Economics Questions

Re: Free markets, wages and outsourcing

z1235 — Wed, 28 Dec 2011 22:15:31 GMT

Clayton:

No one has claimed in this thread there would be no outsourcing of jobs in a freer market. I'm sure there would be increased outsourcing of some jobs and decreased outsourcing of others.

OK, we're on the same page. For some reason, I thought JJ and you were claiming that outsourcing ("shipping of jobs") would disappear in a free market. I agree with the rest of your post.

Re: Free markets, wages and outsourcing

Clayton — Wed, 28 Dec 2011 22:07:31 GMT

So would you or would you not outsource food production in a free market? Would there or would there not be "shipping of jobs overseas"? If division of labor were to "remain intact", one must answer "yes" to both questions. A "no" answer is logically irreconcilable with the existence of division of labor.

No one has claimed in this thread there would be no outsourcing of jobs in a freer market. I'm sure there would be increased outsourcing of some jobs and decreased outsourcing of others. The whole concept of "outsourcing" is relative to political boundaries, anyway. But the specific character of outsourcing we see occurring between China and the US is not an organic outgrowth of market factors. The easy way to see this is to look at China's holdings of US debt. Something is amiss.

There was no sane reason for China to accumulate such massive holdings of US debt... unless both the US and Chinese economies are being influenced by an alien power that wants to integrate them. It is my view that that is precisely what is happening. In the short-run, this will mean a continued hemmorhaging of jobs and capital into Asia and out of the US. In the long-run, it will mean lower real productivity of US workers and a lower standard of living in the US, with a concomitant rise in productivity of Chinese workers and a higher standard of living in China.

This "zero sum" shift in the balance of wealth between these nations is, to me, an obvious sign of political manipulation. There is no reason the US worker should become less absolutely productive as his peers in China become more productive. There is no reason that the US standard of living has to fall in order for the Chinese standard of living to rise... unless somebody is playing geopolitical games with the world economic order.

Clayton -

Re: Free markets, wages and outsourcing

z1235 — Wed, 28 Dec 2011 21:27:43 GMT

Clayton:

Transportation is costly. Unless someone can grow food and transport it to you at a lower cost* than you can grow the food yourself, why yes, you will grow the food yourself. How can this possibly be controversial?

*Note that "at a lower cost" includes the other activities you would have to forsake in order to grow food... that is, the costs of forsaking more productive activities you might have to do, so division-of-labor remains intact.

So would you or would you not outsource food production in a free market? Would there or would there not be "shipping of jobs overseas"? If division of labor were to "remain intact", one must answer "yes" to both questions. A "no" answer is logically irreconcilable with the existence of division of labor.

Re: Free markets, wages and outsourcing

Clayton — Wed, 28 Dec 2011 21:12:18 GMT

I'm perplexed by this statement. So if this argument is pushed to the extreme, a truly free market would eliminate division of labor? Every country/town/village/family would be producing everything they need right there in their own backyards?

Transportation is costly. Unless someone can grow food and transport it to you at a lower cost* than you can grow the food yourself, why yes, you will grow the food yourself. How can this possibly be controversial?

*Note that "at a lower cost" includes the other activities you would have to forsake in order to grow food... that is, the costs of forsaking more productive activities you might have to do, so division-of-labor remains intact.

Clayton -

Re: Free markets, wages and outsourcing

z1235 — Wed, 28 Dec 2011 20:26:39 GMT

Clayton:

No, JJ is absolutely on point, here. His original claim, "in a truly free market, it would be almost impossible for it to be cheaper to manufacture goods halfway across the world and ship them over here" is absolutely true. In a truly free market, ideas can be copied and geographical location has no impact on costs imposed by State regulators. The only way something can be produced more cheaply in another place is if some cost greater than the cost of transportation can be cut in the process.

I'm perplexed by this statement. So if this argument is pushed to the extreme, a truly free market would eliminate division of labor? Every country/town/village/family would be producing everything they need right there in their own backyards?

Re: Free markets, wages and outsourcing

z1235 — Wed, 28 Dec 2011 20:18:57 GMT

JJ, nevermind. There must have been some misunderstanding.

Re: Free markets, wages and outsourcing

Clayton — Wed, 28 Dec 2011 20:15:31 GMT

It seemed (to me) that you implied that price (arbitrage) opportunities as they exist today are mostly caused by differing levels of government intervention/regulation. Pls correct me if I was wrong.

No, JJ is absolutely on point, here. His original claim, "in a truly free market, it would be almost impossible for it to be cheaper to manufacture goods halfway across the world and ship them over here" is absolutely true. In a truly free market, ideas can be copied and geographical location has no impact on costs imposed by State regulators. The only way something can be produced more cheaply in another place is if some cost greater than the cost of transportation can be cut in the process.

It is possible that people in poorer parts of the world will agree to work for less absolute pay but there's always some reason for this. It's usually the case that they're poor precisely because they are less productive. This modern corporatist narrative about "cheap, overseas labor" is a lot of poppycock invented by the Elites so they can move their mult-trillion dollar, gold-backed slush funds from one major geopolitical center to another and get "sure thing profits" in the process. (JJ probably doesn't have this in mind since he's a bit less paranoid than I am). They were probably buying land in China back in the 1980's. The gutting of the US economy is sabotage, in my view. They're not just making cheap Chinese knockoffs of Nike shoes... the entire Chinese economy is a cheap knockoff of the once-great (because once-free!) US economy.

Clayton -

Re: Free markets, wages and outsourcing

John James — Wed, 28 Dec 2011 19:59:27 GMT

z1235:
Then please explain what you meant by:

but this notion of a company seeing it more profitable to "ship jobs overseas" would largely be a myth.

I thought I did that in the rest of that post. I don't understand what your issue is. You just said "'Shipping jobs overseas' as a phrase is loaded and meaningless". I mean, literally, that's what you said. Word for word. Look. It's right here.

And now you're asking me to explain to you why a meaningless phrase refers to a "mythological" concept?

Re: Free markets, wages and outsourcing

z1235 — Wed, 28 Dec 2011 19:35:59 GMT

John James:

You are wrong.

Then please explain what you meant by:

but this notion of a company seeing it more profitable to "ship jobs overseas" would largely be a myth.

Re: Free markets, wages and outsourcing

John James — Wed, 28 Dec 2011 18:55:26 GMT

z1235:
I could be wrong but it seemed (to me) that you implied that a free market would be devoid of price discrepancies and of arbitrage (entrepereneurial) opportunities to take advantage of same (i.e. action). As if all price arbitrage and opportunities worth profiting from would already have been taken by a free (maximally efficient) market. As if no real $100 bills would be left laying on the pavement.

It seemed (to me) that you implied that price (arbitrage) opportunities as they exist today are mostly caused by differing levels of government intervention/regulation. Pls correct me if I was wrong.

You are wrong.

Re: Free markets, wages and outsourcing

z1235 — Wed, 28 Dec 2011 18:51:31 GMT

John James:

z1235:
I don't see how a free market would necessarily eliminate action

?

I could be wrong but it seemed (to me) that you implied that a free market would be devoid of price discrepancies and of arbitrage (entrepereneurial) opportunities to take advantage of same (i.e. action). As if all price arbitrage and opportunities worth profiting from would already have been taken by a free (maximally efficient) market. As if no real $100 bills would be left laying on the pavement.

It seemed (to me) that you implied that price (arbitrage) opportunities as they exist today are mostly caused by differing levels of government intervention/regulation. Pls correct me if I was wrong.

Re: Free markets, wages and outsourcing

John James — Wed, 28 Dec 2011 18:22:27 GMT

z1235:
I don't see how a free market would necessarily eliminate action

It is still perfectly possible (even likely) that someone in free China (Alabama) could perform an operation cheaper than someone else could in free USA (California).

Right. Too bad there are a few other things that work into the equation.

Re: Free markets, wages and outsourcing

z1235 — Wed, 28 Dec 2011 18:08:57 GMT

John James:

so yes, even at full domestic operating capacity there will be a market for imports...but this notion of a company seeing it more profitable to "ship jobs overseas" would largely be a myth.

"Shipping jobs overseas" as a phrase is loaded and meaningless, but I don't see how a free market would necessarily eliminate action, and in particular (labor) price arbitrage. It is still perfectly possible (even likely) that someone in free China (Alabama) could perform an operation cheaper than someone else could in free USA (California).

If I had 20 people making Part #32 for my product at a total cost of $400 per part and I saw Part #32 offered in a Chinese catalog for $100 why wouldn't I fire the 20 workers and start ordering Part #32 from the catalog? Did I just "ship" these jobs to China?

Re: Free markets, wages and outsourcing

John James — Wed, 28 Dec 2011 17:31:22 GMT

Joe:
law of comparative advantage, the division of labor, etc. Shipping stuff across oceans, even vast ones like the Pacific is not THAT expensive. There would be TONS of products that would be more economical to manufacture overseas than in the US. Are you taking into account opportunity costs? Just because we could make something in the US doesn't mean that its most economical to; there is a very good chance it would be more worth people's while to produce things that are worth even more money than the cheap goods we import from China.

You're missing the point. The scenario that was presented describes an American company that is choosing to operate at "home" in the U.S. or export it's operations to a foreign country. My point is that if you have a pure free market domestically, there is almost no scenario where it will be a net gain to move operations overseas...especially if the country you're moving to is not a free market. The industry you're in would have to be one of the few in which the resources are just not available in the U.S., or are just so much more readily available elsewhere that the distance and added taxes and regulations would still not be enough to decrease profit below the domestic level.

I never said goods would not be imported. Obviously, as I keep saying, there exists a limit to the amount of work that can be done at any given time, and desires are infinite...so yes, even at full domestic operating capacity there will be a market for imports...but this notion of a company seeing it more profitable to "ship jobs overseas" would largely be a myth.

Re: Free markets, wages and outsourcing

Autolykos — Wed, 28 Dec 2011 15:38:23 GMT

Joe:
I would agree that the guys main problem is in looking at nominal wages as opposed to real wages. He is also not thinking at all like an economist, he is not seeing the bigger picture, he isn't seeing the benefit of everyone else in the economy paying less for the now cheaper goods, now all of those other people have more money, with this money then can invest, with this investment the economy can produce more and create more jobs. The more capital, the more productive a worker can be, the more productive, the higher the real wages.

Nevertheless, he is rationally following his self-interest. Since he lives under a democratic state, it follows that he'll probably vote for politicians who campaign on protectionism in his chosen line of work. Even if he does see how consumers as a whole would benefit by paying less for the now-cheaper goods, he may just not care - he's concerned with his own standard of living, even if he claims otherwise.

It seems to me that many people view economic issues the same way they view social standing - entirely in relative terms. We've seen for a long time that many people see wealth as a "zero-sum game", but I, for one, never quite understood why. For those who see increased wealth as a means to attain greater social standing, and social standing is a relative thing, it follows that they'll at least tend to see increased wealth as a relative thing also. And just as relatively greater social standing can be attained by either building oneself up or tearing down others, so can relatively greater wealth be attained by either increasing one's own or decreasing that of others. Wealth in absolute terms means nothing to these people.