Outsourced jobs

People will “buy American” in the short run, but will not in any significant numbers,  or continue to do so when the dollars reach a certain threshold.   Small private companies will pay higher wages to loyal employees for awhile, till their profit margin drops to a certain threshold.   Both employment and consumption decisions will allow some room for salving the patriotic conscience UNTIL THE NUMBERS GET BIG ENOUGH, then your loyalty to your own family’s budget supercedes your loyalty to what is relatively an abstraction.

Liberals build programs in their heads using denatured symbols of people, like pieces on a chessboard.  Then, in practice, the symbols come to life like werewolves of self-interest.   Protectionists build “solutions” in their heads using denatured symbols (“executives” “consumers”) then, in real life, the symbols stubbornly morph into selfish actors.  Nothing is more fundamental to economics than the assumption that all actors will pursue their rational self-interest.

Any other value injected into the system, unless it is a vivid and dramatic moral prohibition,   is a local and transient island, soon to be overwhelmed by the profit motive.

Labor will be moved offshore to cheap markets.   An apple, released from the tree, will drop to the ground.

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As usual, the protectionist vision sees part of the economic system and thinks it is the whole picture. Like a blind man feeling an elephant’s trunk and yelling “snake!”

Think about it. When your costs decrease, you either drop your prices to capture market, or you keep the profits.  If you keep the profits, your competitors drop their prices and take your market.  This is a process of dropping the return on capital to the level to where it can get the same return at lower risk elsewhere, at which point it leaves.

So the shift of labor to cheap markets produces two deflationary pressures: one on American wages, the other on American prices. How these two will net out in the short run no-one knows.

The protectionists like to talk about wages dropping while arguing, in abject ignorance of how competition really works, that corporations will use all the profits from outsourcing to give their executives 50 million dollar bonuses. Nonesense.

Corporations do give irrational bonuses to executives, and they are disciplined by the market — whether they know it or not.   Smart corporations will make money by outsourcing, give some of it to the CEO (there is a market price in the CEO market, after all) and re-invest most in the company or return it to shareholders (that is me and you).

If you were the CEO of Acme widgits, you WOULD — get this — YOU WOULD OUTSOURCE YOUR LABOR.   If you didn’t, your board will find someone who would.   And you could go wave your flag at home.

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So, economic globalization is inevitable.   It is the story of economic man.

I realize everybody gets emotional in this argument, but my argument is not that it is good or bad.    Just that global capitalism is the end state of human economic activity, that this activity is driven to this end by simple and unchangeable principles, and all socialist or central or protectionist moments in history were (and are) just short stutters on the way there.

You could have a bunch of protectionists on this side of the lake, and a bunch more protectionists on that side of the lake, and in 50 years their children will be abandoning the tariffs under the inexorable force of dropping costs of inputs.

The national question is less clear, because nations exist for multiple reasons, not just economic reasons. All I can do is observe the forces: economic force tends to dissolve national borders, but the self-defense force says to keep them. The cultural force says, at first, keep them, but cultures homogenize over time, so that force is waning.

Which force wins? If countries can solve their self-defense concerns they will always lower their borders to make more money — after the generation that fought the most recent war has died out.

Is this possible everywhere?   I don’t know.

Back to the debate: stupid people are spending their time arguing “should we outsource or should we not?”. Smart people are trying to figure out how to soften the blow to individuals as the country globalizes.   We can either do it hard or do it easy.

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