We borrowed what you are observing. Eventually, it must be paid back with interest.
Any questions?
Posted on 02/17/2004 5:35:48 PM PST by phil_will1
Last week, Council of Economic Advisers Chairman N. Gregory Mankiw ran into a buzz saw. He committed a major gaffe, which in Washington means he spoke the truth, by defending the concept of outsourcing -- contracting with foreigners for information technology services. With a lack of job growth being the central economic issue in the country today, Mankiw's comments were assailed across the political spectrum. President Bush quickly distanced himself from his aide's remarks, House Speaker Dennis Hastert, R-Ill., repudiated them, and many Democrats called for Mankiw's dismissal.
There is at least one person in Washington who knows precisely how Mankiw feels: Federal Reserve Chairman Alan Greenspan. Back in 1974, Greenspan held the same position Mankiw now holds. Shortly after his confirmation in September of that year, Greenspan participated in an economic summit. At the time, the United States was in the middle of the deepest recession of the postwar period and inflation was rising rapidly. That year, the Consumer Price Index would rise 12.3 percent.
Greenspan was asked whether the Ford administration's policies were benefiting the rich over the poor. He replied: "If you really wanted to examine who, percentage-wise, is hurt the most in their incomes, it is Wall Street brokers. I mean their incomes have gone down the most."
Needless to say, Democrats had a field day attacking Greenspan for seeming to worry more about the problems of rich Wall Street brokers than those of common people. Although he quickly apologized, many observers believe that Greenspan was permanently scarred by the incident and forever afterward became far more circumspect in his public and even private comments.
Of course, when one gets caught in one of these Washington firestorms, there really isn't much one can do except apologize, hunker down and wait for the storm to pass. That is what Mankiw is doing. Unfortunately, the result is that debate on serious issues is often short-circuited and the political establishment draws erroneous conclusions. In this case, it may conclude that the issue of outsourcing is radioactive and everyone may rush to support ill-conceived legislative fixes with harmful economic consequences.
Here is the offending statement in the Economic Report of the President that has led to calls for Mankiw's head: "One facet of increased services trade is the increased use of offshore outsourcing in which a company relocates labor-intensive service industry functions to another country. ... Whereas imported goods might arrive by ship, outsourced services are often delivered using telephone lines or the Internet. The basic economic forces behind the transactions are the same, however. When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically."
One would have a hard time finding a reputable economist anywhere who disagrees with this analysis. No nation has ever gotten rich by forcing its citizens to pay more for domestic goods and services that could have been procured more cheaply abroad. Nations get rich by concentrating on doing the things they do best and letting others produce those things they can produce better and more cheaply. It is called the specialization of labor, and it is the foundation for economic growth. That is why even Democratic economists like Janet Yellen, Laura Tyson, Brad DeLong and Robert Reich have come to Mankiw's defense.
What is different about outsourcing and why it has aroused so much protest is that it is affecting workers who thought they were immune from international competition. Blue-collar workers in manufacturing have been suffering from outsourcing for 100 years. It is worth remembering that textile jobs in South Carolina today were originally outsourced from Massachusetts. While in the short run, the transition was painful for Massachusetts textile workers, they soon found better jobs in new industries. That is why per capita income there is and always has been far higher than that in South Carolina.
It would be grossly unfair to say that it is OK to move manufacturing wherever production is cheaper, but wrong to subject information technology services to the same competition. It is mostly because of the Internet and the fact that IT people know how to use it that they are getting attention disproportionate to their numbers. Moreover, if we hadn't just gone through a painful economic recession, most of these people probably would have already found new jobs and the problem of outsourcing would not be worth writing nasty emails about to politicians and people like me.
In any case, even if the federal government tried to stop outsourcing, it cannot. We can put quotas and tariffs on goods that cross our borders, but it is impossible to stop people from importing software and data over the Internet. The only response that is possible is to adapt, innovate and stay ahead of the curve.
And that question is answered by the free market; not the crypto-socialists. There's nothing magical about it. If a demand exists, then someone will come along to fill that demand. At no point in the process does a third party's opinion of the importance of the item come into play. You and I might think that an environmentalist industry or a diversity consultant industry is goofy, but that doesn't matter to the loon who wants to pay money for just such a service.
The Second Law of Thermodynamics: Learn it, live it, love it.
We borrowed what you are observing. Eventually, it must be paid back with interest.
Any questions?
Why is it that the U.S. savings rate on that chart was at its highest in the 1970s, when this country's economy was in the toilet?
As is the the case in most things, it's not quite that simple. I am one of the doom and gloomers. The conflict is most evident between two views offered by the BLS household and establishment surveys.
The household survey of employment suggests to many that millions of jobs have been created. The establishment survey says hundreds of thousands of jobs have been lost. There are tons of anecdotal evidence on both sides.
Regardless, there is little doubt that millions of Americans are bearing the burden alone as our economy slowly adjusts to "globalization." Fine. That's life. Many are working at lower paying jobs or part time looking for full time jobs. This satisfies the mainstream Republicans' "jobs is jobs" crowd. Meanwhile dem Rats make much of the troubles. It worked for them in 1992 -- with 24/7 help from the mainstream media.
So, I for one am NOT "extrapolating one trend into the whole field of vision." I know that 90 percent are doing from just Okay to very well indeed, thank you!
But I am tired of seeing the one trend (the ten percent) get bashed by the Limbaugh-Hegecock-Sullivan "conservatives" as being the cause of unemployment because they are too lazy to go back to work. I've heard all three men say it.
People didn't move from the farms to the factories over a weekend. It takes time. Give those bearing the burden some slack. But no! It's a dynamite schadenfreude high gawking at their troubles, isn't it?
I think you answered your own question, but add this to it: In the 1970s, the US was not an "instant gratification" society. Some vestiges of the Depression-Era still lingered. That doesn't exist anymore. Its consumption, consumption, consumption these days. People in their 20s and 30s used to save money. Now they go and party.
A lot of people are doing cash-out refis on their houses to buy cars with. Hence, the debt ratio skyrockets. Others I know are doing cash-out refis to consolodate other credit card debt. Others still are unemployed and are doing cash-out refis in order to buy groceries.
Look at it another way: Check the ads on TV. 0% financing and no payments for two years from -uh- everyone? Sounds like desperation for sales.
What say you?
No. The school teacher's union demands more money from the county. The county raises property taxes. The property owners borrow (more) against their equity to pay the increasing taxes.
This was the reason for the widespread tax revolts in the 1930s. Taxes were increasing and the government workers were doing well, while the taxpayers were getting sliced from both directions.
It is happening again. And just like before, most of those government workers keep demanding the slices on the taxpayer be deeper and deeper, because they don't feel a thing.
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