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.
yes.
can that last? is real estate a productive segment of the economy? can we all get rich swapping real estate, or financial instruments, to one and other, at ever higher prices? sure, some people can do very well at it, and we need those jobs too. but at its core, you have to have a productive sector of the economy, its the well from which all the other water is drawn.
American protectionism was right wing doctrine before the advent of the globalists.
if you look at what the US exports - you will find your answer. agricultural products and consumer non-durables (soap, laundry detergent, toothpaste), they are buying those like crazy.
Buy Archer Daniels Midland, and Proctor & Gamble stocks.
People I know are doing real estate or mortgage brokering part time while running their own business. They go where the opportunities are. A person must be flexible and take risks. I've learned that the hard way. I prefer to FReep but it doesn't pay very well.
here is the thing about China - just one whiff of geopolitical instability in the country, and the current "giant sucking sound" of US investment headed over there - will turn around in a heartbeat.
I know, but can we build a productive economy around mortgage brokers and real estate agents?
Basic/bulk programming and software development.
Of course not, but our GDP and productivity keep going up so something's going right. I suggest looking at the number of new business startups. People who do lose their jobs to outsourcing get retraining and education benefits and many of them get better jobs.
LOL! As if the State Department is a credible source of economic history.
Powell never did clean out that rat's nest of left-wing globo-weenies, did he?
I did just that in my thirties. Now that I am in my fifties, I no longer have the physical stamina to work and go back to college again, nor the money. While Bush touts education, getting that education has become more expensive and out of reach for more and more people.
Having to retool for a new career while supporting and caring for a family is pretty near an impossible task.
I fear that it is the countries that are willing to make investments in its people that will prosper while those that do not will fall further and further behind.
Brazil accuses us of retaliation for placing tariffs on their exports, just because they place tariffs on our goods coming into Brazil. They are saying, never mind that we are unfair to you, it's mean for you to protect yourselves by reciprocating.
Free Trade is a lose, lose, for the American worker. Of all these new jobs that have been "created", most are at poverty level on the pay scale and a full half of these jobs have been filled by immigrants.
Genie in the bottle my foot. There are simple ways to cram him back in his bottle, and it must be done. Sure the American worker is "flexible", but flexibility is impossible when there is no living wage jobs to be had. Bush talks about new jobs as medical techs, and that is the only field that has openings and won't take long to fill the need, then what?
This hemorrhage of manufacturing and industry must stop.
Since Powell himself is a weenie, I'm not surprised he left others in place. Don't you wish a change in government was really a change in government? When the CIA is a war with the president you know how impossible it must be to actually get anything done from the WH.
Retool for what? The big growth areas are Government and health care [paid by the government]. Take a civil service exam, become a nurse or move to a Red State where life is not affected by outsourcing.
Well a big AMEN to that, anyway!
Bump for later.
From the BLS: 71,000 of those jobs were in construction (thank you hurricanes!); the labor force grew by 367,000 people in October (30,000 fewer jobs were created than people entering the labor force); Government created in the neighborhood of 70,000 of these new jobs (so much for shrinking government).
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