Arnold Kling  

Outsourcing Winners and Losers

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Housing Bubble, Again... Presidents and Jobs...

When you open up trade opportunities, will the benefits go to people with high incomes or people with low incomes? Brad DeLong walks through the logic that says that if foreigners have a comparative advantage in high-income occupations (such as computer programming), this will be of more benefit to low-income U.S. workers than if the other country's comparative advantage is in low-skill work.


In this context, it is interesting that the journalistic upset about outsourcing appears to arise because of the impression that foreigners are competing with the relatively rich--radiologists, programmers, et cetera. I believe that we should worry a lot more about outsourcing if it puts downward pressure on the salaries of the working class than if it puts downward pressure on the incomes of the yuppie class. But that's not what's in the journalistic zeitgeist.

My sense is that the journalistic zeitgeist is that all economic phenomena must be put in a negative light. This is always the case, but it seems to be particularly urgent with a Republican in the White House.

Read Brad's full post for a nice example of general equilibrium modeling.

For Discussion. While outsourcing grabs much of the ink, what are the economic stories that are being under-reported?



COMMENTS (12 to date)
David Thomson writes:

“This is always the case, but it seems to be particularly urgent with a Republican in the White House.”

The major media are committed to destroying President Bush. Am I exaggerating? If so, why were there not similar articles during the period when Bill Clinton was running for reelection? The current economic statistics were no worse than those reported in 1996. Still, there were no articles questioning whether this threatened his reelection hopes.

Boonton writes:

The media was committed to destroying Clinton's administration....the only difference is that they targetted non-economic stories like Monica, Whitewater, Vince Foster etc.

An under-reported economic story? How about 'insourcing'...the opposite of outsourcing. That is where companies in other nations 'outsource' their jobs into the US.

Lawrance George Lux writes:

The greatest untold economic story is the growth of both Public and Private debt. Almost sixty percent will have to be refinanced before it is paid off, and no one has compiled current increases of monthly repayment schedules, and the effect of each percentage increase in the interest rate. It would become the one genuine horror story of current economics.

Federal debt is up immensely, both so is Local and State debt. Private Household debt has been increasing since the last Bush election. I ate lunch today listening to a woman accept a $880 per month mortgage on a home, with an additional $80 per month for the Insurance. Some who read this will probably envy her, but I live in an area of the Country where Wages and house prices are relatively low. This is up from a probably $750 per month total some four years ago. The lady will be fine, unless her Consumer debt is growing at the same rate at the national norm, and the interest rates go up four percentage points. lgl

Ramiro writes:

I think outsourcing has brought benefits to the third world countrys. However I still think there hasn´t been done enough for those countries, in terms of sharing wealth, and not axfitiate them with debt. To be fair, we haven´t handled our economies as we should have. But it´s also true that America´s product wouldn´t be 10 billion dollars if there werent undeveloped countries.
In the end, it all comes down to the same, if there is poverty around the world, the rich will suffer, and I´m not just talking abuot extremism. What would america be with no patents and no oil? And no smart people from overseas to lead their academic programs?
I just think a better and fairer world is waiting just to be built. Well i think i got carried away. hehe. Outsourcing? right!

Eric Krieg writes:

Housing price increases continue to impress me. We are coming into prime home selling season, and there just isn't much in the way of supply out there, from what I see here in the Chicago 'burbs. I wonder if all the trade-ups and refinincing that has gone on over the last couple of years means that people are less likely to move in the coming year or two, which will contrain housing supply and support prices.

There is a ton of remodeling work going on, too. I see a lot of ranches being "popped-up", which is really cool. My buddy who did my new garage is up to his eyeballs in work. I think people are putting their home equity to work in useful ways.

Real estate is going to continue to drive the economy. Sure, rates have risen sharply last week, but they are still lower than a year ago, and they weren't even all that high then!

Americist writes:

http://www.morganstanley.com/GEFdata/digests/20040331-wed.html
Offshoring -- Myth and Reality by Stephen Roach

http://www.wachovia.com/ws/econ/view/0,,1636,00.pdf
So Much Growth Yet So Few Jobs: How Do We Reconcile Such a Wide Discrepancy? by Mark Vitner

http://www.washingtonpost.com/ac2/wp-dyn/A12414-2001Sep11?language=printer
Attack of the Grape Tomatoes: How a Tiny Fruit Took Over the Produce Aisles by Carole Sugarman

http://www.rich.frb.org/pubs/regionfocus/winter04/cover.htm
Global Gain, Local Pain: The Globalization of Manufacturing has Produced Cheaper Goods for Everyone, but the Trend has Cost Hundreds of Thousands of Jobs in the Fifth District by Karl Rhodes

asteri* writes:

yeah, housing market trends are in plain sight, yet largely ignored.

a subtle point that's been missed is it's impact on CPI. as more people have become homeowners, more single-family structures are being built. families have moved out of apartments, sending rental vacancy rates to record highs. consequently, the demand for multi-family structures has diminished.

so with housing prices moving up and more people moving into single-family homes, you'd think the cost of shelter would be moving up... and they are. BUT you wouldn't know it from the CPI, because housing prices aren't reflected in CPI, only rents are.

competition among landlords has placed downward pressure on single-family homes that are rented, which are used in calculating owners' equivlent rent (OER). apartment rents and OER account for over a quarter of the CPI, so paradoxically the housing boom has caused reported inflation to remain low... and interest rates and mortgages rates, as well.

this is backward and another example of inflation being understated. whether you look at education, medical care, energy and food prices (excluded from so-called 'core' measures) everyday item prices are rising. prices for big ticket items that are purchased infrequently like refrigerators and cars have been falling. but they don't reflect people's day-to-day experiences, and yet they hold a disproportionate sway in CPI, supposedly a cost of living measure.

this while average weekly earnings have been stagnant. when stimulus boosted incomes go away, the job market better be humming, else credit quality and debt service is going to take a serious hit.

Eric Krieg writes:

Don't forget that tons and tons of apartments are going condo. The market for apartments is not growing anywhere near that of the new housing market.

Scott writes:

Outsourcing is the growth of Corporate America into a new name - Corporate World.

Tommy Vercetti writes:

I couldn't disagree more. I don't disagree with your views on offshoring themselves but with the perspective that there is this widespread "journalistic upset about outsourcing". Where? I've read dozens of magazine articles, blogs, and forum discussions on this topic and they are almost universally in favor of offshoring and point out the well known traditional economic advantages of such international trade.

It's like, I never hear people or the media express upset about the Clinton-Lewinsky scandal but I hear LOTS of people and read LOTS of articles complaining about how everyone else is upset about it.

Tom Grey writes:

Most under reported story is the one success of the commie system -- full employment. It was illegal to be unemployed.


An optional full employment "national service" corps might be better, with a gov't guaranteed job, doing make work/ computer aided education for money, at worst, might be a better welfare system. And "all" that poor people need, except health care when sick. To implement some national work scheme, while getting rid of all other "help" programs, would be a huge win.

Steve Sailer writes:

While outsourcing grabs much of the ink, what are the economic stories that are being under-reported?


How mass immigration, especially illegal immigration, hurts America's working poor. It's simple supply and demand, but we journalists don't care because their wages, and those of their friends, aren't pressured downward by illegal immigrants. In contrast, we journalist are very worried about our jobs being outsourced to India someday.

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