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Saturday, March 11, 2006

Micro Thinking in a Macro World

The Dubai ports deal, and immigration reform have been hot topics around here this week. In fact, by reading a weeks worth of my blog, you'd think that the three most important things in the universe are 1: Me being quoted in the NY Times, 2: the DPW acquisition, and 3: Immigration.

2 of the 3 are debatable as to their actual importance or value (let's face it, #1 is important, haha). But if your only source of worldly information was my blog, you'd think those topics dominate the news.

That's because I offer a micro view of the macro world of news and opinion. Micro views are dangerous, they keep people from looking at cause and effect, or "the law of unintended consequences" from their actions.

The steel tariffs imposed in 2002 provide a great example of the micro view in a macro world. While the 187,000 people who work directly in the steel producing industry enjoyed the fruits of the tariffs, approximately 200,000 in the metal working industries that depend on steel lost their jobs. The rise in prices caused users of finished products to look outside the US for their needs, since they weren't covered on by the tariff.

So while steel producers in the US saw a revenue increase in the area of 2.4 billion, losses in the secondary industry were in the area of 4 billion. That doesn't include some heavy manufacturers, such as Caterpillar, who had been enjoying an export resurgence, until the tariff.

Immigration is another good place to look at the effect of microviewing. One readers suggested a few posts back that we shut the borders completely for 5 years to figure out what we really need for an immigration policy.

Sounds interesting and reasonable, until you look at it in whole terms, not just thinking of (as most of us do) low wage immigrants, and illegals.

For instance, L1 and H1B visa holders provide technical and scientific workers, engineers and managers (along with supermodels!) to the US. Because our own colleges don't produce enough people in certain fields for the US workforce, we allow employers to sponsor entrants on the L1 (management/executive, technical) and H1 (scientific, education, medial, modeling??) programs.

Both of these visas require the employer to provide documentation of the need for the employee, sign that they will are paying prevailing wage in the industry, and that they have tried to fill the job locally. L1 gets some exceptions to the last part when an company is relocating or expanding to the US, and are bringing technical managers to start operations.

What happens to the ancillary jobs for those visa holders if we decide that they can't come in for 5 years? Consider that 20% (10,000/yr) of H1 applicants are in the medical field, who provides that service when we cut them out? Or, where do the approximately 25,000 people in the US who would work for them find jobs?

Thousands in South Carolina and Alabama work in BMW and Hyundai factories that used L1 immigrants to provide the start up knowledge of their way of building cars. Would they be better off without that program?

Finally, the DPW issue was a micro view of a non-issue (national security) according to the folks in the maritime industry. While the debate on the actual security issues won't go away, the debate on the after effects of DPW's withdrawal is just starting.

First, they've already postponed the next scheduled round of trade talks with the US.
Second, UAE airlines is now said to be favoring purchasing Airbus' newest jumbo jet instead of Boeing's, to the tune of over $7 billion. They also hold about $3-4 billion in options on Boeing 777's, which may well go out the window.

The third problem is going to be the investment problem on a wider world scale. If anyone thinks companies looking to invest here aren't watching Congress's actions on over this deal, and CFIUS, they are nuts.

Congress has already decided to limit what foreign investors in US airlines, which are mostly bankrupt or barely profitable, can do in terms of management. Keep in mind that many of these partnerships kept US airlines in business immediately following 9/11, when air travel plummeted.

For instance, if KLM decides the new restrictions are too burdensome, will they pull out of their alliance with Northwest, and doom it? If they do, where do 20,000 workers find jobs in a faltering industry?

As businesses see the protectionist wings of both parties spread they will look elsewhere to put their money. Then we'll get to see how our micro view of a macro issue cost us, probably considerably.

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Update: Opinion Journal has an excellent piece on the immigration aspects of this today, and why what's being worked on in DC right now won't work.


Blogger Steven Tucker said...

Keep these posts coming! The more access people have to education, the less our congress will be able to pull the wool over their eyes; and the less the idealists (on the right and left) will be able to screw up our economy.

12:47 PM  
Blogger jakejacobsen said...

Okay, well, we're really right back at the beginning here. I keep reading that we require zero H1B's, which are the upscale, no soy version of illegal immigration. That we are actually providing all the people to do those jobs but people don't want to pay the prevailing wages. A figure I recently read suggested we had 200,000 under-employed engineers in this country.

I find it interesting that you employ the term protectionist as a perjorative.What precisely is wrong with protecting American jobs for Americans, please explain to me why that's a bad thing.

Like I said before, on what do you base your assertions regarding the H1b for example, I have read a number of articles suggesting that the average H1B visa holder earns on average 20-40% less than a comparable American holding the same job.

"Que Bono" chief, que bono?

I think you're a little too trusting of businesses when they spew these numbers out. I don't trust them because in my reading I see the precise situation now that this country experienced during the first great wave. And now that people are rightly fed up I am also hearing precisely the same rationalizations and excuses from the exact same type of people.

Who knew American workers sucked so bad? Other than yourself of course.

3:30 PM  
Blogger Steven Tucker said...

"I find it interesting that you employ the term protectionist as a perjorative.What precisely is wrong with protecting American jobs for Americans, please explain to me why that's a bad thing."

Because for every job you are protect you are slashing 5 more.

4:04 PM  
Blogger Crazy Politico said...

Steven, I'll try to keep them coming.

Jake, In 1946 your strategy was great, when 90% of the industrialized world was in ruins and we were sole supplier of everything. Today, it doesn't work.

As for my assertations on the H1B, I went to INS and read the instructions and rules on it.

Feel free to drop a link to the story about the 200,000 unemployed engineers. I'd love to read it, and if it's true, send it to some folks who are working on extra federal funding for engineering schools that obviously isn't necessary.

7:01 PM  
Blogger jakejacobsen said...

CP, I read that in a book but will see if I can find an online link. I believe it was in "Unguarded Gates" by Otis graham.

Steve, but what sort of jobs? What I see is better jobs being outsourced and shittier jobs replacing them. If that's untrue can you show me something concrete to back it up.

11:47 PM  
Blogger Crazy Politico said...

Unfortunately Jake, I think you only look at once side of the issue. We "insource" a lot of jobs also. BMW, Mitsubishi, Toyota, Hyundai employ nearly 100,000 workers in the US, making 95% of UAW wages without the UAW drag on them.

Komatsu heavy equipment builds 90% of what they sell in the US in the US.

Until California regulated them out of the state most of the Sony TV's sold in the US were assembled in San Diego County.

In the Post WWII Marshall Era we were able to charge what we wanted for anything, anywhere, because no one else had much manufacturing ability left. As they've caught back up, we needed to change our policies. The 1970's would have been a better time to start, things would be less painful now for certain sectors.

6:16 AM  
Blogger Crazy Politico said...

Jake, because I didn't have time yesterday, I didn't address the "200,000" under employed engineers.

Refer them to Monster. I found hundreds of jobs for them just in Chicago. Over 1000 each came up under Mechanical, electrical, and computer engineer. Hard on there to come up with more exact numbers without searching each state.

Then I went through the "Mega Corp" I work for, and found over 600 open engineering positions.(paying from 40,000 for entry levels to over 200k for experienced manager types.)

So my guess is the number Mr. Graham is using is a little wrong.

8:47 PM  
Blogger jakejacobsen said...

Fair enough, I can of course think of some non-benign reasons for this, but I could also be wrong and I freely acknowledge that.

I'm calling a truce on this, mostly because I think our viewpoints are too divergent to be reconciled in any meaningful way.

I genuinely hope we can sit down over a beer someday and talk in person about this issue.

Thanks for a good debate!

12:25 AM  

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