Outsourcing good for Americans

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As we have lamented on several occasions, job creation has not been occurring as fast as it did following earlier recessions or, for that matter, as fast as anyone would like. It doesn't matter whether one is looking at the Labor Department's household survey or its business-establishment survey: Job growth has been either anemic or nonexistent. President Bush isn't satisfied, and neither are the multitude of Democrats seeking to replace him.

One reason why jobs have not increased sufficiently is due to astounding productivity increases, which all economists believe are a major source of rising living standards over the long term. Another important source of rising living standards is free trade. Importing goods and services that can be produced or provided at much lower costs abroad increases the purchasing power of Americans. It also allows American workers to concentrate their efforts providing goods and services that they can produce more cheaply, largely because of their higher productivity and greater capital stock.

Referring to the growing phenomenon of off-shoring white-collar service jobs to India and elsewhere, Gregory Mankiw, the widely respected Harvard economist who currently serves as the chairman of the White House Council of Economic Advisers, recently argued that sluggish job growth was not the result of the repeal of the law of comparative advantage, which underlies the wealth-creating mutual benefits of free trade. Convincingly, Mr. Mankiw attributed the weak labor market to numerous adverse shocks to the economy, including the high-tech bubble, corporate-governance scandals, the war on terror and the much slower growth of other developed economies.

"Economists have talked for [centuries] about trade, free international trade, being a positive for economies around the world, both at home and abroad," Mr. Mankiw noted. "[T]his is something that is universally believed by economists." Outsourcing service jobs to other countries "is just a new way of doing international trade." With the advent of the Internet, "more things are tradable than were tradable in the past, and that's a good thing," he correctly argued. The phenomenon was "probably a plus for the economy in the long run," he observed, acknowledging that "trade always means there's dislocations." Offering assistance to dislocated workers is far cheaper than denying the massive benefits of trade to America's 300 million consumers through protectionism.

Amid the understandable anxiety caused by the sluggish labor market, protectionist Democrats -- and a few Republicans -- attacked Mr. Mankiw, even though he was essentially repeating what Bill Clinton, to his credit, had said a thousand times before.