Myth #1: Outsourcing service sector jobs is bad for
rich nations
A recent statement of
the Lump of Labour Fallacy. Education Is No Protection, Bob Hebert,
New York Times, 26 Jan 2004.
Won't outsource mean an entire
generation facing lowered expectations in the United States?
"It's tough to come to another conclusion than that," said Mr.
Barrett. "If you see this increased competition for jobs, the
immediate response to competition is lower prices and that's
lower wage rates."
Free trade in goods
is good, but not free trade in services. Second Thoughts on Free Trade,
Charles Schumer and Paul Craig Roberts, January 6, 2004, New
York Times Op-Ed article.
A thorough confusion
of comparative advantage by a liberal Democratic senator from
New York and a supply-side conservative economists.
Excellent rebuttal to Schumer & Craig Roberts. Free Trade But . . ., Slate,
Michael Kinsley a the liberal editor of Slate, Friday, January
9, 2004.
The real difference between
traditional trade and 21st-century trade is that the losers
are more likely to be people that US senators (Schumer) and
fancy economic consultants (Craig Roberts) actually know, people
with advanced degrees and high incomes. Denying the benefits
of free trade to the whole nation -- and denying opportunity
to the rising middle class in developing countries -- to protect
the incomes of a relative few rich people is hard to justify.
Classic muddled thinking on outsourcing by Clyde
Prestowitz. Free trade
and outsourcing are not the same. Trade economists have
long been familar with Prestowitz's muddled-but-popularist-writings
that demonstrate his profound misunderstanding of comparative
advantage; the hard thing to understand is why the FT published
it. This sort of slippery writing takes real talent. While reading
it, an undergraduate will think it makes sense, but if you ask
them what it actually said after they're done, they won't be
able to answer.
Dave Barry ("America's one-man Monty Python")
on outsourcing. The source
of America's discontent.This is more amusing than Prestowitz's
piece, but only marginally more confused.
19 pages of facts,
figures and arguments on why outsourcing is win-win like other
types of trade. Offshoring. Is it a Win-Win Game. McKinsey, August
2003.
Myth #2: Trade with low wage nations harms rich nations
"Does trade with low-wage countries
hurt American workers?" Stephen Golub (1998)., Philadelphia
Fed
Trade benefits people in
all nations irrespective of wage differences. Differences in wages
largely reflect
differences in labor productivity and are not a form of unfair
competition. This article shows evidence to back this up. It also
explains that some unskilled workers in the United States are adversely
affected by such trade, although factors other than trade are more
important in accounting for their problems. It ends by noting that
restricting trade is an inferior solution—it is better to help
displaced workers adjust rather than deny society the gains from
specialization according to comparative advantage.
"Globaphobia:
The Wrong Debate Over Trade Policy" Robert Z. Lawrence and Robert
E. Litan. Brookings Policy Brief #24 --
September 1997
An broad coalition fears
that globalization is bad for the United States and opinion polls show
substantial public support for this view. The authors argue that this
is a misdiagnosis that could harm the U.S. economy. The same arguments
apply to anti-trade coalitions in Europe and other rich nations.
"But for, as if,
and so what: Thought experiments on trade and factor prices." (Nov.
1996)
Krugman: Ricardo's
difficult idea " (paper for Manchester conference on free trade,
March 1996)
Janet Ceglowski (1998). "Has globalization
created a borderless world?" Philadelphia Fed
Reviews the evidence
that barriers to international trade are still very important even when
tariffs are low.
Myth #3: Trade is bad for low wage nations
One
of Krugman's Best Essays ever. In Praise of Cheap Labor: Bad jobs at
bad wages are better than no jobs at all.Paul Krugman, Slate, (20
Mar 97)
While fat-cat
capitalists might benefit from globalization, the biggest beneficiaries
are Third World workers. The essay also discusses why labour standards
might harm third-worlders.
Myth #4: Labour standards would help third world workers
A
raspberry for free trade Paul Krugman, Slate, (20 Nov 97)
Why the call for labour
standards is probably a disguish for old-fashion protection and why
they are likely to harm third world workers.
Myth #5: A nation gains from trade only when its firms
are competitive enough to stand up to international competition
Other well-written, well-reasoned essays on trade
Why comparative
advantage is so often misunderstood. Ricardo's difficult idea, Paul
Krugman, This essay explains why
intellectuals who are interested in economic issues so consistently
balk at the concept of comparative advantage. It lists 3 reasons:
(i) Some intellectuals reject comparative advantage simply out of a
desire to be intellectually fashionable; (ii) comparative advantage is
a harder concept than it seems.A trained economist looks at the simple
Ricardian model and sees a story that can be told in a few minutes; but
in fact to tell that story so quickly one must presume that one's
audience understands a number of other stories involving how
competitive markets work, what determines wages, how the balance of
payments adds up, and so on; (iii) opposition to comparative advantage
reflects the aversion of many intellectuals to an essentially
mathematical way of understanding the world.
Financiers of
protectionism: Paul Krugman, Who's buying whom?
Slate, (26 Sept. 97)
Protectionism imposes
widely spread
costs while confering concentrated benefits to interest groups. And
these have a strong incentive to lobby for protection--and to provide
financial support for those who help make it seem intellectually
respectable. In the United States it is easy to be specific about who
pays whom to promote anti-trade arguments. This article discusses how
the kingpin--a billionaire textile baron from South Carolina who is an
unabashed hard-line right-winger finances--and how this man, Roger
Milliken, influences the debate.
Why trade gets blamed.
Paul Krugman,We Are Not the World,
New York Times, February 13, 1997
This essay discusses the
odd sort of tacit agreement between the left and the right to pretend
that exotic global forces are to blame for problems whose real source
is prosaically domestic.
Bogus
arguments against the WTO. Paul
Krugman, Enemies of the WTO:
Bogus arguments against the WTO. Slate, Nov.
24, 1999
Classic mistakes
by 'famous' writers about trade surpluses and deficits. Paul
Krugman, The East Is in the Red: A balanced view of
China's trade.. Slate, Nov. 24, 1999
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