A Crisis of Faith

Posted by: Michael Mandel on July 06

If a lot of the high-paying jobs are moving overseas, what will take their place. Edward Hugh writes:

creation of jobs in high value end activities is a contingent matter, there are no guarantees about time scales here (timing again). Investment in new drugs would be a case in point (or in genetic therapies, or whatever). I have no doubt that in the long run “miracles are possible”, but the question is when *will* the future arrive, and if they’re all bankrupt before it does? Economics isn’t simply technology + innovation + good management.
What I’m getting at here is that there are no guarantees ex ante that the kinds of jobs needed to replace those that move out will in fact arrive. I take pharma since the ‘medical revolution’ is one of the areas which is often touted as a high value activity which fits the needed profile. If the pace of worthwhile discovery isn’t sufficiently rapid, and the economics don’t work, then it won’t be the ‘sure thing’ some people think it is.

The economic payoff from new technology is never a sure thing, and hasn’t been for 200 years. It requires faith in the future, and faith by its very nature is not provable.

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Reader Comments

bhaim

July 6, 2005 12:53 PM

When Intel, Microsoft and all the rest hire Asian software engineers, the US engineers are out of work. US careers are sent abroad and given to foreigners, and with them go the incomes that comprise America's ladders of upward mobility.

American students are becoming aware of the facts, but economists hold firmly to their fantasy that other new and even better jobs are taking the place of those that have been outsourced. There is no evidence whatsoever in behalf of this claim.

Economics has ceased to be an empirical science and has become a religious faith.

Paul Craig Roberts

Michael Mandel

July 6, 2005 01:01 PM

Thanks very much for the cite. That's exactly the loss of faith that I was talking about.

Tim

July 6, 2005 01:43 PM

Well spoken Mr. Roberts - we have a faith based economy based on a fantasy.

Lord

July 6, 2005 02:42 PM

US Biofirms do more R&D abroad than in the US. So much for biotech. New and better jobs will be created simply because no one can afford to create lesser ones in the US; it is simply too expensive. They will be few and far between however.

Globalization is homogenizing the world and the high spots have a lot lower to go to equalize with the low spots. Utilitarianism triumphs but will we see much innovation in the future? Innovation is expensive and virtually requires a high degree of inequality.

Lord

July 6, 2005 02:46 PM

Entering a dark age of innovation, http://www.newscientist.com/channel/opinion/dn7616

Mr. Econotarian

July 6, 2005 03:31 PM

Guess what? There is no limited & fixed amount of software to write. If you write a lot in India, you can still write more in the U.S.

Of over 1,400 CIOs surveyed by Robert Half Technology, 14% said they expect to hire and 81% expect to maintain their staff level. Only 3% said they expect to reduce staffs.

There is plenty of technological work to be done in the U.S. that might also be done in India.

My personal feeling is that software systems that support key business operations and need to be both highly customized to the operations and mission-critical will not be easilly offshored, especially when you need business-savvy or industry-savvy software project
management.

"Shrink wrapped" software for consumers is probably most easilly offshored.

The global economy is really not a zero-sum game. I can assure you that as China and India grow economically, if trade barriers remain low, the US will benefit as well. Already China has shown a willingness to invest in both the US government (through treasuries) and US private sector companies. We see China trying to save a US oil company which is on its death-bed, and have already seen China work to re-open closed mines in the U.S. In addition, US exports to China continue to rise.

China's cheap manufacturing has saved every American tens of thousands of dollars per year. So even if wages do not rise much in the US, we are already richer because we can afford to buy more.

Joe

September 29, 2005 10:17 PM

Mr. Econotarian,

You are right. There is no limit to the amount of software that we can write. Unfortunately there is a limit to the amount people can, need, and want to buy. If they can do it more profitably in India, they win the software race.

Mr. Econotarian

November 29, 2005 08:49 PM

There is no "software race winner." We can all win. The global economy is not a zero-sum game, or else it would not have been capable of expanding so incredibly over the last 100 years, with growth in all parts of the world (except sub-Saharan Africa, where the tribal/communist/protectionist ideas die hard).

You say there is a limit to the amount of software that people need. Yet the amount sold increases every year, why is that?

Current global software sales is nearly $200 million, with compound annual growth is around 6%, and shows no sign of slowing down.

As Indians and Chinese become more prosperous, they will purchase more software as well. And write it as well. And more Americans will write software as well.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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