Paul Samuelson on outsourcing

[Louis Proyect <lnp3@xxxxxxxxx>]

(A defense of neoclassical economics against some of its more outlandish
proponents--students of Samuelson, no less.)

NY Times, September 9, 2004
An Elder Challenges Outsourcing's Orthodoxy
By STEVE LOHR

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."

Popular among economists, that is. That untruth, Mr. Samuelson asserts
in an article for the Journal of Economic Perspectives, is the
assumption that the laws of economics dictate that the American economy
will benefit in the long run from all forms of international trade,
including the outsourcing abroad of call-center and software programming
jobs.

Sure, Mr. Samuelson writes, the mainstream economists acknowledge that
some people will gain and others will suffer in the short term, but they
quickly add that "the gains of the American winners are big enough to
more than compensate for the losers."

That assumption, so widely shared by economists, is "only an innuendo,"
Mr. Samuelson writes. "For it is dead wrong about necessary surplus of
winnings over losings."

Trade, in other words, may not always work to the advantage of the
American economy, according to Mr. Samuelson.

In an interview last week, Mr. Samuelson said he wrote the article to
"set the record straight" because "the mainstream defenses of
globalization were much too simple a statement of the problem." Mr.
Samuelson, who calls himself a "centrist Democrat," said his analysis
did not come with a recipe of policy steps, and he emphasized that it
was not meant as a justification for protectionist measures.

Up to now, he said, the gains to America have outweighed the losses from
trade, but that outcome is not necessarily guaranteed in the future.

In his article, Mr. Samuelson begins by noting the unease many Americans
feel about their jobs and wages these days, especially as the economies
of China and India emerge on the strength of their low wages,
increasingly skilled workers and rising technological prowess. "This is
a hot issue now, and in the coming decade, it will not go away," he writes.

The essay is Mr. Samuelson's effort to contribute economic nuance to the
policy debate over outsourcing and trade. The Journal of Economic
Perspectives, a quarterly published by the American Economic
Association, has a modest circulation of 21,000 but it is influential in
the field.

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. Theirs is titled "The Muddles
Over Outsourcing."

The Samuelson critique carries added weight given the stature of the
author. "He invented so many of the economic models that everyone uses,"
noted Timothy Taylor, managing editor of the Journal of Economic
Perspectives.

For generations of undergraduates, starting in 1948, the study of
economics has meant a Samuelson textbook, now in its 18th edition, with
William Nordhaus, a Yale economist, as a co-author since the 12th
edition. Because he has taught at M.I.T. for six decades, the elite
ranks of the economics profession are filled with Mr. Samuelson's former
students, including Mr. Bhagwati and Mr. Mankiw.

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.

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

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