Outlandish Worries about 'Outsourcing'

by Don Boudreaux on May 12, 2004

in Trade

Paul Craig Roberts has spent much of the past several months predicting that the U.S. will become a third-world country sooner rather than later if we don’t stop so-called ‘outsourcing’ – that is, importing some labor services. (Note: Paul Craig Roberts is unrelated to Café Hayek’s Russ Roberts.)

P.C. Roberts’s latest contribution to the public discussion of this topic – his latest assault on free trade (that his, his latest assault on consumers) and on those of us who endorse free trade – appears in today’s Washington Times.

Flaws too numerous to list contaminate his arguments. One of the most glaring of these flaws is his inexplicable (implicit) assumption that the world’s stock of capital is fixed. That P.C. Roberts makes this assumption is evidenced by his worry that capital invested abroad means less investment at home.

For America to become a third-world country (as P.C. Roberts fears) would require not only that capital flee the U.S., but also that new investment here would dry up. The record capital-account surplus that America now enjoys suggests that such drying-up of investment ain’t happening. More fundamentally, as long as America retains the rule of law, stable money, secure private property rights, and other institutions that investors find attractive, there’s no reason to believe that the U.S. economy will suffer a secular decline in its stock of capital. Quite the contrary: new capital goods — many that today are undreamed of — will be created, put in place, and futher raise the productivity and, hence, the wages of American workers.

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