Outsourcing: a good thing

[puck]

Quote from Thunderdog:

While I believe in free trade, I wonder if outsourcing on a meaningful scale is just a little too modern a concept for me to comfortably digest. It reminds me of the Atkins diet: eat plenty of fat and be healthy. I just have difficulty dealing with that kind of counterintuitive logic. Maybe it's just me. [/B]

Hello everyone, I'm new to the board and my name is Jim.

Thunderdog, the law of comparative advantage (CA) IS counterintuitive. Don't confuse this with the law of absolute advantage (AA) formalized by Adam Smith.

In the news you will hear comparative advantage when people really mean absolute advantage. That's a side note.

Adam Smith's theory of (AA) stated that a producer has an absolute advantage in the production of a good when he/she requires fewer inputs to produce that good. For example,

A college professor can teach a Social Science class but she/he pecks on the keyboard (not very good at typing). She/he could do it but her/his secretary could do it much faster than her/him. The professor allocates their labor inputs to teaching and the secretary does the same with typing. So the professor has the [AA] in teaching and the secretary has the [AA] in typing.

This exchange type of exchange was formalized by Adam Smith in his book, "An inquiry in the Causes of Wealth of Nations."

[CA] is simply this:
The professor is now better than the secretary at typing. In other words, she/he has the absolute advantage in teaching and the absolute advantage in typing. Should the professor continue to allow her/his secretary to type even though they are (forgive the insensitive word)inferior at it now? The law of comparative advantage formalized by Ricardo in the early 1800's says yes(originally that was two sentences).

[*]The reason why [CA] is a little counterintuitive is b/c it doesn't compare productivity. It compares what is given up to obtain something else.
[*]Opportunity Cost = the highest valued alternative forgone.

 

[Mecro]

Quote from MrDinky:

Great article from Wired on the subject

http://www.wired.com/wired/archive/12.02/india.html

That is a good article. Although the comments by the Indian execs and workers sometimes make me want to fly over there and slap them. We will see how they handle it when their jobs start dissapearing. No public programs there to help them out.

The author had a good point of rate of change. I personally do not see any other new jobs being created at a nearly fast enough rate. That may also be because the IT jobs created were so overblown.

Also, US companies should at least try to offer the same jobs at fair pay rates. Who knows how many people would accept a 50k job from 1999 at 20-30k today. Some really do not have a choice. Why pay a mark up to a middle man and allow yourself less quality control instead of going back to the old way at a lower cost.