This just in...Circuit City and the Global Economy(#5)

by Dollars and Sense

The fifth in a series of blog entries by D&S collective member Larry Peterson.

We found this in our Inbox today:

Greetings:

Considering what is happening at Circuit City as well as in the manufacturing sector of the US economy, I am no longer shocked by, but I am disgusted at, the constant reports from the Bush Administration on how great the economy is. How is the US Economy defined? When the government says that the economy has improved, are they considering US companies whose profits may be UP but whose factories and bulk of operations may be overseas? Are those profits counted in the US economy? I look around and see fewer jobs and those that remain, paying ever-decreasing wages...how can the economy be UP?

Sincerely yours,

Justin West
Galva, IL

The economy is, according to virtually all conventional sources—and that includes just about all policy makers and legislators of both political parties, professional economists and financial journalists—evaluated first and foremost, if not almost exclusively, in terms of raw output. So, gross domestic product measures the dollar value of all goods and services produced in the United States in a year, without regard for how it is distributed; employment is evaluated on the number of jobs created each month without much notice of their quality.

(Some useful work doesn't have dollar value put on it at all—housework and much caregiving, for instance. There is a movement now on the fringes of the economics profession which attempts to integrate some of these factors qualitatively and even quantitatively into the analysis, and while these attempts are being received somewhat sympathetically among governments (especially in Europe and even in more progressive localities here), NGOs and even institutions like the World Bank, it'll be a long, long time before such considerations are current on Wall Street or at the Federal Reserve or the European Central Bank.)

So, the overwhelming preponderance of commentary on the performance of "the economy" reflects the use of a pretty narrow set of parameters; it also tends to reinforce its own presence among practitioners who tend to use the information in the pursuit of profit only (financial professionals working for private firms, etc). And this, in turn, is redoubled by the fact that very little criticism of this kind of use is allowed to see the light of day at this level. Because, as long as short-term profit goals are reached or considered essentially safe, no one will complain much.

Your question seems to focus on the international dimension: you have noticed that several economic indicators are evaluated in a positive light which involve good things happening elsewhere while bad things are increasingly taking place here. So, a phenomenon like outsourcing is currently controversial among non-economists because they tend not to employ as narrow a criterion of what's good for an economy sometimes, too. To economists, outsourcing is good because it is believed to result in a more efficient allocation of the international-rather than national-division of labor, and this, in turn, should lead to lower prices for goods and services for all the rest of us, including those "temporarily" hurt by it.

While there is some truth to this, it is by no means clear that the trade off is one that many people would be prepared to accept. And the empirical data, much of it very recent and of decidedly poor quality (many of our new trading partners keep very poor records) is mixed, so far as I can see. But economists went into the neoliberal era believing it would benefit all, and in a decidedly short time. This accounts for much of Russia’s US consultant-led slide into kleptocracy and Mexico’s meltdown post-NAFTA. Only now are some of the more prominent economists just beginning to rethink their positions on this outsourcing, to get back to that. Former Federal Reserve governor and Princeton economics professor Alan Blinder is perhaps the leading figure here. (But, see Dean Baker's recent blog commentary on Blinder's turn-around on trade.)

But there is another aspect of outsourcing that economists miss precisely because their emphasis this time is so wide. On this view, workers who are adversely affected by outsourcing should be willing and able to move to areas where jobs are plentiful. But this tends to neglect that the vast majority of workers simply can't liquidate their assets fast enough to be able to move to these spots in a timely way or efficient way: they may get there only when it's too late, or in the middle of a property boom/bubble, or who knows what. And even if they were, they'd face losses selling their assets if large numbers of them had to head for the exits at the same time. So there’s no way to evaluate the tradeoffs involved in such a move in such a way that gains can be maximized.

About Circuit City, the Christian Science Monitor notes today that Circuit City is now involved in court cases which charge it with discharging some of its best workers precisely because they were, well, too experienced (and hence well paid). The amazing thing about this story—besides the fact that, in the narrow sense preferred in most cases by economists, productivity, which is intimately tied to levels of experience, is supposed to be the factor which determines employability and wage rates—is that the retail sector is one of the few which capitalized heavily on the employment of information technology in the 'nineties (many other industries are beginning to jump on the bandwagon now) and continues to do so, now. So you have a situation in which huge productivity gains reaped by employment of capital are increasingly offsetting—rather than complementing—the productive capacities of workers in that sector. Inasmuch as this model presages what we can expect from the "new" economy, workers have every reason to be concerned; and these concerns are not necessarily going to be reflected in many of the evaluative criteria used by economists and financial professionals.

Labels: Alan Blinder, Circuit City, jobs, outsourcing

 

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4/17/2007 02:01:00 PM