Outsourcing Jobs and Importing Goods

Every once in a while, president Bush takes wildly unpopular but principled stands on policy issues. Last week, it was the DPW ports deal, apparently opposed by some 70% of the public. And yesterday, it was job outsourcing to India, an issue equally susceptible to nationalist and populist demagoguery. I've already commented on the ports deal a few days ago, so let me try to set the record straight on outsourcing in this post.

To hear Pat Buchanan or Lou Dobbs (who will surely spontaneously explode from self-importance one of these days) talk about it, outsourcing is the beginning of the end of the American economy. Greedy corporations send good jobs overseas while American workers are forced into unemployment or low-paying jobs. It's a "race to the bottom" and America is being suckered by the rest of the world through "unfair trade".

But let's inject a dose of reality. We've been living under pro free trade administrations for the past quarter century or so (Reagan, Bush I, Clinton, Bush II). And if the protectionists are right, we should be observing the negative effects on the economy by now.

Well, here's a little chart I made in Excel that shows the trends in US output and disposable (after tax) income over the past 30 years. Everything is per capita and adjusted for inflation. The chart also plots the unemployment rate (in December of each of the years, right axis). The data are from the Bureau of Economic Analysis and Bureau of Labor Statistics, both official sources of US economic data.

Where is the devastation? Certainly nothing shows up in the aggregate picture. The US economy is chugging along just fine, average incomes are rising, and despite the "giant job-sucking sounds" from China and India, the unemployment rate looks pretty good.

Of course I'm over-simplifying. Nothing in the chart above informs us about income distributions or sectoral disruptions. In fact, nothing in it proves that the US economy benefited from free trade and outsourcing. But it does provide prima facie evidence that the US economy is doing fine, and it puts the burden of proof (with real data, not anecdotes!) on the protectionist side.

While I'm at it, let me point out two additional facts that are completely uncontroversial from an economic point of view:

• There is no economic difference between importing goods and outsourcing jobs. If you prefer, think of 'outsourcing a job' as importing a service. It's hypocritical to buy imported computers, electronics, cars, and clothing then turn around and criticize a company for outsourcing its call center or tech support department.
• There's no difference between jobs lost through trade (outsourcing, importation) and jobs obseleted by technology. 10 years ago, knowing HTML and writing simple web pages was a job that paid reasonably well. Rather than being outsourced, HTML programming was obseleted by software that automatically generates web pages. Except for those HTML programmers, the rest of us are better off for it. The story with outsourcing is no different.

Huh. I'm 2 for 2 in supporting Bush policies on this blog. I promise this will change soon :)