But how does the rise of potential economic superpowers like China and India benefit the United states? Here, Ricardo's theory needs applying carefully. In a heretical but fascinating book "Global Trade and Conflicting National Interests," which appeared in 2000, Ralph E Gomory the president of the Alfred P. Sloan Foundation, and William J Baumol, an economist at N.Y. U, examined what happens when a low- wage economy begins competing with a high-wage economy. Unlike many economists, who tend to rely on make-believe models, Gomory and Baumol tried to be realistic. They assumed that export industries operate most efficiently on a large scale, which means that they tend to be concentrated in one region, and that countries can learn things from each other, such as how to assemble televisions and write software. The results of this analysis were startling. " If the wage differential between two trading countries is sufficiently large the loss of industries to the low-wage, underdeveloped country may well benefit both countries at the national level, Gomory testified to Congress earlier this year. "However, as the underdeveloped country develops and starts to look more like the developed one, the balance turns around and further loss of industries becomes harmful to the overall welfare of the more developed nation This conclusion directly challenges Mankiw's claim that free trade must as a matter of economic logic benefit the United States. It supports the common-sense notion that what helps one nation can hurt another, and that countries adversely affected by foreign competition can lose out permanently. Although the work of Gomory and Baumol hasnt received much attention from other economists, and it certainly isn't the final word on the subject, it implies at the very least, that the potential gains and losses from outsourcing need to be weighed In principle it ought to be possible for the winners from free trade-consumers and stockholders, say-to compensate the losers with monetary benefits. In practice, such transfers rarely occur. Research by the Princeton economist Henry Farber, among others, shows that workers displaced by foreign competition are usually forced to take a pay cut, that is if they are fortunate enough to find new jobs. (The average cut is thirteen per cent. Cities hit by plant closings take years to recover, and some-such as Gary, Indiana Flint, Michigan; and Syracuse-never do The nearest thing to a compensation scheme is the federal Trade Adjustment Assistance program, which than two hundred thousand displaced workers. However, a 2001 report by the General Accounting office o has recently been expanded. In 2003, this scheme provided income support and retraining grants to mor has shown that it is often ineffective, especially for older less educated workers. other ideas have been proposed, such as "wage insurance" for workers threatened by foreign competition, and tax credits for firms that invest in worker retraining, but with the budget deficit already approaching five hundred billion dollars their cost is prohibitive. Although the Bush Administration beefed up the Trade Adjustment Assistance program, some of its members question the very idea of compensating the losers from trade. In a capitalist system, they point out, jobs are eliminated all the time, as a result of technical progress and shifting consumer tastes. why, they ask, should the victims of trade get a better deal than the victims of a robot? Ben S. Bernanke, a Princeton economist and a member of the Federal Reserve Board, recently estimated that the American economy eliminates roughly fifteen million jobs a year-about one in seven of the total-as it redirects workers and resources to growing industries. By comparison, Ravi Aron, an economist at the Wharton School of Business, put the number of white-collar jobs lost to outsourcing between the start of 2000 and February of 2004 at about a hundred thousand a year. other estimates, which include manufacturing suggest that trade will eliminate perhaps three hundred and fifty thousand jobs this year. As Bernanke points out, even if this higher figure is correct, it implies that foreign competition accounts for only about one in fifty of all job losses That isn't the final analysis, however. Outsourcing service-sector jobs is a relatively new phenomenon, and it is growing fast. a widely cited example features Indian radiologists who examine x-rays from places like Miami and Chicago, and transmit their diagnoses via the Internet. It isnt hard to imagine other jobs that might be affected: reservation agents, telephone solicitors, computer programmers, accountants, database managers, financial analysts, and any body else who performs easily replicable tasks with the aid of a computer. The jobs that are likely to remain safe are those which require physical proximity and intellectual flexibility such as nursing, plumbing, social work, and teachingBut how does the rise of potential economic superpowers like China and India benefit the United States? Here, Ricardo's theory needs applying carefully. In a heretical but fascinating book, "Global Trade and Conflicting National Interests," which appeared in 2000, Ralph E. Gomory, the president of the Alfred P. Sloan Foundation, and William J. Baumol, an economist at N.Y.U., examined what happens when a low￾wage economy begins competing with a high-wage economy. Unlike many economists, who tend to rely on make-believe models, Gomory and Baumol tried to be realistic. They assumed that export industries operate most efficiently on a large scale, which means that they tend to be concentrated in one region, and that countries can learn things from each other, such as how to assemble televisions and write software. The results of this analysis were startling. "If the wage differential between two trading countries is sufficiently large, the loss of industries to the low-wage, underdeveloped country may well benefit both countries at the national level," Gomory testified to Congress earlier this year. "However, as the underdeveloped country develops and starts to look more like the developed one, the balance turns around and further loss of industries becomes harmful to the overall welfare of the more developed nation." This conclusion directly challenges Mankiw's claim that free trade must, as a matter of economic logic, benefit the United States. It supports the common-sense notion that what helps one nation can hurt another, and that countries adversely affected by foreign competition can lose out permanently. Although the work of Gomory and Baumol hasn't received much attention from other economists, and it certainly isn't the final word on the subject, it implies, at the very least, that the potential gains and losses from outsourcing need to be weighed. In principle, it ought to be possible for the winners from free trade-consumers and stockholders, say-to compensate the losers with monetary benefits. In practice, such transfers rarely occur. Research by the Princeton economist Henry Farber, among others, shows that workers displaced by foreign competition are usually forced to take a pay cut, that is if they are fortunate enough to find new jobs. (The average cut is thirteen per cent.) Cities hit by plant closings take years to recover, and some-such as Gary, Indiana; Flint, Michigan; and Syracuse-never do. The nearest thing to a compensation scheme is the federal Trade Adjustment Assistance program, which has recently been expanded. In 2003, this scheme provided income support and retraining grants to more than two hundred thousand displaced workers. However, a 2001 report by the General Accounting Office has shown that it is often ineffective, especially for older, less educated workers. Other ideas have been proposed, such as "wage insurance" for workers threatened by foreign competition, and tax credits for firms that invest in worker retraining, but with the budget deficit already approaching five hundred billion dollars their cost is prohibitive. Although the Bush Administration beefed up the Trade Adjustment Assistance program, some of its members question the very idea of compensating the losers from trade. In a capitalist system, they point out, jobs are eliminated all the time, as a result of technical progress and shifting consumer tastes. Why, they ask, should the victims of trade get a better deal than the victims of a robot? Ben S. Bernanke, a Princeton economist and a member of the Federal Reserve Board, recently estimated that the American economy eliminates roughly fifteen million jobs a year-about one in seven of the total-as it redirects workers and resources to growing industries. By comparison, Ravi Aron, an economist at the Wharton School of Business, put the number of white-collar jobs lost to outsourcing between the start of 2000 and February of 2004 at about a hundred thousand a year. Other estimates, which include manufacturing, suggest that trade will eliminate perhaps three hundred and fifty thousand jobs this year. As Bernanke points out, even if this higher figure is correct, it implies that foreign competition accounts for only about one in fifty of all job losses. That isn't the final analysis, however. Outsourcing service-sector jobs is a relatively new phenomenon, and it is growing fast. A widely cited example features Indian radiologists who examine X-rays from places like Miami and Chicago, and transmit their diagnoses via the Internet. It isn't hard to imagine other jobs that might be affected: reservation agents, telephone solicitors, computer programmers, accountants, database managers, financial analysts, and anybody else who performs easily replicable tasks with the aid of a computer. The jobs that are likely to remain safe are those which require physical proximity and intellectual flexibility, such as nursing, plumbing, social work, and teaching