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.
I'm sorry Jaysun but this doesn't seem like brain surgery to me.
Samuelson finally recognizes that competing with Japan and Europe is not the same thing as being faced by (economically) third world producers who are being assisted by globalist corporations. One may lead to competition, the other inevitably results in U.S. surrender.
One can keep a billion people VERY quiet with a few executions here and there.
Ask Joe Stalin.
BEA's stats on Manufacturing as a % of GDP tell us that the manufacturing sector has been shrinking--at last report, it was 13.5% (preliminary 2003) where it had been around 16% during the '90's. It was 25% in the '40's and '50's.
Moonman, call Earth.
1) My work (heavy civil construction design and supervision) is non-exportable.
2) Childrearing is a non-economic decision.
304 - ROTFL -
"1) My work (heavy civil construction design and supervision) is non-exportable.
2) Childrearing is a non-economic decision."
Tell those stories to people who don't know anything about those subjects.
Are you sure those all really belong in the outsourcing category?
I understand outsourcing to be the movement of production/jobs overseas, where that production is being done for the American market.
Opening a factory or office in China to serve the Chinese market would not then be outsourcing.
There appear to be no shortage of jobs for the simple folk if what we hear from this crowd about WalMarts and McDonalds and jobs paying $9K less per year are to be believed.
Its worth actually tracking production of various categories, rather than making statements like this.
http://www.federalreserve.gov/releases/g17/ipdisk/ip.sa
Look through what is on the Federal Reserve site concerning industrial production, and look at the long term secular trend beyond just the last recession and recovery. Looking through the general categories up top:
Going up - Automotive products; Computers, video and audio equipment; Appliances, furniture, and carpeting; Chemical products; Paper products; Consumer energy products; Business equipment; information processing and related equipment; Construction supplies; Business supplies; Materials; Materials ex. energy materials; Durable goods materials; Consumer parts; Equipment parts; Chemical materials; Energy materials.
Flat - Foods and tobacco; Defense and space equipment; Paper materials
Going down - Clothing; Transit equipment; Textile materials
As I see it from looking over the data, the only sector of the American economy in any real trouble is the clothing manufacture sector. And I frankly think that American's would rather have clothes and shoes that cost the same today (or less) than they did in 1982 instead of having sweatshops available to work in as seamstresses and cobblers. And I believe this phenomena is the primary feeder of the WalMart phenomena as well, since generally 2/3 of WalMart's and Target's and the like are devoted to clothing, shoe and apparel sales.
The reorientation of production away from defense manufacturing and tobacco processing can only be looked at as a good thing, even if individual workers were hurt.
It just ain't so. Federal Reserve Production Data again.
Motor Vehicle Parts Production (December of year - avg. of 1997 months = 100):
1986 - 56.654
1987 - 59.996
1988 - 66.415
1989 - 58.104 (recession)
1990 - 51.328 (recession)
1991 - 58.462
1992 - 68.789
1993 - 79.31
1994 - 89.088
1995 - 90.064 (slowdown)
1996 - 94.487
1997 - 105.25
1998 - 110.48
1999 - 118.587
2000 - 108.267 (recession)
2001 - 108.215 (recession)
2002 - 113.045
2003 - 118.337
So, US auto part production doubled in 6 years from 1990-1996?
And we employed twice as many people manufacturing them?
Yes.
And we employed twice as many people manufacturing them?
Nope.
I wonder if you guys realize that even as we have been shedding manufacturing jobs here due to productivity gains, China and Mexico and the like have been shedding manufacturing jobs as well for the same reason.
For all the outsourcing to China, they employ 15 million fewer people today in manufacturing than they did 10 years ago.
Manufacturing jobs are being shed worldwide for productivity reasons.
That's the list Dobbs put together, and he refers to them as 'outsourcers.'
I haven't personally verified it, but when I scanned it, I saw very few "surprises." You'd be amazed: I have a sometimes-client, a $40MM company, which just opened a plant in PRChina. FORTY MILLION!
The owner is a very greedy s.o.b., as you might expect. He laid off a bunch of Vietnamese here in the US because of the labor-arbitrage he gained in PRChina.
Yup. Plenty of $9./hour jobs out there.
Of course, if one is used to $18./hour (and has payments which require that sum) then things get a little rough.
Too bad, eh?
HermCher, you can look at Greenspan's numbers all day long; but I think you'll get a better read on reality if you go to www.americaneconomicalert.com, where you will learn that the Furniture Manufacturer's Association has CHANGED ITS NAME to reflect the fact that furniture plants in this country are closing in favor of PRChina ventures.
Now they're the Furniture Suppliers' Group, or some such thing. The US furniture industry has lost (IIRC) 39K jobs in the last 5 years.
Appliances
Not in Galesburg, IL., where Admiral just shut down its entire factory (1800 ees.)
Paper products
Twenty percent of the world's paper mills have shut down in the last three years; the concentration of the shutdowns were in the US, where machinery is older. Guess where the NEW machines are?--Indonesia/Malaysia.
Business equipment; information processing and related equipment
In SALES, maybe--but not in US-content. You've seen the Dobbs list.
As to China losing mfg jobs, I've read data that goes both ways. Most seem to agree that they have closed a bunch of make-work plants over there.
Interesting--because the Free Market types keep telling us that 'only prosperous people are peaceful.'
I happen to agree with that, in general terms--so where's the Revolution from the 15MM dis-jobbed in PRChina?
The 15 million who lost manuacturing jobs went into the service industries or into construction.
In high technology, the multiplier exceeds 7-to-1.
The service jobs that we are "replacing" the jobs lost in manufacturing...(along with the technology hardware and industrial processes)...only have an economic multiplier of 2-to-1.
THIS is why the economy has struggled so badly. Because we have allowed the Chinese to "cherry-pick" the manufacturing component of the economic food chain. This is the truest "high-value" component for the forseeable future.
We are negligently allowing the industrial base of America to be transferred and permanently lost to a mortal and implacable enemy...and all that goes with that base. R&D. Innovation. Productivity. All the ancillary facets of industrial pride a great manufacturing nation necessarily will implode in the U.S. along with the dereliction of its role as an actual manufacturer.
Thanks for the ping!
bttt
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