8. The quote from the 2004 Economic Report of the President at the beginning of the chapter generated a lot of controversy that year, as discussed at the beginning of section 3 here. The chairman of the Council, N. Gregory Mankiw, made the following additional comments in a speech while presenting the report: “Outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past, and that’s a good thing.”

Those statements quickly led to reactions from both Democratic and Republican members of Congress. Tom Daschle, then the Democratic Senate minority leader, said,

“If this is the administration’s position, they owe an apology to every worker in America.”

Dennis Hastert, then Republican Speaker of the House, said, “Outsourcing can be a problem for American workers and the American economy.” John Kerry, the 2004 Democratic presidential candidate, referred to businesses that offshored as “Benedict Arnold corporations.” In response, Mankiw clarified his earlier comments: “My lack of clarity left the wrong impression that I praised the loss of U.S. jobs.”

Although you might feel that these statements just represented a squabble between politicians trying to score points during a presidential campaign, it is still worth trying to sort out who gains and who loses from offshoring.

a. Why does Mankiw say that “outsourcing is a good thing”? Who is it good for in the United States? Are there overall gains for the United States? Explain with a diagram.

b. Later in this chapter, Paul Samuelson is quoted as saying that there is no “necessary surplus of winnings over losings” due to offshoring. Use Figure 7-12 to carefully explain why Samuelson says this.