Skip to comments.Outsourcing, Oh What Demagoguery!
Posted on 07/24/2012 6:55:48 AM PDT by IbJensen
No issue is more misunderstood, or been more purposefully confused by the Romney and Obama campaigns, than outsourcing.
Outsourcing is merely the importing side of international tradepurchasing abroad goods and services, and components to assemble final products in the United States.
Just about everyone who has had a choice between buying an American-made product or an importa car, a wedge of cheese or a movie on-linemust admit that two-way trade based on legitimate comparative advantages is a good thing.
If Americans expect folks abroad to purchase Boeing aircraft and Intel processors, then they had better be prepared to outsource some of what they purchase directly, or through the firms that assemble products domestically and their government.
The problem is not outsourcing but rather it is inappropriate outsourcingpurchasing abroad products that could be made as or more cost-effectively at home. That happens when: US policy throws up unnecessary barriers to domestic production; foreign governments unfairly subsidize businesses or simply keep out competitive American products; or US firms have an inappropriate bias toward foreign sourcing.
Those swell the trade deficit, which imposes great costs, and both President Obama and Governor Romney own some of that problem.
President Obamas bans and tough restrictions on oil and gas development in the Gulf, off the Atlantic and Pacific Coasts and in Alaska do not benefit the global environment if those do not reduce US petroleum use but merely shift US sourcing abroad, where environmental risks may be less effectively managed. EPA imposed limits on CO2 emissions that shift manufacturing to China where similar regulations do not apply are a similar problem. Both kill US jobs without an environmental benefit.
China keeps its products artificially cheap, and forces the relocation of US manufacturing to the Middle Kingdom by maintaining an artificially undervalued currency, imposing high tariffs and outright exclusions on competitive US products.
Billions of dollars of US stimulus money were spent in China, instead of the United States, and President Obama could have excluded those productseither through the initial legislation or by executive orderwithout violating WTO rules but chose not to do so. Moreover, he has failed to take action regarding US procurement generally, or by broadly forcing Chinas hand on its mercantilist practices, as he promised to do when campaigning for the presidency in 2008.
Private equity has an inherent bias toward outsourcing that is neither helpful to the firms it reorganizes nor healthy for the US economy.
Essentially, private equity purchases distressed businesses, and looks for quick profits by slashing wasteful employmentunnecessary jobs that would be lost anyway if the firms failedand replacing ossified management. However, by seeking large returns in a brief period, private equity emphasizes selling brands and intellectual property (patents) in repackaged firms that are generally loaded up with debt. To boost cash flow and service debt, these firms are more likely to sell off valuable brands and patents, and to strip away and offshore manufacturing that supports domestic R&D and could contribute greatly to the future value of the firm and US competitiveness and employment.
Unnecessary outsourcing is responsible for at least half the $600bn US trade deficit. Eliminating half of that deficit would boost domestic demand and GDP by about $500bn and add 5 million jobs.
Export and import-competing industries spend at least four times as much on R&D as the private business sector as a whole. Reducing outsourcing, by increasing R&D, could boost US GDP by one or two%age points. A US economy growing at 3 or 4% a year, instead of its current 2%, would have far fewer budget problems at the federal and state levels, and far more resources to address issues like health care, the solvency of social security and finance an adequate national defense and space exploration.
2. Trade on buying high tech while selling agriculture is also bad. About 20 to 50 times depending on the items and price differential. Useful high tech makes more money to the society.
3. When education price goes up and too many Lawyers running the country USA looses the comparative advantage big time .
There are more, but we are loosing $2 to $4 Trillion per year in our economy now since 2001
think about how much money in total that is and America has lost about $20 Trillion before
(look at the trade charts)
nah. They send us their merchandise, the products of their labor, and we send them those funny pieces of green paper. Who’s the stupid one?
We get their stuff! All they get is worthless promises that our money is good!
We don't produce much any more! We consume stuff we can't pay for and it's going to catch up with us!
One of these positions is correct. One is incorrect. We will find out shortly, I think, which is which. But I think it says a great deal about economics as a "science" that we can still debate the idea that a trade deficit may be either good or bad.
>>must admit that two-way trade based
>>on legitimate comparative advantages is a good thing.
“COMMERCE BETWEEN MASTER AND SLAVE IS DESPOTISM”
FU and the fraudulent scales you rode in on.
Ah ... Free Trade [TM], Marx’s cure for the pesky American middle class. Globalism = world communism in a business suit.