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.
you nailed that one on the head. couple that with a few keynesian policies passed by fdr and some complete buffonnery on the part of the fed in the early 1930s, and the world economy suffered.
it is clear throug history that protecting jobs and taxing imports is a sure fire way to send the world enocomy, including that of the united states, into a downward spiral.
Wonder if he is a lurker, and got it here.
For all things yes, but for the destructive powers of his overly strong dollar, no. GWB did make the so called recession much worse. Of course it was really a business spending depression of historical scale, not a consumer spending recession.
I guess those taxes will be paid by the more productive people who got better paying jobs.
It's not so much lack of will --- and obviously going to college forever is a wonderful idea --- but many people are working 50-60 hours, they're trying to get bills paid, kids raised, maintain their homes, enjoy a little of their lives --- finding 20-30 hours a week to attend classes and study isn't as easy it might sound for everyone to do.
Thanks for the post.
I'm go glad Bush won. Defense is the primary function of the federal government and there is no way an anti-American like Kerry should be commander-in-chief of America's military.
Now, its time to fight this head-in-the-sand attitude on the globilization of the economy.
Put America first!
if you can locate them, let me know, I have friends who worked in tech - who are at Lowes now, or in real estate.
let's not forget - government workers, teachers and those who work in education, and many who work in health care - are paid for through taxes, they are net "takers" from the system. only private sector workers provide net inflows.
No one expect that --- but the government involving itself in every kind of 30,000 "free trade" or NAFTA deal it can arrange is far from handing jobs to Americans --- that's intentionally pulling jobs out from under Americans.
The actual history of economics and the rising wealth of trading nations has proved the total opposite.
Left-wingers excel at unproven theory while right-wingers look at actual evidence and proven theories.
I look at China today versus 30 years ago and the US today versus 30 years ago and I see two countries that are better off. I see two countries which will eventually be allies versus two countries destined to blow each other up.
Aren't people in real estate making a killing these days?
Okay --- we give up our jobs and wait for some kind of consumer base to develop in China --- but what happens if the Chinese also decide they like their cheap things --- plus by then --- what would we be manufacturing? China can get technology cheaper from India -- and look at Mexico --- with all their new-found US dollars, they're importing the cheap stuff from China. Now we've got a fast-growing trade deficit with Mexico when it used to be them with a trade deficit with us.
Nonsense.
You're wrongly attributing cause and effect.
In 1929, imports formed only 6 percent of the GNP, yet the Great Depression resulted in a 31 percent drop in GNP. It was the overall economic decline that led to the decline in imports, not vice-versa.
A lot of times when you lose a job -- no matter if you're over 40 or over 30, you're so worried trying to save your home and pay other bills, you don't enroll in a University -- no time or tuition money.
It lifted them from the Third World to the First. I assure you that today Japan is much, much richer country than it was in 1950s. And Japan is a major lender to America.
Chinese will be very happy to have Japanese level of development (even with the Japanese problems). At the Japanese PPP, Ceinese economy would be FOUR times larger than USA and make HALF of the world economy. Not a bad deal for having Japanese style problems!
There is no such thing as a sure thing, but I think the odds favor such an outcome. I certainly hope so.
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