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Cato Institute’s Tanner: Outsourcing Good for America

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    A slew of criticism has been voiced over outsourcing lately.  But, according to Michael Tanner, a senior fellow at the libertarian Cato Institute, it is actually a good thing for America.  He had this to say on the subject to Yahoo!:

    “Companies outsource to establish a presence in a country in which they plan to do business," he told Yahoo. "If we're going to sell cars in China it makes sense to build a plant in China.  U.S. companies eventually bring their foreign profits back home.  And then those new profits enable them to hire new and more skilled jobs in this country," Tanner said.

    Is this any kind of true?  What does everyone think of the Cato Institute's response to this?

    ...If you're not familiar with Cato Institute, here's there tagline in a nutshell:

    The Cato Institute is a public policy research organization — a think tank — dedicated to the principles of individual liberty, limited government, free markets and peace. Its scholars and analysts conduct independent, nonpartisan research on a wide range of policy issues.
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    According to David Cay Johnston, US based multinational companies are sitting on $4.8 trillion in cash (as per IRS records).

    Cash hoarders! U.S. companies sitting on $5 trillion - Decoder

    The reason cited is that they cannot find profitable places to reinvest that cash because there is not enough consumer demand to buy the products and services that they might sell.

    Or if I might paraphrase, consumers don't have cash to spend because the corporations are sitting on it and not reinvesting in the American economy .  Reinvesting their cash would in fact provide the types of jobs and income that would create the consumer demand to buy their products and services.

    Taking that much cash out of circulation creates a drag on the economy.  Their effective taxes paid have been so low that it acts as a disincentive for investing...that is money flows into their coffers faster than they can effectively invest it.  I'm not sure what the MMTers would think about this.

    It also suggests to me that the companies are risk averse. What are they waiting for?  A government stimulus to create more demand? That won't happen with this Congress.

    A more sinister thought would be that they are waiting for a Romney presidency, and then will immediately invest their hoards to stimulate the economy and demonstrate that  Romney was right....that is, massive tax cuts for the rich do trickle down as per Reagonomics.

    Certainly the tax code needs revamping to incentivize reinvestment in the USA, but that would also require a paradigm shift by Tea Party Republicans on deficit spending and debt...not to mention their "hate Obama" policy. I'm not sure they are capable of that kind of critical thinking.
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    It's called a Demand Leakage.

    And there are many ways to think about this.

    Savings comes from incomes not spent over a given period.

    For any agent to save, another agent must run a deficit, or that much in output won't get sold, and there will be that much less in incomes to save.

    All of these demand leakages mean we can have much lower taxes per size of government.

    Demand leakages by far outstrip so called "runaway government spending."

    Most of these excess demand leakages have been 'sprung' by the belief that "we need savings to fund investments," which is fraud #6 in Warren Mosler's Seven Deadly Innocent Frauds of Economic Policy.

    Investment spending falls because spending falls, which causes savings demands to increase. 

    It's about aggregate demand!



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    Thanks CBB --

    I Googled "Demand Leakage" and found a recent article (July 5, 2012) by Warren Mosler in the Huffington Post: Demand Leakages: The 800lb Economist in the Room.

    I'll extract a few lines from his article.  I know you have talked about some of this stuff in prior posts, but Mosler does a pretty good job on this topic as well.

    So wherefore the 'demand leakages?' The lion's share are due to tax advantages for not spending your income, including pension contributions, IRA's and all kinds of corporate reserves. Then there's foreign hoards accumulated to support foreign exporters.

    And then there's the fear mongering about the likes of the $200 trillion present value of United States government unfunded liabilities, without even a hint of the present value of all demand leakages -- all of that future income just discussed that will be unspent as it's squirreled away in the likes of retirement plans, corporate reserves and foreign central banks.

    Worse, every mainstream economist has learned that it's the demand leakages that create the 'need' for government deficits, but somehow they fail to even mention it, even casually.


    Mosler gives two choices to get out of this mess..."either a (whopping) tax cut and/or spending increase (depending on one's politics)." I can certainly endorse a tax cut for the poor and middle class..."the spenders."  But as we all know by now, giving more money to the super rich like Romney doesn't necessarily translate into more spending. Much of that money ends up as additional "Drainage Leakage" in Swiss and Cayman Island accounts.

    The American public including Democrats have been so "conditioned" about the evils of deficit spending and debt, that it is hard to see how they can accept any further large increases in the debt, never mind the fact that with today's low interest rates the annual money we the taxpayers are paying as interest on that debt in 2012 dollars is less than that of the Clinton years.

    Somehow, we got to get over that hurdle.  A massive investment (deficit spending)  in infrastructure, education, renewable energy and health care would be a good start, but we also need to consider that the skill sets are simply not available for some of the higher tech jobs. Certain high tech industries want to hire now, but the population of our college graduates currently lacks the specialized skills to fill those jobs. Hence why I support focused educational grants...either that or we need to increase immigration in those particular skill sets. That is also politically unpopular.

    It would be much easier to accomplish some of these goals were in not for the obstructionist Republicans whose ability to think critically is blocked by their hatred of President Obama. 



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    ARE U KIDDIN' ME?! Libertarians QUORUM with Republicans, and are now 'joined at the hip'. It is the SAME product as the Heritage Foundation, and gets the SAME results, under another "Cloak".
    If You want to "Outsource", FINE, ( you un-Patriotic, so-and-so) but I think that ALL of your Products should now face Tariffs, and overseas Taxes, to level the field, for American Products!
     AND, any Corporations that have moved their "Headquarters", offshore, to evade United States Taxation, should ALSO face equalizing Tariffs and Taxes.
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    Government spending, by definition, is all spent. But with tax cuts.....some of that income is not going to be spent. So there's an aggregate demand multiplier associated with government spending vs. tax cuts.

    The reason is private savings demand, which the government adds to  through various tax advantages.

    So if you want to increase aggregate demand w/ X amount of government spending......you would need more in tax cuts to do the same thing.

    ..............
    The tax code and the laws governing the financial sector both simultaneously encourage and create conditions for the offshoring of funds for tax advantages. 

    Mosler's lead proposal is a FICA tax suspension, which is a regressive flat tax beginning on the first dollar earned, capped at 110k. Whatever the nominal split between employer and employee, FICA is a tax on wages that depresses the earned incomes of workers. Per terms of the FICA tax suspension, everything else remains equal per terms of original accounting, i.e. Social Security and Medicare remain paid for, and the FICA tax cut is not 'made up' by boosting people into higher income tax brackets. 

    Everyone working for a paycheck would see an increase in take home pay. This includes those with paychecks exceeding the cap.

    Taxes regulate demand. They don't give government anything. Lower taxes might mean higher nominal savings, but Mosler also calls for a permanent near-0% fed funds rate. 

    Higher interest rates affect the cost structure of business, and while rewarding savers, this policy is also a tax on the economy. When the FED loans reserves to banks, it's effectively buying an asset, which when repaid w/ interest reduces the amount of bank reserves. That's the real difference between monetary and fiscal policy. Monetary policy is when government spends w/ keystrokes to acquire financial assets.  Fiscal policy is when government spends w/ keystrokes to provision the public sector. That's the fundamental difference. And notice we have all the money in the world to spend with keystrokes on financial assets.

    Inequality in America today does not come from income tax rates as much as it comes from government intervention in the service of the finance sector, all of the loopholes, deductions, variance, and ridiculousness of the tax code, and the over taxation of work. The contrast between capital gains taxes vs regular income taxes is truly maddening.


     




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    American factories in China don't profit from selling their goods in China, they profit when they send the goods back to America.  These factories don't sell crap to China, not a car, not a pair of Levis. 


    This article is the same thing as saying tax cuts for the rich job creators is a good thing.  Reality, the tax cuts to China job creators is bad for America.  But now, according to this, with the profits made in China the China job creators can hire more people here.  Give me a break.  If you want to sell to China, and want a plant in China to do so, don’t send the stuff the China children made back to America.  Shouldn’t we have a plant in America if Americans are going to be the buyers, according to the article above anyhow?  Once again, a Republican attempted smoke screen to cover up the real truth,  that's what Tanner is attempting here.  He hopes you never open your eyes for sure.
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    Don't get me started on the Cato Institute. They've claimed that poverty in America isn't really a problem, that it's overblown by "bleeding heart liberals."

    Two members of the Libertarian Cato Institute were co-founders of "supply side," "trickle down Reaganomics" ---Cato Chairman Emeritus William A. Niskanen, and Paul Craig Roberts.

    Roberts publishes a lot of articles on OpEdNews.com and CounterPunch, and since he was a member of the Reagan administration and responsible for Reaganomics, he is in denial about the actual impact of Reaganomics during the last 30 years, and he blames everything but Reaganomics for our economic crises. In fact, he is an Apologist for Reaganomics and Reaganism.
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    A good laugh is all that quote is good for.
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    WovenGems Wrote: A good laugh is all that quote is good for.


    That quote also proves how stupid the Republican Party believes its members are.  I guess America may need the Electoral College, with as brain washed as the Republican Party members really are, thanks to money ran institutes and Republican media brain washing.  Romney sure proved his true ignorants to the world lately, and that's the best the Republcans got for president choice?  At least stupid can't hide from normal.      
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    "that's the best the Republicans got for president choice?"

    I would normally agree until you realize that the alternative is...

    Obama's the best the Democrats got for president choice?

    When you consider both options a more accurate statement would be:

    "that's the best Americans got for president choice?"
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    fenway Wrote: "that's the best the Republicans got for president choice?"

    I would normally agree until you realize that the alternative is...

    Obama's the best the Democrats got for president choice?

    When you consider both options a more accurate statement would be:

    "that's the best Americans got for president choice?"




     Against the tea bagger Congress, President Obama has done more for the majority than any president since Jimmy Carter.  President Obama has undone many of the oil wasting government that the Bushes did to America and the world.  In 1991, Bush took away the states’ rights to set emission standards, when California was putting together a zero emission standard, meaning electric cars would be the states only option.  GM had a plug in electric ready to meet these standards, electric cars that were scrapped after the Bush intervention, an intervention that screwed the majority, once again, out of free fuel solar power vehicles.  Oil owned Republicans hate solar and electric cars.  Why, because it puts their oil master out of business.  President Obama gave the states their right to set emission standards back, something opposite of the Republican’s beliefs.  Yes Obama has to do more, but how can he, with oil owned government.  Thirty years ago President Reagan put solar out of business, President Obama has passed legislation to get solar started again, if we get a Republican president, solar will be killed again.

    As far as Obama care, you to date have not mentioned one fact to back up your statements that say Obama Care sucks.  Why does it suck fenway?  It doesn’t, it is the only system the medical system in America will ever accept.  Do you really think American doctors are willing to take a huge pay cut?  Do you really think the medical insurance companies are willing to be nonprofit, like the insurance providers in other countries that have national health care?  Obama did the best he could and he is our only president that has done anything to get America out of 33rd place, when it comes to taking care of its majority's health. 





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    If companies were indeed establishing a presence in China, and the hundreds of other developing countries to actually sell stuff to that, said country, then it'd be fine.  But since they pay slave wages there, no one can buy the products.  Off-shoring is to use wage-slaves to build stuff, for America, ship it back to America, with very little to no tariffs, replacement taxes for the jobs that left when we used to build them in America.

    See, it all depends on how you define "America."  When this guy talks about "America" he is talking the American rich.  He isn't talking about the America that has the guys in it that lost the tens of thousands of jobs that were exported.  Certainly that America will be then struggling to get a job, and won't be able to buy much of anything, however cheap.  He's not talking about law-enforcement, who'll work harder to lock up new criminals that will inevitably develop, or prisons that will end up packed to the gills, with once-employees of the real "America."

    So, like most pronouns, America too, has different meanings.  How you interpret whether it is good for you, depends entirely on the meaning in question.  When they say "we," or "us," the same thing applies--they are talking about themselves, and their rich buddies.  You are not included.

    The words "Liberty" and "Freedom" have wildly different meanings too, and usually when a rich politician, particularly republicans use the word, they meant to trample you with it.  The Liberty/Freedom to trample you, export your job to cheap labor, pay you minimum wage, doom you to a forever minimum job, where you will always be scraping by, is their version.
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    And we send our representatives to kowtow to Beijing...???

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    China's enslaving their people to sell us real goods and services in exchange for pieces of paper stamped by our government!

    Real terms of trade here are way in our favor.

    They want our money! Do you want to save yuans? Probably not.

    China's an absolute bureaucratic nightmare. They have 100 times the regulation that we have here.

    Business owners here can complain all they want about "regulation, taxes, paperwork, etc." but aggregate demand solves all.

    Over there in China they have gone with our WW2 sized deficits, and even with all the red tape....they've gotten WW2 levels of output! 




Categories: Jobs & Cato Institute