THREAD:
I would like some help deciphering this post. I would ask the author but she has me on ignore and also has stated that she does not want to be "followed" to other threads, so I'll just post it here and if anyone can help I'd appreciate it.
Here's the text of the post:
Message 19902734
Lou Dobbs today had Reagan's economist who says there is no relation between offshoring high value jobs to foreign markets and free trade. His name is Paul Craig Roberts, here is a website with a bunch of columns from him.
townhall.com
Equating sending jobs offshore and marketing products here (with a huge trade deficit) as free trade in the Ricardian model is highly controversial. Free trade is supposed to mean, you produce what you do best, I produce what I do best and we prosper through trade. Not the same as this. Of course the Bush people are saying offshoring and free trade are the same but it is not unanimous.
Bottom line- another bad market, horrible trade deficit figures, and deficits. Anybody who thinks this economy is working is nuts.
The part in bold seems to say that everybody should produce what they do best. That's the essence of free trade. Part of that equation as I've always understood it takes costs into account. That is, making something "best" can mean making it at a higher quality or making it at the same quality but at a lower cost. If E-loan, for example, can get loans processed in India faster and less expensively, and the quality of the processing in equivalent to what it would be here, then that basically means India can do that task (loan processing) better than the U.S.
Yet this post seems to be saying that this concept has nothing to do with outsourcing. I'm scratching my head over that, and it's not because I have fleas!
The article that the post cites contains the following excerpt:
For comparative advantage to reign, factors of production must be mobile within each country so that they can move to the uses where they have comparative advantage. The principle does not work, however, if factors of production are internationally mobile and can leave the country. If factors are internationally mobile, they will flow to countries that have the greatest absolute advantage where their productivity is highest. The countries with greatest absolute advantage will capture the gains.
townhall.com
It seems to me that the principle of comparative advantage works better for the world overall if factors of production are internationally mobile. The lack of production factor mobility constrained the ability of the world's economies to maximize the gains from comparative advantage. The Internet and the collapse of world socialism have freed up the principle of comparative advantage to provide still greater overall gains.
The other problem with this commentary is its implicit assumption that countries' "absolute advantage" is static. In past times, when climate and geography were the paramount advantages, that may have been true. But now, look at the advantages which India and China are capitalizing on. Those factors include: (1) education levels of the populace; (2) plentiful labor supply; (3) rapidly improving telecommunications infrastructure; and (4) loosening of self-imposed economic isolation laws. Ten years ago, the first two of these factors existed, and the education system has since been improved steadily. The second two factors were not in place ten years ago.
The current system has encouraged countries such as India and China (the only two countries in the world more populous than the U.S.) to improve their educational systems, their legal/economic systems, and their communications infrastructure (much of which was purchased from the U.S.). Those strike me as good things for the world and for the citizens of those countries. Those two countries will now have more resources to provide a better life for their citizens, reduce pollution (which as a percentage of industrial output is a far worse problem there than it is here -- try breathing the air in Delhi sometime), and most importantly reduce poverty and starvation, which is both a noble goal for humanity and a way to discourage the conditions which lead to the development of terrorism.
Should we be discouraging this from happening so that our IT workers can make more money and have an easier time finding jobs? Should we pay higher costs for everything that is currently outsourced and in the process discourage these things from happening? I don't think so. |
