Is outsourcing/offshoring the biggest threat to the US general economy?

[ThomasT]

I'm naive on this subject and have no opinion. But I was curious after reading an article in the March 25 issue of The Week what more knowledgeable observers might have to say. The text of the article is reproduced below.

<<huge quote of copyrighted material deleted>>

 

[BobG]

Globalization spreads the wealth from the traditional economic giants (the G-8 which was formerly the G-6, for example) to developing economies (the G-20, which replaced the G-8 as the major economic council of wealthy nations in late 2009, for example).

In good times, it means the wealth of Americans won't grow as fast as it used to. In bad times it becomes absolutely brutal for American workers.

So the answer to your question depends on exactly what your question means. It isn't a threat to collapse the American economy, but it has a definite impact on the American economy.

 

[ThomasT]

Globalization spreads the wealth from the traditional economic giants (the G-8 which was formerly the G-6, for example) to developing economies (the G-20, which replaced the G-8 as the major economic council of wealthy nations in late 2009, for example).

In good times, it means the wealth of Americans won't grow as fast as it used to. In bad times it becomes absolutely brutal for American workers.

So the answer to your question depends on exactly what your question means. It isn't a threat to collapse the American economy, but it has a definite impact on the American economy.

Thanks. So should we infer that the intent of globalization is definitely not to increase the standard of living of the, say, 135 million wage and salary workers in America, but is rather to spread America's wealth to the workers of other countries? Or should we infer that the intent is to increase the wealth of the wealthy?

 

[rootX]

I agree with Jack Welch.

Globalization/industries production has nothing to do with Americans. Companies don't exist to feed people but rather to make profits and deliver good returns to those who invest in the company.

Protective measures like the article suggested don't work out. The whole article is nonsense.

 

[ThomasT]

I agree with Jack Welch.

Globalization/industries production has nothing to do with Americans. Companies don't exist to feed people but rather to make profits and deliver good returns to those who invest in the company.

Protective measures like the article suggested don't work out. The whole article is nonsense.

My guess is that you're either retired or haven't lost your livelihood to outsourcing/offshoring, and are a Republican. Is that correct?

 

[BobG]

Thanks. So should we infer that the intent of globalization is definitely not to increase the standard of living of the, say, 135 million wage and salary workers in America, but is rather to spread America's wealth to the workers of other countries? Or should we infer that the intent is to increase the wealth of the wealthy?

I agree with Jack Welch.

Globalization/industries production has nothing to do with Americans. Companies don't exist to feed people but rather to make profits and deliver good returns to those who invest in the company.

Protective measures like the article suggested don't work out. The whole article is nonsense.

My guess is that you're either retired or haven't lost your livelihood to outsourcing/offshoring, and are a Republican. Is that correct?

Why? What he said was correct. The intent of globalization is to increase profits for the companies that are investing in developing countries. There's no intent one way or the other towards Americans - the affect on Americans is an irrelevant side effect for the companies involved.

Globalization is bad for Americans in jobs that can be easily outsourced. Globalization is good for people in developing countries. Globalization reduces the number of wars between countries. Globalization is bad for the environment, since, along with increased wealth comes increased demand for goods and modern conveniences, and the accompanying increased demand for the resources necessary to provide those goods and conveniences. But, regardless, none of those effects are the intent of globalization.

 

[WhoWee]

My guess is that you're either retired or haven't lost your livelihood to outsourcing/offshoring, and are a Republican. Is that correct?

Why is that a Republican concept - didn't NAFTA and other Clinton initiatives accelerate the process - and isn't the current CEO of GE part of the Obama (Democrats) team?

 

[Proton Soup]

I agree with Jack Welch.

Globalization/industries production has nothing to do with Americans. Companies don't exist to feed people but rather to make profits and deliver good returns to those who invest in the company.

Protective measures like the article suggested don't work out. The whole article is nonsense.

for what purpose do Americans exist?

 

[WhoWee]

for what purpose do Americans exist?

To shop at Walmart for goods made in China?

 

[rootX]

I have never considered social consequences of globalization in the developed nations. I don't think it is easy enough to find how the people lives are influenced. Looking only at the number of jobs outsourced is not sufficient. Economically, everyone should be better off.

 

[Proton Soup]

i think i know what would cause corporate taxes to go back up in europe. have the US pull out of NATO. have the europeans have to deal with this Libyan crisis on their own. have europe worry about securing petroleum from the east on their own. have europe secure their physical security on their own.

it very simple. governments provide services. at a cost.

 

[BobG]

Economically, everyone should be better off.

In the long run, they are better off economically since it means a greater overall rate of economic growth. But that doesn't mean every group is better off, since even a smaller rate of growth is better for some people if they happen to live in one of the countries where growth is concentrated.

Or perhaps in the semi-long run since you still have that extra demand for global resources.

If you don't happen to live in one of the original G-6 countries, then you'd have to say that globalization is a more fair distribution of wealth, since those G-6 countries were tapping global resources to fund the economic growth in just those countries.

Where a person lives affects their view of globalization.

 

[vici10]

Globalization reduces the number of wars between countries.

How do you know this? Do you have historical data for this? To clarify, what do you mean by globalization? And when do you think it started?

 

[ThomasT]

Why? What he said was correct.

I didn't say it wasn't.

The intent of globalization is to increase profits for the companies that are investing in developing countries.

So the primary intent of globalization is to increase profits of companies that outsource, ie., to increase the wealth of the relatively more wealthy. Peripherally, not intentionally, it increases the wealth of foreign workers, and decreases the wealth of US workers. Ok?

There's no intent one way or the other towards Americans - the affect on Americans is an irrelevant side effect for the companies involved.

I agree that the affect on US workers seems to be an irrelevant consideration. I just wonder how, say, 80% outsourcing might affect the general US economy. If it brings prices down, I'm all for it.

 

[BobG]

How do you know this? Do you have historical data for this? To clarify, what do you mean by globalization? And when do you think it started?

Corporations have a huge impact on democratic governments.

If the leader of country A bombs a MacDonalds in country B, then that leader won't get many campaign donations from the people in country A that invested in MacDonalds.

If the workers at GM get laid off because the US bombed the parts supplier that GM outsourced to some third world country, the President wouldn't be getting union support, either.

As countries' economies become more and more enmeshed, they can't afford to go to war against each other.

That seems to be something a few world leaders have missed. Having a multinational corporation build factories in their country gives them more security than nuclear weapons.

 

[vici10]

Corporations have a huge impact on democratic governments.

If the leader of country A bombs a MacDonalds in country B, then that leader won't get many campaign donations from the people in country A that invested in MacDonalds.

If the workers at GM get laid off because the US bombed the parts supplier that GM outsourced to some third world country, the President wouldn't be getting union support, either.

As countries' economies become more and more enmeshed, they can't afford to go to war against each other.

That seems to be something a few world leaders have missed. Having a multinational corporation build factories in their country gives them more security than nuclear weapons.

This is not very convincing explanation. You need to support it by facts, i.e define what is globalization, when did it started and count the number of wars in the whole world for this historical period.

For example, I know that from 1990s, Canadian mining corporations hugely increased their presence in Africa. In the same time I also see increased brutality of the wars there. Millions of people are dead. How does it fit in your explanation?

 

[ThomasT]

Why is that a Republican concept - didn't NAFTA and other Clinton initiatives accelerate the process - and isn't the current CEO of GE part of the Obama (Democrats) team?

It isn't a Republican concept. It's a business concept. I noticed in the article that Republicans were blocking some Democratic legislation aimed at blocking certain US governmental incentives to outsource.

And all US presidents are, necessarily, pro big business. But globalization makes this stance impossible to justify to the bulk of US citizens by saying that big business incentives create more US jobs, precisely because globalization results in fewer US jobs.

 

[rootX]

For example, I know that from 1990s, Canadian mining corporations hugely increased their presence in Africa. In the same time I also see increased brutality of the wars there. Millions of people are dead. How does it fit in your explanation?

That isn't related what BobG said though:

Globalization reduces the number of wars between countries.

You are not offering contradictory example i.e. hostilities grew between Canada and African countries as Canadian mining corporations were hugely increasing their presence in Africa.

As economic dependence grows, it gets harder to be on rough terms with each other. But, tensions still do exist e.g. China/US.

 

[vici10]

That isn't related what BobG said though:


You are not offering contradictory example i.e. hostilities grew between Canada and African countries as Canadian mining corporations were hugely increasing their presence in Africa.

As economic dependence grows, it gets harder to be on rough terms with each other. But, tensions still do exist e.g. China/US.

BobG said that globalization reduces the number of wars between countries. Why should be hostilities between Canada and African country? The corporations are multinationals. The only Canadian in them that their headquoters are in Canada. More multinational companies in Africa - more wars. May be it is just coincidence, that is why there is a need more data.

May be Canadian corporations help to remove goverments that are not business friendly? What about increased profit through war? For example, oil companies and weapon companies made huge profits on wars in the Middle East. What about such motives as creating scarcity through wars and making huge profits. Are these not valid questions? Anyway, the claim that number of wars decreased with globalization needs a support from historical data.

 

[lisab]

For example, I know that from 1990s, Canadian mining corporations hugely increased their presence in Africa. In the same time I also see increased brutality of the wars there. Millions of people are dead. How does it fit in your explanation?

Correlation <> causation.

 

[vici10]

Correlation <> causation.

Agreed, but claim that globalization reduces wars in the world needs some support from historical data.

 

[OmCheeto]

I agree that the affect on US workers seems to be an irrelevant consideration. I just wonder how, say, 80% outsourcing might affect the general US economy. If it brings prices down, I'm all for it.

80% unemployment is irrelevant? What are we going to do when their unemployment benefits run out? Watch them twitter their way to the white house, and demand a regime change?

 

[ThomasT]

My question has to do with the effect of outsourcing on the US general economy. The economy that directly affects the lives of most Americans. And thematic considerations. For example, what are the numbers regarding US jobs outsourced to foreigners? 10%? More? Less? How high is it likely to go given current trends?

 

[ThomasT]

80% unemployment is irrelevant?

Wrt the current state of affairs, the effect of outsourcing on US workers seems to be an irrelevant consideration for either the US government or US companies.

Is the outsourcing helping or hurting the US general economy? This includes foreign workers and managers imported to the US to replace existing US workers and managers, as well as the outsourcing via offshoring, and the outsourcing to residents of foreign countries by companies headquartered in the US.

 

[Vanadium 50]

I suggest people start by reading http://www.economist.com/node/605144?story_id=605144" in the Economist, titled "Why Trade Is Good For You". It shows how trade benefits both partners.

"Outsourcing" is, from a trade point of view, the same as importing. Instead of importing good like oil or coffee, we're importing services.

In the absence of trade, we might well have higher wages. But we would also have prices for goods and services that were even higher still, so we would have less purchasing power, at least on average. Of course some individuals do better and others do worse, depending on whether you are a producer or a consumer, and whether you produce or consume a product where your country has a comparative advantage or disadvantage.

 

[AlephZero]

I suggest people start by reading http://www.economist.com/node/605144?story_id=605144" in the Economist, titled "Why Trade Is Good For You". It shows how trade benefits both partners.

Or you could read Adam Smith's "The Wealth of Nations". After all, he published it in 1776, and he knew some of the Founding Fathers pretty well.

The way to get more employment in the US is to grow the world economy, so there are more people who can afford to buy US "stuff". If that means converting a few hundred milllion people from living on $1 a day to $10 a day, by doing jobs that Americans wouldn't do for less than $100 a day, so be it.

 

[OmCheeto]

Or you could read Adam Smith's "The Wealth of Nations". After all, he published it in 1776, and he knew some of the Founding Fathers pretty well.

The way to get more employment in the US is to grow the world economy, so there are more people who can afford to buy US "stuff". If that means converting a few hundred milllion people from living on $1 a day to $10 a day, by doing jobs that Americans wouldn't do for less than $100 a day, so be it.

The world was a much different place 200 years ago.

I would start studying modern economics, vs. Neanderthal economics.

Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.

Adapt, or die.

 

[AlephZero]

The world was a much different place 200 years ago.

Not true. Economics is about human activity. Humans still think the same way as they did 2000 years ago let alone 200. They probably thought the same way when the Neanderthals were around, but the evidence is hard to come by.

You really should learn a bit of history. For example compare what has happened over the past few years with the South Sea Bubble, back in the 1720s.

Can you explain exactly what is the difference between "subprime mortage lending" and "The carrying on of an undertaking of great advantage, but nobody to know what it is"? I don't see any.

I would start studying modern economics, vs. Neanderthal economics.

No thanks. I made over 40% return on my investments (after tax) in 2008. Remind me again how much the economic experts in the US finance "industry" made. I seem to remember it was a negative number.

 

[ThomasT]

Thanks for the replies so far.

My question had to do specifically with the effect of outsourcing on the general US economy. I probably should have posed the question re the real US economy, which would include consideration of the changing demographics of the US workforce due to outsourcing/offshoring and the importing of foreign workers, and how this affects the real US economy.

A couple of respondents to this thread suggested that outsourcing will grow the general economy. Which part(s)? Is it possible for the general economy to grow while a large part the real economy actually recedes? That is, from what I've been able to gather, most of the positive changes seem to be happening at the top end of the income spectrum. Which is what I would expect as outsourcing continues and accelerates. Inflation seems to be continuing at a slow, steady rate while the bulk of the real economy seems to be receding at a slow, steady rate.

Here's an article from the Population Reference Bureau: http://www.prb.org/Articles/2008/offshoring.aspx

And a source for US revenue data: http://www.usgovernmentrevenue.com/piechart_2003_US_fed#usgs302

Any comments on those? I haven't had a chance to play a lot with the latter. I posted the thread in the hope that a few PFers had already done lots of research on this and had some numbers, and opinions regarding the OP, in mind.

It seems that the number and types of jobs vulnerable to outsourcing will continue to increase, because, as has been noted, it's just good business for the most part. It's been difficult to find any numbers on total outsourcing and rates of outsourcing.

 

[Al68]

I would start studying modern economics, vs. Neanderthal economics.

You mean like the broken glass theory, ie Keynesian economics? Keynesian economics is socialist fraud, nothing more.

The Wealth of Nations, if you put reality ahead of socialist delusions, has stood the test of time as a very good description of reality. You have any actual evidence that "Neanderthal economics" has been shown to be wrong?

I've heard plenty of propaganda intended to deceive people about reality, but I'm unaware of any real facts to support such an assertion.

 

[ThomasT]

Here's a link to an interview that mentions outsourcing/offshoring:




And an article by the interviewee on real unemployment:

The Bureau of Labor Statistics (BLS), using its Current Population Survey of non-farm jobs, announced this morning that in March 2011 "U.S. employers increased non-farm payrolls by 216,000 jobs, including 230,000 private sector jobs added in the month versus an adjusted upward 240,000 increase in February. The 'official' unemployment rate edged down to 8.8% from 8.9%."

The consensus expectation was for 195,000 new private sector jobs, versus the 230,000 that were announced. The BLS also identified 13.5 million unemployed workers.

The monthly BLS announcement regarding unemployment, however, as we note each month:

1. Uses only a "survey of households" rather than much more accurate payroll data;

2. Excludes changes in employment among the nation's 11.0 million farm and self-employed workers; and

3. Most important, does not take into account the 14.7 million workers who are:

i. "part-time-of-necessity" (i.e., underemployed) because their hours have been cut back or they are unable to find a full-time job (8.4 million);

ii. "marginally attached" to the labor force because while wanting a job, they have not searched for one in the past four weeks because of availability, skill or personal reasons (2.4 million); or

iii. "discouraged" and who have removed themselves from the labor force although they "currently want a job" (3.8 million).

Our Summary of U.S. Real Unemployment [attachment 1] makes these three adjustments. It also identifies average weeks unemployed, job openings, and the all-important "Jobs Gap" that needs to be filled in order to be at full employment in real terms. With the three adjustments made, in March:

· The number of real unemployed workers in all four categories - official BLS, part-time-of-necessity, marginally attached, and discouraged - decreased by 193,000 workers to 28.2 million, which remains more than twice BLS's official figure of 13.5 million. Significant changes in real employment included: private service-providing sector employment increasing by 199,000 jobs; manufacturing increasing by only 17,000 jobs; construction employment flat after increasing by 37,000 jobs in February; and government employment, mostly local, again declining, this month by 14,000 jobs.

· The real unemployment rate is 17.7%, compared to last month's real unemployment rate of 17.8% and to BLS's dramatically lower 'official' rate of 8.8%.

· The number of real unemployed workers has increased by 11.5 million since the start of the Recession, and just since December 2008 by 3.7 million. The latter figure and the Jobs Gap figure that follows are of significant political import, since the economy needs to add at least 150,000 new private sector jobs each month simply to keep up with population growth.

· The Jobs Gap, in real terms, is 20.2 million.

(Some in the national press, notably the New York Times, when commenting on real unemployment, still leave out those discouraged workers who while wanting a job have removed themselves from the labor force. Yet this remains a huge category (3.8 mm) and arguably the most 'unemployed' of the four categories. The all-in real unemployment rate of 17.7% drops to 15.7% when these workers are not included.)

The average number of weeks unemployed is at least 39.0 and the number of workers unemployed a half year or longer is at least 9.9 million (i.e., BLS's official figure of 6.1 mm plus the 3.8 mm discouraged workers). Each figure remains unprecedented in modern times, and when considered together, they are always a much better measure of the real employment condition than the commonly used weekly "initial jobless claims" number.

Compared to other nine recessions and recoveries since the Second World War, the Great Recession of 2007, which very much continues especially for the long-time real unemployed, remains hindered by our nation's large trade deficit in oil, the large and again growing manufacturing trade deficit with China, and federal tax policies that continue to dissuade job creation here at home.

 

[rootX]

you asked bit complicated question.

Interesting read ...
www.alternet.org/world/62848/

 

[ThomasT]

you asked bit complicated question.

Due to my ignorance. Trying to sort things out. Found these in another thread. Comments?



http://www.kpbs.org/news/2009/jul/21/will-manufacturing-return-america/

Interesting read ...
www.alternet.org/world/62848/

Thanks for the link.

 

[OmCheeto]

The world was a much different place 200 years ago.

Not true.

Economics is about human activity. Humans still think the same way as they did 2000 years ago let alone 200. They probably thought the same way when the Neanderthals were around, but the evidence is hard to come by.

Ok Aleph, I'll agree with that.

You really should learn a bit of history. For example compare what has happened over the past few years with the South Sea Bubble, back in the 1720s.

Can you explain exactly what is the difference between "subprime mortage lending" and "The carrying on of an undertaking of great advantage, but nobody to know what it is"? I don't see any.

I've been involved in lots of these economics threads, and know lots about economic history. But I have no desire to become an expert in economic history, knowing every bubble that ever existed. On top of that, It's irrelevant to the thread topic.

No thanks. I made over 40% return on my investments (after tax) in 2008. Remind me again how much the economic experts in the US finance "industry" made. I seem to remember it was a negative number.

So are you one of those "investors" that had to change his panties on July 6, 2007?

Found these in another thread. Comments?

http://www.kpbs.org/news/2009/jul/21/will-manufacturing-return-america/

Excellent interview. I'd say it hits the button on the nose.

CAVANAUGH: ... since the manufacturing sector, as you say, has been decimated, can we return to manufacturing here? Is it too late?

NAVARRO: It's not too late. If we have a level playing field, if we let the currency adjustments take place, the wage adjustments that are taking place right now, when we begin to reinvest in America like we should, all's good. But we have to start acting now. We can't—we cannot—let the factory floor in this country collapse anymore than it has.

Like Peter Navarro, I'm still optimistic. Hence I'm still investing in American companies, and buying American goods. Though my finger has been hovering over the GE "sell" button for the last few days...

Oh wait, that was intended for https://www.physicsforums.com/showthread.php?t=486090"... Ooops.

GE has been not been playing by Adam Smith's rules.


http://www.bibliomania.com/2/1/65/112/frameset.html"
Book 4, Chapter 2, Page 1

First, every individual endeavours to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry; provided always that he can thereby obtain the ordinary, or not a great deal less than the ordinary profits of stock.

Wasn't it the Supreme Court of the United States that recently said corporations are individuals?

Is it time for me to divest from GE?

hmmm...

Remember http://en.wikipedia.org/wiki/Disinvestment_from_South_Africa#Criticism"!

----------------------------------
Sorry about my random thought ramblings.
This https://www.physicsforums.com/showpost.php?p=3220506&postcount=7584" appears to be working on my brain as well as my pain.
Push the (Submit Reply) button Om. Push it now...

 

[Vanadium 50]

I picked the simple example, because a) it is nowhere near as long as a book, and b) does not make much in the way of claims: it simply shows mathematically how and why trade is beneficial to both parties. Before discussing what should be done, or whether a particular situation is good or bad, it's worth understanding the mathematical foundations.