-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: June 14, 2007 10:52:13 AM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: The "Invisible Hand" of the "Free Market" Wasn't Even There
Susan N. Houseman, an economist with the Upjohn Institute, has
discovered a problem in the statistical data [used by globalists to
justify "offshoring" US jobs] that generates misleading data --
"phantom" GDP. "Phantom" GDP results from labor cost reductions
achieved by US firms shifting production offshore being miscounted
as a measure of GDP growth within the US. When gains from
outsourcing design, research and development jobs to foreign labor
markets are treated as increases in U.S. productivity, purely
fictitious increases in U.S. worker productivity occur. Any
production and productivity that take place abroad are NOT a part
of our domestic economy.
Business Week's June 18 cover story by Michael Mandel explains the
statistical sleight of hand identified by Houseman. Economist
Matthew J. Slaughter, a proponent of offshoring, says: "There are
potentially big implications here. I worry about how pervasive this
[error] is." Business Week editorializes that the implications are
vast and far-reaching.
The cover story in Business Week estimates that at least 40% of all
gains in US productivity since 2003 is statistically unreal --
"phantom" GDP.
See what's free at AOL.com.
From: "Jim S." <[EMAIL PROTECTED]>
Date: June 13, 2007 10:46:33 PM PDT
Subject: The Truth Comes Out About Offshoring
http://www.ichblog.eu/text/content/view/1659/1/ *The Truth Comes
Out About Offshoring*
By Paul Craig Roberts
06/13/07
On January 6, 2004, Senator Charles Schumer (D, N.Y.) and I
scandalized the economics profession and Washington policymakers
with our New York Times article, "Second Thoughts on Free Trade."
We noted that the two conditions on which the case for free trade
rests no longer exist in the present-day world and that there was
no basis for the assumption that offshoring of U.S. jobs was
beneficial overall to Americans.
"ICH" -- The Brookings Institution in Washington, D.C., organized a
conference, televised by C-Span, to subject our argument to peer
review, and we easily dominated the conference.
Business Week (March 22, 2004) was receptive to a column from me
explaining the adverse effects of offshoring, and Tim Aeppel at the
Wall Street Journal organized an online debate between myself and
Columbia University trade theorist, Jagdish Bhagwati.
Aeppel hoped to test the validity of my points in the crucible of
debate with a leading academic proponent of offshoring. However,
Bhagwati evaded my argument and threatened to withdraw his
participation if my reference to the latest work in trade theory by
Ralph Gomory and William Baumol was included in the edited version
of our debate in the Wall Street Journal (May 10, 2004). In Global
Trade and Conflicting National Interests published in 2000 by the
M.I.T. Press, Gomory and Baumol show that the case for free trade
is a special case and had never been one of general validity.
Their criticism is more far-reaching than the one made by me and
Senator Schumer.
Professor Bhagwati's skill in evading my argument told most people
who read the edited version of our debate that he could not answer
me. Obviously, all was not well with the establishment's
contentment with offshoring and "globalism."
Paul Samuelson, in many respects the dean of American economists,
wrote an article supportive of Gomory and Baumol’s work. But
nothing happened. Economists simply closed ranks and ignored the
points that I brought to their attention as well as the latest work
in trade theory. Libertarian free trade ideologues got upset with
me. Unable to deny that the case for free trade had lost its
necessary foundations, libertarians reduced the issue to one of
economic freedom and concluded that I was impure.
Since 2004, I have written a number of articles pointing out that
offshoring is really labor arbitrage and that if offshoring had the
mutual economic benefits associated with free trade, there would be
U.S. employment growth in export and import-competitive
industries. Instead, employment in these industries has declined
in the U.S. but grown remarkably in Asia. In the 21st century the
U.S. economy has been able to create net new jobs only in
nontradable domestic services, such as waitresses and bartenders
and health and social services. Moreover, the growth in
productivity and G.D.P. attributed to the US economy were
inconsistent with the stagnant real incomes of Americans. Somehow
productivity and G.D.P. were growing strongly, but it wasn’t
showing up in the incomes of Americans.
Economists have found it difficult to think about the issues that I
have raised. Economists are taught that free trade is a good thing
and that anyone who disputes it is a protectionist in the pay of
some industry scheming to raise prices that consumers have to pay.
The notion that there could be any problem with free trade is
beyond the imagination of most economists.
In addition to their unexamined commitment to free trade,
economists disbelieved my analysis because they thought it was
inconsistent with statistics indicating high US productivity and
G.D.P. growth. They thought G.D.P. and productivity statistics
trumped my use of job data.
All of this may be about to change. Susan N. Houseman, a good but
previously obscure economist with the Upjohn Institute, has
discovered a problem in the statistical data that produces phantom
U.S. G.D.P. Phantom G.D.P. results when cost reductions achieved by
US firms shifting production offshore are miscounted as U.S. G.D.P.
growth. Phantom productivity increases occur when gains from moving
design, research and development offshore are counted as increases
in U.S. productivity. Obviously, production and productivity that
take place abroad are not part of our domestic economy.
Business Week's June 18 cover story by Michael Mandel explains the
problem identified by Houseman. Economist Matthew J. Slaughter, a
proponent of offshoring, says: "There are potentially big
implications. I worry about how pervasive this is." Business Week
says the implications are big. The cover story estimates that 40%
of the gain in U.S. manufacturing output since 2003 is phantom G.D.P.
Most likely that estimate is low. Consider, for example, that
furniture imports have doubled in the past few years (offshored
production counts as imports) while U.S. jobs in furniture
manufacture have declined 21%. U.S. statistics, however, show that
U.S. output and productivity rose even as U.S. manufacturers closed
their plants and no new investment went into the industry.
My hat is off to Business Week. It requires courage for a
publication dependent on advertising from global corporations to
tell the truth about offshoring.
~~~
[Dr. Roberts is an economist who has held numerous university
appointments and served as Assistant Secretary of the U.S. Treasury.]
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