What's good for the goose...

Dean Baker is a well respected economist who has pushed the issue of liberalizing trade in high-wage services like law, medicine and accounting. He notes, for example, that:

"If we could bring in enough fully qualified doctors from the developing world to bring the wages of our physicians down to West European levels it would save patients in the United States close to $80 billion a year on their health care. This swamps the gains from NAFTA, CAFTA, and the other trade deals"

Today, he provides some context to a recent New York Times article about the outsourcing of some financial research jobs to India. According to Baker, this trend:

"will lead to gains to the economy as a whole, as the cost of financial services drops. It should also help to reduce inequality as one, two, or even three digits get removed from some of the compensation packages of the Wall Street crew.

This is not just sour grapes over Wall Street salaries taking a hit. Rather, we should look at this trend through the same lens with which we view all trade. If we can gain from buying our tee-shirts and calculators from China, so too can we gain from buying of our financial services from India.

Baker is fond of pointing out the hypocrisy implicit in forcing low-skill workers to compete with foreign competition but protecting high-skill workers through licenses and restrictions on immigration for the highly educated. Certainly the fear here is that low-six figure salary jobs under threat from cheaper competition will spell doom for the American standard of living. This fear is understandable, but unwarranted for two reasons (among others):

• According to Daniel Drezner (writing in Foreign Affairs), close to 90 percent of jobs in the United States require geographic proximity and thus cannot be outsourced
• Lowering the price of financial services raises the standard of living of everyone that consumes financial services, increasing investment returns on 401(k) and pension plans. This is substantial, as roughly half of American households are invested in the stock market

Gains from trade are gains from trade, whether it comes in the form of cheaper shoes or cheaper financial research. So why not make trade more egalitarian?