Economists are blind to the loss of US industries and occupations, because they believe these results reflect the beneficial workings of free trade. Whatever is being lost, they think, is being replaced by something as good or better. They are unable to identify what the replacement industries and occupations are, but they are certain they are out there somewhere. It does not occur to them that the same incentive (cheap, skilled foreign labour) that causes the loss of one tradable good or service applies to all tradable goods and services. There is no reason why the Â‘replacement industry’ or knowledge job will not simply follow its predecessor offshore.
Economists misunderstand outsourcing because they have not got to grips with the challenge presented to comparative advantage by highly mobile factors of production and by production functions based on acquired knowledge. Their belief that free trade always makes trading countries better off demonstrates that economists are also unfamiliar with the latest development in trade theory.