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.
Purchase what things ?
Soybeans ? Corn ? The container ships that bring Chinese goods to Walmart go back empty.
Probably because they've learned from the lessons of history. All of the notable nations that expanded through force have failed. I'm sure China would like to be a peaceful economic superpower. Like I've said before, there is no such thing as a sure thing, but odds are China is heading in the right direction.
For China to be a superpower it must expunge American military power and economic interests from the Persian Gulf to the entire Western Pacific. A Chinese fleet MUST dominate the Persian Gulf. India MUST be reduced to a Chinese client statte. This cannot be done without throwing some muscle around. Imagining that China can become a superpower without confronting America and its allies is as ludicrous as imagining that Germany could have become a superpower without confronting England.
The dollar could slide still further, in spite of hitting an all-time low against the euro last week in the wake of George W. Bush's re-election, currency traders have said.
The dollar sell-off has resumed amid fears among traders that Mr Bush's victory will bring four more years of widening US budget and current account deficits, heightened geopolitical risks and a policy of "benign neglect" of the dollar.
Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October.
"If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar," said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms.
The dollar's fall comes as the Federal Reserve is widely expected to raise US interest rates by a quarter point to 2 per cent when it meets on Wednesday and to signal that it will continue with a measured pace of rate increases.
Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate.
However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets.
India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors.
China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.
me? no, not at all. I was just citing some examples of popular exports to china. they do buy technology from us also, but much of it is to build their own manufacturing base in the same area (i.e, they import semiconductor manufacturing equipment from the US) to eventually cut us out.
These encyclicals ARE the "cliffnotes". They are very brief and they have many long treaties behind them. Just click on the links and enjoy.
providing a level playing field regarding trade (and immigration for that matter, H1B visas, etc), is not government "securing" a job for me. its simply providing a fair playing field in which I can get one on my own.
What is the freetraders solution? Remove the regulations so traders cannot be sued.
You forget about the production base to MAKE these goods. Once the "green pieces of paper" lose their value, the factories are gone and skills are forgotten, how will you get the goods? What about the debt denominated in other currencies, what about the assets owned by the foreign corporations?
This is the Argentinian way back to the Third World.
Actually China does not need to do it, once China is number one (not per capita like Luxemburg is, but in total size measured by the PPP) and USA goes the way of Argentina, imperial troops of the present superpower will melt away like the Roman troops did in the past. "It's the economy, stupid ".
its got to happen, the only way to make foreign investment by US corporations more expensive, and imports less desireable, is for the dollar to fall. if you follow the prices of popular german cars, there is serious inflation there because of the euro/dollar exchange rate. and what happens to the price of oil?
That's not exactly true.
Foreign Direct Investment in the U.S. has plummetted 80% in the last 4 years.
The automotive industry is particularly vast and complex, and occasional headlines can be misleading. While it IS true that you'll occassionally see headlines of foreign automakers retooling or maybe even opening a new plant here in the U.S., the overall frequency is declining, while the trend has been toward final assembly only while offshoring major components (engines, transmissions, windshields, etc. etc.) The automotive industry is vast when you consider the supply chain, and the U.S, industry is definitely losing it's manufacturing base.
I'm sure that the oil producers will be willing to take the loss to save the economy of the United States - Saudi Arabia, Nigeria and Venezuela are our great friends.
that's true, but frankly - I'll take it. outsourcing some sub assembly manufacturing, if it helps to keep final assembly jobs here, is a decent trade off. it sure beats having everything made in china and thailand.
the german car makers are in big trouble in the US market right now. their costs are high, they are raising prices because of the euro exchange rate, and they are losing their content edge that justifies the higher prices. they are surviving on brand name only.
Why don't we instead let a government protect the proletariat from the evil capitalists and safeguard everyone's jobs and see how long that lasts...oh wait, that's easy.
It can last from Lenin to Gorbachev.
It depends in what currency you will pay. Euros, dollars or Argentinian pesos?
That would be either roasted, broasted, bar-b-qued, fried, or soup-i-fied.
"Burned" should not apply.
HerCher, you are correct that the Jap problem is one of demographics--but I think you ought to take another look at the living conditions in Nippon. They have houses, flush toilets, TV, warm water--all that stuff.
They also have the single largest reserve of USDollars in the world. We will pay the Social Security for them in our principal and interest over the next 30 years.
But then there will BE no Japan--because there are no children to speak of...
Well, it's nice to see FR get back to normal.
The malcontents are malcontenting away, the Keyesters are back in hibernation while Alan spends the leftover campaign money in some sorely needed home repair projects, the protectionists want to protect their jobs with my money, which of course they claim is different from welfare, and the ersatz Marxists are calling for government control of the evil capitalists in the name of the proletariat.
Sigh...
One starts missing the dog days of the John/John campaign after a while.
HermCher, there's a VERY long list of US companies which have significant manufacturing resources in PRChina. GE, H-P, GM/Ford/Chrysler, Boeing...all listed by Lou Dobbs (find him on CNN's website--the list is published there.)
Further, most of the components on the computer you are using were manufactured in PRC or Taiwan--NOT in the USA.
Finally, another poster, Sam the Sham, has made a point: in the words of the song from Camelot "...and what do the simple folk do?"
Some of them actually need jobs which do not demand an IQ above 120.
It's the baby that's getting tossed, not just the bathwater.
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