Community >> View Post
·
Post By
EcMan

In Reply To
Skrull

Subj: Re: Milton Friedman: Economist
Posted: Thu Oct 16, 2008 at 12:22:56 am EDT (Viewed 647 times)
Reply Subj: Re: Milton Friedman: Economist
Posted: Wed Oct 15, 2008 at 08:15:03 pm EDT (Viewed 614 times)


Hello,

> Not really. My argument is that businesses are shirking their responsibility to America and its workers. Businesses that outsource are causing American workers financial detriment. If all outsourcing stopped tomorrow, American workers wouldn't have to compete with workers in third world countries as to who can absorb the lowest wage and shoddiest medical benefits.

I meant you are taking it off track in that now we are discussing outsourcing and globalization and we aren't really discussing Friedman's quote directly. Certainly, we can broaden the definition to include this issue, but we've left the quote behind.

>
>
> > 1) Your definition of externality is not the economic definition of externality.
>
>
> True, but the technically correct definition fits the context of my comments and doesn't negate them.
>
> Quoting Wikipedia:
> "In economics, an externality is an impact on any party not directly involved in an economic decision. An externality occurs when an economic activity causes external costs or external benefits to third party stakeholders who did not directly affect the economic transaction."
>
> Outsourcing to other countries has an impact on American workers, who were not directly involved in the economic decision to outsource, who did not directly affect the economic transaction, and who incur cost: loss of job, lower wages, less robust medical benefits.

That's not really an externality. Imagine you and I sell comicbooks online. You and I both compete for the same customers. Suppose you are better at it than I am and offer better prices and I lose business. My loss is not an externality, it is simply the consequence of competition. I would be a "market loser" but a market participant nonetheless. Externalities are about non-market participants.


>
>
> > Also, you are not considering the fact that globalization is a two-way street. Yes, American companies sometimes go overseas, but foreign companies and investors come here too. The US attracts foreign investment of all types in tremendous quantities.
>
>
> And then the money they make goes back to their country. The key difference is that foreign investors don't usually build here. There are exceptions, but generally foreign investors buy assets that are already developed. Thus they don't create new jobs, so no new money is getting into American hands, and the profit is going to the foreign investor, who doesn't live in America.
>
>
> > In fact, the US is so attractive it's created a downside of allowing us to live beyond our means through borrowing.
>
>
> Foreign investment contributes to this? I know we borrow from other countries, such as China, but I think you mean something else.

Nope, I meant what I said. There is a basic relationship in economics that

National Savings = Domestic Investment + Net Capital Outflow

As you know, US national savings is negative and our domestic investment is positve. The only way that can happen is if net capital outflow is very negative (which it is). That means foreign entities are acquiring more of our assets than we do theirs. Those assets include dollars (like loans we pay to China) and real estate or physical capital (like factories from foreign direct investment). There is certainly an argument to be made about the root cause of the issue, but it definitely exists. In fact, one way to spin this would actually strengthen your outsourcing argument. You could argue that by limiting outsourcing, we limit foreigners acquiring our assets. However, as I suggest below there are drawbacks to that.


>
>
> > 2) Actually, outsourcing in terms of customer service and so forth is exactly like the export/import of goods. It's the export/import of services.
>
>
> True. Good point. Yet it's still bad for American workers. If an American company creates a customer service phone bank in America, it's a net gain for the American worker. If that same company creates a customer service phone bank in some other country, it's a net loss for the American worker. American companies have a responsibility to post net gains for the American worker. This is the American company's version of patriotism.

You are correct that some US workers lose. However, the argument is that overall openness (free trade) creates more jobs. Again, that is of little benefit to someone who loses their job, but it says that on net, the US gains. Also, consumers benefit from lower prices and shareholders (which include a wide cross-section of Americans) win from higher profits.

One area where we might agree, is that there is a definite quality issue, which probably hurts consumers and offsets some of the gains from lower prices.


>
>
> > Labor service is just like anything else. Free trade has created far more jobs than have been lost.
>
>
> But the jobs don't pay as well as they should. It's true that American corporations are growing and thus jobs are being created. But wages don't go up appropriately because instead of raising wages, the company can outsource. And fewer jobs are being created than under the scenario of zero outsourcing.

Well, see there is a difference between what's "efficient" and what's "fair". You're basically saying that wages are unfair. That's a judgement call and unfortunately, different people have different definitions of fairness. I'm simply saying free markets and trade (more often than not) are efficient.
>
>
> > While that may be of no solace to the person that lost their job due to outsourcing, many more have gotten jobs. The need to provide support to people adversely affected by trade is a separate issue, not evidence to eliminate free trade.
>
>
> Oh, if support is given to people adversely affected, then all is well. But such isn't the case.

I completely agree with you there. The US doesn't do enough to help those that have been hurt by trade. That is not a reason to prevent free trade that is a reason to do something in addition to allowing free trade.


> > 3) Free markets make people unequally rich. While looking at the average (or better, the median) can be useful, you can look at all sorts of other metrics to see that free markets improve living standards. For example, take the poorest 10% of Americans today and compare their material wealth and living standard to the poorest 10% of Americans 50 years ago (or 100 years, etc.) and you will see dramatic differences.
>
>
> Fifty years ago was the 1950's. Wasn't the middle class in pretty good shape back then? Oh, but you're talking about the poorest ten percent. Your comment may be true, I don't know.
>

I tossed those years out randomly (50, 100). My point is simply if you look at the poorest 10% of Americans today compared to most points in time in the past, and they will have a higher living standard today than in the past (could be 10 years ago, 20 years ago, etc.).

>
> > 4) Your policy prescription to limit outsourcing won't work. By that same logic, U.S. states should pass laws so that companies headquartered in those states can't ship jobs to other states. Basically, if specialization has net benefits for individuals, cities, and states, it should for countries as well.
>
>
> Your comment seems to imply that if other countries are enriched, that's as good as America being enriched. If I lived in those countries, I'd agree, but since I live in America, the only enrichment I value is that which occurs in America.

Fair enough, and you are certainly welcome to feel that way. I guess I don't see how someone or some company getting rich in Texas does someone living in New Jersey any good any more than if that person or company were in Mexico instead of Texas.


>
>
> > Could more be done at a public policy level to help those that have been hurt by trade? Maybe. Globalization and the spread of capitalism more generally are exactly as Schumpeter would have commented "the perrenial gale of creative destruction."
>
>
> Trouble is, the destruction falls on human beings. Any policy that is good for American workers is good. Any policy that is bad for American workers is bad. Because most Americans are workers.

Everything has pros and cons. The flexibility that capitalism and free markets provide also means that there is inherent risk involved. Risk implies that sometimes you win (roll a 7) and sometimes you lose (snake-eyes). However, the competition, the creativity, and the overall dynamism that comes with it suggests to me the pros outweigh the cons. We arguably live in a society that has more social mobility than almost any in history. Yesterday's loser can become tomorrow's winner.

Glad you are interested in the issue.

-EcMan


Posted with Microsoft Internet Explorer 7 on Windows XP
Alvaro's Comicboards powered by On Topic™ © 2003-2022 Powermad Software
All the content of these boards Copyright © 1996-2022 by Comicboards/TVShowboards. Software Copyright © 2003-2022 Powermad Software