Outsourcing has taken a backseat to many current political topics. Part of the reason is that the reduction in aggregate labor income from outsourcing has gone largely unnoticed. Since there has been no major decline in consumer spending, the true problems have gone unnoticed by Corporate America. There is a simple reason for this. Home equity loan spending has more than offset worker income loss. The production demand lost from worker income has been more than compensated for by the borrowed money from home equity loans. Clearly this is not a sustainable situation.
Many still believe that outsourcing is not a major problem. It seems to have slipped some as a topic of discussion. Many claim that we have not lost "that many" jobs to outsourcing. Certainly a lot of workers that have lost jobs to outsourcing would disagree. Many claim that it is due to the lack of skills of those workers. They might also claim that job retraining is the solution.
I think the outsourcing problem should again be brought to the public's attention. Many people may have forgotten that over 300,000 people who had high skilled, high tech jobs in California's Silicon Valley lost their jobs. Most of these jobs were due to outsourcing to foreign labor markets. These workers had all the "skills" necessary, but were unable to compete with foreign workers who will work for 1/5th as much. So those jobs were lost, along with the aggregate income that they provided. If those jobs paid an average of $60,000 per year, that's a loss of $18 billion of income. That's $18 billion/year less to purchase American goods. The spending that income financed, as well as the demand it created, cannot be replaced by 300,000 foreign workers making 1/5th as much. The increased corporate profits from the labor savings provide no benefit to our economy whatsoever. With loss of aggregate consumer income and spending power, and the resulting loss of consumer demand, investment demand is also decreased. There's no reason to invest more when consumer demand is less. It simply doesn't make any sense.
Profit increases from widespread reduction of labor costs (and labor income) do not help the economy. It hurts the economy. It reduces the very consumer spending and demand necessary to drive production. The short-term profit gains cannot be productively re-invested. When the demand for goods declines, so does the demand for further investment. That extra profit simply goes into increased CEO salaries & bonuses, stockholder dividends, stock market overvaluation, corporate bank accounts, advertising, Congressional lobbying, and Republican campaign contributions.
There is simply less to invest in as aggregate consumer income, and the production demand it creates, decline due to outsourcing. Again, it makes no sense to increase production capacity when the demand for production is declining.
Part of the reason outsourcing has not remained in the forefront is because it has not resulted in a noticeable decline in consumer spending. As a result, the lost labor income has also gone unnoticed.
There's a simple explanation for this. The decline in demand that should have been noticeable has been obscured by the housing bubble. From $200-$300 billion per year is extracted from homes in the form of home equity loans. Much of this goes towards consumer spending. This amounts to 1.7-2.5% of our $12 trillion GDP. Clearly an extra $300 billion in consumer spending money could obscure much of the job loss from outsourcing. If the average American worker makes $35,000/year, it would take a job loss of 8.5 million to cause a consumer income loss of $300 billion dollars. As a result, home equity borrowing alone can compensate for a large number of lost jobs, and the aggregate income loss this causes. Thus consumer spending and demand have been maintained from this borrowed money. As a result, there has been no noticeable decline in consumer spending due to outsourcing. So the catastrophic problems it will ultimately create have gone unnoticed.
We can't keep losing jobs and labor income. The housing bubble will eventually deflate. It will take much of the home equity-loan financed consumer spending with it. Many jobs will also be lost in the real estate and home construction industries. When all of this happens, the outsourcing debacle will become more obvious. The income lost from outsourcing will become noticeable, because consumer spending will decline.
As such, the sooner the housing bubble bursts, the better. Consumer spending will decline, and Corporate America will take a hit as a result. Corporate America will be forced to take notice. The sooner this happens, the sooner the magnitude of the problem will be seen. And the sooner real action will be taken to reduce outsourcing.
unlawflcombatnt
EconomicPopulistCommentary
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The economy needs balance between the "means of production" & "means of consumption."
