Harry Browne has an excellent article this week about the “Exporting Jobs Scam” that politicians are trying to pull on…

“Very well,” the critic of outsourcing concedes, “Perhaps current levels of unemplyment are only temporary, and displaced workers will find new jobs elsewhere. But where, oh where will these new jobs come from? [I]n what sectors of the economy are…

Current and Capital Accounts

1. What exactly is a “trade deficit”? It simply means that our current purchases from a country exceed their current purchases from us.
2. How is this possible? We are selling assets (real estate, bonds, stocks, money…) to make up the difference.
3. Value of Goods Bought=Value of Goods Sold — by definition. We can talk about the trade deficit only by separating “goods” into the “currently-produced goods” (the Current Account) and “all other assets” (the Capital Account).
4. What do one person’s Current and Capital Accounts look like?
5. Key insight: Trade deficits just reflect swaps of current output for assets. It is just as mutually beneficial as any other kind of trade.
6. Implication: If one country has a higher savings rate than another, you should expect the country with the lower savings rate to have trade deficits with the country with the higher savings rate. E.g. Japan and U.S.! This merely reflects the fact that people in Japan want to trade their current output for U.S. assets, and people in the U.S. want to trade their assets Japan’s current output.

But beyond the transitory pleasures of upholding one’s side in a debate are the lasting worries we all share. I think all of us, as Americans, are concerned with the economy. Some of us extend our concerns to a wider community than just our nation and wish for the economic uplift of the whole world. There need not be a conflict between maximizing our economic potential here in the western hemisphere and supporting global uplift.

Hence free trade.

But as you all know, even the most fiery of you, the devil is in the details. My worries were in my three points to Micha, but there were some more technical issues I didn’t address concerning the functioning of free trade systems in business cycle fluctuations, under-development, etc. I didn’t bring them up, because I think they can be worked through. We just have to be aware that they are there.

The major thrust of my anxiety is the medium term adjustments here at home. Micha, to his credit, is willing to bite the bullet and say downward wage pressure is okay and we may see higher unemployment. What we are likely to get in the medium term is both higher unemployment and higher under-employment both. The so-called service economy. I am concerned about the ever increasing trade imbalance and will continue to be.

I think there is a lot of potential in this issue for politicians to step in and do their usual demagogic things.
Probably we will see a lot of it not only this year and 2008, but even more exaggeratedly about 12 years down the road when the effects I foresee take hold. But I may be wrong and I hope I am.

The real concern for the nationalists among us is China. We’ll just have to see what kind of Fabian tactics the West’s economies adopt to meet the challenge. Let’s hope for a happy and benign full integration into what is rapidly becoming a tri-polar world order.

I have enjoyed being here with you and wish you all the very best in your endeavors.

Yeah, you know which limits he supported? Retaliatory tariffs against countries which practiced protectionism. Not quite an argument which supports your position, is it?

I think of countries as big homeowners association.

This has nothing to do with the issue of free trade, but I object anyway. The key difference between a government and an HOA is that people explicitly consent to the join and live by the rules of an HOA, whereas people are forced to live by the rules of a government.

Micha’s suicidal notions of justice are akin to a corporation saying that it will buy from an outside vendor, even when it’s cheaper and more efficient to buy something inhouse. Corporations exist to make profits. And countries exist to advance the interests of their citizens, not those of other countries based on abstract notions of humnan dignity.

This is exactly backwards. It is cheaper and more efficient for those American companies who outsource to purchase labor from an outside vendor, else why would they willingly choose to outsource?

Also, my comment about human dignity was a tongue-in-cheek reference to Kantianism, which Michael introduced in his argument.

I am glad to see the emperor has no clothes and free traders are so ideological they don’t even feel the need to make obeissnace to the notion that free trade is in the long run interest of the country. They obviously don’t care, and thus everything they say should be considered suspect. If you really think it’s moral–without regard to its effect on our country–why should we listen to you when you say “The US should do this or that.”

I never said that free trade wasn’t in the long run interest of the country. Rather, I said that even if it was the case that free trade benefited foreigners at the expense of Americans, we should still support it. Why? Because morality does not stop at our borders, no one has a right to a job, and no one has a right to a given level standard of living.

If America would benefit if we invaded Canada to steal their bacon and moose, would you recommend we do so?

Protectionism–or in this case the accounting and tax code’s indifference to outsourcing–has both wealth creation and wealth distributive effects. If the distributive effects flow in one way, if we exercise our monopsony power, or if for some other reason the facts support a departure from the free trade presumption, I think we should consider it and do it.

The problem with your view is that it is immune to the facts; it’s like a religious faith. Even Smith acknowledged some limits of free trade, I think different eras will necessarily have diferent exceptions.

What if you could change the weather? Would you continue the draught just so water providers can continue to earn the wages they’re used to? Isn’t that essentially what protectionism is?

Politicians sometimes do and sometimes don’t advance those interests; when the people understand their interests and fight for them, in a system of democratic controls like the US the interests of the people can be advanced, as a matter of first approximation.

As for the draught example, I’d say the difference is that open borders, free trade (or for that matter protectionism) are public policy choices that can be changed, unlike the weather. I don’t think as a general matter economic policy should pick winners and losers as between a country’s citizens, but I do believe that a government should advance its citizens interest, at the expense of the aggregate interests of foreign countries if need be.

Have any of you ever worked at a company where you had to think about the “company’s” interests. If you think it’s just about “individuals,” then I don’t see how you could make sense of that experience, particularly when the boss says stay late “for the good of the company.” You may have a long term interest in appearing altrustic and as a team-player, but then the notion of individual self-interest loses its analytical value and we’re back where we started.

So, you are saying that corporate managers are not concerned with the long-term profitability of their company? Hogwash. And if they don’t, their perspective BoD needs to get rid of them.

Remember, this debate really doesn’t exist without a business case for outsourcing employment. Without it, this is just unrealistic politcal banter.

Regardless, I would hope that not only our business leaders, but also our government leaders aren’t leading to short-term rewards without considering long-term effects. Their ideas should not only improve the lives of people today, but also the lives of our ancestors.

Perhaps you need to visit The Long Now Foundation

Do you really believe that politicians advance the interests of their citizens?

I am glad to see the emperor has no clothes and free traders are so ideological they don’t even feel the need to make obeissnace to the notion that free trade is in the long run interest of the country. They obviously don’t care, and thus everything they say should be considered suspect. If you really think it’s moral–without regard to its effect on our country–why should we listen to you when you say “The US should do this or that.”

I’m not sure how else to get the point across: country don’t do. Individuals do.

When you say, “the US should not be allowed to hire Indian programmers,” what you are really saying is, “XYZ corporation should not be able to hire Indian programs, and American individuals should not be able to be able to enjoy the higher standard of living that comes with decreased prices of goods.”

I bet half the stuff in your house including most of the clothes you wear, the food you eat, and the appliances you use are built by foreign workers. If you were consistent in your views, you would throw out all that stuff and buy replacements at many multiples the price.

This isn’t an argument about the “long term”; it is about the benefits that come with a higher standard of living here and now.

I’m only starting to understand the basics of economics, so I’m enjoying this thread. No need to wander off into the sunset (unless you’re heading to Asia to work for NIKE… ha ha).

Roach:

I don’t understand your post, but you are right about one thing (insofar as much I understand it) – trade does not exist to serve the country. The country doesn’t exist as an entity to be served – people are served. The more restrictions on trade, the fewer # of people benefit.

Answer me this, and maybe I’ll understand the protectionist ideology better:

What’s the difference between a textile worker losing his job to someone overseas and a water provider losing his job because of an end of a draught?

Micha’s suicidal notions of justice are akin to a corporation saying that it will buy from an outside vendor, even when it’s cheaper and more efficient to buy something inhouse. Corporations exist to make profits. And countries exist to advance the interests of their citizens, not those of other countries based on abstract notions of humnan dignity.

I am glad to see the emperor has no clothes and free traders are so ideological they don’t even feel the need to make obeissnace to the notion that free trade is in the long run interest of the country. They obviously don’t care, and thus everything they say should be considered suspect. If you really think it’s moral–without regard to its effect on our country–why should we listen to you when you say “The US should do this or that.”

I really must apologize to all here on this blog for my insufferably snarky bargeing into your community.

It is not usually my style.

I think Micha, Jonathan, and you Titus, all have made good points and carried your side of the dialogue with grace and logic.

Please suffer me my bumptiousness, its just that I am really concerned about the economy and it made me more intemperate than my usual placid academic manner.

If you like, I will wander off into the sunset!

I’m really not speaking of politics, but rather analyzing the business practice. An argument for outsourcing jobs, is of course that it leads to a rise in stockholder wealth. I’m simply curious if that is true in the long-term.

Yes, well, I guess I’m cantankerously optimistic.

Although I don’t think life will ever be ‘rosy.’ Making a living, for most of us, is and will always be a pain in the ass.

I’m not an economist, but let me take a stab at your questions for Micha.

1. You ask where will jobs come from with population growth. I’d imagine human resources – those people have to buy food, clothes, fun stuff, etc. Therefore, I see no reason to expect greater unemployment. If free trade has worked out ‘for the best for the most’ before, why should that change now?

2. So what if items are not certifiably ‘Made In America?’ Plenty of Americans are employed for the very purpose of getting these ‘foreign’ items to the shelves.

Americans make gazillions of dollars working in one form or another for NIKE. If Americans were employed to construct the shoes at American wages, NIKEs would be even more expensive. Fewer would be sold. Ergo, fewer people working for NIKE than they would be with free trade.

‘Made In America’ means one of two things. Either it was made by a small business that can’t yet afford to use international labor, or American jobs were lost in the effort to save American jobs. Kind of like trying to put out a fire with gasoline.

3. Decreased standard of living? Depends on your definition. I think everyone will get richer and live better lives. However, the gap between us and the poorer countries we trade with will close. So if you define ‘standard of living’ by how much better off we are compared to the rest of the world, then yes, your right. Things will be worse.

If you define standard of living by freedom to live life the best you know how, with efficient access to ever improving technologies, then us free-traders are right.

We may now know what the next new technology will be, or what new industry Americans will find a need for, but we are confident that it will be found.

In what form?

No one said he was acting out of anything but self-interest.

Jonathan Wilde-

No not forcing them. Merely providing some incentives/disincentives to discourage the practice.

Brady-

Yes you are quite correct in your analysis. The labor pool is the customer base.

Lonewhacko!

;)

Titus-

Your second post was a welcome relief from your first. I like your positive spirit especially in the last sentence.
But I think your optimism leads you to some overly rosy views of this whole issue. Still, thanks for the comments.

Micha-

Well, what do I do with your free-market belief system? Its a little difficult to talk to you on this issue as you seem bound up in your theories to the exclusion of some realistic forecasting. But that is a bit of an ad hominem I supppose. I never want to indict someone for the crime of optimism but it seems that the free marketers have changed faces in the last 50 years.

Do you remember the communists: say of the 1920′s? They had a wonderful system of beliefs that they were just certain going to work out. The worker’s utopia. Yes. And they probably couldn’t be argued out of it along pragmatic lines because their constant recourse was “don’t look at it as it is now, look at what it will be in the future”

What does that have to do with you Misha?

Well I am arguing primarily along pragmatic supply/demand cost/price lines and you are answering from your theoretical perch and there is quite a disconnect.

Now before you start your talmudic line by line parsing of these lines. Please answer me these questions (if you choose to) for if you can answer them I will in all honesty accept your thinking in part if not in main.

1. Assuming that America experiences population growth and a larger labor pool and that the present trend of outsourcing jobs continues: then in what sectors of the economy are we likely to see enough job-creation to take up the slack? Are you really willing to accept a structural unemployment rate in the 7-14% range?

2. As you doubtless know, the current trade imbalance is increasing. When a local tv station in my area sent a camera crew into a local Wal-Mart before Christmas, they were unable to find, even with the Manager’s assistance, more than 4 items in the store with “Made in USA” tags on them.
If that survey had been done 15 years ago the domestically produced items would have been at least 50% But lets not get off on a tangent about WalMart. The point I am making is that you know as well as I that consumer items are increasingly of offshore origin. Hence the trade imbalance. Now the question:
What items can the US export competitively in the brave new world of the free market? What can we make here that others cannot make cheaper? Are you reconciled to permanent trade imbalances?

3. Finally, if we accept your position of universalizing the maxim producing global benefits (and I agree with you here that there will be a tendency to raise wages abroad caveated by the distorting effects of local govt’l systems)then as you doubtless know there are economists such as Thurow who have been preaching for decades now, that the net result will be an inevitible lowering of our own standard of living here. Do you agree with them and are you reconciled to that as fall-out from global wage equalization?

Thanks for your thoughts on these issues.