Alan Reynolds

The unemployment rate has fallen by half a percentage point over the past six months. If it merely continues to drop at the same pace, unemployment will be 5.1 percent in another six months (August) and below 5 percent before the election. Unemployment would then be the lowest ever for any president seeking reelection -- lower than it was for Nixon in November 1972 (5.3 percent) or for Clinton in November 1996 (5.4 percent).

If Sen. Kerry had hoped to make a big political issue out of an unemployment rate that is likely to be below 5 percent by election time, he had better start trying to change the subject as soon as possible. And his never-ending wisecracks about Herbert Hoover could to backfire, too, because Hoover enacted the same policies key Democrats now recommend -- namely, higher tax rates and tariffs.

Another non-issue that is sure to grow tiresome within a few more months is the maniacal anxiety about imports of business services -- a trivial pursuit that would have gotten no attention at all had it not been deviously mislabeled as "outsourcing."

That is not what outsourcing means. Outsourcing means having business services done by specialist firms rather than inside a manufacturing or financial firm. When I was a vice president at a Chicago bank, we had an entire floor of attorneys and a few dozen economists on the payroll. The bank could have gotten better service for less money by putting legal firms and economic consultants on retainer. It often makes sense to also let specialist firms handle accounting, employee benefits and payroll. That is outsourcing.

What uninformed politicians and journalists mean by "outsourcing" is importing services. They would have you believe the United States has suddenly been importing many more services. Yet the increase in service imports last year was precisely zero.

From 1997 to 2000, by contrast, U.S. service imports grew by 9.7 percent a year. So why did the media start fussing about imported services only after such imports stopped growing? Politics aside, this makes no more sense. Outsourcing is a senseless name for nonsense.

U.S. imports of both goods and services grew by 10.5 percent a year from 1992 to 2000 in real terms, but by only 1.5 percent a year from 2000 to 2003. Nobody complained about losing jobs to imports while imports were growing rapidly. The pretense that Americans are losing jobs to imports did not gain political traction until imports turned stagnant. Turning facts on their head is, of course, a familiar symptom of election-year mania.


Alan Reynolds

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