Has outsourcing turned Paul Samuelson into a heretic?

Paul Samuelson, perhaps the greatest economist of the post-war era, has weighed in on the debate on outsourcing, on the side of its critics, or rather against the enthusiasts.

“His dissent from the mainstream economic consensus about outsourcing and globalization will appear later this month in a distinguished journal, cloaked in clever phrases and theoretical equations, but clearly aimed at the orthodoxy within his profession: Alan Greenspan, chairman of the Federal Reserve; N. Gregory Mankiw, chairman of the White House Council of Economic Advisers; and Jagdish N. Bhagwati, a leading international economist and professor at Columbia University.

These heavyweights, among others, are perpetrators of what Mr. Samuelson terms ‘the popular polemical untruth.’

Popular among economists, that is. That untruth, Mr. Samuelson asserts in an article for the Journal of Economic Perspectives, is the assumption that the laws of economics dictate that the American economy will benefit in the long run from all forms of international trade, including the outsourcing abroad of call-center and software programming jobs.

Sure, Mr. Samuelson writes, the mainstream economists acknowledge that some people will gain and others will suffer in the short term, but they quickly add that ‘the gains of the American winners are big enough to more than compensate for the losers.’

That assumption, so widely shared by economists, is ‘only an innuendo,’ Mr. Samuelson writes. ‘For it is dead wrong about necessary surplus of winnings over losings.’

Trade, in other words, may not always work to the advantage of the American economy, according to Mr. Samuelson.

Although, “Mr. Samuelson and Mr. Bhagwati agree that the way to buffer the adjustment for the workers who lose in the global competition is with wage insurance programs.” That fits with my social democratic sensibilities.

The article and the response by Jagdish Bhagwati, Arvind Panagariya, and T. N. Srinivasan are forthcoming in the American Economic Association’s The Journal of Economic Perspectives.