“Something D-O-O economics?… Voo Doo economics… Bueller?”

“A rising tide lifts all boats” – attributed to JFK

So, we were having this discussion at lunch about corporate out-sourcing and the shrinking middle class and the sorry state of the economy in general. I’m an economic conservative, for the most part. I tend to be a little more Libertarian than Republican, but I respect the economic growth that took place in the 80’s based on deregulation, tax breaks for corporations and HUGE AMOUNTS of defense spending. But, you know what? “Trickle Down Economics” doesn’t work anymore… Let’s consider this.

Classic supply-side economics says that when the economy is stimulated such that it encourages entities to produce(supply) goods and services, this, in turn, creates jobs, which enable people to spend, leading to more production and so on and so on. Demand is, in essence, secondary. In the 80’s, income taxes and the taxes on corporations were reduced across the board and, like good supply-side-ers, corporations in this country hired workers, paid wages, paid taxes and the economy grew. It was in the best interest of corporations to do this; meaning it increased their profits, which is the true motive of any corporation.

Today, this model is ineffective due, mostly, to the outsourcing of jobs overseas to cheap labor markets like China, India and Mexico. Corporations are following their motive, higher profits. They can now, with the advent of high-speed data transmission lines, relocate call centers and manufacturing to the developing world and shave millions off of their costs. This is good for the bottom line, it’s good for the stock holders’ dividends and it’s good for the developing world… but it’s shitting all over the American economy. Couple this with the willingness of foreigners to invest in US corporations and it means much of those profits, which would previously have been reinvested in the US economy, are now going to pay overseas workers and to pay interest on loans made, not just by foreign individuals or VC firms, but by SOVEREIGN STATES! Here in Las Vegas, the sovereign government of the state of Dubai has invested close to $3 Billion in MGM/Mirage, acquiring 5% of MGM/Mirage and 50% of the City Center project. The City Center project is the largest, private construction project in the US and will total over $7 Billion at completion; and half of the profit will be going to fund the Arab state of Dubai.

So, as you listen to candidates (and the Pres.) talk about economic stimulus and how they want to pull us out of this slump, listen to see if they are proposing anything which will keep jobs here in the US! Look for candidates who propose incentives for businesses who don’t out-source jobs overseas or who propose tax cuts for businesses who reinvest their profits back into the local economy. Our country is never going to survive if we keep sending money overseas!

Just my 2 cents (or should that be, my 2 rupees),
Matty

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7 Responses

  1. So you mean, if I send you $300 I won’t get back $600? That’s messed up, man. Bummer you, ’cause I was just about to write you a check.

  2. Well this hits home with me. I’ve been “downsized” twice in two years, and my husband’s career also ended due to a co. merger that put a lot of people out of work.

    You are not the only one feeling the pinch on the normal, hard-working, TAX PAYING, middle class worker. We’ve gone from a nation of workers comfortable in their long-term, pension-paying jobs to feeling lucky if we can get a job with any benefits at all. And hope it doesn’t go away.

  3. Is anyone in this discussion a Thomas Friedman fan? I recently got turned on to his books by a coworker. I am in the middle of his book, “The World Is Flat,” which I really recommend.

    I would say that the discussions that go on around me by Americans and usually evangelicals about economics are complaining, pessimistic and fearful. Now, I am not very well-versed in U.S. economics and politics. I have lived in China for 10 years and don’t do a good job at keeping up with more than the basics of USA news (though that is changing.) (How many of you out there know the name of the Chinese president?) But, having this kind of background is precisely why Friedman’s book was a breath of fresh air. Friedman discusses outsourcing and off-shoring with a much more complete picture than you will usually find in an average discussion on the subject — most conversations or commentary are pretty brief compared to Friedman’s 635 pages, and I think it is a complex subject that is not often done justice by what are sometimes knee-jerk, emotional, under-researched responses to the subject. Because I had heard so much negative input, it was actually shocking to me to hear something positive said about the economy and the opportunities ahead.

    While appreciating a well-researched, broad, bird’s eye view of many facets of globalization including how it puts jobs in Friedman’s own industry in danger, and while impressed that he still had a positive outlook on the economic opportunities of the future; still, I am also a literature teacher who teaches “The Grapes of Wrath” and was not totally convinced of the claims that Friedman makes of the benefits that would come to the people of America. I, too, wonder which people? Steinbeck’s book is about people who were displaced because of a struggling and changing American economy and of caterpillar tractors replacing workers because those tractors could cut costs and keep companies profitable in tumultuous economic conditions. Not so unlike the situation now. Not only were these people (fictional representations of real-life migrant workers) displaced and “shitted on” (to take the attitude of Matthew’s original commentary), but they also really had no options nor protection making them truly victimized and the system truly unjust. The novel represents a situation where a certain group of people never see the benefits of economic shifts and have no options even to change within those shifts, though they try. Perhaps the claims made by optimistic economists and campaigning politicians that middle class Americans or that the American economy in general will experience eventual and ultimate benefit from the economic trends of outsourcing and off-shoring and other changes IS too sugary an outlook.

    However, I am not so sure how far to take what I just said. Because, unlike the migrant workers of Steinbeck’s novel, the middle class American who is “in danger” looks a bit different. From the perspective of living in a developing country, American middle class expectations look pretty high to me. What is the definition of what the middle class American feels they are entitled to? The middle class American family is still not the Joad family. One of the points that Friendman makes, and it is not profound or ground-breaking or original, is that people have to change. One of the goals of his book, I think, is to help people see where things are going so that they can make changes in their lifestyle and pursuits to prepare for the changes — to go where the jobs and comparatively stable livelihood will be — how to survive this shift. The American middle class citizen is not disenfranchised like the migrant workers of the 40s. They still have lots of options. Is part of the complaining of middle class Americans due to the fact that it is just plain hard and they have the expectation that it shouldn’t be?

    Still, I do not approach life as a jungle, nor a race, nor merely the survival of the fittest. My faith tells me that being a kingdom citizen means being content with God’s provision and that my life is not at the mercy of economic and political trends but is very much orchestrated by the will of the Father which takes me through times of plenty and times of want.

    God makes overwhelming provisions for us to live the life that He planned for us. Provisions to weather change — intellectual provisions, informational, material and emotional provisions, needed talents, etc. — are there for the taking. On the one hand, we are players in the political and economic game — we each have our part to play in this world (many would say that we absolutely have a responsibility to play in this game.) On the other hand, we are not playing on the same field at all but operate according to whatever laws the Father ordains for the lives of His people and the future of His kingdom.

    My father is the typical middle class American citizen. Perhaps even further, the typical middle class American citizen who is a devout evangelical Christian. My father’s father was the typical mainstream American businessman in the 40s and 50s. He made the amount of money and held common American dream expectations of that generation. He worked hard and honestly at an advertising company for 40 years and went from an entry level job to vice president. He retired with a modest but comfortable suburban home, a chevy cavalier for convenience and a Lincoln for fun. He could eat out whenever he wanted and take his family out as well, didn’t have to worry about medical costs, gave a lot of money to charity, and left his three sons $300,000 apiece when he died along with many pieces of heirloom jewelry and fine pieces from around the home to his sons, their wives and his grandchildren.

    My father, on the other hand, no less talented, has watched two of his graphic design businesses prosper, struggle and fail. He has worked for other companies — been paid a very nice salary at times and laid off at others. His job has changed almost every three years and been far from stable. He has had to constantly invest in upgrading technology in addition to the huge learning curves that go along with that. He is a great example of typical middle class struggle — a struggle that is very much related to the economic situation. He is also a great example of a faithful and non-blame response to that struggle as well as a receiver of miraculous provision that defies economic trends and predictions. That is not to say that my father does not work hard. He uses everything he has been given, creatively and proactively, to live, do his work and provide for his family.

    I will be returning to the United States in July. I will be entering the U.S. economy again. Up until about two months ago, I had a lot of fear about what my opportunities would be. Papa John’s was going to be this poor girl’s caviar. This girl with uptown tastes (inherited from grandparents) needed to take a good hard look at living on the other side of the tracks. Living on support in China for 10 years, I have no savings. My “security” is my faith and my family. I have never been an “adult” in the U.S. Believe me, my knees were knocking. I have no computer or finance background or been trained in skills that are in demand. What can a lit major who has worked in China as a teacher for 10 years do? The U.S. economic situation is terrifying to someone like me — especially with all these pessimistic conversations I am surrounded by.

    Still, in the last two months — non-stop talk with everyone I know and a moderate amount of research has revealed much more opportunity than I would have expected with salaries projected at probably 30K to 40K a year. That sounds pretty good to me. I am not as scared as I used to be. Still, fundamentally, I believe for every kingdom citizen, salary cannot be the point.

    But, who knows, we’ll see what tune I am singing a year from now.

    This is the first blog entry I have ever written. I think it was too long. But I did get it right that blogs are kind of soap boxes, aren’t they?

  4. Jen (smeiqiao) –

    Thanks so much for your comments. I appreciate you sharing so much family history as a part of your response. I look forward to many more comments from you on this and other topics. Feel free to comment as you wish, you are welcome here.

    Too long? Perhaps, but well written, well argued and well received by me… and it’s my blog, so no one else really matters!

    Thanks again and, keep in touch as you transition back to the US!

    SDG,
    Matty

  5. I had a couple other things that occurred to me when I was writing before but they didn’t make it in.

    I’m not sure that protectionism will be a viable option in the future, even if we would like it to be. Living abroad especially in China, we’re just not going to be able to both protect the USA and compete. The future is cooperation. A few things that Friedman states is that the economy will run according to competition rather than protecting interests. (I know I have said this too simply, but I will leave it there. I can’t do better at the moment.) I know that I am not a great voice for this subject, since my knowledge is so limited but I have been living in the middle of the phenomenon and both observe and intuit some things from that. I liked what Friedman said that both cooperation and competition in the direction it is going will level the playing field — (thus, the title). It won’t favor the USA. In response, though, that has a great potential for forcing the best efforts out of Americans in innovation, creativity and best practices. People who are pushed do better, a little pressure can bring out the best. I understand, though, that too pressure can bring harm.

    I do believe, though, that Americans must gear up for the leveling of the playing field. And, I also hope they will not fear it.

  6. I had one more question/thought. When weighing what can be done about the economy, is throwing our energies and thought towards protectionism going to make more of a difference in the economy and should it be more of a priority than throwing our energies and thought toward Americans being better savers, better money managers, more ethical investors, by not living in so much debt? What about American businessmen taking more care of their employees instead of taking care of only themselves? I think I am more interested in cleaning up the insurance mess and addressing legal insanities in the USA before I would panic over outsourcing. But, it is always easier to complain about our neighbor than to change ourselves. I actually don’t mean that last comment too harshly. I know that outsourcing is complex and has many downsides. I just know that many Americans find it really hard to live simply, exhibit self-control and by-pass instant gratification. I am one of them. I believe that ultimately good stewardship leads to economic stability. (That is also an oversimplified statement but also the best I can do at the moment.) There would be many things that I would be more concerned with in America’s stewardship of its resources before I would get to the concern of stewardship as it relates to outsourcing.

    Matt, feel free to educate me. As I said before, this is really not my area. I really do participate in the discussion to learn, not to voice my opinion. My opinions are merely a stimulus to draw out the information from others I have not yet thought through.

  7. There is no question that middle calss America is eroding. Most of the economists think so. And globalization is definitely one of the reasons not the only one. When the economy is n such amess, and fears of recession looming, hundreds and thousands laid off the picture is bleak for middle class america for sure. But as far as Friedman’s “The world is flat” is oncencerned, I would recommend Two books to read, which offer a counterperspective to Friedman’s “The World is Flat.”

    The Harvard Professor, Pankaj Ghemawat’s latest book, “Redefining Global Strategy,” is more academically inclined. I read an article of his published in the journal, “Foreign Policy”, where he argues that the world is, at best, only semi-globalized. His argument being that Cultural, Administrative, Geographic and Economic aspects of a nation come in the way of total globalization from taking place and cites examples of the same.

    The other small, but interesting book, is by Aronica and Ramdoo, “The World is Flat? A Critical Analysis of Thomas Friedman’s New York Times Bestseller.” It is a small book compared to the 600 page tome by Friedman, and aimed at the common man and students alike. As popular as the book may be, some reviewers assert that by what it leaves out, Friedman’s book is dangerous. The authors point to the fact that there isn’t a single table or data footnote in Friedman’s entire book. “Globalization is the greatest reorganization of the world since the Industrial Revolution,” says Aronica. To create a fair and balanced exploration of globalization, the authors cite the work of experts that Friedman fails to incorporate, including Nobel laureate and former Chief Economist at the World Bank, Dr. Joseph Stiglitz. Aronica and Ramdoo conclude by listing over twenty action items that point the way forward, and they provide a comprehensive, yet concise, framework for understanding the critical issues of globalization.

    You may want to see http://www.mkpress.com/flat
    and watch http://www.mkpress.com/flatoverview.html
    for an interesting counterperspective on Friedman’s
    “The World is Flat”.

    Also a really interesting 6 min wake-up call: Shift Happens! http://www.mkpress.com/ShiftExtreme.html

    There is also a companion book listed: Extreme Competition: Innovation and the Great 21st Century Business Reformation
    http://www.mkpress.com/extreme
    http://www.mkpress.com/Extreme11minWMV.html

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