OT - Jobs Lost

Ed Huntress says...


The way it works now, every segment of the economy is interconnected, and every foreign trade relationship we have impinges on our whole economy. If you take offshoring out of the picture you take some large US corporations out of the globally competitive picture. Doing it unilaterally is a prescription for corporate bankrupcies.
But that wouldn't cause our economy to collapse, nor will "all" jobs leave the US for foreign countries no matter what happens. The process is self-limiting. If our economy really suffers overall, the much-maligned monatarists' solution kicks in, and the value of our currency drops until the hemhorraging stops. That is, assuming that the decline in our economy doesn't result in a worldwide decline, which is possible. If that happens, we could lose large numbers of jobs, but they wouldn't be going overseas. They'd just disappear into a depression.
Adjustments can be a very painful process for the economy, and even more so for many individuals who find themselves in the "displacement" category. It's especially tough now because we're being whip-sawed by the size and velocity of displacements that we're experiencing. But all jobs aren't going to leave, even though our economy is going to remain very sensitive to any anti-competitive protections we try to enforce. What we need, IMO, is not protections, but a continued loosening of currency restraints and a Manhatten-sized project to boost education.
If that isn't enough, a modest VAT could help. Gary's VAT solution is no solution to taxation in general, but we're the only one of our major trading partners who doesn't do some of their taxing by means of a VAT, and it does put us at a disadvantage.

Not collapse, but suffer. If you're interested in GDP, you get the best figures by loosening trade restraints, including offshoring. That's the economy in the aggregate, which is what the head of the President's Council of Economic Advisors was talking about a couple of weeks ago.
If your economy isn't growing fast enough to replace those jobs, it really hurts, and you don't get the rise in GDP that you expect. It could even go down although it hasn't. Our GDP is growing, albeit without much energy.
If the velocity is so high that *no* reasonable rate of growth will replace those jobs, then you have to take other measures, like playing real hardball with your currency and employing VATs. It could happen. It hasn't happened yet.

or
letting
employment.
That's the kind of protectionism that will provoke retaliation. You're into the realm of unknown and unintended consequences.
Currency and VATs are fairly immune to retaliation.
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Ed Huntress
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The thing that bothers me is a sneaking suspicion that a) companies did just fine before overseas manufacture existed, and b) they're using the opportunity to simply boost profits. I doubt anybody would go bankrupt - don't european companies get regulated by their govenments? The entire thing about US companies sending jobs overseas just *looks* like gouging.

This is a real concern. Wouldn't it be better to try to damp down the 'velocity' of the displacments a bit, rather than let them build up and cause a big crisis, all at once?

We had ww2 to boost us out of the depression, and the space program in the 60s to boost the economy then. But there's been nothing like those to galvanize the country. I think you're right, maybe gunner's 'federal education program' could do this! <g>

And the jobless rate is still pretty high, and the consumer confidence is pretty low. Those are bad signs; the wizard econcomists may believe all the stuff that's being spouted, but the folks with the paychecks certainly don't.

Yet...
I can see a tarriff on imported goods as being labeled protectionist. But writing rules about how US companies sent jobs overseas? I can sure see the US companies screaming bloody murder about it. But other countries?
Don't forget, I'm not talking about *stopping* the problem, just slowing it down a bit - damping out the rate at which the changes happen, to spread them out over five years or so.
Jim
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Of course, that's the reason. By purchasing manufactured goods from countries where they can be made at much lower cost, the company saves money, thus improving their bottom line. At the same time, they can sell their end products at a lower price, so the consumer benefits. These effects help the economy grow, thus leading to the creation of new jobs. The manufacturer in the low cost country is employing people and making money, too, so, in fact, everybody wins. :-)
...except those individuals who would have manufactured the goods if they hadn't been available from abroad. They're out of a job, and, to them, it's not much consolation to know that the country as a whole is better off this way, or that, in total, jobs are gained, not lost.

This is the big challenge, I guess. Regulating the changes so that the positive effects can be gained, while softening the blow to the people who will be displaced. If the transition takes time, it may be possible for at least some affected companies to realign themselves, producing more marketable goods, and for employees to retrain. Easy it is not.
-tih
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Well, Ed's rule is that labor in china costs about 1/20th of what it costs in the US.
Now I'm gonna be generous here, and say that labor is only about half of the cost of an item's manufacture. (down to 1/10)
Then I'm gonna be generous again, and say that the company has more cost transporting the goods from overseas. So that would be maybe a factor of two. (now 1/5)
And then I'm gonna say that they *deserve* more profit, like another factor of two. (here it's 1/2.5)
So are things really 2.5 times cheaper than they were before all this outsourcing???? Don't think so!
Jim
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I do. First, it's not "all this outsourcing", because there's really just a tiny little bit of it. You have to look at the right products, and you have to consider that sometimes the imported item is only a part of the final product.
I recently purchased a Chinese 7x12 mini-lathe, branded as a British product, and supported by the British company. Two and a half times the price I paid is approximately what I would have paid for a similar product that was made in Europe, so I guess your calculation isn't so far off. ;-)
-tih
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Tom Ivar Helbekkmo, Senior System Administrator, EUnet Norway
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I think you're opinion is at odds with Ed's opinion. He says that the habit that US corporations are getting into - sending jobs overseas for cheap labor rates - is so widespread and important, that if it were to be directly regulated, you would cause a large number of those companies to go bankrupt.
Jim
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Tom Ivar Helbekkmo says...

If I said that, bite me on the ankle.
If you take out the word "widespread," I think you're close to what I said. Numbers of jobs offshored is a hard piece of data to come up with, unless you want to spend $16,000 for a marketing firm's analysis that's available, but it's probably on the order of 1 million over the past decade. That's equivalent to four months worth of net new jobs created in the US during the '90s.
However, in some industries, it's been a revolution. It depends on which end of the telescope you're looking through. If you're suggesting that all of our jobs are being offshored (1M is around 0.7% of current employment), then it isn't true. If you're saying that it's affecting many individual industry segments and that many of those effects are large, within those industries, then it is true.
If you stopped offshoring at those companies, particularly the ones that compete in world markets, you'd drive them bankrupt -- or offshore -- in a hearbeat.
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Ed Huntress
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says...

Tom says it's "a little bit." You say it's a lot - in the industries where it's, um, likely to occur.
Which sounds like Tom is incorrect - if you look at those industries that we've been focussing on.
Either it matters, or it doesn't. If it doesn't matter because it's so miniscule, the problem can be effectively regulated, because nobody (or very few companies) will go bankrupt.
If large sections of important industries are relying on this labor rate break to survive, then it's hardly a 'tiny' issue.
Jim
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Ed Huntress

end
then
industry
industries,
a
I'm not sure what you mean here. Is it a little bit? The results of offshoring amount to no more than 0.7% of employment. Is that a little bit? The percentage in dollar volume of offshoring, as a percentage of GDP, is probably about the same, possibly as much as 1.2% or so, but it's not likely that high.
The hard part here is separating expatriate, offshore sourcing from simple imports from foreign producers. The two together, taking the net of imports minus exports of goods and services, is around $489 billion, out of $11 trillion total GDP. In other words, net imports of all types amount to less than 5% of our domestic economy. Is that a little bit?
Or maybe you want to relate the dollar value of goods we import to the value of the ones we make here. The amount we import is roughly 1/4 of total goods consumed in the US.
There are three points to all of this. First, the state of our employment in this country has almost nothing to do with offshoring that's happened in the past. But the state several industries are in is beginning to reflect a tide of jobs moving away -- in those specific industries. Manufacturing will continue to take the brunt of it. But manufacturing is only 14% of our economy now, and it was declining anyway, long before offshoring started to produce countable numbers.
Second, if the economy grows at any reasonable rate, and if the dollar finds a more realistic trading value (lower, in other words), the number of new jobs created should swamp the number of jobs being lost. The industries that are starting to offshore in a big way are already goners, because they have to seek low wages to compete internationally. If you know of a way to restrict that competition in a way that would help, without undermining the fact that we're also the world's largest *exporter*, everyone is listening. <g>
Third, these economic trends tend to be self-limiting rather than precipitous. The first increments of change are easy; it gets harder to sustain an advantage as competing economies balance themselves against each other. The problem we face, though, is twofold; first, it's happening too fast for our economy and society to adjust; and it's possible that a new equilibrium will be struck at a lower level of personal income and standards of living, before the world's economy begins to grow again in lockstep.
There are a lot of low-wage workers around the world to absorb into the system. The trick is to allow them to grow with their economies without depressing our own. Standard trade theory, whether it's the straight "neoliberal" flavor or "New Trade Theory," says there's no reason our economy should become depressed in the process. Quite the opposite, in fact. The trouble with these theories, though, is that they have never been tested with the volume or velocity of low-cost imports that we're dealing with now. Although the numbers aren't nearly as bad as most people think they are, the trend remains alarming, because the potential for much more, high-velocity changes, from outsourcing to ordinary imports, remains very large and looks like it will for a long time to come.
Enough? Are we done yet? <g>
Ed Huntress
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says...

Amazing to read your comments Ed. There seems to be a great deal of experience behind them - in an area where I have absolutely no training.
I really was unaware that the overall picture, for the entire economy, had offshore job flight at that low a level. Will the pace pick up? I would guess so. Will other industries follow suit? They already are.
I think your 1/20th number is still driving the bus though. :)
Jim
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writes:

Which things? I bought some 6,000 Btu air conditioners last year at Sears for $88/each. We bought one of the same size from Sears in 1965, and, IIRC, it cost around $150. If you want to do the inflation adjustment, according to the DoC inflators, that means the air conditioner I bought in 1965 would cost $789 today.
Ed Huntress
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says...

Hmm. So competition really *has* brought the factor of nearly 20 home? Time to buy some A/Cs while I still have a job!
Jim
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On 2 Mar 2004 11:15:46 -0800, the renowned jim rozen

The furniture thing with China is interesting. Apparently US furniture manufacturers outsourced some furniture mfg., showing the Chinese factories how to make good enough furniture in popular styles. They then had a few good years buying and selling at a massive markup, without all that messy business of running factories and paying workers directly. Then the Sam's Clubs of the world went looking (as they always do), found the original manufacturers and began importing them and selling at 1/2 price retail, cutting out the middlemen. The US funiture "manufacturers" cried "foul", demanded and got massive tariffs against the Chinese furniture. The mind boggles at this sort of thing- what's actually being protected? The right to buy a $1200 US leather/wood chair made in China (with a US name on it) rather than a $600 one (without the name)? At least that's the claim, I have not researched it myself. I do see almost identical chairs as described above, selling for half the price in Sam's Club vs. the name ones in a retail store.
Best regards, Spehro Pefhany
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Well that's "free" trade for you. They're 'free' to jack up their profits. On one hand we're told that they _need_ to outsource jobs like that, to stay competitive in a global market. The reality sounds somethat different. Similar to the drug thing already mentioned.
Jim
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Ed Huntress says...

If
corporations
They did do fine before overseas manufacture existed. Now they don't. If your competitor is doing it, you *have* to do it.
In the financial services industry, some segments now operate with 30% offshoring employment. Try running a competing company with none. You'll never get off the ground.
That's free-market economics for you.

leave
happens,
If you can. But there are few ways to do that without engaging in outright protectionism. And that will create one hell of a backlash. Witness the situation we just went through with steel.
There are WTO provisions that allow a country to protect its industries under extreme circumstances. But they're limited, and they were never designed to cope with the size or velocity of displacements we're experiencing now.

really
go
They have a different scale of time and, in some cases, opposite views of the consequences of displacement. If you read my "China Conundrum" article, you may recall that I broke the economic interests influencing and reacting to trade into five groups. Economists are mostly in category 1: people who are looking at big pictures. We're mostly in category 5: people who are worried about their jobs and businesses. The world looks different from the two ends of the telescope.
My job is your "displacement." My lifetime of work and my career are things upon which I base my security and my definition of myself. To you, they're circumstantial issues that can be solved if I just move someplace else and get myself retrained. As for my loss of capital when I have to sell my shop into a depressed market, that's just my lack of foresight, and the luck of the draw. Too bad, they say, it's time to move on and get over it.
Reinvent yourself, they say. I'm for that. I'm going to invent myself as the son of someone with a big piece in the oil patch. <g>

replace
hardball
happened
Your options are limited.

into
If your companies are competing in world markets and you limit their ability to offshore, you've just signed their death warrant. Or, more likely, you've just moved them to Bermuda.

Yeah, I know what you're saying. I still think that the net effect of what you're proposing will be very limited in the positive direction, with a high risk of trouble in the negative direction.
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Ed Huntress
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On Sun, 29 Feb 2004 23:12:56 GMT, "Ed Huntress"

Would this be one of the "pains" you refer to?
A car company can move its factories to Mexico and it's a free market.

A toy company can outsource to a Chinese subcontractor and it's a free market.

A major bank can incorporate in Bermuda to avoid taxes and it's a free market.

We can buy HP Printers made in Mexico.

We can buy shirts made in Bangladesh.

We can purchase almost anything we want from many different countries.

BUT, heaven help the elderly who dare to buy their prescription drugs from a Canadian (Or Mexican) pharmacy. That's called un-American!
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That's an odd situation, in the most heavily regulated manufacturing industry. What's going on there is that the whole world regulates drug prices...except for us. So we're the country in which the drug companies recover practically all of their development costs.
It won't last much longer, IMO. It's an odd-ball of a market.
Ed Huntress
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Gary Coffman wrote:

It looks like they may be collecting them but some are not sendint them on to the government. The GAO seems to Have found that about $3 billion dollars in withholdings tax has not been remitted by defence contractors for years (a criminal offence) but the DOD is still doing business with them and. doing nothing to help collect the money.
These are not some left wing inaginary figures. They come straight from the Dubya's on General Accounting Office.
--
Glenn Ashmore

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Glen, you really need to brush up on who does what in the US Government. The GAO works for Congress, not the Executive Branch. See:
http://www.gao.gov /
Mike Eberlein
Glenn Ashmore wrote:

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You mean, the Office of General Pardons for Crooks. Isn't that being run by some relative of a high white house inhabitant right now? Henhouse, foxes, etc...
Jim
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