Very good point. However, it has been commodified quite clumsily, leading to the impression that one Java programmer with three years experience is interchangable with any other. Demonstrably false, and plenty of studies show it. But at the moment, with almost all the attention on quarterly numbers instead of long-term growth, it's an awfully attractive idea.
Incidentally, your comparison bewtween American and Indian wages is way off of reality. Recent studies show about a 1/3 savings at best (and every company jumping into this assumes they'll be one of the best) when work is offshored. Salary is obviously only one factor - and Indian salaries are structured differently than in the U. S. so you can't just look at base salary.
On the other hand those sort of ridiculously large disparities are definitely stuck in the minds of most Americans - and CEO's and Boards of Directors are infected with that same dazzling vision. They think they've finally found a lunch which, if not exactly free, is darn close.
Hindsight will show that the market didn't pay Indian workers so much less on accident. It was a measure of their productivity and subsequent market value. And while it's certainly on the rise, it is not equivalent to U. S. workers.
I'm inclined to agree, if only because of my experience with outsourced call centers. I think we will see some jobs boomerang, especially the service centers. You can teach a young Indian to speak English well, and you can teach him the corporate policies and procedures; but you cannot teach him the cultural nuances necessary for successful customer relations in the U.S.
I was on a customer service line with an Indian worker for AMEX and witnessed (via phone) her complete meltdown. A complete inability to handle the competing interests of the customer and her employer. In America, we understand (generally) the concept that the "customer is always right", even if we know that statement is a literal falsehood. I'm not so sure foreign cultures understand.
One may argue that these sort of methodologies do not lead toward "innovation." I would assert that the sort of work that they are doing - and that their American competitors were doing - was not all that innovative in the first place: Much of the IT industry is really not all that "creative" in the first place nor is this a common attribute in any work force. Nonetheless, the intellectual environment for a technology work force - problem solving, mastery of the tools and paradigms of the moment, a feel for the current issues and trend - and that actual technical work force itself are quite hard to build.
The point is that the software industry required an experienced, educated and motivated pool of workers, and that we stand to lose that pool. The next group of entrepreneurs that utilizes the pool of talent may well be Indians, one only has to look at the history of software in the 70s and 80s in Silicon Valley to see this. It was the (physical) proximity of urban centers, universities, venture capital, entrepreneurs and designers that lead to the development of that "revolution." One can say that there is a new paradigm around the corner that we allow us to keep our lead but that is an assertion at best and at worst is wishful thinking. It is by no means guaranteed. From a financial viewpoint it would be foolish for any young American to go into any engineering field where the work did not require some sort of local presence, and current enrollments in Computer Science curricula reflect this point quite baldly. It will be hard to raise the cane up when it is in the field.
In no sense has the software industry been "commodified," it has been moved off shore. The "creative destruction" argument is specious in this instance: These jobs are not being replace by a new industry built on the ashes of an older obsolete industry, it is merely a more efficient use of capital. This may in fact be a first modern economic history. It is suicidal to not see this as a real threat to American leadership. That being said, what the solution is is still up for grabs. Had we allowed manufacturing to radically automate in the 60s and the 70s it might not have moved offshore. Perhaps we should consider learning that lesson.
Two things are certain:
1) The American people will not stand by and watch a major part of technology jobs be sent overseas without resorting to political remedies, even if those remedies are in the long term harmful to the nation. The disaster of the demise of manufacturing as the backbone of our economy is too close in time and experience, still too etched on their fathers' faces for us to imagine otherwise.
2) The will not be swayed by a high blown macroeconomic argument coming from elites whose live or children's lives are little effected by outsourcing. They will indeed toss those people out of office or tax the devil out of them.
If conservatives do not come up with some sort of approach to the issue then Left will, and we all know what their solution will entail.