The often repeated and therefore the widely-accepted belief held by most Americans is that outsourcing is “bad”. Companies that move production out of country are vehemently decried as “unpatriotic”, “greedy” and even “exploitative of cheap labor”, ridiculous as it may sound.
In only a few paragraphs, I will explain a simple concept that is unknown to many PhD-holding and Nobel Prize-winning economists and will expose them to be the fools that they are.
First, we need to understand the concept of outsourcing. Let’s take the example of a doctor. This doctor is very good at almost everything he does and finally saves up enough money to buy a nice home. He realizes however that mowing his lawn takes up a lot more time than he would like. He decides then to “outsource” his lawn care to a local kid. Even though this doctor might be able to mow his lawn twice as fast as the kid can, everyone in this micro economy benefits because the doctor now has time to see more patients (earning more income and saving more lives) and the kid is earning money as well. This basic principle of the wealth-producing power of capitalism is called a “comparative advantage”.
So how does this apply to America? Everyone is quite familiar with the story of Americans losing their jobs when companies move factories and call centers overseas. Even though this means we can enjoy the wealth that cheaper goods create (even the poor can now afford luxuries like air conditioning that used to be accessed only by the wealthy), our heartstrings are stilled pulled as we sympathize for their plight. What are we to do? Do the typical liberal thing and demand that the government step in and do something about it?
Nothing can be more wrong.
It is a fundamental truth of human nature that those who lose their jobs to outsourcing are going to cry and yell much louder than those who gain their jobs from “in-sourcing” (when foreign companies bring jobs to America). While we all know that companies are moving call centers to India for example, very few know about the thousands of Americans being hired by Indian companies here.
The reason why trade between countries (slandered as “outsourcing” by many) works so well is actually quite simple. When we buy toys from China, we pay them in dollars. What are the Chinese to do with those dollars? They are useless in China and must be used to buy things . . . from America! Every job sent overseas means there will be a job created here to sell what the Chinese want. So while it always makes a good sob story when factories are moved to China, most people don’t realize that the United States is actually the largest exporter in the world! Our economy would actually completely collapse if we lost those millions of American jobs in exporting . . . all thanks to the money coming in from our outsourcing in the first place.
“But hold on!” you may say. “What about the trade deficits? What about currency fixing? Though your theory sounds nice, it certainly FEELS as if we’re not getting as many jobs back as we send out!” Unfortunately, you would actually be right. There is one factor that throws a wrench into the entire capitalistic system that actually destroys most of the jobs that should be created by trade and outsourcing. And that source of this horrible wealth destruction, which also happens to be the source of most major issues facing America today, is our bloated, over-sized, power-hungry federal government.
It turns out that China indeed IS using its billions and billions of dollars to buy, not American products that would have to be created by American workers, but federal debt! Contrary to the popular Keynesian theory of economics that claim federal spending stimulates the economy, it is quite obvious that government spending has in fact the opposite effect! Imagine that if instead of having a record $1,000,000,000,000 deficit in our country’s budget every year (thanks to Obama), every one of those dollars was instead used by other countries to buy actual American goods? Our economy would skyrocket and unemployment would be practically non-existent.
Remember: every dollar we use to pay for our outsourcing is useless to other countries unless spent here. Like in the example of the doctor and his lawn, the law of comparative advantage has the power to create the greatest standard of living in this history of the world . . . unless the government sucks the life out of it with its massive debt and expensive programs.
Big government is the problem. Outsourcing and the free market is the solution.