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Potential Reasons for Worrying About Outsourcing/Offshoring

Alan Blinder is very worried about outsourcing and offshoring http://delong.typepad.com/sdj/2007/03/alan_blinder_on.html. And I am not quite sure why.

You see, trade balances. What we buy equals what we sell, in value. What we buy and what we sell can be goods, services, or property, but it balances. If we have a comparative advantage in nothing--and export nothing--then we necessarily have a comparative disadvantage in nothing--and import nothing. Trade is thus an opportunity for us to move workers out of occupations where we are least and into occupations where we are most productive.

This doesn't mean we shouldn't worry about trade. But it does mean that the right reasons to worry about trade are relatively specific and relatively small in number.

I see four reasons:

  • First, we can worry about trade because we can worry about what trade does to our income distribution: perhaps we would be happier with our income distribution and assess ourselves as having a higher level of social welfare if we made some of the things we import at home and didn't make some of the things we export--even though each of our imports and exports makes narrow profit-and-loss getting-and-spending sense.
  • Second, we can worry about trade because we worry about what trade does to external benefits from productive activity that boost growth: perhaps we would grow faster and become richer if we made some of the things we import at home and didn't make some of the things we export--because making some things produces increased worker skills and technological knowledge through unpriced, un-accounted for channels.
  • Third, we can worry about trade to the extent that it amplifies the ability of our dysfunctional government to dysfunction: the ability to borrow from abroad to cover deficits may diminish the pressure on feckless politicians and their supporters to deal responsibly with fiscal policy.
  • Fourth, we can agree that increased trade is good for the nation, yet believe that government has to play an active and aggressive role in providing social insurance and a measure of compensation to those ground exceedingly fine by the mills of globalization--and outsourcing/offshoring are likely to cause bigger changes and more disruption than anything we have seen to date.

It is not clear which of these reasons is behind Alan Blinder's current worries on outsourcing and offshoring. My worries about outsourcing are mostly (4). I worry somewhat about (2). But (1) and (3) are, I think, not on the agenda. Global outsourcing seems to me at least as likely to improve as to worsen the distribution of income. And the marginal amount of governmental fecklessness produced by access to global capital markets seems to me to be small.

But I don't know what worries Alan most. I should ask him for clarification...

UPDATE: Alan writes: of course it's number 4!

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