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.
At this time, the dollar is re-adjusting to the Euro.
However, it CANNOT re-adjust to the yuan--artificially pegged.
I expect our exports to Europe will increase, assuming that Europeans will spend some money.
Thanks for a rational, clear, understanding of the steel tariffs.
Too bad that they were so poorly designed: they damn near KILLED the fabricators.
I didn't say people shouldn't work two jobs and take classes always --- that's what they should do in the current times --- I do --- but I believe it was better for families and kids back when a high school graduate could support 7 or 8 kids and a stay-at-home mother on one income and wasn't worried about a career lasting just 2 years. There is something to be said for having something besides just work to worry about --- time for families, time for recreation. When people are on their deathbeds going over their regrets, you almost never hear someone say they wish they spent more time on work --- it's always the time with children, spouse, family, friends they regret having given up.
BTTT
The hurricanes were good evidence of that --- people now rely on the government to provide for them. People are not longer self-reliant.
A trade deficit means you've got programs like TANF, Medicaid, Chip, food stamps, NAFTA-TAA, housing subsidies, Headstart, WIC, federal grants and bailouts, and much much more for those who can no longer provide for themselves because the jobs are gone.
Half of government spending is on handout programs. Compare government spending on social programs and compare that with the trade deficit.
I can't say, but I wouldn't bet your money on the patriotism of the MIT crowd.
Von Mises understood and articulated the beauty and reliability of the mechanism of a free market. To the extent that free markets have been allowed, wealth has been created. Witness, the history of the US and it's affect throughout the world.
You can see the success of NAFTA --- the hundreds of bodies of dead desperate Mexicans in the desert and the Rio Grande and the 25 million living but who had to flee their country.
It's hard to believe that Americans were led to believe that NAFTA would somehow rescue poverty stricken Mexico -- instead it destroyed their lives there.
Would you mind giving us the cliffnotes version of what is said. I did read one reply that stated Christian doctrine of people being more then just property to be traded.
I'm not sure that's the entire picture, although it's surely some of it. It's mighty tough to hold down a 40 hour a week job, raise a family, do basic household chores and shop, plan and cook meals every day.
In the feeeeeeeeeeeeeeelings of some of our fellow citizens nearly all Americans are misfits.
Years ago a KSFO host (Barbara Simpson?) interviewed the author of a new book about easing the American workers aside and replacing them with "better educated" more suitable (i.e., less American-like, more docile and "sophisticated") workers from around the world. These workers are far more compatible with America's intellectuals and betters the author said.
The author said he spoke for many of America's better thinkers. I don't recall offshoring being mentioned, at the time most affected by that were manufacturing workers and the IT jobs demand was booming giving opportunities for all.
I don't remember the author or name of the book. However, I can see a revision of the book coming. Since then the Internet has "eliminated distance" and the "better class of workers" don't even have to work here.
Not only do Americans NOT have a right to a job but we don't even merit a job in the feeeeeeeeeeeeeeeelings of many of our fellow citizens. Something is going to break. "Falling Down, 2005," an updated version of the movie "Falling Down" coming soon?
Yes --- and what is best for American families. It isn't best for the families and their kids when the wage earners are out of the home for the entire day and evening just worried about survival. The alternative which is to count on the government support programs is even worse.
Notice that the dims mantra is always X=millions "manufacturing" jobs lost.
Sounds good - or bad - if one isn't listening carefully. They never addressed how many new-type of jobs were created that filled that vacuum...because that isn't good for their bash-Bush rhetoric.
The sheeple would pick up the lost-jobs mantra and run with it.
Most of the new jobs are created by small business or self-business. These are people the gov't can't control like they can the big businesses.
Independence is abhorant to the dims (who are now socialists).
No one dare say out loud - "OK. Many manufacturing jobs are now lost to overseas. But what have the manufactuirng jobs traditionally been, for the most part? A Little above sweatshop jobs. Is it a bad thing that these are replaced by better jobs?"
Next time you hear the half-lie "Bush has lost x-million "factory" jobs..." call 'em on it.
Here are some interesting articles about cheap food going into Mexico:
http://www.consumeraffairs.com/news04/infant_formula.html
Texas Halts Contaminated Infant Formula Shipments To Mexico
http://www.borderlandnews.com/stories/borderland/20041102-189157.shtml
Plant's baby formula called 'filthy'
An El Paso manufacturer allegedly relabeled animal feed containing dirt and flies as baby formula and shipped it to be sold in Mexico.
The Texas attorney general filed a lawsuit against Milky Way Traders Inc., of 115 Montoya Lane in El Paso, for allegedly buying dried milk intended for use as animal feed only, mixing and packaging it "under filthy conditions," and selling the product as infant formula to Mexican food manufacturers, court documents read.
Samuelson's foolish textbooks have misled millions of economics students.
He just can't help himself, I suppose.
"They showed free trade is characterised by conflicting interests and not by mutual benefit, as neoclassical economists assume."
This is terrible. We simply cannot have any common sense here!
"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."
DUH!
They continue to manipulate the currency exchanges to improve their positions and now the Chinese are in on the act.
The Mexicans were better off when they had their little farms and were at least self-reliant --- now they're desperate and dependent on getting over here to be someone's cheap servant. Their choice now is to leave their families behind to be raised without their parent or get them over here on welfare programs because they can't afford the high cost of living here with their $4 an hour wages.
Thanks for the ping!
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