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Get Me Rewrite! |
16 February 2004
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President's Economic Report Approves of International Outsourcing
The invention of "political-economy" as an academic term occurred because both politics and economics are about the use and abuse of power and because it is necessary sometimes for economists to examine political issues and for political scientists to examine economic ideas. This year's Economic Report of the President would have benefited from such an overlap in its discussion of international outsourcing.
The report is produced annually by the Council of Economic Advisors. Commenting on the long-winded tome, the current chairman of the CEA, N. Gregory Mankiw, said, "Outsourcing is just a new way of doing international trade .... More things are tradable than were tradable in the past. And that's a good thing." Viewed purely as economics, he is correct. Trade enhances the well-being of the economies engaged in it. Politically, his statement begs the question, "Good for whom?"
What is being traded in outsourcing is labor. By shifting a job from the US to another country, the consumer of labor (a corporation and its shareholders) gets more or less the same service for less money, a gain. And the provider of that labor (a non-American worker) has a job that pays nicely in local terms. The foreign government benefits from the worker's ability to pay taxes and spend. But to suggest that the American worker (or former worker) benefits is a stretch. Because of the low prices international trade permits WalMart to charge, the unemployment check might go farther, but that is about it.
The classic argument is that the American worker will be redeployed in a new job where he or she is able to earn. Quite so. Eventually. Unless one is approaching retirement age and faces age discrimination, or is in a town with high unemployment. Or if one lacks the funds to acquire new skills. And for most Americans, the healthcare benefits are gone shortly after the pink slip turns up, so ideally, illness should be delayed until that new job starts. As for the national treasury, the tax revenues are lighter when people are out of work, and the cost of paying them various (miserly) benefits increases. The American government loses, too, with international outsourcing.
The conservative position on economics has largely proved itself over the past couple of decades. Free markets work best economically. Yet there is a political dimension to this, which if not considered, will undermine the faith in the market as a mechanism. Inevitably, losers are created just as surely as winners are -- the trick for the politicians is to keep the pain of losing to a minimum. Judging from the CEA's attitude, that job will not get done any time soon, no matter how fast Mr. Bush's administration back-pedals.
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