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NOTES ON UNDERSTANDING THE NEW WORLD DISORDER:
OF ECONOMICS, GLOBALIZATION, AND JOBS (aka Outsourcing).
by
Guntram Werther Ph.D. - Gold Canyon, Arizona
The Issue: The purpose of the 'Notes...' is to explain international events
and trends in a non-partisan and factual manner so that you can better make up
your own mind.
Today, economics' theory, particularly the claimed comparative advantages for
the USA from "globalization" and job changes (aka outsourcing) are in
the public mind.
Since economists (in general) seem to take one view regarding the theory of
comparative advantage, while politicians and the public often express other
views, I want to introduce a few points to hopefully clarify likely
sources of these differences in perception.
______________________________________________________________________
There were two economists, an optimist and a pessimist. The pessimist said:
"Everything is terrible. It can't get any worse." The optimist said:
"Yes, it can." (a Russian joke).
Economics is properly called the dismal science. It is a way of viewing the
world that has very specific SIMPLIFYING assumptions attached. When we discuss
economics within the public press and in public debates, we hardly ever seem to
remember these assumptions. When I teach graduate level economics, I always
begin by drawing attention to the serious implications of these simplifying
assumptions, and how they work in the messy real world versus the clearer
world of economics theory.
Theory and practice are NOT similar thinking exercises. The one is about what
"should happen" (given correct simplifying assumptions, reliable data,
and good math), and the other is about what "does happen" (given the
way the complex world actually works).
Economics posits necessary simplifying assumptions because - as I point out in
class - "How many variables are there in the USA economy?" Answer:
"Probably billions; who knows." Add in the international system and
one
begins to see the real issue.
Theory needs to simplify reality in order to highlight aspects of how things
work. Experience IS how things work; and there is rarely anything simple about
it.
Partly for this reason, John Meynard Keynes emphasizes that economic theory can
not easily be translated into public policy. Pretty much the other side of the
theoretical fence, F. A. Hayek similarly emphasizes in his
aptly named "The Counter Revolution of Science: Studies in the Abuse of
Reason", that "the study of economic and social phenomena [is] guided
in the choice of its methods in the main by the nature of the problems it [has]
to face (Hayek 1952: 1).
Consequently, in theory building economists must assume SIMPLIFYING things about
economic decision-making and these assumptions guide what we see and how we see
it. Change those assumptions and you change the likely outcomes.
This is why President Eisenhower wished for a "one handed economist"!
Every time Eisenhower asked advice of an economist, he received it with the
caveat "on the other hand...."
Economists know that their assumptions are NOT, strictly speaking, true; they
are just necessary aids to thinking more clearly. Principally, in economics, we
assume that;
1) fully informed, rational, and self-interested decision-making takes
place
2) for [a] change in one variable [remember, there are billions plus], a
particular result is to be expected given "all other things being
equal", and
3) that there is a difference between "short-term" and
"long-term" [both
are remarkably imprecise terms in economics theory] decision-making and
interests.
In reality, all things are never equal, people and governments are at best
partially informed, more or less rational (given culture, norms, politics, and
such), and can be self-interested in different ways and about different things.
Worse, the complex inter-connectedness of reality requires for its proper
interpretation what Edward O. Wilson (1998) called "Consilience: The Unity
of Knowledge." Single-disciplinary studies and prescriptions rarely comport
with our experience of reality.
More importantly for our understanding of the likely real-world impacts of
"globalization" and attendant job shifting (outsourcing) on our
country is the fact that ANY simple economic theory will likely produce MANY
unintended consequences. Remember, we STARTED with unrealistic simplifying
assumptions to build the theory to begin with. These unintended consequences are
what we are seeing today in my opinion.
Lastly, economists speak in terms of short-term and long-term costs and benefits
from proposed economic policy changes. In the long-term perhaps an economic
policy that produces significant outsourcing will help make the USA more
competitive "all things being equal". There will, however, be
both short-term and long-term winners and losers. What is the long-term? Perhaps
ten years, twenty, who knows? Some people prefer not to wait. We are seeing this
too. It is called politics.
Copyright Guntram Werther Ph.D. 2004. - You may
reproduce this note for non-commercial purposes providing attribution of
authorship is given.
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