The Custom-House

Paul Samuelson on outsourcing I

Paul Samuelson on outsourcing

I don't have many opinions, but I am in favor of free international trade in goods and services.

However, if Paul Samuelson has reservations (as Steve Lohr reports in the New York Times) I'll listen: "An Elder Challenges Outsourcing's Orthodoxy"

Samuelson lays out his argument in an article in an upcoming issue of the Journal of Economic Perspectives (accompanied by a rebuttal by Jagdish Bhagwati and others). Lohr says:

"...According to Mr. Samuelson, a low-wage nation that is rapidly improving its technology, like India or China, has the potential to change the terms of trade with America in fields like call-center services or computer programming in ways that reduce per-capita income in the United States. "The new labor-market-clearing real wage has been lowered by this version of dynamic fair free trade," Mr. Samuelson writes.

But doesn't purchasing cheaper call-center or programming services from abroad reduce input costs for various industries, delivering a net benefit to the economy? Not necessarily, Mr. Samuelson replied. To put things in simplified terms, he explained in the interview, "being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses."

The global spread of lower-cost computing and Internet communications breaks down the old geographic boundaries between labor markets, he noted, and could accelerate the pressure on wages across large swaths of the service economy. "If you don't believe that changes the average wages in America, then you believe in the tooth fairy," Mr. Samuelson said.

His article, Mr. Samuelson added, is not a refutation of David Ricardo's 1817 theory of comparative advantage, the Magna Carta of international economics that says free trade allows economies to benefit from the efficiencies of global specialization. Mr. Samuelson said he was merely "interpreting fully and correctly Ricardoian comparative advantage theory." That interpretation, he insists, includes some "important qualifications" to the arguments of globalization's cheerleaders..."

I'll look forward to the next copy of the JEP. The Times story has a nice picture of Samuelson, who is now 89.

P.S. Arnold Kling can't find the Samuelson article online, but he has found the Bhagwati et al. piece, links to it, and provides a tentative comment: "Outsourcing Muddles". Daniel Drezner is unconvinced by Samuelson's argument, but he does note:

"... as a political scientist, it is impossible to deny the extent to which Samuelson's article will alter the rhetorical balance of power in this policy debate. Samuelson will succeed in reigniting debate on this topic, as well as provide aid and comfort to those who wish oppose the practice of offshore outsourcing..."

("Paul Samuelson's outsourcing "bombshell".)

They can cure perfectionism now

They can cure perfectionism now

Rebecca DiGirolamo reports in The Australian: "Perfectionists help themselves to do a lot better"

"PERFECTIONISTS have a strong tendency to depression, obsessive compulsive disorders and suicidal thoughts but can be treated for their largely hidden psychological disorder.

A study into perfectionism at South Australia's Flinders University tracked 26 diagnosed perfectionists who battled daily with debilitating psychiatric problems, including depression and obsessive compulsive behaviour. It is the first Australian research to test for possible treatments of perfectionism.

Flinders University psychology PhD student Jessica Pleva said preliminary findings suggested perfectionism was treatable and an important first step to treating the associated disorders..."

Tort reform and health care

Tort reform and health care costs

Will tort reform bring health care costs under control?

Kash at Angry Bear does some "back of the envelope" calculations which indicate that this isn't where we're going to get the big savings: "Bush's Solution to Rising Health Care Costs"

"...According to a CBO briefing on the subject, the total cost of malpractice lawsuits in the US was about $24 billion in 2002, up from about $21 billion in 2000. Their estimates are that significant tort reform may be able to cut these costs by 25 to 30 percent, thereby reducing some of this country's health care costs by $6 or $7 billion per year.

Unfortunately, the total cost of health care in the US was about $1,557 billion in 2003, an increase of about $110 billion from 2002. If tort reform had been passed earlier this year, and every dollar saved from reduced malpractice suits was passed on to consumers, then the effect on the country's health care bill would (with luck) have been to reduce it from perhaps $1,670bn in 2004 all the way down to $1,663bn."

Kash also cites a CBO study of state level tort reform suggesting that there has been little or no change in spending on defensive medicine associated with these efforts.

"Be careful what you wish

"Be careful what you wish for, you might get it" Department

Over at Foreign Dispatches Abiola Lapite looks at what can happen when the prince on the white horse actually does come and carry you off: "The Gilded Cage" .