In the middle of your tenure, you issued an economic report stating that the outsourcing of manufacturing jobs “makes sense.” It caused quite an uproar. Do you still believe that?
What I said was basic Economics 101, which is that trade benefits both trading partners. The only thing new about outsourcing is the kind of economic activity that is being traded. We are used to goods going from country to country on ships or planes; we are not used to services being transported over a fiber-optic cable or over the Internet. And outsourcing is basically a form of international trade in the form of services, not goods. The economics are not fundamentally different. So what I intended with my outsourcing comments was what Adam Smith would have said, if he had seen the Internet.
Were you surprised that you became such a lightning rod?
I was surprised at the reaction. But the gains from trade are really a very interesting issue, in the sense that economists are nearly unanimous about their views — and they’re nearly unanimous about almost nothing. But the general public is very divided; about half is pro-free-trade and the other half is very skeptical. Politicians want to do what’s right, but even more they want to get reelected. So while members of Congress know that free trade is the right solution, they often pander to their constituents, who are a lot less convinced.
Paul Samuelson once said that the theory of comparative advantage — basically the theory of trade that we have been teaching for hundreds of years — is one of the few things in economics that is true without being obvious. The fact that trade is win-win and not a contest, and that both sides can be better off, is a surprising conclusion. But it is a conclusion that economists are pretty sure is right.
What do you want to be remembered for?
As a professor who took two years’ leave and did his best to offer solid economic advice to the President. My grandparents all came from Ukraine to the United States, none of them having more than a fourth-grade education. And here they found an economic system that provided opportunities to work hard and make life better for their children. Now, here I am, a Harvard professor. I feel a tremendous gratitude to the system that allows such a thing to occur.