Why Lou Dobbs Is Wrong, Part I

Lately I’ve noticed CNN running a lot of ads for their network, some of them touting Lou Dobbs, their premiere economic analyst. Lou Dobbs is probably most famous for his “Exporting America” segment on his show, where he ridicules American businesses that employ people in other countries. As one of the most well recognized names in the media he’s no doubt strengthened the surge of concern over outsourcing that took up so much valuable time this past election.

Every time I hear one of his commercials I get sick, because he is so wrong. Outsourcing is good for America, not bad. Greater specialization allows greater economic growth. Trade creates wealth. That’s the pattern of human history. Saying that sending jobs overseas is bad for the American economy is the same as saying sending jobs across the country is bad for the Californian economy. But you never hear Californians complain about the financial jobs that go to Manhattan; it’s always the tech support jobs that go to India. People understand that specialization (in the financial case) is good. But paradoxically, even the smartest people think there’s no overarching reason why specialization is good.

Count Lou Dobbs among them, because he’s a smart guy. He graduated from Harvard, majoring in economics. He’s on the board of four organizations (the Society of Professional Journalists Foundation, the Horatio Alger Association, the National Space Foundation and SPACE Holdings, Inc.). He writes syndicated columns, writes and edits his own newsletter and has won countless journalism awards.

Upon looking for this information, I came upon this review of his Lou Dobb’s new book—can you guess the title?—Exporting America. In the opening paragraphs of the article, the reviewer asks, “If Lou Dobbs is so wrong, why isn’t ANYONE stating HOW he is wrong and back that up with facts, instead of just saying he is wrong, or tearing him down personally. If Lou Dobbs is so wrong, why does he have the facts to back him up?” [Original emphasis] Well Paym Bergson, I’m about to tell you why. And he doesn’t, by the way, but that's for a later post.

One of the core lessons of economics is constant existence of opportunity costs—doing one thing bars you from doing something else. Spending a dollar here means you can’t spend that dollar there. Watching TV at nine means you can’t play tennis at nine. Dating one person means you can’t date someone else (unless you’re a sleaze ball). Opportunity costs don’t go away when we talk about jobs. They’re existence is, in fact, abundantly clear because jobs take up so much of our free time. Anyone that ever wanted to see a movie instead of being at work readily understands this concept (especially people that deliberate if they should skip work to see a movie). A second job takes up more time than a two-hour flick which is why people have two full-time jobs only if it’s absolutely necessary.

This is why specialization and trade are so great. Specialization says we don’t have to do both jobs to live a good life. In fact it’s better if we don’t. Doing just one lets us do that one thing really well. Because we’re so efficient, we get extra of that one. Trade lets us exchange that extra bit for some of the other. We get both while working for just one. Specialization and trade lower the opportunity cost of a job. We sacrifice less by specializing.

Just as a single person should focus on a few things (family, career, hobbies) to get the most out of life, a nation should, too. Imagine for a moment if America did everything and no jobs were outsourced. That’s a lot of additional stuff to do—manufacturing, customer service, farming, mining, research, record-keeping…yak raising. The International Herald Tribune reported that a bipartisan congressional commission puts the number of outsourced jobs at over 400,000 and rising. And they’re all important for maintaining our standard of living (except for maybe yak raising).

That’s a lot of jobs and if they were all kept inside of the economy, two things would happen. First, lots of people would get these new jobs, baring them from something else. Sure that something else would include Wal-Mart, but it also includes night classes and trade schools. It includes entrepreneurs who prefer the safety of a steady job rather than the riskier (but more profitable) self-employment. It includes those who just entered the bottom rung of a company with high prospects later down the road. With solid wages it rewards people now rather than working for more later. Their gain is our loss because we lose their talent, energy and novelty and replaced with a job anyone could do for less. These are opportunity costs.

Second, when we prevent outsourcing we make things more expensive. While these costs are felt first by companies, they affect us, too. A firm that has to pay more for domestic labor must spend less on other things. (Contrary to conventional wisdom, corporations that save money through outsourcing don’t burn the extra in their backyard.) They can’t pay contractors to remodel, banks to expand, advertisers to advertise. These are opportunity costs.

When economically feasible, outsourcing is good. Without it, the public gets AT&T customer service. With it, the public gets AT&T customer service and something else. It’s not just the economics that back me up, it’s the evidence. For every dollar the US outsources, we get back $1.14 (again, assuming the outsourcing is economically sound—it doesn’t work so well when those with little education are hired to write software).

Want some more facts? Go here. In the meantime I’m waiting for Lou’s retraction.