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.
Did you actually READ the stats?
40,000+ of those "jobs" were in Gummint.
Wow!!!!
Some were in construction, many were "temporary;"--it's the Christmas retail season, you know.
And the rest were in wait-staff.
Tell us about the DOL's number for MANUFACTURING, please.
Your Mitsu has a problem: it's entirely likely that Mitsubishi Auto will go banko in the next 2 years.
Ever look at the BlueBook on Mitsu values? Grim, my man.
Best outsourced. That's why there are bills in the Senate ad House -- SB-186 and HR-413 -- to outlaw kitchens in new construction. The House version goes further -- creating a Federal Anti-Home-Cooking-And-Kitchens Agency (FAHACAKA).
Outsourceing is good for the economy. It's silly for people waste their time in the kitchen cooking when they could be engaged in productive activity. How many trillions of productive hours have we lost already??!!
Wake up America -- get out of the Kitchen already. Leave the cooking to the professionals! Eat out today and every day! Three times a day!
A friend of mine used to occupy a rather nice position with the State of Wisconsin--then moved to search consulting.
Now he's at Home Depot.
His former (search) employer gave up the biz and joined a larger firm.
Not to mention un-provable, which makes it a very safe exercise for people like Enterprise Rent-a-Car.
You're drinking the KoolAid of Greg Mankiw, who is convinced that "economic ties" prevent wars.
Uh-huh. Remember the American Revolution? Who was the US's MAJOR trade partner at the time?
Clearly you have no desire to see the future of this country survive as a dominant economic force. To your way of thinking there would only be elites of every kind in America. There is no room in your future for anyone who is somewhat mentally retarded, having a low IQ, physically handicapped or even just not quite as smart as you.
What do you propose we do with all your "misfits" currently residing in the U.S?
Actually, it's because we have a hell of a lot more DEBT than anyone else.
What happens when (not if) the value of housing drops?
And it will: net after-tax earnings, CPI-adjusted, continue to decline.
This is somewhat off topic, but is a particular interest of mine. Although some Americans now spend $50,000 or more to renovate a kitchen, basic cooking skills are disappearing in this country, especially among the lower classes. Some point to this as the underlying cause of the obesity epidemic, which affects the poor disproportionately.
Sometimes I worry that we are becoming so specialized, that many Americans wouldn't know how to function if confronted with a national emergency, particularly if it affected our food supply.
Thanks for this reply to gcruse. I was trying to counter his claims as my father is in the steel industry and his business went up right after the tariffs went into effect. Now, he's pretty much out of business due to reduced production.
Luis--greed and selfishness are not "conservative" values.
Luis ignores a lot of facts.
Reagan also forced the Japs to build their auto plants here with protectionist tariffs.
Actually, Luis, APole is highly educated and a conservative. But you wouldn't understand that...would you?
Interesting that Lincoln, too, postulated that between labor and capital, the FIRST is labor.
But the "ideal" of slavery persists in the alleged minds of some on this thread.
To authorize qualified organizations to provide technical assistance and capacity building services to microenterprise development organizations and programs and to disadvantaged entrepreneurs using funds from the Community Development Financial Institutions Fund, and for other purposes.
I can see where this could be interpreted as providing for hot dog stands so we can get out of the kitchens.
This is it in a nutshell. Wasn't this what Spain did in its "Golden Age"? They used their wealth to import goods instead of developing industry.
We've had some good discussions, and name-calling "PROTECTIONISTS" is not helpful.
The advocacy of Sam, Willie, and others, is for FAIR trade--and the list of PRChina (and Indian) restrictions/counter-moves to "FAIR" trade is exhaustive.
I don't call you an elitist lawyer. Back off the "protectionist" crap.
And Von Mises is no patriotic American.
Oh I know that --- and up until now I worked full time and part time and took classes --- and raise a family. I know people with two full time jobs because the economy has them so worried. And many families are two parent with 3 or 4 jobs between them. Those are the only options people really have who won't use the welfare safety net to fall back on but I don't think it's the best thing for families --- kids growing up with no time with parents because the economy has them working and out of the house 80 to 90 hours a week.
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