The problem is that competition is almost always a good thing. The problem I'm having with your example is that we don't live in a two good world. Further, there are new goods and services coming into existence as well. Still even if we limit ourselves to the two good world, what really matters is comparative advantage. Even if India moves closer to the U.S. in terms of producing software, so long as the U.S. has a comparative advantage specialization will occur. Heck it will occur even if India ends up with an absolute advantage in call centers and software programing.

I think this statement shows exactly why economists don't "get" most resources voters.

But I think where it gets a bit murky is when we look closely at the terms of trade. Let's assume, as I did in the post, that India is the trading partner, and we export software while importing business services like call-center operations. If we outsource call-center jobs, thereby allowing India to specialize, our terms of trade improve and our country achieves a higher national welfare. But then the question becomes: Does the outsourcing enable India to become more complementary or more competitive relative to us? If it becomes more complementary -- i.e., it improves in business services -- then we should gain even further. But if it becomes more competitive -- i.e., it uses outsourcing to gain entry into the software industry and moves into our specialization -- then our terms of trade could diminish. Frankly, I have no idea which is the correct assessment; that's an empirical question I'm unprepared to answer. But it seems to me that the terms-of-trade argument could be a little more delicate than I've seen discussed in public fora.

Now, even if our terms of trade don't improve quite as much as we would like (i.e., India does become more competitive), it could still be the case that outsourcing is preferable, for reasons that you suggest. I tend to take that view: even if we consider that dislocations pose short-term domestic problems and that India's growth could have negative implications for us, I believe that outsourcing will still bring net gains. But it doesn't seem to me to be a no-brainer.

Of course, I could be wrong all in all. My economic background is limited, and international trade isn't really my specialty. But that's what I know.

I think you are right... it's just a general comment really, from someone disappointed that Mankiw, who I believe is very sharp, is doing much as Krugman has done for the Democrats... they are both offering figleafs to bad economic policies...

Too bad he couldn’t have taken his own advice and pursued a responsible economic policy while in office... the Medicare Drug benefit is a disaster. Missile defense is costing us billions and is unworkable. The Farm bill is a monumental testament to Pork (I blame both parties for it, but the Republican congress took the lead). etc. etc. etc. We need a real small government conservative in office.

I think you greatly overestimate the importance and power of the top economic advisor.

While I generally agree, Mankiw should have still been more mindful of his outsourcing remark. The United States does indeed benefit to the extent that countries like India become better complements. For instance, if the Indians improve in how they operate call centers and other business services, which are what we import, then Americans gain. But what if these improvements enable the Indians to make significant progress in software development, which is what we presumably specialize in and export? Then our gains from trade become undercut. Obviously, I lack the data for this empirical question (though I tend to side with Mankiw overall).

Think of this: Back 150 or so years ago the major economic sector was agriculture. Should we not have gone ahead with mechanization of farming for the economic damage it would have done to the country? Sure dislocations from such changes are difficult, especially for those dislocated, but it isn't, as is commonly believed, the end of the world. The resources freed up by such dislocations find other forms of employment and economic output increases. Further, Mankiw's full quote on the topic of outsourcing noted the problem of dislocation and that whatever can be done to minimize such difficults should be implemented.

Mankiw in principle agreed in his book "Principles of Economics," published in the 1990s.

In a subchapter titled "Charlatans and Cranks," Mr. Mankiw referred to 80s supply side economics as "fad economics."

"An example of fad economics occurred in 1980," Mr. Mankiw wrote, "when a small group of economists advised presidential candidate Ronald Reagan that an across-the-board cut in income tax rates would raise revenue."

"[W]hen politicians rely on the advice of charlatans and cranks," Mankiw concluded, "they rarely get the desirable results they anticipate."

Too bad he couldn't have taken his own advice and pursued a responsible economic policy while in office... the Medicare Drug benefit is a disaster. Missile defense is costing us billions and is unworkable. The Farm bill is a monumental testament to Pork (I blame both parties for it, but the Republican congress took the lead). etc. etc. etc. We need a real small government conservative in office.