Wednesday, July 11, 2012

Ship the Outsource Debate Overseas

Outsourcing (or offshoring) seems to be the political battleground of the week. Both presidential campaigns have launched into a finger-pointing offensive of claiming their opponent has contributed to the shipment of American jobs overseas. The outsourcing debate was sparked by an investigation into and a series of poltical attacks at Romney's activities at Bain. The Republican campaign retorted with recriminations regarding the handling of stimulus money.

While we'll leave the fact-checking to the newspapers, the entire debate is somewhat ridiculous, particularly from Romney's perspective—the supposed voice of economic reason during this electoral season. It is based on the ludicrous proposition that outsourcing jobs is an absolute negative for the U.S. economy. In simplistic political-speech, which assumes Americans are just too stupid to understand basic economics, the argument holds that when a company either hires a foreign company to perform a specific task or moves operations abroad that it is a unilateral loss for the domestic economy.

The first time I saw this "negative" ad from the Obama campaign, I could not help but think that the gist of the comments was true and Romney should proudly own it.

But such arguments ignore basic economic truisms that are taught in any introductory economics course. Trade, whether domestically or internationally, benefits everyone. The simple concept of comparative advantage—the situation in which one producer can produce a good relatively cheaper than its competitors—underpins this logic. By definition, every producer will have a comparative advantage, thus yielding an economic logic for specialization and trade.

In simple language, this is precisely what motivates outsourcing and offshoring. Other countries have a comparative advantage in labor. It is thus relatively cheaper for them to "produce" labor. Since they are comparatively better at labor, trade frees up American resources to do what we are better at (such as research and development). We can then, for instance, trade our research for their labor, creating products that benefit both sides of the transaction at a cheaper price. This specialization and trade helps both economies grow.

The real world is naturally more complicated (short-run costs of reallocating resources are very real), but the essence of the argument holds. Outsourcing and offshoring are good for the U.S. economy (if they are done without distorting effects of government meddling). But one must look at the entire effect, not just the outsourced job to appreciate this dynamic.

So how does outsourcing help? An outsourced job means that a domestic company can now get the work done for a cheaper price (it would not outsource the job if it was more expensive to do so). This frees up resources (money) to put to other uses. A company can either cut costs, passing along savings to consumers (maybe in an attempt to increase market share) who can then save or purchase more, or reinvest the saved money into expanding the business. In truth, both probably occur and both help grow the economy. As is usually the case, a growing economy creates new jobs, most likely in sectors in which the country has a comparative advantage.

If one thus looks at the economy on a holistic level, a cheaper input to production (cheaper labor abroad) will generally help an economy grow and create more jobs. A smart business leader, economist, or president will acknowledge that it is best to have the most efficient producer or worker do the job, regardless of national borders or any other consideration. Outsourcing is thus one piece of a broader economic puzzle, which allows an economy to operate at its highest and most efficient level.

But our politicians never try to explain this basic economic fact. Whether they think Americans are unable to comprehend such simple economics or are they beholden to special interests, both the left and the right seem to be stuck to a pseudo-protectionist argument. Arguably, much of this tenacity to the outsourcing-is-evil argument is due to political expediency. It is much easier, in a world of sound-bites, to make a a simple accusation of sending jobs to India, than explain an economic principle. But such expediency is damaging, not only by dumbing-down political discourse but by empowering certain groups to take-advantage of such language to further their own narrow desires (think unions and noncompetitive industries who want protection).

The Romney campaign would be wise to take a new angle in this debate. Much as New Jersey Governor Chris Christie does, Romney need to take an approach of separate, own, and educate. He needs to separate the fact from fiction, dismissing Obama's ridiculous conclusions about outsourcing, proudly own what he has done, and educate the people on why such actions are good. In other words, Romney has to stop looking like he is running from some greedy business transactions and start explaining how a smart economy works.

Such a change in tactic would not only benefit the United States by pushing our economic policy toward sound principles, but greatly help the Romney campaign. He'll regain the image of a responsible and educated economic steward, earn respect for standing up to smear campaigns and distortions of economic facts, make Obama look like the economic lightweight he is, and rise to a presidential level. It is a novel political strategy, but one that if properly employed will reap tremendous rewards for a candidate who is too often criticized for lacking a backbone.

Thursday, July 5, 2012

The Principles of the Past

In celebrating Independence Day, E.J. Dionne questions the desire of many to base their policy choices on some notion of the "'original' intentions of the Founders." Writing in the Washington Post, he argues that too many people (presumably conservatives) rely upon their modern understanding of history, as a snapshot, to argue for certain policies, rather than acting as "we the people" best see fit today. He criticizes American historicism by writing:
[I]t is dangerous to turn the Founders into quasi-religious prophets who produced a text more like the Bible or the Talmud. It’s neither. It is a governing document that was the product of compromises and arguments....

We do a disservice to ourselves and the Founders alike if we take them out of history and demand that they settle arguments that we ought to settle on our own.

The Founders, after all, were not timid men bound by the past. They did something bold and adventurous. In creating a novel form of government, they were thinking and acting anew.

While Dionne eventually goes too far by essentially stripping the Constitution of any real meaning and advocating for an expansive government than can do anything the people (one can only assume he means a crude mass of majoritarian democracy) want, he does raise a valid point about the Right's overemphasis of a historical moment and the great men that shaped the country at that time. Indeed, while it is necessary to learn from history, it is not the past but the principles of the proper role of government that we must rely upon to shape policy.

The problems with an overly heavy reliance on the Founders' "vision" are manifold. First, it is unthinking. On a basic level, it ignores the nuances of policy debates and circumstances during the founding of our country. As any basic reading of the founding of the United States will reveal, many of the Founders had different beliefs. However, on a deeper level, such backward-looking reliance creates a situation where blanket ideas are deified without any understanding of why they are appropriate or how they properly function. This leaves proponents of constitutionalism stultified, unable to defend their perspectives with anything but the simplistic, "This is what the Founders established for us."

A related problem, is that this perspective handicaps the propagation of a constitutionalist ideology. There is minimal debate in public circles about the proper role of government. The Left has defined, as Dionne unquestionably advocates, a activist model of government as the solution-finder extraordinaire. Many on the Right have an enfeebled response of "small government because the Founders said so"—an argument that, as popular discourse shows, carries little sway.

Furthermore, the reliance on the historical argument for limited government has crowded-out the intellectual and philosophical one. Not only does a historical justification fly against the impetus behind the founding of this country, which was forward looking, but it severely encumbers the more proper, strong, and justifiable arguments. This often prevents the Right from meaningfully presenting solutions to very modern problems (whether in the government or within other, often waning, institutions), a situation that diminishes the force of the Right's arguments.

This can lead to a number of dead ends for proponents of limited government. In one regard it can devolve into a fight, relegated to the historians and irrelevant to most Americans, over history. Worse it can create a perception of a divide between the "thinking intellectuals" who are forward-looking and the reactionaries who do not want to address modern problems. Whether this classification is fair or not is irrelevant—it is unfortunately a powerful mainstream belief. (Why are the halls of higher learning, media, and many youth so pulled by the progressive ideology?) By de-intellectualizing the founding principles of the United States, the Right has allowed the progressive ideology, with its concomitant view of an expansive role of government, to dominate the realm of solutions.

Such an argument does mean dismissing the past. There are many lessons to be learned from history. The Founders clearly designed a great system and helped elucidate a number of profound principles that form the basis of our government. But they, knowingly, were unable to foresee everything that the future could hold. Instead, as the Founders themselves did, the Right must guide its policies on principles. It must reinvigorate the intellectual arguments that underpin classical liberalism (eg. the political philosophy of modern conservatives). While these principles may have historical roots, they are not themselves history but are timeless. The forward-looking application of the principles of limited constitutional government can serve as a worthy challenge to the progressive ideology that has become dominant, thus not only helping to shape the form and nature of our government but winning support from swathes of society that have been deemed lost.