Outsourcing America's Middle Class 
WEAKENING AMERICA!
Posted March 22, 2004 thepeoplesvoice.org

By: Ted Lang

The growing debate over the burgeoning economic problem of job outsourcing is taking on some odd characteristics.  If there is one dimension of the situation that is positively negative, it's the complexity of the problem itself.  But even more perplexing, is the proffered solution by the anarcho-capitalist economics camp.  Their solution is to simply get government out of the job outsourcing question itself.  These anarchists offer that government is the problem and that if the free market were simply left to its own devices devoid of government meddling, the problem would solve itself and go away.  In other words, if we apply the negative of removing government, the results would be self-righting and put US back on a positive track.

Additionally, the anarcho-capitalist free-trade economists believe that the wealth generated overseas by job outsourcing will reduce Third World poverty, improve birth rates, raise standards of living, extend life expectancies, and generate the most worthwhile benefit of all: obviate and make obsolete the desire for war thereby ensuring world peace.  If this is so, why has the United States invaded Iraq and provoked and terrorized people all over the world with our wealth and our industrial and military might?

Capitalism cannot exist without the free market or without the profit motive unless our economy returns to a totally basic system of individual barter. And of course, socialism cannot prevail either unless there exists somewhere in its economic foundation an unlimited supply of wealth that can be redistributed.  The free market theory assumes unquenchable scarcity - the socialist theory assumes unlimited wealth.  Both are somewhat correct in part, and wrong in total.

The issue is not one that pits the free market against socialism, but one of a government managed economy of protectionism that approaches a socialistic solution; government is considered to solve problems of wealth and income-generating imbalance.  Anarcho-capitalistic, or free market economists, correctly point out the myriad of economic impediments American businesses are saddled with that increase labor and operating costs unfairly for US, while at the same time, ensuring lower labor and business operational costs offshore.  And these economists correctly identify American government as the chief contributory factor.  It would be great if they offered a means to convince government to butt out, like a phone number possibly: 1-800 GET-LOST!

They correctly cite occupational and environmental safety laws, child labor laws, working condition laws, other labor laws, unemployment compensation, occupational licensing, union membership laws, etc.  Of course, all these rules, regulations and their related costs are passed to the employer, and this increases his cost of output.  American businesses pass these increased costs of doing business to the ultimate consumer, but consumer competition forces price stability.  The manufacturer that can reduce his production costs against the pricing competition will prevail.  A manufacturer that can't reduce costs will fail.

Free market capitalists point to this as a normal economic phenomenon; namely, it represents the risk factor every entrepreneur is exposed to thereby justifying his profit taking.  No one disputes any part of this free market economy theory, and anarcho-capitalist free market economists are the first ones to tell you that there will be some kind of painful transition as we convert to a global economy devoid of "artificial borders" created by sovereign states.  And while they to admit this, they carefully avoid opining as regards the duration and extent of this transition period.  But, there are glaring omissions in their arguments, whether dishonest or utopian, and these impacts on the people can be long lasting, severe and peace threatening.

Consider placing a clean sheet of paper in front of you.  Got a pencil or other writing implement?  On this piece of paper, write down all the free markets you know about.  And while you're thinking about those, take out another sheet of clean paper, and on this one, write down all the nations in the world you know of that have no governments. Done already?  I'll bet you have two blank pieces of paper in front of you!

That is precisely the problem with the utopian concept of the free market! Where is it?  And what nation and its economy is not controlled and managed by politics and government?  Perhaps two more blank sheets of paper are necessary.  On one, list all the human events that have occurred in history over the last 5,000 years.  On the other, list all the governments that have reversed or relinquished control over time to allow more freedom to both people and their economic undertakings.  Yet one more piece of blank paper, but no so with the history of Mankind!

National economies are controlled by national governments.  If controlling government and reducing its protectionism or its fascism were that easy, why haven't we returned to constitutional government and trashed the USA Patriot Acts I and II?  Why are we in Iraq?  And when people took to the streets in Spain to protest their government's involvement and participation in an unnecessary and unjust war, neoconservative David Frum [The Right Man] offers this display of the will of the people as a massive, popular act supporting terrorism, as opposed to an act of democracy challenging unbridled government.  No wonder Frum believes in a government of one "right" man!

Although additional legislation would artificially constrain and therefore hamper the so-called free market, there is nothing whatsoever stopping President George W. Bush from calling together certain captains of industry, as so many other presidents have done in the past, to rally American businesses to the most beneficial course of action for all.  During World War II, FDR gently twisted arms to get American industry motivated and directed away from domestic production in order to focus on war work. Nothing that drastic is necessary now, but some modicum of effort or government-led initiatives to challenge the private sector are definitely in order.  Considering our government's heavy involvement in international trade, some manner of addressing this growing problem should be attempted.

Some of the work being outsourced is "make work" production, such as income tax processing and growing legal research projects necessitated by government regulation.  Why should profiteering and cost cutting be allowed for non-manufacturing, non-production, non-consumer work generated only to comply with government regulations?  Financial speculation and investment channeled overseas creates new factories and new production facilities there, while foreign investment in domestic manufacturing assets acquires those here already in existence.  We are losing equity in our own property and production facilities.  And our transition to an information service economy that is becoming narrower by the day reduces the choices Americans have in terms of selecting a means of earning a living.

To really appreciate the threat to the American economy represented by the narrowing of the employment market to the information technology sector, consider the admonitions offered by Gerard Jackson writing for The New Australian as far back as December 1998, commenting on the false sense of wealth created by John Maynard Keynes' false notion of debt economics. Evaluating our economy a little over five years ago in his article entitled, "America: running on empty and heading for recession," Jackson offers: "Unable to free themselves of Keynesian thinking, the failure of the Dow to drop to check consumption was interpreted as meaning that consumers are convinced that the good times will keep rolling and so maintained their optimism and spending.  Consumers never noticed the Dow.  So long as their incomes appear secure they will just keep on spending.  In fact, American consumers are spending so much the savings ratio has turned negative, something that has not happened since the depths of the Great Depression: for this you can thank Lord Keynes and his disciples.  Without savings the American economy - or any other economy, for that matter - cannot accumulate capital."

Please view this drain on investment capital due to our "negative savings" and add that to concerns over foreign investment claims against our existing capital assets.  Jackson continues: "And it is capital that raises living standards, not federal manipulation of interest rates.  In other words, the American economy is running on empty.  Concentrating on consumption spending is a fatal mistake.  Consumption does not drive economies and it is only a small part of total economic activity.  This gross error has led some economic observers to speculate that the booming service sector will be the "powerhouse" that will offset slowdowns in any other part of the economy." Keep in mind this was written five years ago!

Yet it is this very same "booming service sector powerhouse" that is being outsourced right out from under US!  Who will really benefit from the boom? And as regards consumption and consumer products, what consumer products heavily purchased by Americans are made here in the United States and not in China?

Jackson relates, "The Austrian [economists] show that by forcing down the rate of interest the Federal Reserve misleads businesses, especially in the higher stages of production, into thinking that the fund of real capital has expanded.  They therefore embark on projects for which the capital goods necessary for their completion do not exist.  This makes itself felt through various shortages and bottlenecks.  As these start to appear many businesses begin to suffer a cost-price squeeze as prices are no longer sufficient to maintain expansion or even cover factory costs.  Nevertheless, the so-called service sector, the one closest to consumption, undergoes a boom with rising demand and unemployment.  There is no paradox here."

"Factors must be paid," says Jackson.  "Companies that responded to the low interest rates used the additional funds to bid up the prices of capital goods and specific types of labor, which obviously raised their costs of production.  This additional expenditure translated into factor incomes, which were then spent on consumption goods.  This in turn raised demand at the consumption end of the production structure."  Jackson offers this vicious circle as continually bleeding savings and investment thereby creating negative savings.

Jackson's analysis is based upon an assessment of what was wrong with our domestic economy well before the job drain hit what he felt was, at the time, the robust service sector of information technology.  Clearly, the economic situation has worsened considerably.  Now American businesses are exacerbating the destructive effects of negative savings by seeking to lower the "cost-price squeeze" by outsourcing.  And consumer goods are being manufactured for the most part outside the United States.  And foreign investment by Americans is creating new capital factors of production overseas.

Dr. Paul Craig Roberts in his essay, "Clarifications on the Case for Free Trade," posted on Mises.org February 20th, points out the two fallacies of the Austrian free-market anarcho-capitalist economists: first, they confuse free-trade with the free-market, and second, they fail to address the loss and concentration of jobs in the much narrower context Americans now have to face.  Libertarian economists fail to recognize national sovereignty, and look primarily at the producer-business advantage in cost reduction translating to lower costs for the consumer.  But Roberts points out that job losses and narrowing job choices can bring down America's standard of living.  And that lowered standard of living will bite the US again when bloated American government needs to find new ways of increasing revenues because of the reduced earnings of American workers.

In his ominous article, "Dark Side of Free Trade," New York Times columnist Bob Herbert in his February 20th effort offers, "The classic story of the American economy is a saga about an ever-expanding middle class that systematically absorbs the responsible, hard-working families from the lower economic groups.  It's about the young people of each successive generation doing better than their parents' generation.  The plotline is supposed to be a proud model for the rest of the world."

Herbert points this out without touching upon the outsourcing of capital investments and our trade deficit in manufactured goods versus raw materials.  "One of the reasons there is so much unease among voters this year is the fact that this story no longer rings so true," he says.  "Books based on its plotline are increasingly being placed in the stacks labeled 'fantasy.'"

He warns, "The middle class is in trouble.  Globalization and outsourcing are hot topics in this election season because so many middle class Americans, instead of having the luxury of looking ahead to a brighter future for the next generation, are worried about slipping into a lower economic segment themselves.  This is happening in the middle of an economic expansion, which should tell us that the terrain has changed.  In terms of job creation, it's the weakest expansion on record.  The multinationals and the stock market are doing just fine.  But American workers are caught in a cruel squeeze between corporations bent on extracting every last ounce of productivity from their U.S. employees and a vast new globalized work force that is eager to and well able to do the jobs of American workers at a fraction of the pay."

The very same free-market/free-trade libertarian economists and political analysts that decry the neoconservative warmongering foreign policy of the Bush administration's PNAC cabal now fall in behind and approvingly glow over a domestic economic policy that is outsourcing our own middle class, the very backbone of our free and independent nation.  Ignoring the damage the Bush administration has already done to our Constitution and our individual freedoms, along with the world's revulsion and hatred of US generated by the Bush administration's "Guernica" in Iraq, our national sovereignty is what has always ensured the freedom of our citizens.  And although we should all rejoice in the magnificent wealth and improved living standards outsourcing will create for Third World nations, employment, just as with charity, should begin at home.

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© Copyright THEODORE E. LANG 3/21/04 All rights reserved. Ted Lang is a political analyst and a freelance writer.