How Does Outsourcing Affect The Economy

Is it Bad? Does free trade and outsourcing damage the U.S. economy by purging jobs and discouraging domestic investment or does it eventually strengthen the U.S. economy? Many seemingly well-educated people believe outsourcing is bad for the economy. They see hardworking Americans' jobs shipped overseas leaving many people jobless, weakening the economy. President Bush feels so strongly about it that he recently signed a bill forbidding the outsourcing of federal contracts overseas (www.economist.com). Paul Craig Roberts, a former assistant Treasury secretary for economic policy in the Reagan administration and current chairman of the Institute for Political Economy, believes it is hard to see the benefit to the country whose firms outsource. He reasons that with domestic capital and technology reallocated to the employment of foreign labor, there is less to employ
Lets say you have a choice between two items. One of the items is manufactured in India because the manufacturer realized he could save money by outsourcing. The other is made right here in the USA. The item made in India is $10 and the item made in America is $20. You decide to buy the $10 item, leaving you with $10 extra dollars. You put that extra money towards buying a new program for your computer. Although you hurt the high school dropout that works in the U.S. factory, you saved money and helped the highly educated computer programmer that resides in the U.S. If you would have bought the American made item you wouldn't have saved any money and wouldn't have helped the highly educated computer programmer, but you would encourage dropping out of high school and working at a factory. This example shows how outsourcing promotes competition, which betters the economy, and rewards higher education, which will bring about an improved