OUTSOURCING IS GOOD
Since I've endorsed Edwards, I have to make one thing clear in order to avoid being implicated in the least enlightened of Edwards' positions: protectionism. The Economist does a good job adapting the eternal economics lessons to the contemporary context; William Safire also puts it quite well. This is one of the oldest and truest insights of economics: comparative advantage.

It's worth mentioning that there have been some developments in trade theory of late that inspired Paul Krugman (still lucid at that time) to write an article entitled "Is Free Trade Passe?" For decades the trend in global economic policy has been towards openness, but economists are divided on its benefits, with one strand, of which Jeff Sachs is a leading example, seeing openness as salvation, while others, such as Dani Rodrik, are more skeptical, seeing shrewdly deployed protectionist policies as sometimes beneficial because (in essence) they give governments another tool of macroeconomic managements. But here's the key point: even the "heterodox" economists know better than to buy into the clumsy protectionist rhetoric that the Democratic candidates are moving towards. Rodrik likes to use the example of East Asian countries as counter-examples to the openness dogma, because they would "pick winners" and used trade policy to protect them, and they did well that way. But they were champion outsourcers! There was a whole "flying geese" model in Asia where countries would systematically move out of industries where they had lost competitiveness, and the countries where they invested would proceed to "take off," climbing the ladder from less to more skill- and capital-intensive industries as they got richer, and all the while the government was intervening and directing national development strategies. It's as if Treasury Secretary John Snow called together all the CEOs of major corporations and told them, "Look, this country is getting out of the code-writing and call-center industries. That stuff can be done more cheaply in India now. We need to free up labor and capital for industries in which we have potential for comparative advantage."

That may work for Asians, but we couldn't and shouldn't try to run our economy that way. We have a different kind of society. The protectionism Edwards and Kerry are arguing for is not about picking winners, but picking losers, saving jobs that we're not competitive in, and making everybody poorer in the process. This is the Flat Earth Society of economic policy. Pardon the colorful language, but this kind of hinking MUST BE SMASHED.

Usually policy is a game of trade-offs. Somebody wins, somebody loses, and you have to do cost-benefit analyses and balance interest groups against each other. Free trade is about as close as policy gets to a win-win situation. What it really is is a win-win-win-win-lose-win situation. Consumers (the vast majority of us) win by being able to purchase products where they're made most cheaply. Capitalists (and that's you, if you have a retirement account or a savings account, or own stocks, or attend an endowed university, or an endowed church) win because they can increase the rate of return on their investments. Foreign workers in the affected industries win, and in many cases these are poor people in poor countries who need the help badly. Trade is more effective than aid in helping poor countries emerge from poverty, as even left-leaning groups like Oxfam now recognize. The country wins diplomatically because the chance to export to American markets is a good way to build ties and create good will, and to give other countries a stake in our prosperity. A few domestic workers (a tiny proportion) lose in the short run, when their jobs go overseas. But they win in the long run because they find new jobs.

Outsouring is a big part of the reason that we are free from inflation. If we had to produce the things that we're outsourcing in America, they would cost more. This would mean higher inflation. When inflation is high, the Fed has to raise interest rates, and deliberately kill economic growth. In the 1970s, unemployment was higher than now, and we also had high inflation. Not anymore. Now inflation and interest rates are simultaneously near zero, and unemployment is not especially high either. The processes which make this possible involve the destruction of jobs in industries that are technologically obsolescent, or in which we have lost comparative advantage.

So don't believe any of the nonsense you hear about "Benedict Arnold CEOs," and resist Edwards' sob stories. Free trade is good. We should all write it on the blackboard a hundred times.