A tale of two econobloggers

A lame I-told-you-so on offshoring from Greg Mankiw


Andrew Leonard
August 30, 2006 10:39PM (UTC)

Compare these two responses by well-known economists to a recent paper arguing that offshoring has resulted in net-positive wage gains for American blue-collar workers. Greg Mankiw, a former chairman of Bush's Council of Economic Advisers who was excoriated across the land in 2004 for declaring that outsourcing was good for the economy, linked to a brief news blurb about the paper and titled his post "Another one for the 'I told you so' file." In other words, nyah, nyah, nyah, I was right, so there.

Brad Setser, an economist at the U.S. Treasury Department during the Clinton administration, while acknowledging that he only "skimmed" the paper by Princeton economists Gene Grossman and Estaban Rossi-Hanberg, takes a more careful look and weaves his analysis into a larger mulling of why there is so much anxiety in the U.S. over the "Walmart economy." Among other things, he notes that a paper in which the authors admit their argument adds up to a "claim that low-skill wages have not fallen by as much as one should have expected" is hardly a ringing endorsement for the global economy.

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There's little doubt which economist is doing the better blogging, but what does it all add up to?

To simplify, Grossman and Hanberg's argument goes like this. If you combine the productivity gains from offshoring with the benefit of cheaper prices for imported goods, you outweigh the negative impact on wages caused by competition with cheap foreign labor. This is supported by a bunch of assumptions, formulas and number crunching that I am not qualified to evaluate. But let's just suppose their numbers are solid. The authors conclude that while "the real wage growth for low-skilled workers in the United States has been far from exceptional (and, some might say, 'far from acceptable'), the experience apparently has not been as bad as one might have expected."

Woo hoo! Does Mankiw really think this is worthy of a nyah nyah nyah? One suspects, given that his blog post doesn't even link to the actual paper, that he may not have read it. That's too bad, because if you are trying to make the case to American blue-collar workers that the Walmart economy is working for them, you're going to have to bring your A game, and this isn't it.

The bottom line is this: hourly wage growth is not keeping up with inflation, while at the same time the wealthiest sector of society is grabbing the lion's share of the benefits gained from global trade. Every economist in the world can argue until they are all blue in the face that offshoring brings with it more benefits than costs, but they're still not going to change the political impact of that equation.


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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