Exporting America

[Dave Farber <dave () farber net>]

Delivered-To: dfarber+ () ux13 sp cs cmu edu
Date: Tue, 06 Jan 2004 12:58:10 -0500
From: John Parmater <jparmate () columbus rr com>
Subject: Exporting America
To: David Farber <dave () farber net>

Dave,

I¹ve been thinking about this and decided to write something about it.
Perhaps it should appear as a blog somewhere, but I¹ve never blogged and
don¹t know where to place it. So I¹m sending it to you. If you don't want to
print it, perhaps you can suggest where I might place it.

What got me to think about writing this was Lou Dobbs¹s incessant harping on
³The Exporting of America.²  For a man who makes a living reporting
financial news, I¹m finding it hard to believe he has so little
understanding of economics. Mr. Capek¹s letter helped me reach my tipping
point. Here¹s my article.

Why exporting jobs doesn¹t hurt our economy.

I¹ve been reading for years about the battle between those who fear
international trade, who say Buy American, and those who say it makes most
sense to manufacture a product wherever in the world it is cheapest, that
our standard of living is actually higher when we buy VCRs made in Japan or
Korea and when our cars have components from so many countries that it¹s
hard to define what a ³domestic² car is.

History has proven year after year, decade after decade, that American jobs
continue to grow, no matter how many products or services we import, how
many factories American firms build overseas, or how much technology we
export. A long list of products used by Americans today, products which were
once made only in America, is now made almost exclusively overseas. Yet our
jobs continue to grow. How can that be?

Traditional economic theory explains this. In fact, it¹s explained in Econ
101 in most colleges. Yet most Americans, although many are college grads,
don¹t seem to have a grasp of this idea. Indeed, many highly educated folks
don¹t seem to understand it either. Witness the letter reprinted below from
Peter Capek of IBM¹s Thomas J.Watson Research Center. Mr. Capek says: ³Would
we rather live in a country where everything is 10% cheaper, or where most
people are employed?   I believe it ultimately is pretty much that simple.²

I¹m not sure it is that simple. Even though Mr. Capek points out that  .
³Jobs which are offshored, whether manufacturing, call center, or technology
related, don't create a multiplier effect as the earnings are spent in this
country, don't pay taxes in this country,²

it seems that lowering the cost of producing or delivering a product or
service ripples through the US economy. It keeps prices growing at a slower
rate than they otherwise would. It sometimes even lowers prices. That allows
consumers to keep more money in their pockets or spend it on other products,
which someone must then manufacture and deliver, which creates jobs.

There is a list of advantages of giving work to India, too. If India has
more money, it will spend it. Part of the spending will go to the USA. Part
will go to other countries, which, when richer will spend more domestically
and overseas, part going to the USA.

It¹s hard to make the case for having the High Cost Producer produce any
product or service. It makes more sense to have the low-cost producer
produce each product, then trade with the low cost producer of another
product. Take an example of two people who make a simple product or service
that they can trade. Suppose most people in town can paint a house in three
days. Suppose you can paint a house in two days. You are the low-cost
producer. And suppose most people can put a roof on a house in three days,
but I can put a roof on in two days. Wouldn¹t it make sense for me to hire
you to paint my house and you to hire me to put your roof on?

If we buy from each other, we each save a day¹s work that we can then spend
doing something useful such as painting another house or putting another
roof on.

Likewise in trading with India. If India can answer the telephone more
cheaply and the US can produce engineering services more cheaply, we have
something to trade which will make us both richer. (And if India is richer,
they can buy more of Mr. Capek's employer's computers and chips, can't
they?)

If this argument is correct, why is there so much pain and why is the
counter argument put forth? Because, when workers are displaced, they feel
the pain of lost wages until they find a new job. But, you say, they may
never find a job paying as much as they were earning. Sorry, that¹s the
nature of things. The market is not always willing to pay as much for a
product or service as it once was. Myriad products decrease in market value
every year. Alas, so do some job descriptions.

Sincerely,

John Parmater

I¹m not an economist, but I do have an MBA from the University of Cincinnati
with a major in finance.

-----Original Message-----

From: Peter G Capek <capek () us ibm com>

Date: Mon, 05 Jan 2004 23:09:13

To:dave () farber net

Subject: Re: [IP] Maybe there's no mystery after all



A propos of the offshoring issue...



I think a recent letter in the NY Times summarized it well: Would we

rather live in a country where everything is 10% cheaper, or where most
people are employed?   I believe it

ultimately is pretty much that simple.  Jobs which are offshored, whether
manufacturing, call center, or technology

related, don't create a multiplier effect as the earnings are spent in this
country, don't pay taxes in this country, and,

of course, don't generally adhere to the safety and human rights standards
which we believe are important.



Even if the difference were 50% cheaper (it's not!), it still seems to me an
easy decision.  Unfortunately, the nature of the

competitive system is such that, once one business in an industry has
proceeded this way, it's difficult for the others

not to follow in order to compete. Indeed, doesn't the fiduciary
responsibility of a (publicly held) company require it to

behave so as to maximize the return on its investors capital, consists with
the company's bylaws?   When the decision is,

say, between building a new plant or advertising a current product, there's
room for a lot of opinions in making the decision.

But when the issue is as (apparently) straightforward as paying $X/hour or
paying 15 or 20% of that amount, as the business

manager, I won't be concerned with the secondary issues of taxes,
multipliers, employment and so on.   Those won't have

effect until at least next quarter.



              Peter Capek



Peter G. Capek

 IBM Thomas J. Watson Research Center

 Yorktown Heights, NY   10598-0218

 (+1 914) 945-1250       IBM Tieline: 8-862-1250          Fax:  X 4426


§«,¸¸,.·´`·.,¸¸,.·´`·.»§

John

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