Free Trade and the Rattling of Alan Blinder

By John Tamny

In his Treatise on Political Economy, 19th century economist Jean-Baptiste Say proclaimed that “the grand object and the acme of industry” is to “make less labor requisite for the same quantity of produce.” For the industry that chooses to “avoid the transient evil” of labor-saving innovations, economic stagnation in the short-term and obsolescence over the long-term will be the result for the certainty that someone, somewhere will access the technology or human capital necessary to produce more with less.

Say’s words are of growing importance given influential Princeton economist Alan Blinder’s rising discomfort with increasingly robust sources of automation and foreign labor. The irony, of course, is that Blinder would likely agree with Say judging by a May Washington Post op-ed where he stated, “I’m a free trader down to my toes.” Far from running away from the free movement of goods, services and labor, Blinder makes plain that, “Globalization is good for the world.” His aversion to the offshoring of work isn’t one of denying the inevitable, but one that perhaps serves as a warning of more difficult times ahead for Americans who labor in jobs that could easily be moved elsewhere. Blinder says up to 40 million American jobs could be made obsolete or will move overseas in the future, and while he may be right about the number, he’s perhaps overstating it a bit in assuming the transition will be a dark one. It will only be dark if we ignore the reality that without capital, there are no wages or jobs to begin with.

Blinder argues that electronic innovations and the influx of Russians, Chinese and Indians into the worldwide labor force will lead to job destruction stateside, not to mention that this new competition from both humans and machines will “put a damper” on U.S. wages. In assuming this, he ignores the certainty that if U.S. industry did not access cheaper labor and machines, our wages would truly be low for the investment outflow that would result from our companies not operating in the most efficient way possible. That there exists an incentive to mechanize or outsource that which used to be done by American workers is a sure sign that the U.S. remains a magnet for capital such that foreign workers and machines are a cheaper option. We don’t lose jobs in the U.S. because our wages are falling, but due to the fact that we’re becoming more and more specialized such that our labor is more expensive.

Also not accounted for is the truth that when companies of any geographical origin pursue their specialty more inexpensively, the money they save hardly lies dormant. It either directly funds the creation of new job-creating concepts within the existing corporate entity, or, if saved, it is lent to other entrepreneurs whose economy-enhancing ideas are only limited by a lack of capital. Money saved means money for new, productive ideas.

Blinder opines that globalization means jobs in the fields of science and math will be offshorable in the future, but somewhat contradicts himself with the admission that we can’t “foresee exactly which jobs will go and which will stay.” Certainly not, but even if we could, this should not be a concern either way. Knowledge circulates with ease, and if scientific innovations occur overseas, Americans will be the immediate beneficiaries if our markets are open and free as Blinder believes they should be. Importantly, innovation without execution is only innovation. What Americans have proven time and again is their ability to grasp the significance of an idea, and build a business around it. We should heartily embrace scientific advances elsewhere knowing full well that the entrepreneurial spirit here will perfect those advances in ways that will be highly remunerative, and a source of new jobs and capital.

On what Blinder deems the “low end” of the labor market, he says economic advances will make “telephone operators, clerks and typists” superfluous. Aside from this being a wonderful development, Blinder seems a little bit late here. Nowadays most of us talk to voice-activated operators when we call all manner of businesses, while a computer age that’s long been with us has already destroyed copious amounts of jobs of the secretarial and clerk variety. He might have added that thanks to the proliferation of ATM machines, self-serve ticket kiosks at movie theaters, and the Internet, we now for the most part no longer deal with live human beings when we go to the bank, the movies or buy airline tickets. Life is cheaper and easier, and with labor being finite while jobs are infinite, U.S. workers continue to rise up the labor and wage scale thanks to past technological advances.

In citing certain legal and accounting disciplines that globalization will drive overseas, Blinder mistakes facilitation for true productivity. What he forgets is that in every society, there are producers and facilitators. Millions of Americans are employed in accounting and the law not because a truly free economy would need so many, but because in an economy burdened by an ever-growing tax and regulatory apparatus, lots of lawyers and accountants are a very necessary, but dead-weight cost to businesses. To the extent that this work can be sent overseas, the cost of doing business will be much cheaper here such that U.S. companies will become more profitable. We should heartily embrace an offshoring process that will allow more Americans to engage in truly productive work; work bolstered by new flows of capital seeking to invest in our growing profitability.

Blinder’s main solution to the job churn that has always been with us is for Americans to seek work that is harder to move overseas. If this is in fact possible, Americans would be wise to do otherwise. Again, without capital there are no jobs, and if workers seek what Adam Smith called “stationary” work free of the discipline that competition brings, they’ll soon enough be in jobs to which markets will attach a low value. Investors don’t pay for stable production, but for constant re-invention of work such that the productive process becomes more and more efficient. That the United States has evolved from an agrarian economy to one that is largely information-based is a positive rather than a negative. Indeed, rather than impoverish us, the job-destroying nature of machines and new labor-force entry has only served to make us wealthier, with a much higher standard of living.

Along the lines of the above, Blinder argues that, “we need to rethink our education system so that it turns out more people who are trained for jobs that will remain in the United States.” Ignoring for a moment his own point that we can’t “foresee exactly which jobs will go and which will stay,” if private economic interests can’t foresee with any certainty what professions markets desire, it’s a fair bet that our educational system, no matter its structure, will prove even less skillful when it comes to predicting how the economy will evolve. It is said today by many, including Blinder, that we don’t have enough engineers, but the fact that the Soviet Union produced ten times as many engineers as we did in the ‘70s did not arrest its eventual demise. Successful enterprise is that way for businesses meeting previously unmet needs and unknown needs. Unless governments or educational institutions possess a previously unknown hotline to the future, it seems folly to rely on either now.

Blinder also decries our “poor social safety net” that fails “to cushion the blow for displaced workers.” It could be said that a country like ours with plentiful jobs does not require robust unemployment insurance, but assuming the latter were more generous, it’s hard to make the case that this would create the necessary incentives for displaced workers to find new employment. Furthermore, the costs involved in creating a better safety net alongside the job-retraining programs he desires would have to come from somewhere; specifically from a finite capital stock that according to him must also fund “more spending on R&D.” He writes that we should avoid “letting ourselves get locked into ‘sunset’ industries,” but capitalism can once again never be stationary, and when economies boom, that’s when industries are most likely to be made obsolete by new entrants stateside and around the world.

Importantly, Blinder’s free trade instincts don’t so much have him decrying the future as much as he would like to warn us of an economic evolution that could be unsettling. History says his fears are overdone. That economic change is presently accelerating means that we should be optimistic about the higher living standards that will soon be within our grasp. Just as we all presently outsource to others here and overseas the creation of the food we eat, the clothes we wear, and the cars we drive, an expansion of the worldwide labor force will serve to make life’s necessities even cheaper, all the while expanding the range of goods we can access thanks to the greater economic specialization that will result, and that invariably accrues to the individual consumer.

The only risk here is in closing ourselves off to what’s ahead. If we do, the capital that has always cushioned economic change and made us more efficient will rapidly exit. Rather than outsourcing jobs, we’ll be the sad beneficiaries of low-wage insourcing from the countries that choose to embrace rather than turn away from the promising economic future before us.

John Tamny is editor of RealClearMarkets and Forbes Opinions, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading ( He can be reached at

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