Thursday, October 16, 2014

Anti-Capitalist Myth: Outsourcing is Bad for America

Writing at The Freeman, economist Robert Murphy examines the outsourcing issue in some detail and shows the faulty reasoning behind this immensely popular misconception about how markets function.  Here is an excerpt to entice you into reading this very valuable article:
“Outsourcing” is simply a manifestation of the more general phenomenon of trade between countries. As a general rule, giving individuals the freedom to trade with whomever they wish, around the globe, maximizes the “real income” of the groups involved. 
The general logic of the benefits of free trade applies to outsourcing; a particular instance of outsourcing will (obviously) hurt the domestic workers involved, but it will shower on other Americans benefits that more than offset the loss. Immediately, the owners of the outsourcing firm benefit in the form of higher profits (because they’ve cut their wage bill). But the forces of competition will soon cause those cost savings to show up as lower prices for American consumers. Indeed, the video’s producers implicitly admit this when they acknowledge that their recommendation to buy 5 percent more American-made products would be more expensive for consumers.
The logic of free trade, as Murphy refers to it, plays a large role in correctly understanding how outsourcing is actually a beneficial activity for the outsourcing country (so to speak.)