Brad DeLong has got me confused in his recent blog posting – Grasping Reality with Both Hands: Brad DeLong’s Semi-Daily Journal: Potential Reasons for Worrying About Outsourcing/Offshoring
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 the rise of
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.
What I don’t understand are the three statements in the beginning:
1) “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.”
Yes, trade balances – and right now we are selling property to pay for goods and services. That is the age-old formula for bankruptcy (or what Buffet calls the sharecropper economy).
2) “If we have a comparative advantage in nothing–and export nothing–then we necessarily have a comparative disadvantage in nothing–and import nothing.”
Yes, when you have a comparative advantage in nothing you eventually stop importing – and we all know how pleasant an autarkic economy is
3) “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.”
How does it follow that if we have a comparative advantage in nothing, we can move workers into more productive occupations?
Theoretically, it is impossible to have a comparative advantage in nothing – because other countries will put all their resources into those areas (wine or cloth) where they have the comparative advantage, there by opening up some areas for us. Practically, however, countries follow absolute advantage – I’m better than you in both wine and cloth, so I’m going to make both and not bother with your imports.
What Blinder said yesterday was that the occupations we should be moving people into are in the non-traded sectors. Note that Blinder’s work has been to show that there are fewer and fewer of this.
That is what worries me.