Princeton Professors Pretend Outsourcing Is Good For American Workers

Elaine Meinel Supkis

All across the media, the academics work hard to uphold the decaying economic system. They pretend to study it using all sorts of interesting tools that leave out vital elements called 'reality'. They then interpet the results through the prism of the flat world economic system. If one is very clever, one can formulate lies very easily.

Media owners are now trumpetting this latest study as proof outsourcing is making the lower workingclass rich.

By Ros Krasny Fri Aug 25, 12:03 PM ET
JACKSON HOLE, Wyoming (Reuters) - Take that, Lou Dobbs. Despite much handwringing and political posturing, the surge of job outsourcing, by increasing productivity, has actually helped raise real wages for low-skilled U.S. workers, according to two Princeton University economists.

They countered critics of outsourcing, including high-profile CNN host Dobbs, who charge that transferring U.S. jobs abroad hurt American workers' well being.

The author of this hit piece went to college. So far, writing for the news isn't being outsourced to China...yet. Wages have stagnated, though, because the general flattening of wages over the entire spectrum of the working class including white collar workers like this reporter. I bet, looking at the writing style, the person is terribly young and thinks he will be on the inside of the ruling class and richly rewarded if he echoes the right chorus for the right wing.

Lou Dobbs used to serve the right wing and then flew the coop. He is still too prominent to be taken down swiftly so they will seize upon any tool they can to undermine his message. Our prime universities are filled to the gills with people working day and night to prove the present imperial system is working just fine. This latest attempt seizes on a very ridiculous statistical factor to pretend all is well.

The Princeton economists contend that many observers tended to gloss over the productivity benefits involved in the offshoring of labor.

They presented evidence that the productivity effect had helped raise real wages for the least skilled among U.S. blue collar workers -- those who do jobs most likely to be shipped overseas -- by about a quarter of a percent per year between 1997 and 2004.

Grossman and Rossi-Hansberg said critics of outsourcing had latched onto "incomplete" evidence that the low-wage labor abroad reduces low-skill wages or increases unemployment in the United States.

*snip*

Grossman and Rossi-Hansberg argued that the core of international trade theory needs updating because of changes in the nature of production made possible by the Internet and cheaper transportation, among other factors.

We are in the money! Wow. A whole freaking quarter per cent a freaking year! So, why aren't these people jumping with joy? (Incidentally, the 'cheaper transportation' isn't so cheap anymore except prices will be kept down by giving all the trucking and dockhand work to aliens or outsourcing all of it.)

As I keep pointing out here, the rate of inflation as caluclated by the government has been changed so it no longer reflects real inflation for more than half of the working class. Namely, they leave out energy, medical and food costs!

These three items have shot through the roof in the last five years. Each year it gets worse and worse. Coupled with this is the recession of all benefits. More and more workers work with little to no health insurance. More and more have to pay out of pocket for medical insurance. Most don't bother and risk death and disability because of this. The rolls of the medically disabled is growing because of this. The price of fuel is hammering the working class right now. This key item has caused everything they buy to shoot up in price.

The stupid professors should have thrown out their statistical model because of these stark facts. All they had to do was to go out physically and talk to workers in industries that have been outsourced. One problem with this is they no longer can be found within their former industry since whole industries have completely vanished.

Contaminating this data is the various factories that manufacture nothing but are merely assembly points for stuff produced overseas. The Japanese and German car companies all have set up these assembly points to evade political discussion of the death of the American auto industry. Native companies are dying rapidly while these flourish. The employees working in these Potemkin factories are paid rather handsomely but only because the unionized workers in the American companies who are paid much better, set the wage scale. But they are now being ferociously reduced and are looking at a bleak future of wage raises that will be a miserly quarter above the fake inflation rate for the rest of their lives, once their wages fall to the level of all other oppressed workers.

I checked out one of the professor's past publications.

Why do firms decide to offshore certain parts of their production process? What qualifies certain countries as particularly attractive locations to offshore? In this paper we address these questions with a theory of international production hierarchies in which teams arise endogenously to make efficient use of agents' knowledge. Our theory highlights the role of host-country management skills (middle management) in bringing about the emergence of international offshoring. By shielding top management in the source country from routine problems faced by host country workers, the presence of middle managers improves the efficiency of the transmission of knowledge across countries. The model further delivers the prediction that the positive effect of middle skills on offshoring is weaker, the more advanced are communication technologies in the host country. We provide evidence consistent with this prediction.

Of course, if top management doesn't speak the language of the workers they oppress, they have to depend on their factotums below to keep the rowers at work. There is no interest as to if a whip is used or a drum is beaten so long as the galley slaves move the boat forwards and don't disturb the sleep of the bosses as they lounge in the forecastle. When slaves who are literate and have communication skills are being supervised, these people tend to be ambitious and eventually replace the bosses. This is the Chinese model. The Chinese have zero desire to remain in the hold, pulling the oars while spoiled rotten Americans lounge about above decks, rewarding them with only scaps of paper with pyramids on it.

Being smart, the Chinese set an economic trap. They made the benefits of outsourcing not only fiscally sweet but provided an army of middle and upper management who can communicate with the near slave labor in the hull and who are gently replacing all the American mid and upper management who can't do squat anymore. The effects of this are barely being felt right now but it is a moving process that is very powerful and will succeed in totally hollowing out America's white as well as blue collar working classes.

The Chinese middle management is enjoying quite decent wage hikes, thank you. And competition for jobs there is very fierce, they are gigantically out-producing us in the field of college graduates who are multi-lingual. Indeed, very few second or third generation Americans ever bother with learning any language but English which means they cannot communicate with anyone outside of their own language. This forces them to rely increasingly on foreign management.

For centuries, most international trade involved an exchange of complete goods. But, with recent improvements in transportation and communications technology, it increasingly entails different countries adding value to global supply chains, or what might be called "trade in tasks." We propose a new conceptualization of the global production process that focuses on tradable tasks and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that results from reductions in the cost of trading goods in other neoclassical frameworks.

Economists like these are why we are running the biggest trade deficit in the history of empires. This huge, huge trade deficit grows every year, it is now shooting through the roof. In my own lifetime, the deficit went from a surplus in 1960 to a trillion dollar deficit a year this last year! The percentage is rising, too. I have drawn simple graphs showing how it is now in hyper-growth mode and according to all mathematical models, now, if it doubles every decade, it will reach infinity in less than ten years. Normally, there is a natural curb that prevents trade deficits from shooting up. In our own case, this isn't operational because the communist Chinese want to keep this going as long as possible for they read the same graphs I look and and they know exactly what these numbers mean and they mean to carry out a draconian program to bankrupt America by pushing as as deep as possible into debt vis a vis themselves. A clear sign they are succeeding is the fact that their FOREX funds are noe the biggest on earth and dwarf our own.

Infinity is, of course, impossible. Whenever one sees this sort of graph knows it means a collapse is eminent.

One other factor these studies ignore is the normal effects of economic booms. We supposedly had one that was triggered by 9/11, an attack on America that cost us a lot of money and indeed, is responsible for us misspending $300 to $400 billion on wars and security. These items boosted salaries of anyone working within the military/industrial complex so their data stinks up the raw data about trade and outsourcing. These parasitical jobs are part of the red ink problem that is destroying the economic health of America. Just as people pushed out of manufacturing jobs getting guard duty jobs doesn't mean the economy is good, any statistical study as to factor in these wages and understand they are a sign of tremendous ill economic health, not a validation of the present system.

During a 'boom' like the recent one (it is dead, Jim), normally the wages of the lower working class outpaces inflation by 10-20%. During this latest one, allowing the security jobs to pollute the statistics, it has gone up a miserly 1.2%! And now we enter an inflation/stagnation cycle, they will be hammered downwards some more. Accepting the fake inflation pay raise rate!

I have also heard studies bandied about, how illegal aliens don't lower wages. This is pure hogwash. We just went through the biggest building boom in our history and wages of construction workers have been totally flat. This, after declining for ten years. It isn't anywhere as much as it was in the eighties. I can attest to that, personally. The seeming rise in wages for AMERICANS is due entirely to the fact that only the supervisors and contractors who are citizens are the bulk of the statistics. Nearly the entire workforce in most regions are illegals. And they get paid very poorly compared to before.

This happened to many unionized industries. All the places that butcher animals employ nearly exclusively illegal aliens or card holders hoping for citizenship. Once splendid wages have collapsed to barely above the minimum wage. This happened very gradually as it is now beginning to happen to the auto industry. But eventually, the Ford and GM will be exactly like Hormel.

Once upon a time, most scientific papers were published in German. In many fields, if one wanted to get a degree and publish, one had to learn German. Chemistry, physics, economics, the list was long. Then the Germans got embroiled in one world war after another and lost their empire and no one one learns German. I was getting a degree in that language so I could teach and had to drop it because jobs vanished literally overnight in the early seventies and they haven't come back!

This is a warning! The number of people who use German as a second language has collapsed! Tremendously! This is our doom, too! Many more people use Chinese as their primary language. Right now, they publish in English because they want their scientific papers to be read. But in 20 years it will be reversed. It doesn't take very long!

This is why I blog about empire, politics, diplomacy, science and the economy all in one big, fat ball. They are all cross-pollinated. One cannot be understood without the others! Instead of using statistics to prove a political point, one must always look at humans and their economic ecosystem first.

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Comments

[Daliwood]

Scroll through this article by Grossman and try to guess how many times he's even spoken with a working class American.

[D.F. Facti]

Just yesterday talked w/ a contractor who uses Mexicans. Another firm - Mexicans. Fine with me, except they do work for less -used to take the $ back home in the winter. Now they stay here. To shop at WalMart - not at local businesses. They don't exist any longer.

Region I speak of is/was very recently the number one construction market in the entire country. A trailing indicator to be sure.

Sales of "used" houses are dead pretty much. Nothing is moving. They are selling off the lake front - once public beaches, now mini estates. No business base to pay taxes to support public works and services - must sell off the seed corn. Truly foolish - but what to do? Suspend the police force? Hand out shovels in the winter instead of plowing the roads? Tell everyone to boil their water because there are insufficient funds to operate water treatment plants?

Sylla and Charybdis

[Elaine Meinel Supkis]

Our housing boom was fueled by illegal aliens. Now they will be deported.

[CK]

When you are the one in a million in China, there are 2000 others just as good.

[jkw]

Rising productivity and falling real wages are the same thing. Productivity is basically defined as how much a worker produces for a fixed amount of pay. So if productivity is increasing, workers are getting paid less for producing the same amount.

[panasianbiz.com]

I recently saw an interesting--and disturbing--report on the news about how U.S. agriculture is now suffering as a result of the crackdown on illegal migrant farm workers. We don't even know enough to know when we're shooting ourselves in our own feet!