NYT: Elder (Nobel econ. Paul Samuelson) Challenges Outsourcing's Orthodoxy

[DeepModem Mom]

An Elder Challenges Outsourcing's Orthodoxy

By STEVE LOHR
Published: September 9, 2004


(Professor Samuelson, according to the article, calls himself "a centrist Democrat.)

At 89, Paul A. Samuelson, the Nobel Prize-winning economist and professor emeritus at the Massachusetts Institute of Technology, still seems to have plenty of intellectual edge and the ability to antagonize and amuse.

His dissent from the mainstream economic consensus about outsourcing and globalization will appear later this month in a distinguished journal, cloaked in clever phrases and theoretical equations, but clearly aimed at the orthodoxy within his profession: Alan Greenspan, chairman of the Federal Reserve; N. Gregory Mankiw, chairman of the White House Council of Economic Advisers; and Jagdish N. Bhagwati, a leading international economist and professor at Columbia University.

These heavyweights, among others, are perpetrators of what Mr. Samuelson terms "the popular polemical untruth."...

***

According to Mr. Samuelson, a low-wage nation that is rapidly improving its technology, like India or China, has the potential to change the terms of trade with America in fields like call-center services or computer programming in ways that reduce per-capita income in the United States. "The new labor-market-clearing real wage has been lowered by this version of dynamic fair free trade," Mr. Samuelson writes.

But doesn't purchasing cheaper call-center or programming services from abroad reduce input costs for various industries, delivering a net benefit to the economy? Not necessarily, Mr. Samuelson replied. To put things in simplified terms, he explained in the interview, "being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses."...


http://www.nytimes.com/2004/09/09/business/worldbusiness/09outsource.html

[Merlin]

1. Wow! The author of everybody's Economics 101 textbook rebels!

Kudos for the likes of Lou Dobbs who have been pushing this new take on the limits of free trade.

And look who is challenging his assertion that outsourcing to India is not such a good idea:
Indeed, Mr. Bhagwati and two colleagues, Arvind Panagariya, an economics professor at Columbia, and T. N. Srinivasan, a professor of economics at Yale University, have already submitted an article to the journal that is partly a response to Mr. Samuelson.

Samuelson is a giant.

[DeepModem Mom]

3. It was a name out of my student past -- loved finding this article! nt

[Merlin]

4. Thanks for finding it, DMM. I would have missed it completely.

Couldn't find it when I looked for it in the NYT.

Many thanks. This is an important piece.

[wildeyed]

2. It always seemed to me that the US has the potential to lose

this gamble, in the long run as well as the short. All you have to do is take a hard look at China to know they are players.

According to the pro-globalization economist, we need to continue to innovate to keep our edge. AND we need to invest in education to do it.

The Samuelson model, Mr. Bhagwati said, yields net economic losses only when foreign nations are closing the innovation gap with the United States.

"But we can change the terms of trade by moving up the technology ladder," he said. "The U.S. is a reasonably flexible, dynamic, innovative society. That's why I'm optimistic."

The policy implications, he added, include increased investment in science, research and education. And Mr. Samuelson and Mr. Bhagwati agree that the way to buffer the adjustment for the workers who lose in the global competition is with wage insurance programs.

"You need more temporary protection for the losers," Mr. Samuelson said. "My belief is that every good cause is worth some inefficiency."

[Merlin]

5. Appropos to the subject: cartoon from todays Stock Market thread:

[union_maid]

6. He's absolutely right

But it's common sense. It's clear for anyone to see. I have to wonder exactly what we need economists for at all. All my life they've been wrong at least as often as they've been right. Weather prediction has improved a lot with technology. Economists seem to get dumber as time goes on.

[leesa]

7. Umm...it doesn't take a brilliant economist to see this.

This is just common sense.

[UpInArms]

8. thanks for posting this DeepModem Mom

it is really good to hear the voice of logic and reason being inserted into the debate.

I am really sick and tired of the "free" word being attached to "trade" - when is "fair" going to be the standard?

"free" is a gimmick word used to hynotize the masses that think they will get something for nothing. It makes me freakin' crazy.

[mhr]

9. It Doesn't Tale A Brilliant Unemployed Person To See This Either

Unemployed 51 months here!