Sunday, February 15, 2004

BRAD DeLONG HAS HIS CAKE AND EATS IT, TOO

The mounting discontent in the american labour market over offshore outsourcing, Prof. DeLong argues, would be diffused if Bush had done his job by enacting a real stimulus rather than his euphamistically titled ("Jobs and Growth") tax giveaway to America's fabulously well-to-do:

"If we had a healthier labor market and stronger aggregate demand there would be little concern about outsourcing"

Come on, Brad. What the Bush tax and the defense mounted by Brad and his ilk for text book free trade have in common, is that they are both supply-side effects. Free trade is good, orthodox trade theory suggests, because it means that goods and services will be supplied at lower cost. But when the jobs go overseas, with lower employment and lower wages for those fortunate enough to work, the US economy suffers on the demand side--even though the goods are cheaper, people can't buy them.

In the mid 1990s, Alan Greenspan marveled that inflation was under control because American workers, fearful of their jobs moving overseas, were too cowed to demand wage increases. In the global open economy, from where is the aggregate demand growth going to come?

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