The Right Coast

January 12, 2004
By Tom Smith

This piece by the one of the insufferable Senators of New York and Paul Craig Roberts is generating web buzz. The idea is that now that knowledge can be transferred globally on broad bandwidth, the case for free trade has to be rethought. Comparative advantage is obsolete.

See if you can spot the flaw in the argument. You may have missed it because it is so obvious. If knowledge workers in India can do what same could do in the US, but for one fifth the cost, then that is a comparative advantage. That's how it works, Chuck. It doesn't matter if it's making shoes or interpreting MRI's, if it can been done more cheaply in India than New York, then it makes sense to do it in India. But who will benefit? Well, sick American people who need MRIs for one. Workers who pay health insurance premiums for another. One could go on and on. There is no difference between shoes and ones and zeros.

I could rant on this point, but I will resist. There may be instances out there of super-duper, cybernetic, brave new world, think outside the box, it's a brand new paradigm, market failure, with oh boy what a great chance for the lovely government to intervene, but what it usually is is that someone can't be bothered to think of the thing in terms of Econ 101 -- what does it cost? Supply and demand. Somebody trying to make more money. Markets coordinating factors of production.

So (in whiney Schumer voice now) how are we all going to work with all those smart Indians and Chinese working too? It's not fair! Boo hoo hoo! Here's an idea. Why don't we do what we're better at? Like invent the diagnostic technology they can do the grunt work for in China. Design the software they can print up over there. Discover the drugs that can be manufactured somewhere else. "Knowledge work" itself has many layers and specializations. Free trade, now more than ever!