Irrational economics

In February of 2004 I wrote the following column:

The “outsourcing” of America

The Reuters Group, a leading provider of financial news and information, recently announced that they are moving 600 jobs to their new data processing facility in Bangalore, India.  They are not alone.  The trend to “outsource” jobs from this country is not new.

First, large corporations found that they could find raw materials cheaper elsewhere in the world.  Mining and forestry were outsourced to places where environmental laws are less stringent and there is an abundance of cheap labor.  Then corporations discovered that they could increase profits even further by having products assembled by hungry, low wage workers outside the U.S. and re-import them for sale to American customers.  Manufacturing jobs were “outsourced.”

Experts tell farmers that we must be more competitive (produce food more cheaply) to take part in the world market.  Some economists have even suggested that the U.S. should  get out of agriculture altogether and import all our food from places that can grow it more efficiently (again meaning cheaper.)  Farmers will then be “freed” from the drudgery of food production to pursue other work.

Companies, along with the Reuters Group, are finding new “efficiencies” in outsourcing what we have trained our young people to do: data entry, computer programming, customer service.  The possibilities are endless.  I even saw a news report of some medical x-rays being read by radiologists in India.

Don’t misunderstand.  I don’t think that an Indian radiologist is necessarily any less capable of reading an x-ray than any other physician.  I don’t begrudge anyone in the world a decent wage or the possibility of a good life.

I do question, however, how long such an economic system can survive.  If we outsource blue-collar jobs, agricultural production, white-collar jobs, and professional services, what is left for us to do?  Do we become a nation of people who make a living on investing our money in the companies which return the highest profit?  Do we spend that profit on goods produced by companies using cheap labor elsewhere in the world?  How long can a country exist if it produces nothing itself?

Such an economic system will not benefit everyone.  The cost of starting a business and competing on such a global scale is immense.   We have moved beyond sending only low wage manufacturing and blue-collar labor positions elsewhere.  We are now exporting our country’s middle class.  So what will be left?  There will be the people with money who live, not by working, but by investing their money in Wall Street or playing with the financial markets and there will be the people who take care of them, After all, someone still has to take the garbage out.  If we have outsourced everything else, there will be a surplus of labor and wages for service industry work will stay low.

Such a system, totally dependent on products and profits produced elsewhere, in my very elementary understanding of economics, is exceedingly insecure.  What happens when the government of another country collapses?  What guarantees do we have that what we are buying is produced in a safe way?  What happens to prices when competition between companies results in elimination of all but one or two mega-corporations?  What happens when oil prices skyrocket?  What happens when we have lost the skills necessary to produce what we need ourselves and are totally dependent on the basics of life produced elsewhere?

The struggles of the agriculture, fishing, forestry, mining and manufacturing segments of our economy are being repeated in the world of white-collar workers.  Why do we believe that this kind of evolution of economics is inevitable?

Maybe we should start “outsourcing” economists and politicians.

Now, more than seven years later, we are seeing the instability and the economic disparity caused when we follow these market-based economic policies. Wealth is concentrated in the pockets of a few while the majority of Americans see the value of their homes plummet, their jobs disappear and their retirement accounts falter. At the same time, Congress pushes for cuts to safety nets. Those who have money to invest in and play with in the markets are prospering. Middle class jobs are disappearing and being replaced with low paying service sector employment. As Paul Krugman points out in his September, 2009, “New York Times” essay “How Did Economists Get It So Wrong?” the market is not rational.

I would suggest that many economists and politicians are not rational either.