Marketplace did a story about offshoring yesterday with Alan Blinder of Princeton. Here’s the introduction:

KAI RYSSDAL: Citigroup confirmed today it’s getting rid of 17,000 jobs.
That’s about 5 percent of the workforce at the world’s biggest financial
services company. Another 9,500 jobs are moving to quote “lower-cost locations”
worldwide. Word on the street is a good number of them will land in India. Which
puts today’s news smack in the middle of two major trends that are forcing
economists to rethink some of their assumptions about free trade.
ALAN BLINDER: Electronics and India. …. That’s Alan Blinder. He’s an economist at Princeton University. For years, he was an avid free-trader. Still is, actually.
But, he says, announcements like Citigroup’s highlight the costs that come with
the benefits of globalization.

The story begins by claiming economists are rethinking their assumptions about free trade. Apparently that’s because some, like Alan Blinder, are admitting that there are real costs to free trade and globalization. Apparently journalists LOVE to claim economists have had it all wrong and need to reevaluate. Of course, this isn’t so. Blinder is merely stating what trade theory has demonstrated from time immemorial.

The real problem has been one of communication. Advocates of free trade have tended to oversell the benefits by saying that all countries will gain. In an overall, or national sense, that may well be true, but that same statement does not imply that every individual person will enjoy a share of those benefits. Economists have known this for a long time, but for political reasons (i.e., to make the strongest case possible for free trade), they have exaggerated the benefits from trade while only quietly mentioning the costs. Finally, regular people are starting to hear from economists that there are costs!

In another radio interview with Blinder yesterday (together with Jagdish Bhagwati), I heard him warn of a tsunami coming in the form of competition from China and India. I think he is absolutely correct.

This story raises a series of issues that I’ll comment on over the next few days or weeks. Here are the topics:

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