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CNBC and jobs being moved overseas

The issue of American jobs being moved overseas is a topic that gets talked about every single day on CNBC. With all the sudden interest in the news, once could dedicate a whole blog to that topic alone!

My first thought of the day is that people who are talking about it now are far behind the curve. Presidential candidate John Kerry has talked about "Benedict Arnold" companies, but back in 1992, Pat Buchanan talked about the same problem in his failed presidential campaign. No one was paying attention to Pat Buchanan's very prescient warnings. But I remember well that Pat Buchanan said we could have free trade with Japan, or Western Europe, where wages are the same as in the United States. But free trade wouldn't work with countries where wage rates are substantially below that of the United States, because it would reduce the standard of living of the American middle class. And he was right on target.

(It also makes me really mad that Pat Buchanan was called "anti-semitic", while the real anti-semitic presidential candidate, Ralph Nader, remains free from such accusations. But that's the subject of another blog post.)

It's commonly stated by talking heads on CNBC that American jobs moving overseas will be replaced by other jobs here in America. But my blog is way ahead of the curve, because no one ever says what these new American jobs will be. I've identified that the new American economy is based on marketing.

The talking heads also seem oblivious to the fact that investment in the United States is what gives us a competitive advantage. But right now, all the investment is taking place overseas. If an American company wants to open a factory, it will build the factory in another country and not here. Furthermore, American companies are investing in information workers in foreign countries as well. Without new investment in America, our competitive advantage will decline.

It is also often said by the talking heads that American companies have higher profits from moving jobs overseas, and that this benefits America. There are two flaws to this analysis. The first flaw is that higher profits benefit stockholders and senior management. It doesn't benefit the middle class workers who no longer have jobs, or who still have jobs but at lower wages than before.

The second flaw is that many of the profits are illusory. In a competitive industry, if one company cuts costs by moving operations overseas, it then it will make more money than its competitors. But then when all of the companies in a competitive industry move operations overseas, they will all wind up lowering their prices, and in the end they will all wind up making the same profits that they were making before.

It is true that prices for goods purchased in America are lower because of outsourcing. But the price reduction isn't necessarily that high, because for much of what we purchase, the marketing expenses are the largest cost component. America as a nation may be better off having a little bit less rather than giving up our middle class jobs and our competitive advantage to foreign countries.

posted Tuesday, February 24, 2004