Sunday, January 09, 2005

Why Lou Dobbs Is Wrong, Part II

Several days ago I began an article about the advantages of outsourcing, describing how sending our jobs overseas helps, not hinders, out economy. The counter-argument to the benefits of outsourcing stems from economic commentator, Lou Dobbs, of CNN’s Lou Dobb’s Tonight.

I went to the store today to check out Mr. Dobbs’ new book, Exporting America, to see if I could better grasp his claims against outsourcing. They didn’t surprise me, at least not in any good way. His basic theme was typical: economics is a zero sum game, thus America needs to shield its domestic jobs from outsourcing. Their gain is out loss. By sending jobs overseas, Americans experience a net decline in the economy.

I only looked at three chapters from Mr. Dobb’s book and I saw lots of problems. Some of them are typical mistakes that protectionists (and yes I do call him a protectionist, not to be confused with an isolationist) often make. Other errors were down-right absurd. (Those will be in Part III, because it will be so long.)

Typical problems were addressed in Part I, where I explained the economics behind outsourcing and its benefits to the economy. To sum up, economics is not about winning and losing; it’s a positive sum game. We know this because it’s based on trade and parties only trade if both involved benefit. They may not benefit equally—in fact they rarely do—but they are always made better off. Because there are always opportunity costs, their gain is the economy’s gain—they will use their saved money for something else. At the end of the day, outsourcing expands the available resources to the people at large.

Lou Dobbs seems to think that people engage in trade (in the form of outsourcing) when they don’t benefit from it. “[Adam] Smith and [David] Ricardo didn’t envision a trade relationship in which there wasn’t a mutuality of benefit, that is, a balance.” (p106) That is true, but outsourcing isn’t such a relationship. Mr. Dobbs pushes his zero-sum attitude further, quoting Bureau of Labor Statistics data that projects the top ten growing jobs over the next ten years, seven of which will be low paying.

Now I could point out that any projections over ten years are inherently flawed—the BLS can’t possibly know the state of the world in 2012. But I decided to meet Mr. Dobbs on his own terms. After all, those projections probably aren’t completely useless. After much web searching, I think I found Mr. Dobbs’ list—it matches the date of February 2004 as well as the topic—but not quite as he presented it in the book. First, five, not three, of these jobs are well paying (in the upper two quartiles) and only one is in the lowest quartile. The pattern is the same for the next ten jobs. For the next and final ten, the numbers shoot up in favor of high paying jobs—all but one is in the top two quartiles and more than half are in the top-most quartile. Here’s the total growth (in thousands) for each quartile over the next ten years, starting with the highest earnings.

Highest -1,636
High - 229
Low - 671
Lowest - 678

Holy shit! According to the data, the exact opposite is happening—Americans are getting richer. Let’s look at that again.

Highest -1,636
High - 229
Low - 671
Lowest - 678

HOLY SHIT! Combined, all other quartiles are still dwarfed by the largest wage earners. These numbers that determine the quartiles are based solely on salary and do not include benefits and bonuses. This is the level of minimum progress.

Lou Dobbs’ second bit of evidence stems from NAFTA. He said the Clinton Administration claimed NAFTA would create a net of 170,000 jobs each year but Mr. Dobbs exclaims that 750,000 jobs were lost as a “direct result of NAFTA.” (p73). Again, I could point out that linking job loss “directly” with a policy ten years old and counting in an economy as dynamic and large as ours must require supernatural skills. And again, I’ll stand on Mr. Dobbs terms—these can be rough estimates based on the economic trends of domestic industries. Even if we walk on that branch, Mr. Dobbs still has some explaining to do. Notice that he focuses on “jobs lost”—not “net jobs lost,” a common tactic. And why should he write “net jobs lost”? The lie works so much better, especially when you consider the Bush Administration credits millions new jobs to NAFTA.

Yes, NAFTA probably created a net job loss in the first years of its existence—this is typical of any large-scale change because it takes time for the market to adjust. This simple fact is something protectionists often ignore: they claim short run indicators are indicative of long run realities. Admittedly once in a blue moon things work out that way. For example, when NAFTA was first introduced protectionists screamed it would harm the US economy. In the long run, they’re still wrong.

1 comment:

Chris said...

David. When you mentioned that the first few years of big policy changes such as NAFTA probably created net job losses, I think that is an important reason why politicians are so hessitant to iniate these beneficial changes. Afterall, politicians aren't thinking about 5 to 10 years later; all they are concerned about is the time period to the next election. And if they know that a move such as implementing NAFTA will give negative numbers in the short term, then of course they are unlikely to implement it. I suppose that is part of the reason that a politician such as Clinton "twisted" the numbers a bit in order to sell it to the people. And from what I remember from my American politics classes, it was quite a difficult sell at that.