Professor Mankiw on outsourcing

[Savoir Faire-Demogague in NJ]

gregmankiw.blogspot.com/2006/05/outsourcing-redux.html

Professor Mankiw on outsourcing, an interesting read, it is a bit lengthy so I'll post a segment, click link for full text...

Outsourcing Redux

About two years ago, while I was chairman of the Council of Economic Advisers, I had my 15 minutes of fame over the topic of offshore outsourcing. (I tell the story in a recent paper with my former chief of staff Phillip Swagel.) At the time, I drafted an op-ed on the topic. The article was never submitted, but it has been sitting on my hard drive ever since, where I recently ran across it. I thought the readers of this blog--an elite group--might enjoy it.

Adam Smith on Outsourcing
By N. Gregory Mankiw
March 25, 2004

If the American Economic Association were to give an award for the Most Politically Inept Paraphrasing of Adam Smith, I would be a leading candidate. But the recent furor about outsourcing, and my injudiciously worded comments about the benefits of international trade, should not eclipse the basic lessons that economists have understood for more than two centuries.

To avoid making the same mistake twice and clinching the award, I should let Mr. Smith speak for himself. Here is what he said in his 1776 classic The Wealth of Nations: “It is maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.”

This is the basic theory of international trade. Since Smith penned these words, economists have added rigor to the analysis (thank you, David Ricardo) and have conducted numerous empirical and historical studies of the effects of trade. The verdict is in: Smith was right. Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards. Smith’s insights are now standard fare in Econ 101.

[AgeOfEnlightenmentSCP]

I often bring this up and no protectionist advocates can answer it:

Is it wrong to buy things made in China? Yes? OK, then,

Is it wrong to buy things made outside your state? Maybe- but...but...but...

Is it wrong to buy things made outside your county? Your town? Your street? Your block? Your household?

They can't answer.

EVERYTHING is outsourced.

And trade deficits are meaningless. I have a trade deficit with the grocery store. I buy from them continually, and they don't buy a damn thing from me. Isn't that wrong? No. And it doesn't matter.

[Savoir Faire-Demogague in NJ]

Feb 7, 2012 10:09:18 GMT -5 AgeOfEnlightenmentSCP said:

I often bring this up and no protectionist advocates can answer it:

Is it wrong to buy things made in China? Yes? OK, then,

Is it wrong to buy things made outside your state? Maybe- but...but...but...

Is it wrong to buy things made outside your county? Your town? Your street? Your block? Your household?

They can't answer.

EVERYTHING is outsourced.

And trade deficits are meaningless. I have a trade deficit with the grocery store. I buy from them continually, and they don't buy a damn thing from me. Isn't that wrong? No. And it doesn't matter.

A good chunk of the population and all politicians on the left long for the good old days of the 40s, 50s and 60s, when the workforce left for work in overalls and a metal lunchpal. Those days are long gone and comprise of a fraction of the workforce.

The future is in knowledge based workers, not low/no skill factory and assemby line workers.

[Deleted]

Feb 7, 2012 10:36:30 GMT -5 Savoir Faire-Demogague in NJ said:

Feb 7, 2012 10:09:18 GMT -5 AgeOfEnlightenmentSCP said:

I often bring this up and no protectionist advocates can answer it:

Is it wrong to buy things made in China? Yes? OK, then,

Is it wrong to buy things made outside your state? Maybe- but...but...but...

Is it wrong to buy things made outside your county? Your town? Your street? Your block? Your household?

They can't answer.

EVERYTHING is outsourced.

And trade deficits are meaningless. I have a trade deficit with the grocery store. I buy from them continually, and they don't buy a damn thing from me. Isn't that wrong? No. And it doesn't matter.

A good chunk of the population and all politicians on the left long for the good old days of the 40s, 50s and 60s, when the workforce left for work in overalls and a metal lunchpal. Those days are long gone and comprise of a fraction of the workforce.

The future is in knowledge based workers, not low/no skill factory and assemby line workers.

Huh? The left wants everyone on unemployement and foodstamps, not working.

[Savoir Faire-Demogague in NJ]

Huh? The left wants everyone on unemployement and foodstamps, not working.

I said the left likes a no skill/low skill workforce. They can be easily manipulated.


Here is my post you are quoting:
A good chunk of the population and all politicians on the left long for the good old days of the 40s, 50s and 60s, when the workforce left for work in overalls and a metal lunchpal. Those days are long gone and comprise of a fraction of the workforce.

The future is in knowledge based workers, not low/no skill factory and assemby line workers.

[Deleted]

Feb 7, 2012 10:40:59 GMT -5 Savoir Faire-Demogague in NJ said:

Huh? The left wants everyone on unemployement and foodstamps, not working.

I said the left likes a no skill/low skill workforce. They can be easily manipulated.


Here is my post you are quoting:
A good chunk of the population and all politicians on the left long for the good old days of the 40s, 50s and 60s, when the workforce left for work in overalls and a metal lunchpal. Those days are long gone and comprise of a fraction of the workforce.

The future is in knowledge based workers, not low/no skill factory and assemby line workers.

The left does not want low skill workers. they want noone working, everyone on unemployment and food stamps and all of our goods purchased from China.

[Savoir Faire-Demogague in NJ]

The left does not want low skill workers. they want noone working, everyone on unemployment and food stamps and all of our goods purchased from China.

That would be awesome. I could spend my days engaging in pillaging, plundering, hanging out with hot dance chicks, and spending more time at the Love Nest.

[Deleted]

Feb 7, 2012 10:49:12 GMT -5 Savoir Faire-Demogague in NJ said:

The left does not want low skill workers. they want noone working, everyone on unemployment and food stamps and all of our goods purchased from China.

That would be awesome. I could spend my days engaging in pillaging, plundering, hanging out with hot dance chicks, and spending more time at the Love Nest.

Vote Democrat and your dreams can come true.

[Deleted]

Feb 7, 2012 10:36:30 GMT -5 Savoir Faire-Demogague in NJ said:

A good chunk of the population and all politicians on the left long for the good old days of the 40s, 50s and 60s, when the workforce left for work in overalls and a metal lunchpal. Those days are long gone and comprise of a fraction of the workforce.

The future is in knowledge based workers, not low/no skill factory and assemby line workers.

That is sort of hilarious.

Obviously there are great advantages to free and fair trade, and no one in this amorphous fabled left that you speak of that I know is against highly skilled jobs, whether it is in cutting edge green energy, computers and electronics, and yes manufacturing. Germany is a manufacturing power house with one of the best educated and skilled labor forces in the world.

If I were to make as sweeping and silly a generalization as you just made, I might say that all politicians on the right want a country full of financial hocus pocus manipulators who actually produce nothing, and the rest, hamburger flippers, hotel cleaners and parking lot attendants.

[Savoir Faire-Demogague in NJ]

Feb 7, 2012 10:57:17 GMT -5 ArchietheDragon said:

Feb 7, 2012 10:49:12 GMT -5 Savoir Faire-Demogague in NJ said:

The left does not want low skill workers. they want noone working, everyone on unemployment and food stamps and all of our goods purchased from China.

That would be awesome. I could spend my days engaging in pillaging, plundering, hanging out with hot dance chicks, and spending more time at the Love Nest.

Vote Democrat and your dreams can come true.

You may be on to something!!!

[Savoir Faire-Demogague in NJ]

Obviously there are great advantages to free and fair trade, and no one in this amorphous fabled left that you speak of that I know is against highly skilled jobs, whether it is in cutting edge green energy, computers and electronics, and yes manufacturing. Germany is a manufacturing power house with one of the best educated and skilled labor forces in the world.

Germany is a homogenous society. The US is fractured and disjointed.

If I were to make as sweeping and silly a generalization as you just made, I might say that all politicians on the right want a country full of financial hocus pocus manipulators who actually produce nothing, and the rest, hamburger flippers, hotel cleaners and parking lot attendants.

That is just your opinion.

[Deleted]

Feb 7, 2012 11:08:00 GMT -5 Savoir Faire-Demogague in NJ said:

If I were to make as sweeping and silly a generalization as you just made, I might say that all politicians on the right want a country full of financial hocus pocus manipulators who actually produce nothing, and the rest, hamburger flippers, hotel cleaners and parking lot attendants.

That is just your opinion.

LOL

I'm glad we understand each other, you have your opinions I have mine.

[handyman2]

The only chink in the armour is that we buy everthing from them they and they buy little or nothing from us. A world economy must have balance or it will collapse. You are seeing that in motion right now. A sound state economy can not prosper, grow or maintain stability in that dynamic.

[workpublic]

we should go back to an agriculture based economic system.

let's go farm! ;-)

[Deleted]

"Vote Democrat and your dreams can come true."

Napoleon Dynamite reference?

------------------------------------------------------------

"The only chink in the armour is that we buy everthing from them they and they buy little or nothing from us."

The only chink in your statement is that this statement is false. I don't think China is even our largest trading partner (or if it is, it's not by much), and exports to China have grown tremendously in recent years.

[Savoir Faire-Demogague in NJ]

Feb 7, 2012 12:59:22 GMT -5 handyman2 said:

The only chink in the armour is that we buy everthing from them they and they buy little or nothing from us. A world economy must have balance or it will collapse. You are seeing that in motion right now. A sound state economy can not prosper, grow or maintain stability in that dynamic.

This is for 2010 data on exports:
www.uschina.org/public/documents/2011/03/full_state_report.pdf

While we buy "crap" from them, we sell them Computers and Electronics, Crops, Chemicals, transportation equipment and machinery...which round out the top five.

Seems like we get the better deal here.

[fairlycrazy23]

There is nothing wrong with a trade imbalance, individuals carry a trade imbalance with there local merchants all the time, unless you are in the habit of selling some produce or something to your local grocery store.


That is not to say that steps shouldn't be taken to make the United States more business friendly.

[AgeOfEnlightenmentSCP]

The future is in knowledge based workers, not low/no skill factory and assemby line workers.

This is another one opponents of free trade can't respond to substantively-- and btw, there are plenty of protectionists on the right and the left. It's a uniting myth.

I ask again: Raise your hand if you're raising your kids to get a factory job? Raise your hand if you think it would be good public policy for the United States to make sure we had a large larbor force of very low skilled workers? (Yes, I recognize we have government schools doing this now-- the question is whether or not it's good public policy?)

If not, and if not- then WHY on Earth would we want to create policies supposedly 'friendly' if not actually friendly to opening up factories in the US?

Not saying we should throw up obstacles- deregulation would help where we can still be helped. But we also needn't throw up obstacles to free trade.

[Savoir Faire-Demogague in NJ]

Karma Paul...




There is nothing wrong with factory jobs, however, the factory jobs of the future, and in fact right now, are the kind that require high skill technical aptitude, like programming/operating a robot.

Furthermore, these factories need people who are flexible and can do multiple technical jobs and thus can be moved around the factory/assembly line.

There was a piece on this a while back on the PBS Newshour.

[AgeOfEnlightenmentSCP]

The future is in knowledge based workers, not low/no skill factory and assemby line workers.

"The factory of the future will have two employees: a man and a dog. The man's job will be to feed the dog. The dog's job will be to prevent the man from touching any of the automated equipment." -- Warren G. Benni

[skweet]

Feb 7, 2012 12:59:22 GMT -5 handyman2 said:

The only chink in the armour is that we buy everthing from them they and they buy little or nothing from us. A world economy must have balance or it will collapse. You are seeing that in motion right now. A sound state economy can not prosper, grow or maintain stability in that dynamic.

That is not true, they buy tons from us. In fact you would say the trade was exactly equal. The product that, for some unknown reason, that they value more highly than the merchandise, that they pay us in, are green pieces of paper. We can make $1MM retail value out of material cost of cloth/paper and ink of about $1,000, and can produce them faster than a printer can produce a newspaper, using the labor of less than 1 full time equivilant employee. China will trade us electronics that take $500k at material cost, and thousand of human labor hours to make up that $1MM retail value. We are the absolute best at making our product, and for reasons beyond my education level, the rest of the world will trade iron, sweat and tears for our product. Let's enjoy it while it lasts.

[handyman2]

Sorry Skweet and Investor Bob: Might want to do a bit more research. 2011 US trade with China US shipments to China $91.9 billion. trade goods shipped to US from China $364.9. A negitive difference of $273 billion.
The only two countries that had a positive trade balance with China was Austrailia and Germany. All the others are a fairly high negitive. The item with the highest export number from the US to China in 2011 was Soy Beans the next was scrap metal.
The years between 2001 to 2008 we lost 2.4 million jobs to our unequal trade balance to China alone.
Surprisingly we have a negitive trade balance with Mexico. Not unexpected I guess since a large part of kitchen appliances are made there.

[skweet]

"Sorry Skweet and Investor Bob: Might want to do a bit more research. 2011 US trade with China US shipments to China $91.9 billion. trade goods shipped to US from China $364.9. A negitive difference of $273 billion."

Don't apologize to me, I just told you that the $273B retail value of green pieces of paper at a cost value of $273 million is money ahead for the US. If we traded $273B of widgets at a cost of $136B instead, wouldn't we be stupid.

[handyman2]

Sorry Skweet I don't follow your logic. China sold us $364.9 worth of goods. We sold China $91.9 billion worth of goods for a negitive balance of $273 billion. That in terms of trade is a negitive not a positive. Not to mention all the jobs lost in the US.
Example Germany has a stronger economy than the US currently. That is because they have a positive trade with China. They export more than they import.

[Savoir Faire-Demogague in NJ]

Feb 7, 2012 19:09:29 GMT -5 handyman2 said:

Sorry Skweet I don't follow your logic. China sold us $364.9 worth of goods. We sold China $91.9 billion worth of goods for a negitive balance of $273 billion. That in terms of trade is a negitive not a positive. Not to mention all the jobs lost in the US.
Example Germany has a stronger economy than the US currently. That is because they have a positive trade with China. They export more than they import.

The good we buy from china are produced with low/no skill labor.
The good we send China are produced with high skill labor.

[Deleted]

"A negitive difference of $273 billion. "

This has nothing to do with what you originally said. You said we buy "everything" from them. Imports from China are about 2% of US GDP. You said we sell nothing to them, which is also not true.

[handyman2]

Sorry Investor Bob my bad. My intent was to say we buy a lot from them and they buy much less from us. creating a major trade imbalance. Which is a major concern of the economic impact on the us dollar.
Funny that our biggest export to China is Soybeans number one and scrap metal number two.
The imbalace is increasing annually according to the US trade council. Which impacts job creation in this country.

[Deleted]

Yes, agreed with the exception of your last sentence. The point of this thread was that economists say that globalization does not destroy the net number of jobs in the US. And employment statistics tend to back that up. What it has done is temporarily slow the growth of wages, particularly for those with less skill.