Blinder on Offshoring

Alan Blinder summarizes his new view of trade in an article in tomorrow's Washington Post. Here is where Alan and I part company:

1. Alan says, "Globalization is good for the world.... [But] these same forces don't look so benign from the viewpoint of an American computer programmer or accountant." Although Alan does not say it, his formulation makes it sound like all the global benefits accrue overseas. He fails to emphasize that many people in the United States benefit as well. An American doesn't need to be altruistic toward China and India to favor an open world trading system.

2. Alan says, "I estimated that 30 million to 40 million U.S. jobs are potentially offshorable." These jobs are equally onshorable. Alan's measure merely means that these services, once nontraded, will become tradable with new technologies. In the new equilibrium, we will be exporting in many of those industries. Indeed, real exchange rates will adjust (either through nominal exchange rates or price levels) so that increased exports go hand in hand with increased imports. Imports can exceed exports only if foreigners continue to be eager to invest some of their saving in the U.S. economy. It is a pedagogical mistake to point out the jobs lost from imports without discussing the jobs gained from exports.

3. Alan says the transition to the new equilibrium will be "large, lengthy and painful." When he spoke at Harvard last week, he said the transition would take about 30 years. But the very length of the transition will make it less painful. Over the course of a generation, workers can gradually retire from shrinking industries, and new workers can be trained for the growing industries that take their place. Of course, some individuals will experience painful transitions, but that is always the case in a dynamic market economy. I don't expect future transitions to be macroeconomically different than past transitions. Even if imports as a percentage of GDP continue to rise as Alan predicts, I would nonetheless expect the average rate of unemployment for the U.S. economy to be about the same over the next thirty years as it has been over the past thirty.

After the Blinder-Bhagwati debate last week, there was a dinner at the Harvard Faculty Club at which Ben Friedman asked Alan a good question: Now that Alan has had this epiphany about offshoring, does he favor economic policies any different than he favored a decade ago? Alan thought about the question for a moment and then said no. I found that answer reassuring. My fear is that many politicians reading Alan's work on offshore outsourcing will not come to the same conclusion.