Man Without Qualities

Sunday, April 04, 2004

The Outsourcing Bogeyman ...

..., Dan Drezner's article in the current volume of Foreign Affairs, does a pretty good job of shaming the "outsourcing" demagogues now dominating the left and, especially, the Democrats (accompanied, to be fair, by a few opportunistic, disgraceful Republicans):

According to the election-year bluster of politicians and pundits, the outsourcing of American jobs to other countries has become a problem of epic proportion. Fortunately, this alarmism is misguided. Outsourcing actually brings far more benefits than costs, both now and in the long run. If its critics succeed in provoking a new wave of American protectionism, the consequences will be disastrous -- for the U.S. economy and for the American workers they claim to defend.

The article applies standard trade benefit theory to what seems to be a good collection of current data (although it would have been better had he avoided citing the questionable Alliance Capital report on global manufacturing job loss, especially with respect to China). It's appalling that the Democratic Party and many in the mainstream media have reached the point where this kind of argument is, for them, almost a voice in the wilderness. And Professor Drezner would do better by more clearly identifying the source of the problem. He does himself no favor by more or less equating Speaker Hasert's mild comment ("outsourcing can be a problem for American workers and the American economy") with the demagogue rantings of many Democrats (Democratic presidential candidate John Kerry accused the Bush administration of wanting "to export more of our jobs overseas," and Senate Minority Leader Tom Daschle quipped, "If this is the administration's position, I think they owe an apology to every worker in America."), apparently in a misguided effort to appear "fair." Can outsourcing create problems for American workers and the American economy? Of course it can - and does - and ever will! Even if the only effect of "outsourcing" on a particular individual or the economy as a whole is the need to adapt and change and grow (and the effects are often worse than that in individual cases), those are still problems. Solvable problems. Solving those very problems has always been what America is good at and what has made us rich. But one must face and accept a problem in order to solve it. Hasert is prudent, but the likes of Daschle and Kerry are dangerously disingenuous.

N. Gregory Mankiw, the head of President George W. Bush's Council of Economic Advisers recently correctly pointed out - and, as this article notes, without real dissent from any serious economist - that "outsourcing is just a new way of doing international trade," which makes it "a good thing." The Outsourcing Bogeyman is indeed all about international trade. It is therefore of passing interest that the name "Paul Krugman" appears nowhere in the sources and references for The Outsourcing Bogeyman. That's not a sign that Professor Drezner is hostile to Paul Krugman's politics (Professor Drezner specifically thanks Brad DeLong for comments, although DeLong is at least as politically nutty as Herr Doktorprofessor). The absence of Paul Krugman's name in this Foreign Affairs article on the current hot topic in international trade exactly correlates to the absence of any real significance of Paul Krugman's central academic work to important real world questions of international trade economics. That central work includes the so-called "home market effect" that at one time was said by some to dominate classical "comparative advantage" or "endowment factor" considerations in the trade economics of so many goods and services. Indeed, while Professor Drezner's article references "comparative advantage" considerations several times and in important respects, he makes no reference to the "home market effect" at all. Does he err in this omission? If so, why didn't Herr Doktorprofessor's good buddy Brad DeLong point that out to him when he commented on earlier drafts of the article? The reader is invited to peruse the economic literature on "outsourcing" and confirm for herself that The Outsourcing Bogeyman is no fluke. Paul Krugman, who markets himself as mostly an international trade economist, is not mentioned very often in that literature.

It's true. As the saying goes: You can look it up.