Posted on 11/20/2004 9:56:42 AM PST by curiosity
When the 1970 Nobel laureate Paul Samuelson was asked what it takes to win a Nobel Prize, he volunteered, "It doesn't hurt to have good students."
But even Samuelson's overachieving students -- he has taught economics at MIT for six decades -- sometimes need to be put in their place. At least that seems to be the subtext of a new Samuelson paper in the Journal of Economic Perspectives.
Samuelson argues that, far from representing an unmitigated boon, free trade may in some circumstances prove a net loser. Among countless globalists who stand duly corrected, not the least chastened are two of Samuelson's own former students: Jagdish Bhagwati and Gregory Mankiw. Noted for their ardent embrace of globalism, the pair are identified by name as purveyors of "polemical untruth" in Samuelson's opening paragraphs.
Samuelson's insight is that if a low-wage country like China suddenly makes a major productivity leap in an industry formerly led by the United States, the result can be a net negative for the American people. Although American consumers may benefit via low-low prices at Wal-Mart, their gains may be more than outweighed by large losses sustained by laid-off American workers.
This conclusion, coming as it does from the pope of economic orthodoxy, is already (even before its official publication) causing a sensation in the economics profession.
Mainly the reaction is positive. Certainly this sudden flash of the obvious has come not a moment too soon for many of Samuelson's fellow liberals.
According to Jeff Madrick, author of Why Economies Grow and editor of Challenge, the take-home message is that the United States needs to do much more to support workers thrown on the scrap heap by globalism.
"The Samuelson paper is a strong argument from the most illustrious of neoclassical economists for a much stronger safety net for American workers," Madrick says. "The price being paid for free trade is falling on many workers, and there's little empirical doubt of that anymore. Moreover, I think the bias among free-trade advocates has skewed the empirical research in the field. Claims of finding that gains from free trade are many magnitudes larger than the losses have been based on extraordinarily poor studies that have hardly been criticized. Maybe some serious sense -- I would ask only for balance -- will now return to trade economics."
For James Fallows, a liberal-leaning critic of Washington's blink-first style in trade diplomacy, Samuelson's analysis is a call to policy-makers to break free from utopian theories and, instead, take a hard look at the real world.
"The great problem in Western discussion of trade theory has been its simpleminded Panglossianism," he says. "The main thing that has supported globalism, apart from the self-interest of many powerful participants, has been the idea that economic theory was 100 percent on the side of Dr. Pangloss. To have the most esteemed of all modern economists say that things are not this simple is a very important step."
On the moderate right, Pat Choate sees Samuelson's paper as essentially defensive, less a confident breakthrough than the correction of an embarrassing mistake.
“At the age of 89, Samuelson is finally stepping onto the road to wisdom,” says Choate. “It is a road where uncertainty prevails over the certainty of the ‘laws’ of economics, which are not laws but ruminations by closeted academics. His article is important, for it effectively gives permission to his disciples to begin to think about the real world, rather than try to postulate assumptions and develop elegant models which ultimately are irrelevant.”
Paul Craig Roberts, a fiercely anti-globalist economist who served as President Ronald Reagan’s assistant treasury secretary, puts it even more pointedly. Samuelson’s rethink, he suggests, is merely an attempt to patch up a leaking, and ultimately doomed, vessel.
As he points out, the paper is in large part a reaction to arguments made by Ralph E. Gomory and William J. Baumol, who in Global Trade and Conflicting National Interests have mounted a powerful challenge to the orthodoxy's utopian take on international trade. Roberts adds, “Gomory and Baumol show that, in the relevant zones, free trade is characterized by conflicting interests -- not by mutual benefit, as economists unthinkingly assume."
In Roberts' view, though the Samuelson paper is an important modification of free-trade theory, Samuelson has chosen his assumptions carefully to avoid any frank discussion of the widespread damage being caused by outsourcing.
If Roberts is disappointed by the narrowness of the Samuelson modification, many on the globalist side of the trade argument are evidently worried. A leader of the damage-control effort is none other than Bhagwati, the former Samuelson student singled out for obloquy in the paper.
Already Bhagwati, a Columbia University professor, has collaborated with two allies in a hastily written response that will be published in the same journal.
Judging by a bad-tempered recent contribution to The Wall Street Journal, Bhagwati is clearly rattled. Describing John Kerry's trade policies as "voodoo economics," Bhagwati embarrased his cause by hurling juvenile personal abuse at the anti-globalist CNN presenter Lou Dobbs.
What is clear is that Bhagwati has plenty to be rattled about. As one of the earliest and most extreme globalists, he has offered several hostages to fortune over the years, most notably in his indecent embrace of the Japan trade lobby in the 1980s. Blaming "bullying" American policy-makers for most of the tension at the time in U.S.-Japanese relations, he exonerated Japan from charges of protectionism. Writing in Fortune magazine in 1989, for instance, he argued that the evidence was "slim" that nontariff barriers significantly reduced Japan's appetite for American exports.
In what must have been the ultimate bad hair day for Bhagwati, one of Japan's leading spokesmen has now admitted that Tokyo's 1980s denials of protectionism were poppycock. The admission came from Mitsubishi Corporation President Minoru Makihara, who told the Tokyo foreign correspondents' club that the Japanese market in the 1980s was "still closed and tightly protected.”
Bhagwati's demeanor cannot have been improved by the realization that Japan’s continuing trade surpluses (they never went away) are likely soon to re-emerge as a hot-button issue in Washington. The reason: Japan’s current account surplus is headed for a record $170 billion this year. By comparison, in 1989 -- which was both the last year before the Tokyo stock-market crash and the year of peak Washington lamentation about Japan’s “juggernaut” trade strategy -- Japan earned a current surplus of a mere $57 billion.
Under the circumstances, Bhagwati seems a weak candidate to lead what will obviously be a hard fight to defend academic orthodoxy. Certainly only the first casualty will be Henry Kissinger's cruel witticism about academic life: that the fights are so bitter because the stakes are so low. This is one dispute where the stakes justify the bitterness.
Tell what? Since when is anybody is entitled to a job, especially the one that brings $200,000 a year?
You are a socialist, and this this your right to be. But leave this country alone. And study some economics please:
Mr. Bush talks about a lot of things, that doesn't mean that he has solved anything for American workers. Where on earth did you get an idea that the president has anything to do with the economy? Have you taken a single civics class.
If we were happy in our own neighborhoods, airplanes wouldn't be worth the bother.
But the necessary evil of technology as a result of overpopulation is another story.
"Although American consumers may benefit via low-low prices at Wal-Mart, their gains may be more than outweighed by large losses sustained by laid-off American workers."
How can you read the article and ask such a question?
""The Samuelson paper is a strong argument from the most illustrious of neoclassical economists for a much stronger safety net for American workers," Madrick says. "The price being paid for free trade is falling on many workers, and there's little empirical doubt of that anymore. Moreover, I think the bias among free-trade advocates has skewed the empirical research in the field. Claims of finding that gains from free trade are many magnitudes larger than the losses have been based on extraordinarily poor studies that have hardly been criticized."
Moreover, elevating wages (and workers) to such prominence is precisely what Marx did.
And Samuelson. And many others. Cut the crap.
Your argument is an ad hominem support of Samuelson and an ad hominem attack on me: you simply state that you don't trust me and do trust Samuelson. I don't know why? Do you know my real name?
I don't trust you anymore than you trust me. Why should I? Who are you? What are your credentials? Nor is it simply a matter of trust. Samuelson and others support their contentions with evidence. That's how they get their stuff into prestigious journals. Where's your evidence?
For 40 years or so - from the '30s thru the '70s - neither American workers or businesses had to worry about foreign competition in the home market. That enabled and labor and environmentalists to establish rules which could be enforced without thought about competitive disadvantage.
No longer.
That's clear enough, isn't it?
Nobody was questioning the fundamental precepts of the economic system because of fluctuations.
People question precepts and policies - fundamental and otherwise - when their interests are at stake. They always have and they always will. The question here is who benefits from free trade and who loses and what course should the country chose?
(i) The article is complete garbage.
(ii) I answered that question for you. You do not pick up the conversation on issues and take sides instead. This happens to all that protect ideology. Their retention of info becomes more and more selective, and it's harder and harder to change because of the greater and greater past commitment.
If that is all you had to say, I have no further comment.
Where's you evidence?
And Samuelson. And many others.
You appear not to understand even the basic notions even after I explained them to you. Samuelson does not do what I said YOU do --- namely, not to count welfare properly. You simply lacking in understanding of basic notions of economics and, naturally, trying to scrap by by the second-hand renditions of other people, such as this article, the author of which does not even know what scientific method of thinking is. More importantly, if someone receives knew information that is not entirely clear, one asks questions --- at least clarifying ones. You do not. Which only underscores that you do not seek the truth, you are only interested in preserving your position.
Cut the crap.
Secondly, you clearly have not read Samuelson's article. Who gives you the right, then, to tell me what Samuelson says there -- and, moreover, in such rude form?
No, I am not offended. You just have no idea who childish and ridiculous you look: every post of yours screams that you have no clue of what you are talking about, and have never read the original literature. You compound that impression further by not paying heed to a hint I gave earlier: you know nothing about my profession, what I do, and what credentials I have. Who on earth are you to use such language? Write to me again when you learn how to conduct a civilized conversation (I know, that is not required by the Leftist -- good intentions are all that matter. It's OK that you are horrible to people --- you love mankind, that's all that matter).
What you cannot do, however, is to pretend to yourself that you are an honest person. As demonstrated in this exchange, you ran from truth and do not bother to exercise even rudimentary intellectual honesty.
The punishment of bad people is that they become more like themselves.
You remind me of my daughter when she was eleven, only she was honest even then.
Please refrain from writing to me again until you grow up.
Thanks for making the point that I've tried to make countless times to no avail. They patently ignore it; while in the same breath demeaning American citizens as "stupid and lazy."
I've worked as an exec in manufacturing; I know the type of person who holds these jobs. Many have limitations, either socially or intellectually.
We end up picking up the tab for the unemployed; or the difference in the tab from someone who had a decent paying job, who is now working for $6.00/hr at McDonald's. Not to mention the fact that some of them end up as CNA's taking care of Grandma at the home...with the increase in abuse and neglect that has already been noticeable here in a state with a large elderly population.
But, again, you are tilting at windmills; these people don't have any interest in hearing you so long as their stocks continue to increase in value. They have been "educated stupid."
This explains why the communists in fact hate globalization on the grounds that it promotes market capitalism, private property rights, liberty, and basically western hegemony. You're a bright one Nanak, what's the wattage of the bulb you're using?
No evidence. Well, I didn't expect any.
Thank you.
And I didn't even mention the people who are happiest working with their hands and miserable doing an information-age job--even though they have more than enough intelligence to do it.
This is both a a patent lie and a misunderstanding on your part: the lie is in that nobody ignores this issue,, and misunderstanding concerns what "they" say.
American citizens are not stupid and lazy: everybody knows that they are the most productive in the world and known also as most ingenious.
The problem related to what you say, and misunderstood by you, is a recent one. It concerns with the deterioration of our education, which impedes further growth of productivity. It is true that a huge percentage of people are functionally illiterate. And, the more educated ones lack breadth of knowledge, which is needed precisely at the turning points and economic upheavals.
All this is far from calling someone stupid and lazy.
Most importantly, the issue is not whether people with low productivity deserve a wage: the question is what that wage is. The point being made, and apparently misunderstood by you as well, is that you cannot give to people what you don't have; to consume, the product must be produced first. In other words, you only consumer what is commensurate with your productivity. When productivity falls, or stagnates, the consumption falls and respectively stagnates as well. That's all.
I've worked as an exec in manufacturing; I know the type of person who holds these jobs. Many have limitations, either socially or intellectually.
We all do. But this does not entitle us to whine about our wages.
We end up picking up the tab for the unemployed;
We always did: before the government did that, we did it through churches and synagogues.
And there are no more unemployed now than in the best times. What else do you want? You follow the "logic" of a typical liberal: escaping facts and reality --- oh, how imperfect they are! --- and invent a utopia.
or the difference in the tab from someone who had a decent paying job, who is now working for $6.00/hr at McDonald's. Only a socialist knows what a "decent"-paying job is. Apparently you are one of them.
And, almost nobody goes from a "decent-paying" job to McDonnalds. When (s)he does, it is often the person's fault. The present-day economy, even more so than before, requires us to grow constantly. Did that person take a course at night? Asked management to be sent to a workshop? Read the latest trade journals? Tries otherwise to diversify skills? Very few people that do that end up at McDonald's, and those that do so, work in management.
One of the problems we have is that times were too good: a two-decades long continuing growth of the economy and of the stock market in particular. This, coupled with deterioration in parenting and religion, led people to unreasonable expectations --- including an entitlement to a job and the current wage. As if your wages are supposed to go only higher. And when they don't, someone must be at fault.
We Americans are not stupid and laze but have become a nation of whiners. Look at yourself: you are here, on a conservative board, and yet do not even notice that you are spewing socialist propaganda --- "decent" wages, unemployment, etc. And this is form an executive of a capitalist enterprise.
You should've voted for Kerry --- HE HAS A PLAN.
with the increase in abuse and neglect that has already been noticeable here in a state with a large elderly population.
Right. As if neglect and abuse stem from poverty rather than deterioration of morals. Do you even have a clue that this is straight from the books, now so unpopular in the former Soviet Union, on what they used to call Scientific Communism?
Thank you Ms. Executive.
But, again, you are tilting at windmills; I don't know, it seems to me that it is you who passes wind here.
these people don't have any interest in hearing you so long as their stocks continue to increase in value.
What a scummy thing to say. And silly too: you don't know about people's motives, only about their actions. This, Ms. Executive, you should've learned in Organizational Behavior 101 (or even Marketing 101, if it were taught right).
But this tells us a great deal about you: only small people expect that others to be small and ill-minded.
And this is simply They have been "educated stupid." Coming from you this is hardly an insult --- it's a joke.
Really? During the Depression, it was very high, and yet I do not recall a word about outsourcing in those days.
Professor Samuelson makes perfect sense.
How do you know? Did you read his paper?
Does it occur to you that what you were making before was an aberration? Perhaps you should think of the present as normal and marvel at the past: "Can you believe it? For a few years I've been making TWICE of what I am making now."
You couldn't have learned much about economics in an enginnering school, especially in Berkeley.
>Really? During the depression it (unemployment) was very high and yet I don't recall a word about outsourcing in those days<
I didn't say outsourcing was the ONLY cause of unemployment, Top Quack.
And don't get smart with me!
Your life has proved that you were told the truth: by your own admission, you were making TWICE as much earlier --- when there WAS a shortage of skills in your area --- as you make now.
Couple of my friends who went to the same engineering school that I went to are now long haul truck drivers.
Good for them! They must like that.
Alternatively, they could've started their own company (it costs about $25 in this country, as opposed to almost anywhere else in the world.
They could've also tried to learn something about management --- skills that are still in short supply --- and have made a transition there. But why? Times were good; money a plenty. Most IT people never heard of bad times thought that the good ones would continue forever.
My third best friend (MS in Computer Science) teaches at a community college. So, what's wrong with that? He works in his area of specialization.
Ever since they started sending IT jobs overseas and started bringing technical workers in on L-1 and H-1B visas,
You are ill-informed: H- and L- visas were in place long before "they started sending IT jobs oversees."
the engineering enrollment in our colleges has dropped significantly.
Somewhere in your studies, you must've been told that correlation does not imply causality.
If our technical enrollment is going down, we won’t produce good technical workers, and thus we will lose our technical edge. Absolutely --- provided that this process will continue forever. But it will not --- and this is where you misunderstand the free-market economy. It will continue until the gains from education in that PARTICULAR area justify investment --- and no further.
Now, our ruling elite Here you really debased yourself into a standard leftist garbage. What ruling elite? It is you who have been the elite, commanding huge salaries paid by American consumers and retirees. It is you, the IT workers, who have held a privileged position since the invention of computers. What are you talking about? wants to allow the MEXICAN trucks to haul back and from MEXICO to anywhere in the United States. (Looks like they need cheap long haul drivers) Who is it THEY, Mr. Socialist? DO you even realize what nonsense this is?" What makes me sick is that while my brother is in fallujah fighting the ISLAMIC-BUTCHERS; my country is being flushed down the drain.
True, and it is leftists such as you that are doing the flushing.
WHAT IS THE DEFINITION OF BUSINESS CONSULTANT IS? Or, WHAT ARE THE REQUIREMENTS TO BE A BUSINESS CONSULTANT?
A business consultant is anyone who assists the current management of an organization without becoming an employee of that organization. The arrangement is usually a temporary one but it need not be (one can be retained on a monthly/quarterly/annual basis).
If you want to get there, get an MBA from a decent school. Given your engineering background and that you've been graduated by Berkley, you should not have much problem getting in. You will find the program itself to be easier (but much busier too) than studying for an engineering or CS degree. It will also create a revolution in your thinking (if you remain intellectually curious and honest). The drawback is that, if you get into one of the best schools, you will incur a great deal of debt (unless you are wealthy already). And, you must be prepared that there will be a sudden drop in demand for MBAs as well (the situation there is much like it was in IT until recently). In other words, there are no guarantees, but a manager can stay afloat better than anyone else, since the skills are transferable across industries.
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