December 13, 2005

Econ is Done! (Part 1)

After paring the Asian Financial Crisis, Outsourcing, World Liquidity, and African Development into 11 pages, here are my even more abbreviated thoughts about these subjects.

Asian Financial Crisis:  This financial crisis (the one of 1997) resulted from an inability of Asian nations to convince creditors that they would make good on their debt.  How could they have avoided this crisis is the million dollar question.  I have decided that the most reasonable approach would have been to never offer governmental backing to loans that would be bad.  This is much easier said than done.  That is why the job of policy making is hard--especially in an economy where a nation is beginning to see the unsustainable capital flows as a means to get out of poverty.

Outsourcing:  Outsourcing is good.  There is no way around this.  The controversy comes from a misunderstanding of what is being outsourced and a failure on the part of politicians to pass legislation and programs to aid anyone hurt by this phenomenon.  Outsourcing has been continuing in various forms since the advent of machines.  Originally, people outsourced manual labor to machines.  This, we would all agree now, was a good thing--let the mills and assembly lines produce more things better than before.  Now America has its shorts in a knot because it is having call center, transcribing, and other soon to be obsolete jobs outsourced.  A look at manufacturing outsourcing reveals that it is a lot of "cheap talk" to economists.  Sure, certain industries are moving overseas where the cost of transportation is low enough to allow it.  More complex industries, like automobiles, are still not outsourced, they are made domestically regardless of the company.  Overall, transportation costs are too prohibitive to allow mass movement of industry abroad.  This is why NAFTA hasn't been the doom for America''s economy as many predicted.  On the other hand, when jobs are moved abroad, it is because of the savings that a firm will reap from this.  They can produce more for less.  As such, there are now more profits to be invested at home.  The profits usually go to higher paying, overall better jobs than the ones that were lost (see the Economist for more articles explaining this effect).  As such, movement of repetitive, non-rewarding jobs abroad should be hailed as great because then there will be more good jobs for Americans.  Lastly, many of the opponents of outsourcing fail to see the inherent hypocrisy in their arguments.  They describe the anecdotal evidence of factory workers losing their jobs seeking to draw on the emotional reaction of the public to further their cause.  Little do their realize that they are really calling for stopping the employment of many more, less economically well-to-do people in developing regions of the world in the process.  These are the very people that cringe when the President can not recall the number of Iraqi''s killed in the Iraq War.  Thus, in war, foreign lives mean as much as American lives, but in economics, American lives are clearly superior.

What should policymakers do then?  They should seek a way to undermine the efforts of the tear-jerk crowd by offering adequate programs and financing for anyone displaced by outsourcing.  This is results in a large subsidy to the under-educated workforce, but one that is needed in order to ensure American ideals of liberty and equality are maintained in a globalized, dynamic economy.  Once the people are taken care of, let the free trade train ride.