This name is UgLy
. Perhaps a statement instead of a question?
Plus there's the difference between trade in general and imbalanced trade.
There has been a great discussion about whether outsourcing is good for the economy of the country being outsourced from? We may or my not realize that outsourcing is one kind of Import. Import of people's skills, intelligence and knowledge. There has been a big outcry in the USA against outsourcing. If there is an outcry against outsourcing, there should also be a outcry against all imports and there are.
There are several ways that countries discourage imports and encourage exports. For eg. In India, till very recently the duty on imports was exhorbitant. USA is giving subsidies to steel manufacturers so that the cost of their steel is lower than imported ones. India is also offering several subsidies to exports. All this in the name of encouraging exports and discouraging imports. Now the big question is Are Imports really bad?
There was a recent article in a newspaper proposed imports. It said - Imports are actually good for a country and its people in general. Imports raise the standard of life. As a case study, India, till 1983, India had two brands of cars which were actually frankly antiques. Even for these. we had to wait for several years. In 83, this changes with the arrival of the Maruti. Then in 92 the big liberalization / Globalization / revolution happened and we now have all the top brands of cars here. The car industry is just one example. All industries in India followed the same pattern before 1992. There are now all the top brands of the world operating in India now..and as an Indian I can tell you Imports have certainly been beneficial to us. Sure there were a few jobs cut in the old Ambassador and Fiat plants, but several more were created by these imported brands.
I certainly think that Imports in general and oursourcing in specific aid both the importee country and the importing country. - RaviKammaje
The principle objections to imports seem to be based on the mercatilist notion that there is a fixed amount of wealth in the world, and that in order for me to become richer, then you must become poorer. Back when wealth==money==gold, this was approximately true. True, but tragic, as it lead to situations like the Irish Famine, whereby millions starved to death, not because there was no food (although the potato harvest had beed destroyed by blight), but because the other food crops were exported for gold. However, our concept of wealth is no longer tied to arbitrarily chosen scarce commodities. So we are now able to reap the benefits of the LawOfComparativeAdvantage?
unencumbered by pre-modern money fetishes. But only if we allow ourselves to.
Another problem is that the downsides are often swift and obvious, while the pluses are slow to come or not redily visable or trace-able back to C.A. If one wants to better sell C.A., then perhaps they should propose some kind of "globalism insurance" to reduce the downsides. Taking away a good job from somebody who got used to one is generally going to create more complaints than someone who never had a good job to start with. There used to be a child-hood term in the US to describe this: "Indian giver". Although the term is now considered racist, I have yet to find a common replacement that everybody relates to. -- top
Imports are not bad. However structural (cronic) trade deficits cannot be good. They are a sign that the economy is underperforming and some changes may be needed.
Stuff Versus Jobs
Another issue is whether there is a trade-off between cheap stuff and good jobs. Free trade proponents say that good jobs and cheap stuff are one in the same, but I am not fully convinced. There may be policies which produce better or a larger variety of jobs at the expense of being able to afford lots of trinkets.
Cheap stuff is, well, cheap. I can't tell you how many mexican immigrants in Southern California benefit from FreeTrade. Probably there are millions of them. You can afford a bit more expensive trinkets, but they simply cannot. You may be able to afford a Cadillac, whereas Hyunday's and Kia's are a blessing for them.
Are you suggesting that people willingly give up jobs in one country to altruistically benefit other countries?
If you're not altruist but individualist, well, do something and compete better. It's worth noting that GM is back into the low-end market where they previously had no interest. It's not like the American Automobile industry disappeared altogether.
Ford is teatering on bankruptcy, Chrysler was purchased by a German company, and GM has lost market share the majority of years since the 1980's. And, they make/use more and more parts overseas.
Do you think also people should not "altruistically" give up their job to benefit robots ? At least with production outsourced to India there will be real people benefitting. Indians have families and children to feed also, therefore you don't have any moral standing to shout against free trade for this reason.
They can grow their economy is other ways. Being a US parasite is not the only way to economic growth.
It isn't a question of parasitism, it's a question of co-dependence. Work outsourced to India from the US exports Dollars. Well, there's only one place anyone can spend Dollars in bulk...what goes around, comes around.
[No. One can convert dollars to any other currency in the currency market. Outsourced work doesn't export dollars. It exports wealth.]
Some folks around here need to take some Economy 101. GM is claime to have lost market share but the market has grown, so the GM has grown and so the wealth of GM stockholders and even as important the wealth of GM employees. Chrysler has been bought by Daimler Benz so in all fairness Americans should be happy about that, as it was a stock exchange and now they have an ownership in Daimler Benz, a company that actually produces better cars than American companies have ever dreamt of producing.
Another idiocy being produced was that Ford is teatering bankruptcy. Well, go figure:
Now on top of that is that outsourced work exports wealth. And "one can covert dollars in any other currency". Go figure idiot's guide to economy theorem: if one converts dollars in another currency there's another one converting another currency into dollars.
[Please don't insult me. I used to work for a foreign exchange trader. The nationality of currency doesn't keep wealth in that nation. If the US were to send all of its wealth as dollars to people in Europe, let's say, they wouldn't be limited to spending those dollars in the US. The Europeans would have US dollars to spend but the US wouldn't (without the Federal Reserve creating more). Wealth would move from the US to Europe. Europeans could trade them to anyone who accepted US dollars, without exchanging them for other currencies. Even if they exchange them in a currency market, only a small fraction of the US dollars traded there go back to the US. Most remain in speculative holdings (US$1.5 trillion average daily trading volume on the foreign exchange). The money paid by US employers to Indian workers stays (for the most part) in India, regardless of the currency used.]
- you explanation is flawed. If you sent out currency to India and that currency stays there, then the following phenomenon has occurred. India has sent in some product (either goods or service), while you sent to India paper money (promisory notes if you will). To claim then that indians are parasites who extract wealth out of US is entirely flawed and cheapo and dirty propaganda. You've got the real goods they've got some paper. Money are not wealth.
- Another point to note is that US dollar is being cross subsidized by being traded in US dollars all around the world. There is a good demand for US dollars, and it artificially raises its value. And you know what, only country that can produce US dollars is US.
[I didn't claim anyone was a parasite. Money represents wealth. Money paid from US companies to US employees keeps more wealth in the US than money paid from US companies to Indian employees, just like money spent on good produced in the US keeps more wealth in the US.]
- Next steps in economy 101. Money are not wealth. Money are an instrument of trade. The wealth is what you buy with money. The fact that the world trusts the US dollar to use it as an instrument of change between third parties, provides a net subsidy of the US trade deficit. The US trade deficit means that you currently benefit from more wealth than you are currently producing. The real wealth produced by US economy is relatively measured in US dollars by the economic indicator called GDP. Inspite the trade deficit, outsourcing, etc, production of wealth in US has increased at a healthy 4% last year. This wealth did not fly to India, it largely remained here in form of houses, autmobiles, computers, services that people enjoyed, etc.
[Economy 201: When US companies hire US employees, their pay is spent largely in the US. When US companies hire Indian employees, their pay is spent largely in India. Money is not wealth. Money represents wealth. Sending money to another country instead of keeping it in the same country moves wealth.]
Oh,dear. When you send money to India, you better believe they are not sent for nothing. Some form of wealth (goods and/or services) comes in US for that money. If that worker spends his dollars in India and those dollars will never circulate back to actually buy something from US, than in effect the Indian worker is subsidizing your ass. It'd only be a problem if we'd have difficulties with money supply in US, which we do not, by any stretch of imagination. There's plenty of dollars to move around in US. You can't move to Economics 201 until you've got 101 right, just like you can't ve good at differential calculus until you have a good brasp of basic arithmetics.
[The Indian worker isn't subsidizing anyone. The Indian worker is removing money from the US. That money was probably accumulated by the sale of goods and services within the US. That money, if paid to a US worker, could have been spent within the US. Imagine that all US jobs were outsourced. No money would be distributed to US workers. The only people who could buy within the US would be investors. The rest of the population would starve or rely on economic assistance. The economy would rely entirely on exports. Does that make it easier to understand?]
It makes it easier to understand how you are confused. Removing money from US is not the same as removing wealth. Now I'll imagine how all US jobs would be outsourced when you'll let me imagine how such a thing will happen, in real world things don't happen this way, they attain an equilibrium. If no money would be distributed to US workers, than we'd have a scarcity of money on the market, inducing deflation and economic collapse pretty much like in the 1930's. But with all the outsourcing going on, no such scarcity of money is shown to exist, not even remote signs of it.
Now let's further explore what would need to happen if "the only people who could buy within the US" would be investors (that is the workers who make a living by deciding when and where to invest). And you presumably a good software or hardware engineer would be out of job. Then you'd have to become of investors. Do what society needs not what you thik you like to do and you think society is bound to give you the privilege of doing it at the expense of others. Just like workers in auto-industry had no privilege to do what robots could do better and more efficiently.
If such a thing comes to pass, than it means that in the global economy, it is more efficient to manipulate money and make investment decisions in US by US people who are more skilled and have both absolute and comparative advantages, then it would be by people in India. In the same time it is more efficient for people in India to produce software and hardware. In actuality such a total vacuum in one branch is unlikely, however countries like Switzerland achieve quite a big part of their own wealth simply in invesment activities.
[Investors aren't just the people who decide where money is invested. They are the people who have money to invest. The US can't support its current population by investing their savings in the labor of other nations. It has to pay its own workers to keep its economy going. You're ignoring my words. It doesn't matter that the exageration I made can never happen, or the mechanics of how it can't happen. I was illustrating the ultimate effect of moving money out of the US.]
It's also worth noting that currency conversions are not intrinsically symmetrical, as Costin seems to be saying: Unequal supply and demand of currencies are the reasons that exchange rates fluctuate.
- The exchange of wealth (goods and services) between US and other nations is reflected by the trade balance. Which is currently in the red big time, which means that other people sent more wealth into US than you sent from US to the outside. Again, this trend is currently subsidized by the guys who bust their asses in India, China and other places around the world. If you wanted a large part of those imports not be done outside but in US that would have meant a GDP growth of probably more than is reasonable to expect from a mature economy. You can't have the cake and eat it too.
[Financial futures are a big part of exchange rate fluctuation, too.]
Eric, isn't it also true that a lot of U.S. currency is held by central banks of other nations to back their own currencies? -- francis
[Some is held, but I get the impression most is invested in foreign exchange trading.]
On top of that, I think we have the first manifestation of xenophobic (or worst) sentiments on wiki (anybody please correct me if this is not a premiere): being an us parasite is not the only way to grow an economy
. If anything, it's the Americans who are the "parasites" right now as they run a whopping trade deficit. That is, boys and girls, other people in other countries are busting their asses to actually work for you, and ship in goods that you enjoy, and they provide that "on credit" (for the time being). Now who's the parasite for who ?
Well, given a choice between cheap goods and good jobs, I would personally take the second. US living was fine in the 1950's when the US made most of what we consumed. We don't need to be heavily dependent on the rest of the world. We can be "lightly" dependent. See BalancedTrade.
- trade deficits are based on a multitude of factors, and can swing back and forth between positive and negative without workers or consumers behaving differently, so it is judgemental in an idiotic way to use the term "parasite". That's like blaming me for Bush's actions just because I'm a U.S. citizen. I voted against him -- not that that logically figures into it, either. Bush is not under my personal control. Neither are trade deficits.
- Then you shouldn't be siding with the idiots who call other honestly working people parasites. As for your contribution to the trade deficit, I wonder where you do your shopping. You may have not voted for Bush, but sure enough you enjoy a standard of living that is higher than it would be, should the trade be balanced. That's why you don't want to raise the issue of parasites. You don't want that at all.
[The US standard of living in the 1950s was not "fine" if you include people who weren't white.]
That is an unrelated issue.
[Not at all. In the 1950s the division of wealth between white and non-white citizens was more distinct than it is today. The media image of 1950s life is largely based on how white people lived. If we consider the entire population of the US, the 1950s standard of living was not "fine".]
More economical non-sense in flawed comparisons. US economy now sustains many more people, at a much higher standard of living than the US economy in 1950. You don't want to be driving the cars they had in 1950, or do you ? You don't really think quality of life is defined (solely, or even primarily) by the things you own, do you?
As an american, I can safely say that definining oneself by property ownership is how things work here. Other countries may do so as well, but social status here is heavily tied to what property one owns and what consumables one buys. There are exceptions of course - fame affords respect, but fame is often used to market products, as well as build wealth, so it's still cyclically dependent. Some of us may not like it, but we were born into the system and can't do much about it.
Yes, of course. But all of that has very little to do with the actual quality of your life. I may be quite strongly correlated to social status (depending where you live) but that certainly isn't quality of life. It is correlated, of course, but not that strongly --- especially once you exclude the extremes. It has been my experience that, even in the U.S., the ones who most define themselves by possesions and consumption tend to be the least happy people I know, and the converse. Does that mean that 90% of the population is unhappy?
This discussion is focused on economic welfare, not quality of life. -- EH
There is no point to increasing economic welfare if it doesn't increase quality of life. Economic growth for it's own sake would be a very bad idea (because there are almost always negative effects due to economic growth, as well as positive --- you have to shoot for a net gain).
We aren't discussing the purpose of economic welfare, but if imports are bad for a country's economy. -- EH
That's going to be a tough sell. In a few paragraphs, someone will bring up the bush reference (or I'll do it now ;) ). i.e. The economy seems to be improving, but the job market is terrible, with few signs of improving. Some will argue that imports are good for the u.s. economy(when measured in stock portfolio growth), but bad for the majority of it's population(when measured in jobs, and cost of living) -- LayneThomas
That's an argument for a different page. -- EH
Is it? People usually argue that improving the economy of a country trickles down to all it's citizens, but what happens when that's not the case? If the effect of cheap imports is an economy that favors the top 1-5%, while preying on the other 95% - then yes, even if the economy grows, it's still bad for the economy - just in a different sense of the word. -- LT
I don't know where you live, but where I live I haven't seen the top 1-5% doing their shopping at Wal-Mart. I do not think you'll see lots of cheap imports in their houses either.
That's my point. It's an odd situation to be in where buying cheap imports results in redistribution of wealth to the upper class. They don't shop at Wal-Mart, but you can bet they make money off those who do. -- LT
What exactly do you mean by they make money off those who do
? Incidentally those who shop at Wal-Mart today have much better living conditions than those who couldn't shop cheap goods at Wal-Mart (and very cheap foods in Mexican markets in Southern California) some decades ago. They are also very fortunate to be driving very decent Korean made cars, that they can now buy them new.
On the other hand, the same poor people have in countless instances sufferred the consequences of idiotic politics and policies that in theory were intended to help them.
Except they suffer more when there are no politics and policies to help them. What I mean is that investors in Wal-Mart make money off Wal-Mart's success, but there isn't really space here to debate the benefits or problems with Wal-Mart and this debate is degenerating into liberal vs. conservative ideals, and I don't think either of us want to continue on that vein.
Well, it depends whether the "liberal" ideals as "liberal" America understands them, are designed to help the poor or to help various interest groups. Groups such as corporate bureaucracy, union bureaucracy, government bureaucracy. Certainly there can be policies to help the poor that actually harm the poor, the extreme example being communism.
When you say that investors make money off Wal-Mart's success , it is very different from saying investors are making money "off" some people. That would imply a zero sum game. Actually you can check that dividend rates are dysmal at Wal-Mart, and so was stock performance in the last 2 years. It is actually salaried employees, and corporate bureaucracy who made money "off" Wal-Mart for the last two years, but not the investors.
Lets begin it like this:
The US government makes no such promise. It promises to pay the holder of USD other USD.
- 1. Currency is a promisory note. Government of US promises the holder of USD that it will pay the holder equivalent value in goods/services (or gold in old times).
[No, currency must be backed by 'real' wealth. In older times it used to be gold, now it is goods and services. It's like I am giving a loan to US government in return for its 'service/goods/gold'. If US government promises me more 'loan paper' (currency), it reduces the value of the currency. Otherwise, if USD was not backed up by real wealth, US could have become rich only by printing currency!]
No, US currency is no longer backed by any real wealth. When we went off the gold standard the government stopped promising to exchange dollars for anything. No goods, no services, nothing. All you can exchange a dollar for is another dollar. The value of a dollar is now determined by what you can get someone else to give you, not the US government. Its value is a mass hallucination.
That assumes there's some advantage to trading in USDs above all other currency. Every nation has this "advantage" when trading in its own currency.
- 2. If USD is traded accross the world it means that USD will be in increased demand, driving its value up.
- 3. Even if UAE can sell Japan its oil in USD, Japan will have to get this USD from somewhere.
- 4. Japan will have to trade with US, provide services to US at a reduced rate which is somewhat proportional to the artificial rise in the value of USD caused by the demand for USD. That is called subsidising.
- 5. Since US is the only country producing USD, it can get wealth (goods and services) at a cheaper rate than other countries.
[Yeah, but USD has a special status that it is in demand. India would have loved to trade in Rs., but her customers demand USD.]
It depends on the customer. Some prefer euros. Some prefer yen. And the discussion isn't just about the effect on the US economy, but the economy of any nation.
- 6. This would mean that when US imports raw materials like rubber, it gets it cheaper than UK.
- 7. This would mean that US can produce automobile tyres at cheaper rates than UK.
- 8. If we compare raw materials(e.g. rubber) with human hands in India, US can produce finished goods (Microsoft Word) at cheaper rates than UK even if UK had outsourced its own development work.
- 9. So, in the case of US, she has an advantage to UK due to USD dominance.
- 10. Now, corporates are offshoring to India so that they can reduce costs.
- 11. When corporates can produce cheaper IT goods, they have an edge over competing nations (like U.K).
- 12. The money saved can be invested again in providing value addition to goods (Research).
- 13. This would mean that US can have more wealth than UK. (Cheaper and value added goods = more sales).
- 14. Which would ensure that Govt. of US can keep the promise of the currency. (Step 1).
- 15. This would again mean that USD demands remain high, as they guarentee a ROI. And start again at Step 1.
Agreed that people will lose jobs when IT jobs are offshored. But take the case of Britain during Industrial Revolution. She 'outsourced' her jobs to machines, resulting in significant job losses. But, this also gave her an advantage due to cheaper goods and more sales.
I agree almost entirely with what you said, with the exception that USD is no longer backed by Gold for a long time. The promisory note is just an abstract promise. The only definite promise for it is that you can pay your dues (property taxes, wage taxes, etc) to US government if you have any. The rest of the promises are as good as foreigners confidence in the US economy. If all of a sudden foreigners would loose their confidence, then overnight it'll be a illusory promise. Inspite of that, it works quite well. The rest of the reasoning is correct.
However the discussion is largely moot as some people here would rather throw their 2c before aquiring a minimum level of economic literacy. And no, CNN is not a good source of economic literacy. I'd highly recommend BasicEconomics? by Thomas Sowell ( ISBN 0465081452 ). It even sells at a hefty discount at Amazon.Investing 25$ in this book will save folks a lot of time and energy in useless rhetoric on wiki.
Interesting book - written by a conservative author, and highly critical of those with a different viewpoint. Perhaps you should qualify your statements with examples so people can understand your side - without resorting to argument from authority. Economics is like programming and psychology - it's not a hard science and there are many schools of thought on how complex systems operate(I realize economics is technically about allocation of resources, but that's like saying programming is technically about formal logic operations - it ignores the very human nature of software development).
The book is not about criticism, it is about simple facts of life. That's what makes it very worth reading. There's nothing controversial exposed in this book, it is just 101 basics about prices, money, production, etc. It's not even pro-business. Regardless whether you think the guy has not gotten the policies right, the basics of the economic science are simple and very much non-controversial, and this book gets them right so that everybody can understand and avoid operating with fallacies. I'm not introducing this book as an argument, but rather as a pre-requisite for people to discuss economics at a decent level. Incidnetally I very much like this book without being a conservative.
There's no point in talking about imports if people do not understand that exporting money does not export wealth, and without getting the message that economics is not a zero sum game. And to do that part on wiki is really a waste of everybody's time that could be better spent reading this book, to good economic effect for everybody.
I admit to not having read the book, so I'll take on faith what you said and ignore the critiques on amazon. My analogy was that the basics of computer science are simple and non-controversial, but software development is the complete opposite. Human nature just isn't something that can be easily made into science. Economics may "work" at a certain level (like a turing machine "works") - but it's not the same level most people work with it at (why else would there be widespread disagreement among professional economists)
Can I go ahead an declare myself a victim of LaynesLaw
Not really. Again, basic economics is very much non-controversial and there's no disagreement there, but many people tend to forget or disregard things. Just like many people do software development without having a basic computer science literacy.
Are we discussing basic economics or the economy of a country? The distinction is as different as basic computer science is from advanced software development.
Basic economomics laws and principles apply to the "economy of a country". Just because you talk about "economy of a country" you don't get a dispensation from basic economics.
In simple models, heavy trade is "good" even if imbalanced. However, there are downsides that are more difficult to compute and/or more difficult to assign a weighting too. Thus, the SovietShoeFactoryPrinciple
may favor lopsided trade, but if we could better weigh the other factors, the math may not be so favorable to lopsided trade. Some economists label these "externalities", which may be a disservice. Such factors may include:
- Stability (such as "less bubbles")
- Individual career - Example: going back to school every 10 years as your prior career keeps going overseas.
- Environmental impact - Are some countries poisoning the earth and people to gain an advantage that is illegal here?
- Human Rights - Do some countries have slave-like conditions to undercut us in their targeted industry?
- Culture - Do cultural institutions become commodities and lose a home-grown feel, such as a Statue of Liberty or Native American pottery made in China?
- Military/Security risk - Will specialization leave a country unable to be self-reliant if war or catastrophe interferes with trade? Where do we get bolts and screws and wires for military equipment if our enemy previously supplied all these?
Right-leaning economists often conveniently ignore these. In fact, how much weight or attention these externalities are given is often an indicator of the political leanings of an economist.
See also: BalancedTrade