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To: curiosity
Many thanks; this was very informative.

Thank you also for the conclusion,
What they prove is that the optimal trade policy w.r.t. national income (both long-term and short-term) is highly sensitive to your assumptions.
which is at the level I expected it to be. It is not entirely unexpected, under any given set of assumption, to find that the outcome is not completely robust to those assumption.

It is difficult for me state my concern better without reading the papers you suggested. Buy vaguely, it is that, as I suspect, the models do not take into account changes in the labor force itself and merely take the net of the benefits of winners and losers. But the whole point is, that the agents too respond to changes by (re)educating themselves. In the end, what one has to offer finds its best use. My hunch is that it amounts to simply to the following: a constrained maximum cannot be better than an unconstrained one. That is, if you impede the matching of labor with its use in productive activities, your (second-best) welfare maximum cannot be greater than the (first-best) maximum attained in the absence of impediments. I know, this too is imprecise, but to advance the point any further, I would have to take up a particular paper in the list and show that it does not incorporate that aspect. (If I am wrong, then I'd be glad, of course, to adopt a different view).

I have one question to ask:

This issue is whether those workers were able to find jobs with comparable pay. It is a documented fact that a large number of them did not. Why is this an issue? Surely you will agree that, while it is expressed in economic terms and has economics consequences, it is not an economic one: for it to become an issue, we must agree that it is the responsibility of society, rather than of the individual him/herself, to ensure that his stream of wages is a nondecreasing sequence.

Since when has this become axiomatic that a decrease of wages in a particular sector is a policy failure? Can it be, as is hte case in the IT sector, that rationing resulted in elevated wages? If so, their decline is a normal adjustment. Why is it the responsibility of society as a whole to continue paying programmers extra-high wages (speaking of rents) just because they once attained them?

This is precisely what socialist values dictate: a guarantee to a job -- Article I of the constitution of the Soviet Union. I believe that whatever monotonicity of labor you want to guarantee yourself, it is primarily your own responsibility.

Sure, if you're in your twenties, it's easy to retrain. But if you're in your 40's, you're still a long way off from retirement, and you've your whole career acquiring industry-specific skills, it's a lot harder.

Absolutely. But this presupposes, and excuses the absence of, foresight on the part of the agent. It is you, as an individual, who has a responsibility to better yourself and make yourself valuable in a constantly changing world. You know full well that those who do that --- go to workshops in their field, get an MBA, learn an extra language at night in a community college, learn some carpentry while being primarily a metal worker --- are never in the situation you described. And those that never thought about the future -- why should it be a social, rather than their own, responsibility?

I believe this ethos has always been at the core of American values. Since the Depression and the ensuing growth of government, however, many have lost these values. But this is about values, which is an extra-economic issue.

In academe, this change has been especially drastic. Especially after WWII, markets were supposed to be horrible --- and not just in provision of public goods. Especially since Rothchild and Stiglitz (1976), markets have become no-good even when they provide private goods such as insurance (market failure in the R-S model is, incidentally, the artifact of the model itself rather than of the underlying economy; there is no market failure in their economy; again, so much for credentials). The government must "take care" of us, poor souls with rather bounded rationality. I don't buy that.

I do not want to speak for you and your reasons for adopting the views you hold, but I was a little surprised that you take as axiom that it is the responsibility of the entire society to take care of wage drops experienced by any group of individuals. Any comment?

153 posted on 11/24/2004 3:38:32 PM PST by TopQuark
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To: TopQuark
That is, if you impede the matching of labor with its use in productive activities, your (second-best) welfare maximum cannot be greater than the (first-best) maximum attained in the absence of impediments.

I see two problems with your reasoning, acknowledging that you still have to flesh it out.

1) The first best is usually not acheiveable because of imperfections, frictions, and the like. Thus the best you can do is a second best outcome.

2) The first best outcome for the world may not be the best outcome for an individual country. That is, matching labor to the most productive use of capital may maximize world net national product, but a particular country's net national product may be reduced from such a process.

Regarding the rest of your post, I suppose we just have a different philosophical perspective. You appear to be a libertarian. I am not. I believe that governments have a duty to work for the common good, and that includes protecting their citizens ability to earn high wages. Sometimes the cost of protection, in terms of national income, exceeds the benefit, but sometimes it does not. I think you are wrong that this presumption began with the great depression. One Lincoln's justifications for advocay of protectionism was the desire to prevent American wages from getting eroded by cheap foriegn labor.

Now I don't think our trade policy in the 19th century was optimal, so don't think I'm defending it. I bring up Lincoln merely to refute your assertion that it was only after New Deal that Americans started believing that the government had an obligation foster wage growth.

160 posted on 11/24/2004 5:14:03 PM PST by curiosity
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