straight quarters in the areas most vulnerable to outsourcing, dropping an average of 7.6% in 2003 alone."

Let's think. How does Global Insight get even a remotely positive number here? Maybe they included the salaries of major IT company CEOs, like Bill Gates, whose salary went up an incredible 35% last year.

But let me point out one other thing. When you've lost 3,000,000 jobs in an industry, an increase in wages of HELD JOBS of one tenth of one percent STILL MEANS LOSS.

Let's revisit the real-world math theory here:

2,000 jobs @ $50,000/yr = $100,000,000 net annual income
1,500 jobs @ $50,065/yr (0.13 percent increase) = $75,097,500 net annual income

For the overall economy, this is a *loss*, okay? Unless you can show that the amount of lost jobs in the IT sector has been so low as to make 0.13 percent increase balance out, or better. (Hint: It hasn't.)

The wonderful thing about in-the-clouds economics is that you don't care where the wealth is stored. You watch the market numbers, and if they go up, you shout success. Never mind that per capita incomes are dropping. *Somebody* is making so much money as to offset those huge losses in income and still bring the total up higher.

That's just great.

What will happen to the American market when only 100,000 people or so can actually afford to buy any disposable goods?

And what happens when those 100,000 are so loaded that they decide to move to Tahiti?

"'To say that the U.S. economy benefits from trade is not to say that every individual American worker or family benefits...'"

I don't personally know a single person who is benefitting from offshoring. On the other hand, I know lots of people who are (still) out of work (including the worker in the Fast Company story) or otherwise worse off as a result.

Is there anyone who is NOT on the board of directors of a multinational who can show personal economic growth from the offshoring trend?

BESIDES pro-offshoring economists, that is?

"Should we therefore outlaw the moving of companies from one state to another?"

No, because Americans are free to move from one state to another, with minimum hassle (biggest expense is transportation and any needed deposits, the latter of which is likely offset by return of deposits from the old location, etc.)

Here's a thought. If you're going to kick down all barriers to labor movement by corporations, it might help a lot if you also kicked down all barriers to labor movement BY LABOR.

(But we can't have that in a terror-fearful world, now can we? Not to mention it would lead to a One World Government, which as we all know would be led by the Antichrist and bring about Armageddon.)

"Is there anyone who is NOT on the board of directors of a multinational who can show personal economic growth from the offshoring trend?"

Yes. People involved in mining iron and making steel are benefiting greatly from trade with China. See for example this article:

http://www.duluthsuperior.com/mld/duluthsuperior/2004/03/17/news/8206112.htm

Just one example; there are others.

I have just two words for defenders of current trade practices:

NAFTA, Mexico

It's been ten years. Any "free traders" want to step up to the plate and accept the challenge?

That's already been done, Oldman.... repeatedly.

Thousands of new IT jobs have been/will be created? Splendid! Where the heck are they? I've got nearly a score of friends whose IT jobs were outsourced over a year ago, and they still haven't found new ones. I'm stuck in a dead-end IT job which I desperately want out of, but I'm not having any luck either.

They're pretty numbers, but I question their veracity.

(I hope you'll forgive my desire to remain anonymous with this post, as my boss probably reads this site too, and at least a dead-end job is better than no job at all...)

Hmmm.

"They're pretty numbers, but I question their veracity."

I agree. Look at this post of mine concerning IT employment numbers generated from the BLS (http://www.bls.gov).

http://www.danieldrezner.com/archives/001190.html#014325

I go through the steps to acquire employment data from BLS (Bureau of Labor Statistics) which pretty much shows everything but what that study showed. Where they got a 90,000 net job increase from I have no idea. As they didn't print their methodology all I can think of is that they simply pulled those numbers from a nether region.

Dear bithead,

And no amount of hand waving has ever sufficed to explain why Mexico hasn't reached economic parity. And no amount of hand waving has sufficed to explain why India or China should be any different. Everyone who is assuming that India and China will eventually reach some sort of economic parity and start buying our stuff, also blatantly ignores the history of Taiwan, SK, and Japan. They're still reliant on importing to us.

So it's a big risk, that historically, is just as likely as not to not make it. But 'free trade' proponents aren't being honest about that. They just kind of brush underneath the rug how many nations have in fact not reached an economic parity equilibrium with us, and leap to the conclusion that "it will eventually happen,".

Well in the real world, the rest of us will be waiting for it to show up.

Actually, there are severalnreasons for each of hte cases you mention, and usually it comes down to the interference of the local (Mexcan, Chinese) government, rather than some fault with open markets.

Consider also, please, that while our relative freedom to buya nd sell as well will, allows for relative parity to happen, it does not guarantee it... nothing does. But without that freedom, it'll never happen.

Same can be said of the cases you're complaining about. Seems to me you're seeking a solution with guaranteed outcomes, rather than guranteed opportunities.

Hmmm.

"Actually, there are severalnreasons for each of hte cases you mention, and usually it comes down to the interference of the local (Mexcan, Chinese) government, rather than some fault with open markets."

ROFL!

And now you're expecting that other countries won't look at the success of that model and do the same thing?

Isn't that a bit on the ridiculous side?

Isn't it ridiculous to expect that any managed economy would willingly transit to an import oriented economy vs an export oriented economy?

Well other than America's. :)

And now you're expecting that other countries won't look at the success of that model and do the same thing?

What success is that? The dollar fifty an hour jobs, you mean? Isn't the claim being made that these are in the end an abject failure?

Isn't it ridiculous to expect that any managed economy would willingly transit to an import oriented economy vs an export oriented economy?

At first, yes... because without wealth being created, where are the buyers going to come from? I mean, at what point did I suggest that free markets were a quick fix?

Dan writes: " The study says that holding other factors constant (population growth, fluctuations in aggregate demand, etc.) an American economy creates an additional 317,000 jobs."

Actually, it says "ignoring any other outsourcing apart from IT outsourcing, an American economy creates an additional 317,000 jobs."

I'm not asking for guaranteed anything. I'm asking that if someone promises, they ought to deliver. Free trade proponents don't talk about economic parity as an eventual goal that markets are a neccessary but insufficient condition to economic parity.

They talk about economic parity as if it was gospel truth and either going to arrive soon or that its arrival is an inevitability. Only when you actually own up to the facts, as it turns out lots of different factors play into it, and these can delay that parity indefinitely.

What I'm asking for if that free trade proponents act is if India and China "catching up" will fix all the "short term" economic dislocations that they be honest about how likely it is that their promises will actually occur.

Even Dan here makes that leap of faith, talking up exports like services to the developing world, as if the failure to achieve purchasing convergence were just a minor bagatelle instead of a huge yawning structual problem.

You come back with a program in order to get governments "with the program" to achieve a realistic purchasing convergence, and I will support free trade and market liberalization initiatives.

Fail to take those issues seriously blocking the achievement of parity, and I will seriously oppose free trade and market liberalization. It's that simple.

Here are two very good articles on globalization and outsourcing by two very smart economists:

http://www.morganstanley.com/GEFdata/digests/20040331-wed.html
Offshoring -- Myth and Reality by Stephen Roach

http://www.wachovia.com/ws/econ/view/0,,1636,00.pdf
So Much Growth Yet So Few Jobs: How Do We Reconcile Such a Wide Discrepancy? by Mark Vitner

"Fail to take those issues seriously blocking the achievement of parity, and I will seriously oppose free trade and market liberalization. It's that simple."

Huh? What is 'parity' and why is it important? Do you mean the trade balance? If 'parity' is never achieved, that means foreigners are lending to the U.S. without ever demanding repayment. Sounds like a pretty good deal to me.

Heck, 'DL', for that matter, is it really that important that the Indians or Chinese buy all of our manufactured goods? They can't just sit on the paper American money they accumulate - they have to exchange it for something of value, right?

Hey - I know what it is, Oldman. They're hording our cash and not buying stuff from us to fund a counter to that secret American Army you're talking about at the bottom of the "VP and NSC Post".

God, Now I'm starting to wonder at your "interest" in economic issues as well. Please explain...

Hmmm.

1. "What success is that? The dollar fifty an hour jobs, you mean? Isn't the claim being made that these are in the end an abject failure?"

Really? I had no idea that *JAPAN* has wages that low. Go tell. Makes buying a melon pretty difficult then. Wonder how they live on $1.50 an hour. You did realise that oldman included Japan, South Korea and Taiwan in his point right?

Hey what the hell. China's got $10 billion worth of American IT jobs last year and BitHead thinks that is the very definition of *failure*.

Go figure. :/

2. "At first, yes... because without wealth being created, where are the buyers going to come from? I mean, at what point did I suggest that free markets were a quick fix?"

Ummm. Quick fix? Buyers? You do realise that it's not all that difficult to keep buyers purchasing domestic products right? This is what Japan did for decades, and still does too. China is doing this and so are many other countries. America doesn't, and look where that's got us.

No idea if Japan still does this but they used to fully inspect lettuce imports from America. That's right. Every single head of lettuce had to be physically inspected. Any lettuce that went rotten because it didn't get inspected in time had to be written off as a loss.

Then there's that "quick fix" thing. I really don't understand that comment at all. Want to explain in more detail?

3. "If 'parity' is never achieved, that means foreigners are lending to the U.S. without ever demanding repayment. Sounds like a pretty good deal to me."

Just because nobody buys from us doesn't mean that the money doesn't come back. People do use it to buy securities, bonds, t-bills, property, etc. Those aren't covered as imports or exports. Additionally the money could be transferred back through currency exchanges. I.e. we have to buy Euros to pay for the dollars returning.

Funny stuff.

Hmmm.

1. "What success is that? The dollar fifty an hour jobs, you mean? Isn't the claim being made that these are in the end an abject failure?"

Really? I had no idea that *JAPAN* has wages that low. Go tell. Makes buying a melon pretty difficult then. Wonder how they live on $1.50 an hour. You did realise that oldman included Japan, South Korea and Taiwan in his point right?

Hey what the hell. China's got $10 billion worth of American IT jobs last year and BitHead thinks that is the very definition of *failure*.

Go figure. :/

2. "At first, yes... because without wealth being created, where are the buyers going to come from? I mean, at what point did I suggest that free markets were a quick fix?"

Ummm. Quick fix? Buyers? You do realise that it's not all that difficult to keep buyers purchasing domestic products right? This is what Japan did for decades, and still does too. China is doing this and so are many other countries. America doesn't, and look where that's got us.

No idea if Japan still does this but they used to fully inspect lettuce imports from America. That's right. Every single head of lettuce had to be physically inspected. Any lettuce that went rotten because it didn't get inspected in time had to be written off as a loss.

Then there's that "quick fix" thing. I really don't understand that comment at all. Want to explain in more detail?

3. "If 'parity' is never achieved, that means foreigners are lending to the U.S. without ever demanding repayment. Sounds like a pretty good deal to me."

Just because nobody buys from us doesn't mean that the money doesn't come back. People do use it to buy securities, bonds, t-bills, property, etc. Those aren't covered as imports or exports. Additionally the money could be transferred back through currency exchanges. I.e. we have to buy Euros to pay for the dollars returning.

Funny stuff.

Hmmm. Interesting.

http://www.bls.gov/news.release/empsit.nr0.htm

Evidently the March economy created a total of 308,000 jobs. Very good! Of that 31,000 were government, which can largely be discounted. Still that leaves about +277k. What's also interesting is that the unemployment rate went up to 5.7%. Which tends to reinforce my opinion negative opinion of that statistic. I don't think it's a useful number and certainly not a very accurate one.

The real question is if this is just an isolated instance or if this will continue. Frankly I'm still very unconvinced about it all if for no other reason than these statistics tend to get revised several times. The Dec 2003 employment numbers were revised at the start of Feb 2004 with a substantial reduction. It'll be interesting to see there are any following downward revisions to March '04's data.

Mr. TommyG,

Hey - I know what it is, Oldman. They're hording our cash and not buying stuff from us to fund a counter to that secret American Army you're talking about at the bottom of the "VP and NSC Post".

God, Now I'm starting to wonder at your "interest" in economic issues as well. Please explain...

Umm ... Tommy, anyone can anything from anywhere with dollars. Among them, they like to buy oil or other standard commodities such as gold, coffee, cocoa, etc. with them.

It's amazing how many Americans don't understand what "dollar hegemony" means or don't comprehend that not every currency is as widely accepted as the Greenback.

An export oriented country can run a dollar surplus from the United States and use it to buy stuff from other people. And they can trade it back and forth, without any of it ever coming back. At least you better hope it doesn't, because otherwise the value of the dollar would plummet. This isn't speculation folks, it's Greenspan's avowed policy to do this.

However, since few people actually pay close attention to what Greenspan says and does besides yanking the interest rate marker when it comes from someone else's mouth it sounds like madness.

Which of course, it is. Since sooner or later, you're right, something will cause all those dollars to eventually come back. It's just that it's been held off for some thirty years deliberately by a series of Fed Reserve bankers.

Look it up the monetary policy papers out on the Fed TommyG, imagining somehow that every dollar we use to buy something overseas has to in return buy an American product or service is somewhat akin to believing in the gold standard. It went out of fashion a long time ago.

???

Hmmm.

"To clear up one source of confusion from some of the comments -- the study is not claiming that an economy with outsourcing will create only 317,000 jobs by 2008."

Well that certainly makes it much easier to prove doesn't it? I'll put it up there right along side the "Cheetos Effect" whereby the eating of Cheetos, the cheese that goes crunch, increases the number of jobs by 54,000 a year.

What? Don't see it? Just look harder!

I have written on some new revelations that have the administration itself outsourcing jobs at
http://detachedobserver.blogspot.com/2004_04_01_detachedobserver_archive.html#108116062928671251

You can give all the arguements you want about how wonderful outsourcing is. But soon you are going to have a reason to oppose it. The unemployed victims are going to give you a reason you can't ignore.

Payback time is coming for outsourcers and immigrant hirers. And it is going to be severe. There will be a no limits guerilla campaign launched against these bastards and their supporters. The streets will run red with CEO blood. You think Al Qaeda is dangerous? Wait until you see what the unemployed of this country will do to you arrogant bastards!

Like Sylvester Stallone said in that movie, "I don't debate outsourcers - I kill them!"

"Oh, no - not the workers! OOoooh, watch out, Smithers, it's the wor-kers."