Of course it's good. I read a short post on the subject at Truck & Barter this morning. It reminded me of something I wrote on March 3, 2004 on the same subject. Particularly the sidebar below.

Here's an older article at VentureBlog that I snaked from the ChicagoBoyz. This one is about the evil demon o' the day known as outsourcing. If you've got questions about trade restrictions, NAFTA, and the like, this little VentureBlog article does a good job of explaining the basics of why trade is good — and hence why trade barriers/protectionism are bad.

Now, I may be getting a little out of my depth here, after all — I studied econ in college 10 years ago (blast ... I'm gettin' old!) and have been fairly much focused on Logos stuff (writing code, converting books) ever since. Hopefully I haven't made any gross errors. Follow my logic here:

First: US Firms have an interest in minimizing all costs while keeping or increasing productivity. This only makes sense — less cost with the same output (and prices) means more profit for the producer. If prices drop then the producer is still ok. If he needs to drop prices to compete, he's even better off — he's got the flexibility to chase market share instead of just worrying about paying next month's bills.

Second: US consumers (yes, consumers) are fairly savvy. Price is an important factor. Who doesn't want lower prices? I mean, why else does Wal-Mart even exist? Who wouldn't buy the cheaper of two otherwise equivalent goods? Who wouldn't be tempted by the cheaper of two goods, even if the more expensive was obviously better, if the price was significatly lower on the lower-quality good?

Third: US Workers are expensive on a worldwide scale. That's ok — we're also the most productive and most versatile, so it all works out. We're worth what we cost. However, as US Firms tighten the belt, they're able to do more with less. Dropping dead wood employees is done, and firms end up healthier and stronger — and more productive and more profitable.

Fourth: With the improvements in global communication and travel of the past 50 years, some firms are able to seek lower cost labor outside of the country. This is good — it allows firms to be more profitable and efficient, and it allows price competition to continue. Logically, if US consumers didn't mind high prices, US producers wouldn't have to take this step. Right?

Sidebar: One thing I simply can't comprehend about opposition to free trade, outsourcing, etc. from those of the liberal persuasion is the incontrovertible fact that the countries that host such businesses (India, China, Philippines, Sri Lanka, etc.) end up with people in solid jobs, with marketable skills, and decent pay for the country. I mean, isn't the raison d'etre for such folks simply “helping people” and ensuring “justice” for those who unfortunately don't have it as good as us? Anyway, as these foriegn-based folks have (and spend) money in their own country, it stimulates growth! It's like one big fat infusion of capital into these economies, some of which may not be doing so well. Why bother with the IMF, with international loans, with the crapola of the UN, etc. when we can have a positive effect on a country in this way? How much more humanitarian can we get? This is, effectively, Ronald Reagan's “A rising tide lifts all boats” applied on a global scale. Wow. First he gets rid of communism, then he sets the policies for economic improvement on a worldwide scale. US consumers get cheap goods to boot. Dang, Ronnie was a stud.

Fifth: Now follow me here ... this is where it gets wacky. If US Firms are forced via protectionist measures (Smoot-Hawley, anybody? Do we not remember what sparked the Great Depression?) to quit outsourcing and are forced to only use domestic labor ... well, let's just say the unemployment rate ain't gonna go down. Remember point 3 above? We're expensive. More jobs will be shed, and the costs to produce will go up.

Sixth: The increase in cost due to removal of economic advantage from offshore labor could very easily spark inflation. Think about it: Fewer jobs and higher production costs. Higher production costs lead to more expensive goods — Wal-Mart's little pac-man-wannabe smiley face does less bouncin' 'round the store. Folks with less money (fewer jobs, more expensive goods) buy less. Discretionary spending goes down. Credit card interest rates go up and this effectively takes more money out of most Americans who carry an inordinate amount of credit-card debt ... let's not even talk about the interest rates on the national debt. Heck, it could be the spark to 70's era stagflation (when both unemployment and inflation are on a drastic rise), though that's a bit alarmist.

Now, there's a whole lot of “what if” in the above conjecture. But basically, if US firms are forced to increase their costs, along with a narrowing of the market by pursuing protectionist measures, it ain't gonna be good. (Remember, even if the “protectionist” measures are tariffs on imports or other import restrictions, that's bad because the affected countries retaliate by slapping tariffs and whatnot on our goods.)

So, all of essentially ends up increasing costs and decreasing the market for US producers of goods and services. And — even though I last studied this stuff 10 years or so ago — even I know that is not the way to stimulate the economy.

Again, my main point here (in reference to the T&B post) is the sidebar. Why is foreign aid (writing a blank check, essentially, to a government) good, but investement that directly affects the actual participants in a foreign economy bad?

The answer is: it isn't bad, it is good, and it is a very effective way to provide assistance to needy economies with cheap labor pools that provide decent quality work.