OUTSOURCING CONTROVERSY AND
ECONOMIC LITERACY
Rolnick: The outsourcing of jobs to India, China and elsewhere has become a huge controversy in the United States. Most economists would say such job flows are a normal and healthy phenomenon. And as you indicated in a recent speech, outsourcing abroad accounts for a very small fraction of total job loss in the United States each year—perhaps a bit more than 1 percent.
Does this controversy indicate that the economics profession has failed to educate the public about international trade in particular and economics more generally? What can be done to improve economic literacy?
Bernanke: As I argued in my recent speech, there is an overwhelming case that trade increases economic welfare. With respect to jobs, it is true that trade promotes structural change that displaces some jobs, but trade creates many opportunities for increased employment as well, including high-wage employment. While recently many people have been concerned specifically about the outsourcing of business services, few are aware that the United States runs a healthy trade surplus in services—that is, there is considerably more (and higher-value) "insourcing" to the United States than there is outsourcing from the United States abroad. Employment of Americans by foreign-owned firms, such as foreign automobile manufacturers, is a major source of domestic employment as well.
With respect to economic literacy, I have no magic bullet; responsible economists just have to keep getting the word out. Specifically with respect to trade, though, I think there is a legitimate issue arising from the fact that you can't buy insurance against losing your job to new foreign competition, so that workers who are displaced by trade bear most of the associated costs, rather than society at large. We should consider expanded support and retraining for workers displaced for any reason. I think if people were a bit less fearful of the impact of change on their own financial well-being they might be more amenable to arguments that trade is highly beneficial to the economy as a whole.
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