Examines issues of the day against a triumvirate of core principles: liberty, responsibility and justice.
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This is where you stick random tidbits of information about yourself.
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Tuesday, February 24, 2004
With all the hyperventilating going on now about outsourcing, one could be forgiven for thinking it is a plague more dangerous than mad cow disease. Why all the hair-pulling over such an innocuous phenomenon that is quite beneficial and, actually, has been the engine of economic progress for literally millennia? For starters, are millions of Americans are out of work. The unrecognized context of this hysteria is that America's unemployment rate is in the range of historical norms and well below the best to which most other nations hope to aspire. However, it is above the lows experienced in the late 1990's bubble economy, which set a new benchmark for acceptable unemployment. Oh yes, and 2004 is a presidential election year.
To listen to the debate about outsourcing, one would think it was a new strategy being employed by greedy Big Business Capitalists who only recently discovered this new way to pad profits by "exporting jobs." The truth, naturally, is far different. Outsourcing has been occurring for thousands of years, but students of economics are more accustomed to calling it the law of comparative advantage - a fundamental principle underlying economic growth. If you buy groceries, you outsource. If you buy clothing, you outsource. If you bought your house or the materials with which it was built, you outsourced. The fact is that anybody who consumes something they did not produce from scratch is an outsourcer. And outsourcing and comparative advantage are both about specialization and efficiency. While Adam Smith only recorded his landmark observations of this economic law in the 18th Century, man had already been practicing it for centuries before him.
Comparative advantage is not too complex a notion, but its importance and relevance are lost in this politicized climate. President Bush's chief economic advisor Greg Mankiw was recently excoriated for having the gall to speak the truth, that outsourcing is beneficial. His crime, of course, was candor, not incorrectness. While Democratic attacks, from pols either too ignorant to know better or too cynical to speak the truth, were to be expected, even such otherwise levelheaded observers as CNN's Lou Dobbs, who is bewilderingly obtuse on this issue, have piled on. On the other hand, liberal economists Robert Reich and Janet Yellen, high officials of the Clinton Administration, came to Mankiw's defense. It is clear that politics is clouding a reasoned debate on this issue, and that the public is being badly misled by protectionists who oppose "American" jobs being "exported" overseas.
What allowed man to move beyond simple subsistence living, was comparative advantage, or outsourcing. Rather than spend all waking hours foraging for food and shelter, people realized that if one individual focused on one certain crop, another on a different crop, another on livestock, yet others on other products, the group as a whole could produce much more in aggregate if they specialized and shared (i.e. traded) between themselves. After a while, farmers were so productive that not everyone had to work in the production of food and a fraction of society was able to feed the entire society. That freed up labor to pursue other endeavors, such as manufacturing products. And, after a while, the manufacturers of what we now consider basic necessities were so productive that not everyone had to work in those jobs and a fraction of society was able to meet the needs of the entire society. That freed up labor to pursue even further endeavors. This constant cycle of specialization leading to greater efficiency is what enables us to produce more output with fewer inputs. Economists call it productivity, and it is the key driver of economic growth and prosperity. As an example, 2.6% of America's work force was in agriculture in 1990, down from 12.2% in 1950. That means it takes fewer people to feed more of us.
It is not only incremental gains in productivity that creates growth, but radical advances and innovation as well. Adam Smith may have taught us about productivity, but this outsourcing debate is being fueled by what Joseph Schumpeter called "creative destruction." In less incendiary terms, this is the advent of new industries that replace old ones, but in the process create more jobs and wealth. When the automotive industry was just getting started, the government did not hinder it to protect makers of horse-drawn carriages. If America would have protected typewriter manufacturers and their workers by putting barriers in front of the word processing and PC businesses, it would have prevented the creation of far more jobs than were destroyed. The constant cycle of new industries replacing old ones is necessary for the creation of higher-paying jobs and the growth of economic output. As a result, we are all richer, with the greater gains going to the entreprenuers who take the risks to launch and finance new businesses and lesser, but substantial nonetheless, gains going to those who benefit from the labor opportunities generated by the risk-takers.
So if this phenomenon has been going on for so long, why is it becoming an issue now? The answer is that the community of people who now can specialize and share the benefits includes not only Americans but, due to advances in technology and communications, the entire world. Furthermore, these developments enable other countries to not only do manufacturing work but, more and more, service work such as software engineering.
As is typical of these kinds of debates, the proponents of protectionism generally hold views on other issues that contradict their opinions on free trade. Many chastise President Bush for "unilateralism" and blame terrorism partially on America's overwhelming power and domination, which creates impoverished countries that are the breeding ground for extremism. However, they oppose allowing those poor nations to trade freely with America and to pull themselves out of the cycle of handouts from wealthy nations on which they remain dependent. These protectionists refuse to allow third-world countries leverage their own competitive advantages to create wealth and prosperity, and then lambaste conservatives for not doing enough to help them.
It is always easier to point to the tens of thousands whose work can be done more efficiently elsewhere, but never forget the millions whose jobs depend on foreign trade. Far more effective than to build a wall around America, and force the citizenry as a whole to suffer from protectionism via higher prices, would be to provide assistance directly to those workers who are displaced by free trade. Job training and education credits would help these people attain new skills to boost their competitiveness, rather than protect them in decreasingly valuable work.
In the end, anyone who is at least somewhat economically literate understands the advantages of free trade. America imports more jobs than it exports and we generate $1.12 in wealth for every $1.00 invested overseas. But while the benefits are so pervasive as to be almost invisible and taken for granted, the relatively small number of people who are harmed are very easy to identify. The impact on them in the short-term can be wrenching, but the solution ought not to be one that harms the rest of the nation as a whole.
2/24/2004 07:32:00 PM
Is President Bush's recent support for a constitutional definition of marriage as the union of one man with one woman a departure for federal policy? No. Personally, I could care less who wants to marry whom, but the insinuation that this represents a hostile Republican attack on civil liberties is manifestly wrong.
The U.S. Congress, in one of the most bi-partisan actions it has taken in recent memory on a supposedly controversial issue, overwhelmingly passed the Defense of Marriage Act (House vote: 342-67; Senate vote: 85-14; a majority of Democrats voted "yes") and President Clinton signed it in 1996. The Act defined marriage in federal law. The only reason the issue would need to be revisited is because of activist judges usurping once again the will of the people by overturning a law passed by the elected legislative branch and signed by the elected president. If judges and other government officials insist on skirting the law based on constitionality, the only way to respond is to amend the Constitution.
President Clinton's Statement on signing the Act (9/20/1996):
"I have long opposed governmental recognition of same-gender marriages and this legislation is consistent with that position. The Act confirms the right of each state to determine its own policy with respect to same gender marriage and clarifies for purposes of federal law the operative meaning of the terms 'marriage' and 'spouse'."
What are the clarified ''operative'' meanings of the terms "marriage" and "spouse" that President Clinton signed into federal law?
Section 7 of the 1996 Defense of Marriage Act:
"In determining the meaning of any Act of Congress, or of any ruling,
regulation, or interpretation of the various administrative bureaus and
agencies of the United States, the word 'marriage' means only a legal
union between one man and one woman as husband and wife, and the word
'spouse' refers only to a person of the opposite sex who is a husband or
a wife."
Notable Democrats who voted in favor of the 1996 Defense of Marriage Act:
Joe Biden
Bill Bradley
Robert Byrd
Tom Daschle
Christopher Dodd
Byron Dorgan
Dick Gephardt
John Glenn
Tom Harkin
Ernest Hollings
Frank Lautenberg
Pat Leahy
Carl Levin
Paul Sarbanes
Chuck Schumer
Robert Toricelli
Paul Wellstone
2/24/2004 06:48:00 PM
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