You want fries with that??
"US Jobs to become service oriented and will require face-to-face interaction with 'clients'"
Posted on 03/05/2003 12:24:33 PM PST by A. Pole
In a recent cover story Business Week magazine observed (http://www.businessweek.com/magazine/content/0305/b3818001.htm) that economists haven’t begun to fathom the implications ( http://www.townhall.com/columnists/paulcraigroberts/pcr20030226.shtml) of outsourcing for the U.S. economy. Economists don’t understand globalism because they don’t think about it. They simply assume globalism to be the beneficial workings of free trade.
Most economists take for granted that the benefits of free trade offset its costs. For example, the lower prices consumers pay for imports give more benefit than the harm done to the workers who lose their jobs in inefficient domestic industries. Any questioning of globalism raises the specter of protection--the prevention of resources from flowing to their highest valued use.
If a New York company can outsource its 1-800 call center to a lower wage state, why not to India (http://www.wired.com/news/business/0,1367,55799,00.html)? If a Floridian can freely trade with a Georgian, why not with a Chinaman (http://olimu.com/WebJournalism/Texts/Commentary/WhiningMinority.htm)?
If a person can run an indefinite trade deficit with his local supermarket, why does it matter if a country runs the same endless deficit with its trading partners ( http://www.calnews.com/archives/guzzardi17.htm)?
All of these rhetorical questions (and many more) can be found in the Economists’ Book of Mantras. Economists use these questions to reassure themselves so that they don’t have to think.
Let’s ask a new question: Is outsourcing trade?
What is being traded when a U.S. firm or industry relocates its capital and technology in China, where it employs Chinese labor to produce goods for the U.S. market?
Adam Smith’s argument for free trade is an argument against self-sufficiency in all goods and services. It is not an argument for exporting a country’s productive capability to countries with the lowest labor costs.
In the Smithian model, countries have different endowments. Differing climates give advantages to the production of different crops. Differing histories and inclinations result in different advantages in finance, skills and manufacturing.
If each country specializes in areas where its advantages are greatest or disadvantages are least, the gains from trade will make each country better off than it would be if it remained self-sufficient.
But, if there are no given endowments because business know-how, capital and technology are globally mobile, the advantage lies with countries with untapped pools of educated and skilled low-wage labor. The advantage increases with the absence of tort lawyer extortions and harassing and fining IRS, EPA, OSHA, EEOC and other regulatory bureaucracies, whose budgets demand a never-ending supply of wrongdoers to be penalized.
To return to the question: Where is the trade in outsourcing?
Trade implies reciprocity. It is a two-way street. There is no reciprocity in outsourcing, only the export of domestic jobs. That’s why the U.S. is currently running a $125 billion trade deficit with China alone, a third world country. That’s why the U.S. is turning over $1.5 billion per day in its accumulated wealth to pay for all the outsourced goods and services that return to our markets as imports.
One reason that trade between countries is not the same as trade within a country is that more than one currency is involved. A country that runs persistent trade deficits dispossesses itself of its wealth and the future income that flows to the new owners of that wealth.
A second blow falls when foreigners find themselves satiated with dollars, or overweight U.S. investments. Then the dollar devalues, and the outsourced goods and services on which the U.S. is import-dependent become expensive.
An economy can, of course, stand some outsourcing.
But when goods and services in general are outsourced, where is the economy?
The enormous untapped labor pools in China, India, Indonesia and the Philippines exceed in size the U.S. population. They are sufficiently large to hold down living standards and wages in those countries until all U.S. manufacturing and information technology jobs have been outsourced in order to boost corporate profits.
A country devoid of high productivity jobs is a poor country. Is the U.S. on the outsourced path to becoming a third world country?
The Bush administration should think about this question before it gratuitously attacks Iraq. The consequences of war in the Middle East are unknown.
The Bush administration should also think about the rapid rate at which outsourcing is dispossessing the U.S. of its accumulated assets, including the domestic supply chains that are the backbone of American productivity.
How long will foreigners accept an annual outpouring of $500 billion before they force a devaluation of the dollar?
What becomes of the living standard of a people whose jobs and careers have been outsourced, people who are dependent on imported goods and services, and whose currency loses its value?
Protection is not a solution. Protection is a strategy to protect domestic producers from foreign ones. But U.S. global firms and firms whose profits benefit from outsourcing are not domestic producers. Protection would require the U.S. to erect tariff and quota walls against the products of U.S. firms who use foreign labor to produce for U.S. markets.
Do Americans possess enough national identity to have a shared national interest?
Are government and economists capable of recognizing that the global labor market is a threat to U.S. living standards and political stability?
COPYRIGHT CREATORS SYNDICATE, INC. ( http://www.creators.com)
You can do a million dollar day in retail and still be bankrupt if you don't have a margin to go with it.
The margin what you can actually pocket.. It's the profit and you can actually spend that.
The rest is just money being forked from one hand to the next. (Supplier, transport, warehousing & distribution... etc.)
???
You'd get the California power crisis (force electricity providers to buy high, then force them to sell low to customers), only this time it hits the international economy.
I just wonder how the margin affects there raw trade dollar ammounts I see refrenced.. You know the "trade deficit" figure.
I wonder if and how the margin of these products plays into this. Because, obviously some products are much more profitable than others.
No, I don't agree with the premise that foreign nations should be forced to buy an equivalent amount of goods that we purchase from them.
Adam Smith's proposal for tariffs on imports was to compensate for other taxes placed on domestic production. So if domestic companies were paying 25% in taxes (Income Tax, Property Tax, Social Security Tax, etc. etc.), Foreign imports would be subject to a 25% tax. If the total on domestic producers was less (or more), the tariff would be lower or higher accordingly.
While I agree with this in principle, I also think the economy (and our domestic tax codes) is too complex for it to be practicle. Rather than trying to figure out seperate tariff rates for every commodity that may be imported, I would favor a flat rate revenue tariff applied to all imported goods.
It's about the total value of goods as opposed to just dollar ammounts shipped back and forth.
How would this affect your outlook on global trade, if at all?
In your hypothetical scenario, the second situtation may be more profitable for the company, but not necessarily for our economy, paid to the Chinese.
Do you think that will work?
Works just the way you drew it up.
If the customer who purchased $4,800 worth of goods from the grocer wishes to pay for his goods, than he'd better sell AT LEAST $4,800 worth to someone. More if he wants to buy something more, like a new car or dream vacation.
Similarly, the grocer will spend his $4,800 on more groceries to sell the customer, or customers. Hopefully, he'll buy, say, $5,000 worth, so he can buy a new car or take his dream vacation.
They can do this forever.
No, it doesn't.
If the customer who purchased $4,800 worth of goods from the grocer wishes to pay for his goods, than he'd better sell AT LEAST $4,800 worth to someone.
Ah, but like the idea that Country A must buy the exact same dollar amount of goods and services from the US as it sells to the US, I'm mandating that the grocery store must buy the goods and services in question.
They can do this forever.
Yeah, in an economy of two entities that might work. Realistically, it's be much less. The point is, grocery shelves don't stock themselves (else I'd own a grocery store).
I was thinking of countries actually.
If it were individuals, it would never work because they have to re-invest all their profit to make the next purchase. Individuals have other expendatures also.
Yes, I did--please go back and read the original post. I mandated that the GROCER had to buy an equivalent dollar amount of goods and services from the customer.
In the case of most industrialized countries, indefinitely. (In the case of Japan, most certainly decades). The U.S. is the largest market for their goods, and it is unlikely that they would tolerate their currencies appreciating against the dollar. Moreover, our exporters are begging for the dollar to be devalued.
Not just the company because the American worker is taxed to support a Social Security program, and pays FICA, state and local taxes plus a large portion of our income goes to property taxes and other taxes to support government programs. When the American is out of a job, those programs still exist and fewer are left to pay for them, there's still free health care programs, public schools and all the rest that someone has to pay for. Before they justified taxes by saying those who benefit from the American economy must pay to provide for those who don't ---and now the Chinese and others are benefitting by having jobs so they should also pay for our Socialist programs. Unless we end those.
You want fries with that??
"US Jobs to become service oriented and will require face-to-face interaction with 'clients'"
Good analogy. Here's another:
If I find someone to do my yardwork for $8 an hour (because that's what he's willing to work for), should I require him to buy equivalent dollar amounts of my software services (at my higher hourly rate)? No, he'd rather take the money and buy food or pay rent or whatever -- it's his business. Should there be a law requiring me to do my own yard work? No, because I can contribute more to myself and the economy by doing software (at say, $50 an hour) than doing the yard work.
If a Chinese company is willing to manufacture toys for 20 cents on the dollar, should I require that they buy expensive U.S. goods with their money, or should I let them make their own spending decisions?
I say, let them decide what they want to do with their 20 cents. Meanwhile, I have 80 cents in savings that I can do something with. I might just buy four more toys and have some fun (this is probably what a lot of Americans are doing). Or I might buy some Vietnamese software at 20 cents on the dollar so I can improve my own productivity and make myself more competitive. Or I might invest my savings in education and training to the same end. Or I might invest my savings in a company (foreign or domestic) so that other people will work to provide me with a stream of income.
In general, I can choose to put my savings to productive use or I can just enjoy myself. My guess is that at a macroeconomic level, "too many" Americans are just enjoying themselves rather than investing wisely.
Why? Could government incentives to spend (e.g., tax deductibility of mortgage interest) and government disincentives to invest (e.g, taxation of dividends and the alternative minimum tax) have something to do with it?
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