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.
A bit dated, don't you think? Especially considering the fact that it was written before the industrial revolution.
Profound. So employment must necessarily be the natural result of insourcing.
By your standard, the Theory of Relativity is dated.
Your analysis fails to consider what happens when our workers loses their productivity edge in an export industry. If that happens, the whole industry moves to China (or wherever). A LARGE number of workers lose their jobs. If the workers cannot atain comparable productivity in another industry, which is likely in many cases, then they see a PERMANENT as in LONG TERM drop in income, and so does the country as a whole. That loss might be offest by lower prices for consumers and higher returns for investors, but it need not be. If a some of the industry's sales come from exports, the loss of the income from that industry will outweigh any gains we get through lower prices and higher investment returns.
The wholes in free trade theory have been apparent to academics for 20 years. Now they're finally being made public. It's about time.
The Wealth of Nations was published over 220 years ago, in the 1770's if I'm not mistaken. Einstein published in 1905. Plus no one has yet conducted an experient that falsifies relativity. Many of the theories in Wealth of Nations have been empirically falsified. The Labor Theory of Value comes to mind.
What of Smith's Labor Theor[ies] of Value has been empirically falsified?
The notion that a product's value is a function of the amount of labor that is put into it.
Tell that to the high tech workers in Silicon Valley who trained their lower paid replacements from India then got laid off and had to sell their homes.
Mr. Bush talks about a lot of things, that doesn't mean that he has solved anything for American workers. The 50+ year old workers who have been replaced by cheap foreign labor should go back to school? Who supports their families and pays their mortgages while they're going to school? I am not in favor of American workers being replaced by cheap labor from foreign countries. You call me a socialist. If that makes me a socialist (it doesn't), then that's your opinion.
He was saying something about long term productivity gains in the US would be about 1% annually forever. I think we've topped 3% since then. Well, he was only off by 2%. Close enough for government planners and Keynesians.
"Please see my #44. Your cabana-boy is the Leftist. I'll extend the same offer I've made to nanak. . . think I'm a Leftist? Prove it."
#44 is written by YOU.
I don't have to "prove" anything.
It's clear to all who see what you reply with that you are a LEFTIST! You see, you are your own best witness for that FACT.
Either nmh doesn't understand sarcasm or he doesn't understand that the leftist author agrees with these other leftist authors.
[shaking head in wonder]
Then you prove nothing. Thanks for playing.
"Then you prove nothing. Thanks for playing."
I never was playing your childish game.
I have better things to do with my time and I don't waste time with rude little boys like you.
I and my family immigrated to United States (from a filth called INDIA) in 1981. I graduated from one of the best engineering schools of The Peoples Republic of Berkeley, and I had to train my replacement from India (someone making $30,000.00 a year). On my current job, I am making half of what I used to.
We were told that we have a shortage of technical workers. Couple of my friends who went to the same engineering school that I went to are now long haul truck drivers. (We really have shortage of technical workers). My third best friend (MS in Computer Science) teaches at a community college. Ever since they started sending IT jobs overseas and started bringing technical workers in on L-1 and H-1B visas, the engineering enrollment in our colleges has dropped significantly. If our technical enrollment is going down, we won’t produce good technical workers, and thus we will lose our technical edge.
Now, our ruling elite 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)
What makes me sick is that while my brother is in fallujah fighting the ISLAMIC-BUTCHERS; my country is being flushed down the drain.
I say abolish WTO, NAFTA, CAFTA, FTAA (Kill it before it becomes reality).
One question for all fellow freepers: One of the provisions of CAFTA and FTAA is “companies may have easy flow of business consultants in and out of United States." Can anyone please tell me WHAT IS THE DEFINITION OF BUSINESS CONSULTANT IS? Or, WHAT ARE THE REQUIREMENTS TO BE A BUSINESS CONSULTANT?
You've experienced this situation, and I observed it when two close friends of ours in San Jose were asked to "train" some new arrivals (H1b) from India. Those new arrivals soon replaced our friends at half the cost to the company. Jobs lost, one of them had to sell his home, the older one died a year later, feeling hopeless of finding another job. He was 63.
Now our government is trying to force Mexico down our throats, and this also will cost many American jobs, but the naysayers continue to say this is good for America. Soon American truck drivers will lose to cheap labor from Mexico. I live near Los Angeles harbor, and every truck I look into seems to have a Mexican driver, and the FTAA hasn't even been implemented. More lost jobs, more lost homes, more bankruptcies will follow.
We're being sold out by our politicians for their "globalist" society.
I'll pray that your brother stays safe, nanak.
So, your another that quotes Marx without internalizing the whole speech in which that quote came from. Go read the whole speech and then comment...that is of course if you have the capacity to understand capital flows and capital controls.
Samuelson is not an economist. He is a Keynesian and therefor a fantasist who specializes in dreams of government omnicompetence.
Tell me, in your opinions, is the Heritage Foundation a Leftist group?
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