Monday, October 21, 2013

The benefits of outsourcing

Although economists virtually all agree that free trade is good, it is still something people are often very suspicious of. For instance, you hear people all the time saying our economy has suffered due to off-shoring/outsourcing, especially when it's for products that foreign governments are unfairly subsidizing.

I just started reading Free To Choose by Milton Friedman, and it has the clearest explanation I've read for why these things are (counter-intuitively) good for us. This was written decades ago but fits perfectly with the widespread concerns about cheap, subsidized Chinese labor/products and off-shoring of related jobs today:

  Another fallacy seldom contradicted is that exports are good, imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports...
  It is simply not true that high-wage American workers are, as a group, threatened by "unfair" competition from low-wage foreign workers. Of course, particular workers may be harmed if a new or improved product is developed abroad, or if foreign producers become able to produce such products more cheaply. But that is no different from the effect on a particular group of workers of other American firms' developing new or improved products or discovering how to produce at lower costs. That is simply market competition in practice, the major source of the high standard of life of the American worker. If we want to benefit from a vital, dynamic, innovative economic system, we must accept the need for mobility and adjustment. It may be desirable to ease these adjustments, and we have adopted many arrangements, such as unemployment insurance, to do so... In any event, whatever we do should be evenhanded with respect to foreign and domestic trade...
  Another source of "unfair competition" is said to be subsidies by foreign governments to their producers that enable them to sell in the United States below cost. Suppose a foreign government gives such subsidies, as no doubt some do. Who is hurt and who benefits? To pay for the subsidies the foreign government must tax its citizens. They are the ones who pay for the subsidies. U.S. consumers benefit. They get cheap TV sets or automobiles or whatever it is that is subsidized. Should we complain about such a program of reverse foreign aid? Was it noble of the United States to send goods and services as gifts to other countries in the form of Marshall Plan aid or, later, foreign aid, but ignoble for foreign countries to send us gifts in the indirect form of goods and services sold to us below cost? The citizens of the foreign government might well complain. They must suffer a lower standard of living for the benefit of American consumers and of some of their fellow citizens who own or work in the industries that are subsidized. No doubt, if such subsidies are introduced suddenly or erratically, that will adversely affect owners and workers in U.S. industries producing the same products. However, that is one of the ordinary risks of doing business... As already noted, any measures to ease the adjustment to sudden changes should be applied evenhandedly to domestic and foreign trade.
  In any event, disturbances are likely to be temporary. Suppose that, for whatever reason, Japan decided to subsidize steel very heavily. If no additional tariffs or quotas were imposed, imports of steel into the United States would go up sharply. That would drive down the price of steel in the United States and force steel producers to cut their output, causing unemployment in the steel industry. On the other hand, products made of steel could be purchased more cheaply. Buyers of such products would have extra money to spend on other things. The demand for other items would go up, as would employment in enterprises producing those items. Of course, it would take time to absorb the now unemployed steelworkers. However, to balance that effect, workers in other industries who had been unemployed would find jobs available. There need be no net loss of employment, and there would be a gain in output because workers no longer needed to produce steel would be available to produce something else.

Tuesday, October 8, 2013

How to tell who you should ignore about politics: govt shutdown edition

Politics is important. What our government does (or doesn't) do can have a huge impact on the well-being of its citizens and the world. So ideally, people would think through the issues rationally, try to learn more, consciously work on identifying/eliminating their misunderstandings/biases, and be interested in discussing their differences of opinion with other educated/rational people in hopes that one or more sides can learn something.

But then there's reality. Sure, people have the capacity to think objectively and skeptically, but on some topics people prefer to think tribally. You just pick a side, usually your "home team" (whatever your parents and/or peers think), and then view everything as a simple good-versus-evil struggle where, of course, your team is always right and the others are always wrong. And of course, you'll want to post stuff on Facebook that displays your team/tribe loyalty... whether or not it's factual or logically consistent is not really important.

If you do hope to learn from the opinions/knowledge of others, the time you devote to that is a limited resource, so you have to choose wisely how to spend it. An important rule of thumb would be to ignore those purely tribalistic people. Which leads me to the shutdown...

Democrats passed a law that Republicans don't like. After not being able to stop it through the accepted means of passing/altering/repealing a law, many Republicans in Congress have decided to shut down the government until they get their way. The details of what "shutdown" means can be read here.

It isn't too often that something happens like this where the right answer is so obvious. This is a terrible, dysfunctional way to run a government. Even if you support the goal of the Republican politicians here, this is such an obviously bad way to do it. If this works, won't this tactic be much more likely to get used again? Should the Democrats think they should shut down the government to get their way the next time Republicans regain a majority and pass a law that they don't like? Regardless of what you think about "Obamacare", there can't be any negotiation on these grounds for the same reason we shouldn't negotiate with terrorists or pay ransoms even when the immediate result of that action seems positive. Giving any legitimacy to that tactic would create long-term consequences worse than the perceived benefits of its first use.

I've seen many people post stuff on Facebook about whether certain national parks/monuments should be closed. And I do think there's room for debate there. The National Park Service has a policy of only having things open if they have sufficient security to monitor them, which they now do not. Maybe that policy should be changed or applied in a more case-by-case basis rather than as a blanket policy. But what's amazing is that many people are presenting this as the outrageous story of the government shutdown and don't have anything to say about the shutdown itself. Really???? What justification could there possibly be for that other than looking for any excuse to criticize Obama and trying as hard as possible to ignore obvious flaws within your "tribe"?

It's mind-boggling, but it's also a win-win situation. They and like-minded people on their "team" get to have their warm, fuzzy (apparently mind-numbing) feeling of tribal unity. And for anyone else this serves as a useful advertisement that states "there is no reason to listen to anything I ever have to say about politics".