Sunday, March 28, 2004

Economic Illiteracy 101

Reading the responses to this post on outsourcing by Brad DeLong, in which he makes the following innocuous remarks

But--holding real GDP constant--a decline in the wages of high-skill workers is a rise in the wages of low-skill workers (and a rise in profits). Isn't there a chance that the yuppies facing competition from Bangalore will be a highly positive development, pushing U.S. wage levels together and raising the real wages of those at the bottom?

makes me weep for the irrationality of my fellow human beings. Rarely does one come across as nauseating a mixture of ignorance and arrogance as that displayed by most of the commenters on that post, the vast majority of whom seem to think poisoning the well constitutes the epitome of devastating criticism. What is it about outsourcing that brings out the very worst tendencies in pampered middle-class types? Do they think international competition is something only blue-collar workers deserve to worry about?

As a matter of fact, what Brad said was mathematically obvious: if American GDP isn't shrinking - and there's zero evidence that it is - while the share of GDP going to highly-skilled workers is shrinking, then it clearly must be true that the share going to capital + low-skilled workers is rising. If the share of income going to capital showed a long-term upwards trend, stock market valuations would be expected to rise sharply in reflection of the anticipated long-term gains in profits, a trend that is most certainly not in evidence. The conclusion is therefore inescapable that the current outsourcing trend augurs well for the lower-skilled, something one would expect "progressives" to celebrate.

I've stopped reading Brad DeLong's blog nearly as much as I used to, as I've found his partisanship ever-increasingly strident and unbalanced, but on trade issues at least, he continues to make sense. It's always eye-opening to read his comments sections on those occasions when he departs from the usual Democratic Party talking-points to state the case for trade, only for him to be called a drunk, a corporate stooge and a Bush stooge by those who are usually more than happy to cheer on his attacks on Bush as the works of a mind of genius. Heaven forbid I ever accumulate such "supporters"!