Posted on 11/06/2004 2:45:55 PM PST by Willie Green
For education and discussion only. Not for commercial use.
A battle royale has just been initiated in the rarefied world of economic theory, although the rumblings have not yet reached these shores. The first salvo has been fired by no less a person than Paul Samuelson, and the targets he has chosen include some of his most prominent acolytes and disciples.
The MIT professor, winner of the Nobel Prize in 1970 and research mentor of countless economists, who later became major scholars in their own right, has re-assessed his entire stand on globalisation and the benefits that accrue from the process. In doing so, Samuelson has been scathing in his critique of some of his students, including Jagdish Bhagwati, once a member of his innermost circle.
In an article in the Journal of Economic Perspectives, Samuelson has postulated that free trade, far from being an unqualified blessing, may prove to be a major drawback under certain circumstances. The major cult figures who are sought to be chastised by the guru on this issue are Gregory Mankiw, Bhagwati and countless other `globalists'. The first two have been mentioned by name in the article's opening paragraphs as purveyors of `polemical untruth'. In the corridors of theoretical economics, you cannot get more direct than this.
The thrust of Samuelson's analysis is that a country like China, basically a low-wage economy, will create a net negative impact on the American people, when it manages a substantial rise in productivity in an industry in which the United States was earlier a leader. Initially, American consumers may benefit from low-priced goods in their supermarket chains, but their gains may be more than neutralised by large losses sustained by American workers who lose their jobs. This thesis, from the erstwhile mastermind of the neoclassical school of economic thought, has led to tumult in the profession even before its official publication.
Among Samuelson's fellow liberals, this revisionism has been a welcome development and could not have come a day sooner. Many American commentators are saying this is a clarion call for the US to launch serious programmes for supporting workers displaced by globalisation. American workers need a much stronger and a viable safety net, on the lines of their European counterparts or even those in Canada, the immediate northern neighbour. Some American economists are even saying empirical research on the subject in the past was skewed, because of the in-built biases of the free-trade proponents.
Claims of substantial gains from free-trade were based on `extraordinarily poor studies', according to one commentator, Jeff Madrick, who goes on to add there is now hope for a more balanced perspective in future research in international trade theory. Policymakers in Washington are now being urged to move away from their high perches and to take a hard look at ground realities. When one of the most respected contemporary economists has stepped out of the shadows and said things are not as simple as they were earlier made out to be, it is a development that cannot be ignored. Another observer, Pat Choate, feels this paper is the correction of `an embarrassing mistake'.
Samuelson, at the age of 89, is signalling to his disciples that they should think about the real world rather than `postulate assumptions and develop elegant models which ultimately are irrelevant'. More critical economists, like Paul Roberts, feel the maestro's attempt to patch a leaking vessel that is ultimately doomed will just not work. Roberts suggests the paper responds to an insightful critique by Ralph Gomory and William Baumol, another economist familiar to all Indian students of economics.
In their publication, Global Trade and Conflicting National Interests, Gomory and Baumol launched a powerful attack on orthodox international trade theory. They showed free trade is characterised by conflicting interests and not by mutual benefit, as neoclassical economists assume. Roberts, in fact, lambasts Samuelson for not taking on the issue of outsourcing in any depth.
While the friendly fire in this debate is clearly sympathetic to the overall theme, the globalists are clearly worried. The damage-control effort of this brigade is led by none other than Jagdish Bhagwati, the former Samuelson disciple, singled out in the paper for reprobation. The Columbia don has reportedly prepared a response to Samuelson, which will be published in the same journal.
Bhagwati, of course, got a lot of media attention recently when he described John Kerry's trade policies as `voodoo economics'. He has been one of the most committed globalists for many years and was a defender in the 1980s for the Japanese trade lobby, which he exonerated from charges of protectionism, while reserving his blame for `bullying' American policy-makers. He dismissed the argument that non-tariff barriers significantly reduced Japan's appetite for imports from America. There is now sufficient evidence (and semi-official admission) that Japan was a major protectionist country throughout its period of growth in the 1960s and much later on.
Most of us who have worked in this country's corporate sector and interacted with Japanese companies will vouchsafe for the enormous clout of these organisations and the seamless interlinking between the much-vaunted MITI and Japan's private business. In any case, Japan's continuing trade surpluses are likely, once again, to become a controversial issue in Washington very soon.Bhagwati will have his work cut out, as he takes on his former guru in a no-holds-barred fight to defend orthodox economics.
In these shores, North Block and Raisina Hill would do well to ask their think-tanks to introspect on the complex subject. Else, they can be taken to task for swallowing the globalisation mantra a tad too uncritically.
The writer is a financial-corporate analyst and a member of the Delhi Stock Exchange.
Precisely.
And that is where we see what an essentially pagan and godless doctrine free trade is.
A Christian respects the value and worth of the human being, not viewing them as things to be used and discarded as a free trader would. That is why the Christian Right does not support free trade at all, much as Ralph Reed tried to get them to support NAFTA.
What does that mean? I don't understand it. :)
What jobs do you want the government to secure for you?
You're about a half a step away from talking about the oppressed proletariat and the evil capitalists.
On second thought...check that, you're already there.
I believe that Prof. Bhagwati calls it, World Migration Organization, WMO.
And you're the spokesman for the Christian Right?
I was talking to Luis Gonzalez.
You keep coming back with nothing.
It was cool when Paul Newman did it in "Cool Hand Luke". Trust me on this. It doesn't work for you.
It's real simple.
To be in favor of more government controls on private industry is a liberal concept, you support the liberal concept of more government control on private industry.
So you are a liberal.
You don't wish to admit to it, I wouldn't either, but the fact that you embrace the notion that "capitalists" owe jobs to the "proletariat" makes you one.
Shove the "intellectual" bit.
When you preach government intervention of industry, you preach a liberal sermon...period.
So the half of American workers with IQ's of 100 or below simply get their masters degrees from MIT and problem solved?
Precisely. A system where you have to be a genius just to survive, a system where it is not possible for an average guy to expect a steady job with good pay is a system that will have more losers than winners.
I value a system not according to how it works for the genius, but how it works for the average guy, the regular joe. And as you see, in free trade the American regular joe hasn't got a chance.
Then let the capitalists go start their own country--but without a proletariat to buy what they make.
Let's see how long their businesses last.
121 - Don't worry, now that Bush is safely re-elected, he can give Luis' legal Cuban job to an illegal Mexican and we can all save money,
Protectionists are terminal whiners and losers, and have no future, and no hope that their tilting at windmills will succeed - the economic realities are simply too powerful. And that is unlike my psoriasis, which those evil drug companies are containing.
Governments have intervened in industry since the priest kings of Ur and always will. It was the American government's patronage that advanced canal construction, then railroads, then airlines (before widespread passenger air travel, mail delivery was the core business for fledgling airlines), then the interstate highway system, etc.
Coming back with nothing, again. But it's not cool.
When NAFTA was signed, every voice of economic theory, every editorial page of every newspaper, every living ex president supported it. But it barely got through Congress.
Now, even the economists have to see what is in front of their eyes, that free trade does NOT benefit both parties. That the factors of production are indeed mobile. The ground has shifted out from under the free trade position. You are losing this debate both in academia and in the court of public opinion.
The Emperor and other rich Romans gave the plebes free bread and free entertainment in the Arena to keep the plebes from rioting.
But they were still Roman citizens and were told that was a great thing.
Of course the factors of production are mobile, and will stay that way. You'll get used to it. I haven't noticed the center of gravity of economists becoming protectionist. Perhaps I missed it.
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