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.
NAFTA is why illegal immigration from Mexico has skyrocketed.
NAFTA allows American factory farms to sell freely to Mexico, which has put the Mexican farmers out of business because American produce is cheaper than Mexican.
So unemployed Mexican farmers must sneak into the U.S. to pick fruit or starve.
Massive amounts of agriculural products are going into Mexico? Assuming that is so, which sounds odd, Mexico these days is mostly urban anyway. Cheap food is good.
Funny you should mention drug companies.
Those same companies want to freely shop the world for the best markets and cheapest labor . . .
But they don't want American citizens to freely shop the world for the best prices on drugs.
And you can thank the American GOVERNMENT for most medical breakthroughs.
Most of the "research" dollars drug companies spend is on how to make their drugs different enough that they can patent them all over again after the original patent expires.
It's in government sponsored labs that most medical breakthroughs are made.
Tell that to the Mexican farmers who, thanks to NAFTA, can't even afford cheap food without breaking the law.
By the way, few took me on my proposals, or my denouncement of Bush on this one. That was interesting too.
The interview of the author and her book can be heard here, by scolling down to "Dr. Marcia Angell":
http://www.wnyc.org/shows/lopate/episodes/09142004
Bingo! The American worker does not realize that those manufacturing jobs are never coming back. We're headed for a depression and a revolution when the American worker discovers that. There goes Clinton's legacy- He sold the American worker down the river with NAFTA.
The only manufacturing jobs to survive are those that are associated with export-controlled items like weapon systems and high tech stuff as well as items that have a high percentage of their cost associated with shipping (dog food, furniture, etc).
I'm not sure what you're responding too. If its the difficulty of retraining while supporting and caring for a family, I've done that. I can also tell you that my children were burdened by the experience and I was not able to be the full time mother they deserved. The stress and lack of sleep resulted in my illness that is chronic. These are absolutely things people do, American or otherwise, to survive. How does this fit with the culture of life, where every human life is important, except when it is measured against corporate profits.
Some people are doing very well in globalization and some are being crushed. We are not paying our own way, but transferring the burden to the future. Where is the responsibility and morality in that?
It's fine to have a cause, a noble thing indeed, but is the cause the end in itself regardless of how it functions? If free trade doesn't work for a significant segment of Americans, should it be pursued without adjustment? If we embark on a policy that we know will leave some people s**t out of luck, do we as a moral culture leave them and their families to figure it out for themselves or parish?
When does blind adherence to a theory or cause trump our compassion for the suffering of others?
Mao had a cause. He wanted to move China forward and he thought the way to do it was to increase the production of steel. Every man woman and child in China was charged with making steel for Mao's good cause. Farmers didn't farm and millions starved.
No human being knows everything there is to know about economics, or how a theory is going to play out in every detail. There are simply too many variables.
A trade deficit is nothing more than an investment surplus. If you really want to get rid of the trade deficit, just change the interest rate and exchange rate environment downwards.
A trade deficit also really tells you that we produce high valued goods much of the rest of the world can't afford, while they produce low valued goods almost anyone can buy anywhere.
Or look at the investment picture.
Foreign countries and foreign based companies outsource to the US things like automobile factories, steel finishing, chemical plants, pharmaceutical plants, the education of their best and brightest, etc.
We outsoure telemarketing call centers, cheap toy factories, apparel sweat shops, computer programming drudge work, etc.
Frankly, it sounds like a fair trade to me.
During the Great Depression, US economic output fell by about $30-40 billion. Its hard to see a couple billion dollar shift in trade causing or augmenting this.
Another thing to remember is that Smoot-Hawley really didn't change the overall tarriff picture very much. It gets a bad rap simply from being the last bill before the Depression. Smoot-Hawley certainly didn't raise tarriffs to any appreciable extent. That was done by the curency deflation in the face of the US tarriff regime of tarrifs in pennies per pound or per item, rather than pennies per dollar of value. If the cost of an item drops by 50%, while the tarriff on it remains a constant dollar value, it is the same as a huge increase, even though one was not intended.
1) Steel prices dropped under the tarriff regime, and rose once it was removed. Perhaps if you actually worked in a field affected by steel prices, you might have paid attention to them.
2) The purpose of the tarrifs was not to create jobs, but to give the domstic industry a couple of years to restructure, which they did. See: International Steel Group, US Steel purchase of National Steel, Severstal purchase of Rouge Steel, liquidation of Geneva, Gulf States, and Acme Steel, etc.
3) The Minimills are now in a world of hurt because of the Chinese economy sucking up all the scrap steel available at prices of many hundreds of dollars per ton.
4) Today we have a steel industry in far better shape than 4 years ago. Then much of it was in bankruptcy despite roaring prosperity nationwide. Today, with a general economic malaiase for about half of the past four years, the steel industry has not been so healthy in decades.
5) Bush and the Republicans did much better in SW PA, SE OH, WV, northern MN (the Iron Range), NE IN, etc. than 4 years ago. Surely helping the steel industry played some part.
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.Guys, This tenth grade educated American {me} has said and written this inevitable fact since talk of globalization began. It's about time the P.H.D.s "in the trade" realized it. Peace and love, George.
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As you clearly see, a free trade society as currently practiced cannot be a Christian one. Listen to the sneering Social Darwinism of the free traders on this board. It is ridiculous to talk of "family values" when the economic rug is pulled out from under them at regular intervals.
Without stable jobs you cannot have stable families. You don't need a PHD to see that. And how attributable is the explosion of porn to waves of cheap teenage girls who will do anything on camera for $1,000 ? How can you have a moral society where labor and flesh are cheap ?
Good point. The arrogance of marxists ruling Sovier block was that they believed that having a sophisticated scientific theory they were able to predict and control economy.
Many Marxists after their disapointment with the Soviet experiment change the theory but not the attitude. So some become fanatical free traders, anothers become neocons, others become PC promoters of pederasty and secularism, etc, etc ...
The evil brood of Hegel continues the preparation for the coming of Antichrist.
Amazing - so according to the free trade theory a guy selling his family assets and living off his credit cards is only accumulating "an investment surplus"! This is worth a ping.
True enough, until the quality of the debt instrument is marked down.
Wrong.
A far better focus is on employing Americans in productive, family-sustaining jobs.
One of the key elements in this article is the concept that we are in a battle of 'competing interests,' not of 'harmonies' from efficiency.
That is, it's war.
We heard that first from PJBuchanan, back in the late 1980's, BTW.
Yeah right. Let's get those former motor/generator assemblers into their new careers as cardio-vascular surgeons.
The article SPECIFICALLY mentioned economic 'dream-theorists.' Evidently you are one of them.
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