New School Politics

Populists and Capital Outflow

Ryan | 10 08 2007

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Often we hear populist politicians complaining about both the trade deficit as well as the outsourcing of jobs. They say that both are problems that face the American economy, but can that be true? The trade deficit signifies an inflow of capital–from foreign markets to the domestic market–while (a net rate of) outsourcing signifies an outflow of human capital. If there was an inflow of capital in general, wouldn’t there most likely be an inflow of human capital as well? (Overall the insourcing/outsourcing of jobs is very hard to assess and should certainly not be trivialized politically. Here and here data suggests that jobs are being insourced to the US at a higher rate than are outsourced.)

Subsequently, these politicians offer various policy measures to curtail outsourcing as well as narrow the trade deficit. But wouldn’t such policies contradict each other as one pulls for an inflow of resources while the other pushes for a net outflow? And even if these policies achieved there individual and exclusive ends, would they not cause a glut of human capital in the American economy?

I think the answers are pretty clear and that for the sake of balance and equilibrium it is best when market tendencies are determined by the market, not by sensationalist pols.