Wednesday, December 01, 2004

Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization

As far as I read this, Paul Samuelson has finally exposed enough truth to turn around the equilibrium theory, and free trade theories. This paper, that was originally published in September, is, in my opinion, the most important economic facts ever produced. If enough economists recognize the significance of Paul's refutation of his original work about equilibrium theory and facts, we have a chance of truly solving the world's problems.

If you check out Skidelsky's article I posted yesterday, and look at it in conjunction with this new post by Samuelson, I think you may come to the same conclusion I have. My conclusion is to look at Paul Davidson's and John M. Keynes' full works and realize how valid they truly are, now that the false equilibrium theory has been exposed by Samuelson. I'll have much more on this later...

Paul A. Samuelson
Most noneconomists are fearful when an emerging China or India, helped by their still low real wage rates, outsourcing and miracle export-led developments, cause layoffs from good American jobs. This is a hot issue now, and in the coming decade, it will not go away. Prominent and competent mainstream economists enter into the debate to educate and correct warm-hearted protestors who are against globalization. Here is a fair paraphrase of the argumentation that has been used recently by Alan Greenspan, Jagdish Bhagwati, Gregory Mankiw, Douglas Irwin and economists John or Jane Doe spread widely throughout academia.

Yes, good jobs may be lost here in the short run. But still total U.S. net national product must, by the economic laws of comparative advantage, be raised in the long run (and in China, too). The gains of the winners from free trade, properly measured, work out to exceed the losses of the losers. This is not by mysterious fuzzy magic, but rather comes from a sharing of the trade-induced rise in total global vectors of the goods and services that people in a democracy want. Never forget to tally the real gains of consumers alongside admitted possible losses of some producers in this working out of what Schumpeter called “creative capitalist destruction.”

Correct economic law recognizes that some American groups can be hurt by dynamic free trade. But correct economic law vindicates the word “creative” destruction by its proof [sic] that the gains of the American winners are big enough to more than compensate the losers.

The last paragraph can be only an innuendo. For it is dead wrong about necessary surplus of winnings over losings—as I proved in my “Little Nobel Lecture of 1972” (1972b) and elsewhere in references here cited (see also Johnson and Stafford, 1993; Gomory and Baumol, 2000). The present paper provides explication of the popular polemical untruth... Paul A. Samuelson - Continued

GLOBAL IMBALANCES AND THE LESSONS OF BRETTON WOODS - Barry Eichengreen

5 comments:

Northwestern Economist said...

Skidelsky's article is mainly a political polemic; Skidelsky, who is trying to make a case for an anti-US conservative British nationalism, resorts to the usual conceit that the USA is a cohesive monolithic entity rather than a region where sectional interests clash. Lamentably, he makes an error opposite to the one made by the "libertarian" Cato Institute, viz., that there really is a direct correspondence between internal and external deficits (there is not; the "twin deficits theory," as I explained above, involves a complex relationship between the two that involves movements of the IS and and the LM curves, both of which are going to be affected by other factors.) What Skidelsky does not want to say is that the real reason public deficit-plagued France, Germany, and Japan don't have current account deficits is microeconomic: they have industrial policies and a VAT that ensures favorable trade balances with either the USA or 3rd world countries. Ostensibly this is a case for an international fixed currency agreement, but it features the old "bell-the-cat" dilemma: if the USA is both monolithic and malignant, it will simply reject the international peg unless it comports with our diabolical ends. If some Jonah converts the Ninevites (here, Yanks) to a responsible currency regime like pegs, then it would be far easier to convert those same Ninevites to fiscal probity--which we'd have to do anyway.

(My allegation about RS's anti-US nationalism comes from a rather nasty reaction he displayed when Brad DeLong challenged his claim that Lend Lease hurt the British war effort--something at the core of RS's bio of JM Keynes. He also challenged RS's bizarre demonization of Harry Dexter White. RS, furious, actually remained in a suffiently towering rage about the [otherwise laudatory] review to include an ugly anti-American ad hominem slur against DeLong IN THE PREFACE TO HIS AMERICAN EDITION OF THE BOOK! I admit I sometimes lose my temper for minutes at a time, but he had a while for him to calm down and ponder if he really wants to come off to history as such a crusty biggot.)

As for the Samuelson article: I would hesitate to heap all that praise on it. The article holds some impossible assumptions, namely, that technology does not change. In the time it takes Act II to roll around, the developed world is indeed going to develop industries that cannot be replaced by China. One need merely look at non-US OECD countries, which have done so assiduously. Ricardian Trade Theory is so five minutes ago.

Lloyd Gillespie - Comments said...

I take a much longer term view of the macroeconomic world. If you check out my post lower on the page about "The Politics of Globalization," you will find my rough conclusions. Just click on "Globalization" in the post title.

Lloyd Gillespie - Comments said...

Sorry, link is dead. Try this one. "Globalization"

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