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International Economic News: The Economics and Politics of Outsourcing
This week, CEA chairman and Harvard economist, Gregory Mankiw was lambasted by Democrats and Republicans alike for statements he made upon release of the Annual Economic Report of the President. The reaction he received is either an example of how confused politicians are about the advantages of international trade, or is an example of how politics creates an atmosphere of misinformation that makes it virtually impossible to express the whole truth.
Mankiw said that outsourcing is just a new way of doing international trade and that's a good thing. In response, House speaker Dennis Hastert (R, IL) released a statement saying, "(Mankiw's) theory fails a basic test of real economics. An economy suffers when jobs disappear."
Trade liberalization can in fact cause outsourcing, however, real economics also teaches that job losses are necessary to force improvements in productivity and economic growth so that living standards for all can be raised in the future. The whole truth includes both costs and benefits, both the good and the bad.
To close, Mankiw's full voice will not be heard until he leaves the political arena. Political realities will force him to express nothing more than sanitized half-truths in the future. Politicians and the public will continue to have an incomplete view of the international economy and will continue to monitor the statements of their opponents in search of anything that looks "too truthful".
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