Arnold Kling  

Economics of Outsourcing

Electricity Economics... Comment of the Week, 2003-08-2...

Brad DeLong makes another attempt to explain the economics of outsourcing.

Remember: few would be worried about "outsourcing" if the U.S. unemployment rate were still close to four percent, rather than at the above six percent level that it is. To the extent that a structural cure is being proposed for what is really a macroeconomic problem, do not expect it to end well. And remember: a network-design job artificially kept in Sacramento when it could be done more cheaply in Singapore produces extra income for a network engineer in Sacramento, but has costs as well

Brad's entire post is worth using in an economics class.

For Discussion. DeLong says that the keys to having good jobs are a high rate of saving, public infrastructure investment, and investment in education. In my essay on outsourcing, I focused on the individual's responsibility to "be willing to do whatever work is needed, to be inquisitive, and to learn." To what extent is the quality of one's job the responsibility of the individual, and to what it extent is it the responsibility of public policy?

COMMENTS (4 to date)
Matt Young writes:

If public policy is having the government consume over 40% of the economy, almost twice what the Chinese goverment consumes of its economy, then public policy is the problem.

Boonton writes:

What exactly does this mean? How do you figure that China's gov't 'consumes' only 20% of its economy when it is still mostly socialized with huge state industries dominating?

Matt Young writes:

We need more reliable numbers for goverment expenditures, but here is my assessment, using state, local and federal.

The Heritage Foundation puts the goverment burden in China at 30% below the US goverment burden.

The Russian economic adviser to Putin has the Russians at 37% and the Chinese at 25%, and claims that Russia and the US are nearly the same.

Bill Buckley puts the US goverment burden at 40%, adding regulations, the tax freedom day puts it it 55%.

For a comparison, the Chinese are estimated to have a GNP equal to ours, if adjusted for the real currency values; but their defense costs are about $50 billion compared to our $400 billion.

Randall Parker writes:

When economics talk about how "we" benefit from international trade I think this is imprecise. There are people who will lose high paying jobs to international competition who will never get anywhere near the salary or experience anywhere near the living standards they previously had. Some people benefit a little. Others benefit a lot. Still others just suffer as a result.

As for retraining: as age increases that becomes less feasible. Old minds and bodies are less up to the task.

There are clear losers in all this. If the scale of rate of the displacement gets too high there will be a political backlash.

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