Is outsourcing the road to ruin?

By Penny Hawthorne | 27 April 2005

In the Washington Times, syndicated columnist Paul Craig Roberts says:

No-think economists assume new, better jobs are on the way for displaced Americans, but no economists can identify these jobs.

American economists are so inattentive to outsourcing's perils they fail to realize the incentive that leads to outsourcing one tradable good or service does the same for all tradable goods and services.

Economist Professor Don Boudreaux responds:

Few of today's jobs were predictable before they emerged. Who in 1900 foresaw Americans working, say, as nuclear engineers, airline pilots, and automotive technicians? Who in 1950 predicted jobs in biomedical engineering and computer-software design? Who as recently as 1985 envisioned people working as computer-network administrators and web designers?

As for the suggestion that everthing will end up being outsourced, Prof. Boudreaux writes:

Not so. People specialize and trade based upon comparative advantage. The very logic of comparative advantage is that if Ann finds it profitable to produce and sell apples, those who find it worthwhile to buy Ann's apples have incentives to produce and sell to Ann things that she finds worthwhile to buy. To paraphrase P.C. Roberts, the incentive that leads to outsourcing one tradeable good or service is one and the same incentive that leads to insourcing some other tradeable goods or services. Put differently, foreigners export goods and services to us only because they want to import, now or in the future, goods or services from us.

Indeed, this last-quoted statement from P.C. Roberts is utter nonsense. It implies that the end, equilibrium result of unregulated outsourcing is that we Americans will import all of our "tradeable goods and services" and export no "tradeable goods and services" in exchange. Roberts says, in other words, that every tradeable good and service that Americans consume will be supplied by foreigners for free.

No more need be said. P.C. Roberts's take on trade isn't merely confused; it's incoherent.