Bureau of Labor Statistics, non-farm employment peaked in March, 2001, at 132.5 million. In June, 2004 an undisputed fact that many American businesses are choosing to relocate production to places like slso almost three years into an"economic recovery, total non-farm employment was 131.1 million. It is China and India, where there is ample cheap labor. I B M. for one, has confirmed that it is considering moving tens of thousands of jobs overseas to save money. In the past, manufacturing bore the brunt of this global labor arbitrage. Today largely thanks to digitization and the Internet, the service sector, which employs fully four-fifths of the labor force, is increasingly affected Many white-collar industries that once provided safe, well-paid employment, such as telecommunications, insurance, and stockbroking, are no longer immune from the temptation to outsource Well-educated American workers see software programmers in Bangalore earning six dollars an hour when similarly trained domestic programmers are paid fifty or sixty dollars an hour, and not surprisingly they worry about their own livelihoods. Politicians are paid to reflect these concerns. As a senator, Kerry supported a host of free-trade initiatives, including the North american Free Trade Agreement and the extension of Most Favored Nation status to China. But once he embarked on a Presidential campaign he ailed against"Benedict Arnold C E o s" who transfer jobs overseas, and he proposed policies designed to limit outsourcing. Senator John Edwards, Kerry's running mate, has taken an even harder line. The Bush Administration, despite its ostensible support for trade liberalization, didn t hesitate to impose tariffs on foreign steel to protect domestic producers in swing states such as Ohio and West Virginia. The steel tariffs were eventually removed, after the European Union threatened a trade war, but the United States continues to provide hefty subsidies to dairy farmers, tobacco growers, and other agricultural producers Given these political realities, it is left to economists to defend free trade, which they tend to do without reservation, regardless of political affiliation. For example, one of Mankiw's predecessors, Martin N. Baily. who served in the Clinton Administration, has just Co-authored a paper entitled"Exploding the Myths of many of his economic advisers endorse views similar to Mankiw's and Baily's, as do the vast majority or o Offshoring, " which echoes Mankiw's arguments almost word for word. Despite Kerry's tough public stand economic commentators. During recent months, the Wall Street Journal, the Financial Times, Business Week, Fortune, and The Economist have each published articles pointing out the benefits of outsourcing Only a few journalists have dared to challenge the received wisdom, most notably CNN's Lou Dobbs, who has been conducting a virulent populist attack on businesses that shift jobs overseas. Surely Dobbs, who eft CNN for a while to work at Space. com, hasn't spotted something that the luminaries of the economics profession have missed? Surprisingly enough, he might well have. While outsourcing isn't the only reason that businesses are so eluctant to hire American workers-rising productivity and a lack of faith in the recovery are others-it is certainly playing some role a fact that corporate executives are much more willing to admit than economists are. Moreover, economists tend to overstate the theoretical case for outsourcing arguing that trade liberalization is always and everywhere beneficial, which simply isnt true. In today,'s world, where multinational corporations can produce many goods and services practically anywhere and where investment capital can move from one continent to another at the flick of a switch, there is no economic theory which guarantees that new types of trade, such as outsourcing, automatically benefit the United States. Some Americans gain: consumers, who enjoy lower prices; stockholders, who see profits rising at companies that employ cheap foreign labor. Some Americans lose: workers whose jobs are displaced the owners of firms whose contracts are transferred to foreign suppliers. But the economists argument that he country as a whole inevitably benefits is questionable As Mankiw indicated, it was Adam Smith who developed the argument that the unfettered exchange of goods and services allows individuals to specialize in what they do best thereby raising over-all income and prosperity. The taylor does not attempt to make his own shoes, but buys them of the shoemaker, Smith wrote in The Wealth of Nations, which was published in 1776.The shoemaker does not attempt to make his own clothes but employs a taylor. It may seem remarkable that economists still refer to the work of a Scottish radical who didn't even call himself an economist-his title at Glasgow University was professor of moral philosophy-but the division of labor, which is what Smith was talking about, lies at the heart of outsourcing and offshoring. (The two phrases once had distinct meanings, but now they are used interchangeably. Smith took the logic of specialization and applied it to the international market arguing that no country should produce anything it could import more cheaply from abroad What is prudence in the conduct ofBureau of Labor Statistics, non-farm employment peaked in March, 2001, at 132.5 million. In June, 2004, almost three years into an "economic recovery," total non-farm employment was 131.1 million. It is also an undisputed fact that many American businesses are choosing to relocate production to places like China and India, where there is ample cheap labor. I.B.M., for one, has confirmed that it is considering moving tens of thousands of jobs overseas to save money. In the past, manufacturing bore the brunt of this global labor arbitrage. Today, largely thanks to digitization and the Internet, the service sector, which employs fully four-fifths of the labor force, is increasingly affected. Many white-collar industries that once provided safe, well-paid employment, such as telecommunications, insurance, and stockbroking, are no longer immune from the temptation to outsource. Well-educated American workers see software programmers in Bangalore earning six dollars an hour, when similarly trained domestic programmers are paid fifty or sixty dollars an hour, and, not surprisingly, they worry about their own livelihoods. Politicians are paid to reflect these concerns. As a senator, Kerry supported a host of free-trade initiatives, including the North American Free Trade Agreement and the extension of Most Favored Nation status to China. But once he embarked on a Presidential campaign he railed against "Benedict Arnold C.E.O.s" who transfer jobs overseas, and he proposed policies designed to limit outsourcing. Senator John Edwards, Kerry's running mate, has taken an even harder line. The Bush Administration, despite its ostensible support for trade liberalization, didn't hesitate to impose tariffs on foreign steel to protect domestic producers in swing states such as Ohio and West Virginia. The steel tariffs were eventually removed, after the European Union threatened a trade war, but the United States continues to provide hefty subsidies to dairy farmers, tobacco growers, and other agricultural producers. Given these political realities, it is left to economists to defend free trade, which they tend to do without reservation, regardless of political affiliation. For example, one of Mankiw's predecessors, Martin N. Baily, who served in the Clinton Administration, has just co-authored a paper entitled "Exploding the Myths of Offshoring," which echoes Mankiw's arguments almost word for word. Despite Kerry's tough public stance, many of his economic advisers endorse views similar to Mankiw's and Baily's, as do the vast majority of economic commentators. During recent months, the Wall Street Journal, the Financial Times, Business Week, Fortune, and The Economist have each published articles pointing out the benefits of outsourcing. Only a few journalists have dared to challenge the received wisdom, most notably CNN's Lou Dobbs, who has been conducting a virulent populist attack on businesses that shift jobs overseas. Surely Dobbs, who left CNN for a while to work at Space.com, hasn't spotted something that the luminaries of the economics profession have missed? Surprisingly enough, he might well have. While outsourcing isn't the only reason that businesses are so reluctant to hire American workers-rising productivity and a lack of faith in the recovery are others-it is certainly playing some role, a fact that corporate executives are much more willing to admit than economists are. Moreover, economists tend to overstate the theoretical case for outsourcing, arguing that trade liberalization is always and everywhere beneficial, which simply isn't true. In today's world, where multinational corporations can produce many goods and services practically anywhere, and where investment capital can move from one continent to another at the flick of a switch, there is no economic theory which guarantees that new types of trade, such as outsourcing, automatically benefit the United States. Some Americans gain: consumers, who enjoy lower prices; stockholders, who see profits rising at companies that employ cheap foreign labor. Some Americans lose: workers whose jobs are displaced; the owners of firms whose contracts are transferred to foreign suppliers. But the economists' argument that the country as a whole inevitably benefits is questionable. As Mankiw indicated, it was Adam Smith who developed the argument that the unfettered exchange of goods and services allows individuals to specialize in what they do best, thereby raising over-all income and prosperity. "The taylor does not attempt to make his own shoes, but buys them of the shoemaker," Smith wrote in "The Wealth of Nations," which was published in 1776. "The shoemaker does not attempt to make his own clothes but employs a taylor." It may seem remarkable that economists still refer to the work of a Scottish radical who didn't even call himself an economist-his title at Glasgow University was professor of moral philosophy-but the division of labor, which is what Smith was talking about, lies at the heart of outsourcing and offshoring. (The two phrases once had distinct meanings, but now they are used interchangeably.) Smith took the logic of specialization and applied it to the international market, arguing that no country should produce anything it could import more cheaply from abroad. "What is prudence in the conduct of