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PeakTrader: There are many high-skilled or high-paid workers in the U.S. health care, energy, and financial industries. They've been under attack recently, and seem to be hunkered-down, which hasn't been good for employment.

Seth: Never mind the attack on the IT industry's workers by those who want offshoring. It's gotten to the point where the only honesty to the displaced is when they receive their layoff notice (and no sooner). Any sooner, and they would make some sort of challenge to it.

PeakTrader: Seth, why should a business maintain an unnecessary job when it can be offshored and the good imported at a lower price and a higher profit, while limited resources are freed-up to shift into higher skilled-higher paying-higher quality jobs and goods, including in emerging industries?

In the mid-2000s, the U.S. was at full employment, although the U.S. current account deficit reached over 6% of GDP. U.S. living standards rose at a steeper rate, because of offshoring. Foreigners also offshored jobs to the U.S. Why stop or slow globalization, including open markets, free trade, and unrestricted capital flows?

Massive U.S. job losses over the past two years were the result of dollars being drained out of the U.S. economy through current account deficits (when foreigners sold their goods to the private sector and bought government bonds), restrictive monetary policy (keeping the Fed Funds Rate at 5 1/4% too long), contractionary fiscal policy (shrinking budget deficits that reached $162 billion in 2007), allowing Lehman to fail, which froze the credit market, the government spending spree over the past year (rather than refunding households with a large tax cut), which made it harder for households to pay-down debt, and generally poor or failed fiscal policy responses over the past year (including not facilitating appropriate skills for displaced workers).

Americans earn money creating, improving, and selling products, while our foreign trading partners produce them cheaply. If quality improvements were measured correctly, U.S. real wages increased, because inflation has been overstated (export-led economies made up in volume what they lost in value, while the U.S. made up in value what it lost in volume).

Seth: Why is it that about every offshoring strategy seems to lie to the displaced until they are unable to object to the measure? Nobody has given me a straight answer in that respect.

Foreigners also offshored jobs to the U.S..

For the 2003 era of offshoring, it was done only as a political reaction. Damage control, if you will.

Secondly, that was used as a way to train non-citizens. Enter Grigsby & Cohen (et al) to make sure US citizens could not get those jobs. What incentive is there to train/hire a citizen when you can use it to culturaly immerse a non-citizen? What incentive is there to do so if the non-citizen can be treated like an indentured servant with none of the protections of citizenship?

Why stop or slow globalization, including open markets, free trade, and unrestricted capital flows?

Right now, it is being used as a weapon against US citizens. That is, it is used as a threat against US citizens who wish to speak up wrt working conditions. Same for the folks on the other end.

If the citizen had the ability to negate that threat as it is presented to them(and not at a time when they are "more skilled"), then I might be more sympathetic to your cause.

As things stand, I only will support such when the citizen can expect the following:

1a) Follow their job, compensation level(in their favor, not the business's) and skill level around the world.

1b) Do so without worry as to any non-economic freedoms being revoked (as done frequently in Third World countries that defer to multinationals)

1c) Be able to work in a country of their choice and not have to fear the use of trade as a threat to speaking up.

1d) Entrepreneurial ability is not required nor is given preference over those whom are averse to it.

1e) Staffing firms are considered a temporary measure, not a permanent end-run.

1f)Citizenship of a First World(as initially defined by NATO) nation is not a penalty.

PeakTrader: Seth, the question should be how to place those displaced workers. Perhaps, students who want to study fields in demand should receive more federal aid, while students who want to study fields in less demand should receive less student aid.

You say globalization or offshoring is a "weapon," which implies destruction. However, offshoring benefits both trading partners, e.g. through the Law of Comparative Advantage, although one side may "win" more than the other. Hostility towards business is not a solution to help society.

Seth: That's about any hard science or law degree. The issue is that not all are amenable to these higher-skill fields. That would be condemning them to a short and painful future.

Consider the idea that business can afford to be a bit more hostile to its employees in order to cut costs. The way that the hostility is justified is to use the threat of offshoring or large numbers of applicants towards the person who raises the issue. That also provides incentives to thwart anything that would block such hostility. Finally, should the bluff be called, it is used against the complainant(s). They are out of a job and may not be able to collect unemployment due to a legal technicality(read: a policy violation will be used to get around any legal roadblocks).

That is what I consider weaponized use of trade. Where it might be mutually beneficial for parties A and B, it can be used against C. For all purposes and intents, C is treated as a roadblock.

PeakTrader: Seth, the fact that society has shifted from an agricultural economy into the industrial-information-biotech revolutions prove people are capable of improving their skills, and there are many more economic revolutions to come. Afterall, economies are made up of people.

Normally, cutting costs is not "hostile." In a competitive market, the top priority of business is to survive, and that may require offshoring. If a worker objects to offshoring, why should the entire business be at risk on one objection or the objection of a group of workers?

However, your example is unrealistic, because the top priority of a business is to survive. If a business doesn't pay a competitive wage, then its top workers will leave, e.g. to a competitor, and the business will fail.

Globalization is not a "weapon" that destroyed economies. It improved economies substantially.

QT: Seth,

For your consideration:

http://online.wsj.com/article/SB20001424052748704022804575041253835415076.html

How to Destroy American Jobs
FEBRUARY 3, 2010
WSJ

By MATTHEW J. SLAUGHTER
Deep in the president's budget released Monday—in Table S-8 on page 161—appear a set of proposals headed "Reform U.S. International Tax System." If these proposals are enacted, U.S.-based multinational firms will face $122.2 billion in tax increases over the next decade. This is a natural follow-up to President Obama's sweeping plan announced last May entitled "Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas."

The fundamental assumption behind these proposals is that U.S. multinationals expand abroad only to "export" jobs out of the country. Thus, taxing their foreign operations more would boost tax revenues here and create desperately needed U.S. jobs.

This is simply wrong. These tax increases would not create American jobs, they would destroy them.

Academic research, including most recently by Harvard's Mihir Desai and Fritz Foley and University of Michigan's James Hines, has consistently found that expansion abroad by U.S. multinationals tends to support jobs based in the U.S. More investment and employment abroad is strongly associated with more investment and employment in American parent companies.

When parent firms based in the U.S. hire workers in their foreign affiliates, the skills and occupations of these workers are often complementary; they aren't substitutes. More hiring abroad stimulates more U.S. hiring. For example, as Wal-Mart has opened stores abroad, it has created hundreds of U.S. jobs for workers to coordinate the distribution of goods world-wide. The expansion of these foreign affiliates—whether to serve foreign customers, or to save costs—also expands the overall scale of multinationals.

Expanding abroad also allows firms to refine their scope of activities. For example, exporting routine production means that employees in the U.S. can focus on higher value-added tasks such as R&D, marketing and general management.

The total impact of this process is much richer than an overly simplistic story of exporting jobs. But the ultimate proof lies in the empirical evidence.

Consider total employment spanning 1988 through 2007 (the most recent year of data available from the U.S. Bureau of Economic Analysis). Over that time, employment in affiliates rose by 5.3 million—to 11.7 million from 6.4 million. Over that same period, employment in U.S. parent companies increased by nearly as much—4.3 million—to 22 million from 17.7 million. Indeed, research repeatedly shows that foreign-affiliate expansion tends to expand U.S. parent activity.

For many global firms there is no inherent substitutability between foreign and U.S. operations. Rather, there is an inherent complementarity. For example, even as IBM has been expanding abroad, last year it announced the location of a new service-delivery center in Dubuque, Iowa, where the company expects to create 1,300 new jobs and invest more than $800 million over the next 10 years.

This is true in manufacturing, too. Procter & Gamble calculates that one in five of its U.S. jobs—and two in five in Ohio—depend directly on its global business.

Compared to the rest of the world, U.S. corporate tax rates are sky-high and our system of corporate taxation is highly complex. The current U.S. federal statutory corporate tax rate of 35% is the highest among all 30 Organization for Economic Cooperation and Development countries, far above the OECD average of about 23%. Raise the international tax burden on U.S. multinationals by limiting foreign-tax credits, for example, and you will further reduce their ability to compete abroad. This, in turn, will reduce employment and investment in U.S parent companies.

Making it harder for U.S. multinationals to create U.S. jobs would be bad policy at any time. But it would be especially detrimental now because of how dramatically the private sector of the U.S. economy has contracted in the face of this recession.

Since the slowdown began in December 2007, private-sector payrolls have fallen precipitously. Today there are 2.4 million fewer private-sector jobs than 10 years ago. Moreover, in all four quarters of 2009, gross private-sector investment fell so low that it did not even cover depreciation. For the first time since at least 1947, the U.S. private capital stock shrank throughout an entire year.

The major policy challenge facing the U.S. today is not just to create jobs, but to create high-paying private-sector jobs linked to investment and trade.

Which firms can create these jobs? U.S.-based multinationals. They—along with similarly performing U.S. affiliates of foreign-based multinationals—have long been among the strongest companies in the U.S. economy.

These two groups of firms accounted for the majority of the post-1995 acceleration in U.S. productivity growth, the foundation of rising standards of living for everyone. They tend to create high-paying jobs—27.5 million in 2007.

Consider that in 2007, the average compensation per worker in these multinational firms was $65,248—about 20% above the average for all other jobs in the U.S. economy. These firms undertook $665.5 billion in capital investment, which constituted 40.6% of all private-sector nonresidential investment. They exported $731 billion in goods, 62.7% of all U.S. goods exports. And these firms also conducted $240.2 billion in research and development, a remarkable 89.2% of all U.S. private-sector R&D.

To climb out of the recession, we need to create millions of the kinds of jobs that U.S. multinationals tend to create. Economic policy on all fronts should be encouraging job growth by these firms. The proposed international-tax reforms do precisely the opposite.

International trade and investment policies are especially important to these firms. Passing the already negotiated trade agreements with Colombia, Panama and South Korea—and stopping trade barriers against key partners like China—are critical to increasing U.S. exports and related investment and jobs. If we are going to achieve the president's State of the Union aspiration to "double our exports over the next five years," we need to start now.


To help close looming fiscal deficits, the nation needs spending restraint and pro-growth sources of tax revenue. But Monday's proposals are far from that. These tax increases would destroy jobs in some of America's most dynamic companies.

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PeakTrader: In many ways, Canada's economy (population about 35 million) is more similar to Texas's economy (population 25 million) than California's economy (population over 35 million), which may explain it's lower unemployment rate than the U.S.

Also, in the 2000s, the U.S. had a homebuilding boom, record autos sales, an overabundance of imports, etc. to a greater extent than Canada.

Canada's economy picks up steam
Jan 29, 2010

Canada's economy expanded for a third straight month in November, as mining, energy and wholesale trade helped pull the country further out of recession.

Mining, and oil and gas extraction and wholesale trade accounted for about 60 per cent of economic growth in November...Construction rose for a fourth straight month, expanding 1.1 per cent.

Companies continue to have plenty of excess capacity and predicted the economy won't be running at full tilt until the third quarter of 2011, in part because of the effect Canada's strong currency is having on sales to the U.S. and overseas.

Canada's beleaguered manufacturing industry stalled in November after an anemic 0.1-per-cent gain the previous month, retail trade fell 0.8 per cent after at least five months of increases, and the utilities sector contracted by 1.8 per cent as unseasonably warm weather reduced demand for electricity and natural gas heating.

Meanwhile, the U.S. economy grew a more-than-expected 5.7 per cent in the last quarter of 2009...That bodes well for Canadian growth going forward because it suggests demand for exports to the U.S. could pick up sooner than anticipated as America's shell-shocked consumers recover further and spend more.

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PeakTrader:

No matter how much proof is shown, some will remain in denial that 1982-07 was one of the greatest periods of U.S. prosperity and poor economic performance over the next 10 years is completely unnecessary. Also, I may add, U.S. health care and education are expensive, because of heavy government intervention.

U.S. households are paying-down high-interest rate debt first the hard way, without a large tax cut:

Fed report: Consumer credit card balances keep plummeting
By Jeremy M. Simon

"Consumers slashed their credit card debt levels by nearly $1,700 per household in 2009, according to the Federal Reserve."

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gettingrational said...
From the BEA report: "The goods and services deficit was $380.7 billion in
2009, down from $695.9 billion in 2008. As a percentage of
U.S. gross domestic product, the goods and services deficit
was 2.7 percent in 2009, down from 4.8 percent in 2008.

If the U.S. had no trade deficit or even a surplus then $380.7 billion would have been added to the economy and 4.8% to GDP at the very least. That's millions of jobs and tax funding for the Treasury. That is for Goods and Services and would be considerably more if the energy trade deficit could be eliminated.

This is not the last century and economic recessions are very much harder to recover from. Is there any common sense and toughness in the population to overcome this?

PeakTrader said...
Gettingrational, countries should be exchanging goods. However, if a country decides to exchange its goods for worth less U.S. paper assets, then that's good for the U.S. The best outcome is the U.S. never exports those goods.

PeakTrader said...
Also, if you don't believe me, perhaps you'll believe Milton Friedman:

In his view, the "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation.

gettingrational said... Your nom du keyboard implies a confidence that might be as baseless as your assertion. Hundreds of millions of Americans work to pay the interest payments on the Treasuries that are investments vehicles for our creditors. These worthless pieces of paper enable the purchase of commodities and businesses all over the world by trade surplus nations -- paid for from U.S. bank accounts held by U.S. creditors.

PeakTrader said...
Gettingrational, the U.S. dollar becomes worth less through inflation, low interest rates, and currency exchange rates. So, Americans can work with less effort for more goods, and don't have to work providing goods for foreigners.

Craig said...
Hundreds of millions of Americans work to pay the interest payments on the Treasuries that are investments vehicles for our creditors.

That's true, of course, but really has no place in a discussion of trade deficits. Now, if you want to discuss the federal government's reckless spending that caused the issue of all those bonds, then, by all means, let's do it.