Re: Does Outsourcing Piss you off?

The money you saved by offshoring some work you can invest it
at home in education and research to create new advanced technology. In
this way, US have the ability to sell something nobody else can produce yet
in exchange for the commodities it import. There is not going to be any job
loss, wages decline or trade deficit.

Unless the funding on research yields no results. Putting money into
research is fine because technological improvements can be beneficial
in the long run, but most may be offended by the idea of coercing
people to put their hard earned money into research.

Research and technology is beneficial because they allow productivity
increases, i.e. increases in the ratio of output to input or getting
out more with less. E.g. producing more cars at lower costs is an
increase in technology. Outsourcing therefore is a technological
increase because the firm is putting less money into labor and are
getting what they presume is the same quality of output. If the quality
of output is not the same, it may be profitable for them to outsource
and they won't.

Suppose more money is put into research. Suppose this research creates
a machine that produces cars everything at almost zero cost. Workers
who work at car factories would all lose their jobs because their
services are no longer in demand. You say money put into research is
"smart." Research that leads to productivity-increasing technology has
the same effect as outsourcing. Therefore, wouldn't outsourcing be
smart by the same reasoning?

The empirical research does suggest that although there are job losses
following outsourcing there is more job creation according to the
stats. Although we have to watch out for post hoc propter hoc fallacy
here.

Someone also mentioned that what works in micro issues does not apply
to macro issues. I was under the impression that macro issues were just
aggregated micro issues. How is it not?

An US unionized worker making 45k/yr can afford to buy an 35k
SUV. If his job was offshored to China and the Chinese make 2k/yr the GM is
not going to sell that SUV anymore.

The CEO's increase in profits as well as the Indian worker's increase
in profits would together compensate for the decreased demand the U.S.
worker's loss of income created. Increased overall demand is what gives
the U.S. worker opportunity to get a job in the long run.

The CEO was already able to afford the car he wanted. Doubling his income is
not going to increase GM business. He is going to buy his new SUV at every
2 years as he already did.
The 100 Indians getting those jobs won't be anyhow able to afford an GM SUV
having Indian wages.
However, GM is going to lose 100 customers, which used to buy a car at every
5 years.

This is a very short-term, partial equilibrium perspective. GM isn't
going to lose 100 customers because a likely non-zero proportion of
workers will get jobs once there is increased demand for their services
due to the increase in CEO's salary and the increase in the Indian's
salary. The overall wealth that increased is what drives this job
creation. "Overall 'consumer income' has increased because of the
higher combined productivity of both the American who gets more done
with his time, and the Indian who is contributing to the Global economy
rather than subsistance farming or whatever he was doing before being
hired by schlepprock."

Outsourcing is just a specific case of a general case in trade.

1. A and B trade.
2. C offers a better deal to A.
3. A choses C instead.

This happens very often in trade, in international trade as well as
trade within countries as well as trade among family member. To prevent
outsourcing is to force the following:

1. A and B trade.
2. C offers a better deal to A.
3. Entity with monopoly on power coerces A to trade with B.

This is the essence of communism. Can anyone say with honesty that the
second case is preferable to the first?


The Level Playing Field Act
http://capmag.com/article.asp?ID=3098

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