Brad DeLong Doesn't Agree with Krugman Either

Brad DeLong, who very rarely disagrees with Paul Krugman on anything, disagrees with Paul Krugman on his latest inequality column:

Paul Krugman writes about the link between expanding trade--especially between the U.S. and China--and rising income and wealth inequality within the United States. I find myself skeptical. Yes, China is exporting a lot of goods that it produces using low-skill labor. But if those goods were to be produced here in the United States, they would be produced with higher-skil labor and with lots of capital. The key question is how has the shift in economic activity created by expanding trade affected the demand for different kinds of labor and capital here in the United States. We have had:

• A shrinkage in export and import-competing manufacturing.
• A tremendous expansion in construction.
• An expansion in consumer services.

I don't see how those shifts significantly reduce the demand for factor of production "labor" and enhance the demand for factor of production "capital." Construction employs lots of capital--but so does tradeable manufacturing. I want to see Leontief input-output matrices for the U.S. before I upweight trade and downweight education, collapsing unions, migration, changing norms, monetary policy, and other factors as more likely to be responsible for the lion's share of the increase in U.S. inequality over the past generation and a half.

And "outsourcing": outsourcing seems at least as likely to me to equalize the U.S. income distribution as to give it a further inequality boost. Consider what kinds of jobs are likely to be outsourced.

Right. Plus, as I mentioned before, this goes against the changes in inequality that shows up in the Piketty-Saez data: namely, that nearly all the increased inequality is benefiting the top 1% of the population; they aren't really affected by a loss of American manufacturing jobs (unless they are all CEOs of corporations with subsidiaries in China, I guess).