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Thursday, May 10, 2007
Alan Reynolds :: Townhall.com Columnist
Blinder's Blunder
by Alan Reynolds
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Economist Alan Blinder wrote in The Washington Post that "offshoring of service jobs from rich countries such as the United States to poor countries such as India may pose major problems for tens of millions of American workers over the coming decades. In fact, I think offshoring may be the biggest political issue in economics for a generation."

The telling phrase is "political issue."

"To be marketable in the political arena," Blinder once explained, "an idea must be short and snappy enough to be emblazoned on a T-shirt. But ... any economic idea expressed that tersely is almost certainly wrong."

"Offshoring" is short and snappy enough to attract nativist and protectionist interests, left and right. Blinder's speculations were recently praised by William Greider in The Nation, for example, and by Phyllis Schlafly in The Conservative Voice.

"Nowadays," says Blinder, "a growing list of services can be zapped across international borders electronically. ... We're all familiar with call centers, but electronic service delivery has already extended to computer programming, a variety of engineering services, accounting, security analysis and a lot else."

Blinder is speculating about the next "decade or two," yet the phenomenon he describes is going on "nowadays." Infosys, India's biggest software outsourcing firm, began in 1981 and now employs more than 72,000 worldwide, including employees in 16 U.S. offices. Wipro employs 66,000, including 11 offices in the United States. Perot Systems employs 5,000 of its 22,000 workers in India. If such offshore outsourcing of business services actually risked the loss of "tens of millions" of U.S. jobs, we should have seen some sign of it by now. But we haven't.

In a paper for Princeton's Center for Economic Policy Studies, Blinder selects 22 major occupations in services (out of 291 lesser jobs, which include manufacturing) ranked into four groups according to their "offshorability." In contrast to his press interviews and popular articles, the academic paper makes it clear that he is "guesstimating the number of jobs that might be offshorable, not the number that actually would be offshored. ... Only a fraction of these offshorable jobs will actually be offshored."

His purely subjective list makes it very clear, however, which service jobs are supposedly most threatened. And that, in turn, makes it possible to test his theories against actual job change between 2002 and 2005. I had to estimate the 2002 figure for "business operations specialists, all other" because that classification did not exist until 2004. Those offshorable jobs increased 8.2 percent between 2004 and 2005, but I assumed only a small increase from 2002 to 2004.

The total Blinder list of the 22 most offshorable major jobs totaled 15,732,670 in May 2005. That was up 7.7 percent from 14,603,140 jobs in May 2002. Employment increased in 18 of the 22 job groups, and wages increased in all of them.

The two most vulnerable jobs on Blinder's list are the most plausible, and the ones most often mentioned -- computer programmers and telemarketers. They are followed in the same top tier by computer systems analysts, bookkeeping clerks, consumer software engineers and systems analysts. Continued...

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©Creators Syndicate
OUTSOURCING
The outsourcing argument has been going on for a long time, in different guises. When computers first became generally powerful, in the 70's, there was much gnashing of teeth about automation. A lot of people were called Luddites. The counter argument was that productivity would go up and we would all be richer. And that time we were.

Then the first gas crunch came, and foreign cars became popular. Then it was noticed that some countries, notably Japan, seemed to have manufacturing techniques that were superior to ours. Purthermore, after the Space Race died (we won) it was noticed that Americans weren't majoring in the sciences and engineering like thay use to, possibly because they noticed that MBA's and finance types kept getting more and more money, while they got laid off because their knowledge was obsolete.

Now we have the globalists and the anti=globalists, and we are told that the larger the economy and the fewer the barriers, the richer we will all be. Something about "comparative advantage". Now I understand all that, I have an MBA in finance to go with my engineering degree.

But here's what I don't understand! Almost all research that raises productivity and/or improves lifestyle is either done by large manufacturing corporations, or paid for by them in selected research labs, some of them university based. When all the manufacturing is overseas, China say, where will all this research be done? Unlike the predictions from years ago, we will not be a service based economy, and we will have no cutting edge research to sell to the Chinese or other manufacturing countries. And we will no longer have what are still (hard to believe) the finest universities in the world.

I'd like to see Dr. Sowell, or Dr. Williams, both of whom are heroes to me, address this specific topic.

Outsourcing?
We outsource even to nations that with all cost factors, the cost is as high but, if the taxes are lower, they leave because they get to keep more of their profits.

Or, it is lower healthcare costs or lower litigation costs or lower compliance costs.

What is missing from all the "rosy economy" picture here, is that we are increasing debt in what is supposed to be a boom time. Other nations around the world are reducing debt, paying off world bank loans early, raising interest rates to slow inflation etc. We are doing nothing to prepare for the next recession.

Everybody in and out of government says we will get one sooner or later. Yet, if we can't reduce debt and government spending in a "boom" time what are we going to do in the next recession?

How will we "spend our way out of it," if the foreign nations quit loaning us as much money as we need? It isn't that they have to stop loaning money to us, just not loan us enough. Nation after nation is now moving out of dollar assets for other currencies where the interest rates are rising and higher than ours. Every dollar that goes to another nation is a dollar not being available for our deficit spending.

For those who say "good," and count on that to reduce spending, remember that we have a 50 trillion unfunded liability in Social Security and Medicare facing us we need to borrow money for. That amount if not borrowed, would total $400,000 for every full time worker according to the Government Accounting Office.

Good luck on offshoring when the next recession occurs. With the growing middle-class around the world and decline in it here, why not move and sell to the middle-class there and export back to the few remaining here?
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