Thursday, June 30, 2005

WHAT I'M READING TODAY: OVERSIMPLE COMPLACENCIES ABOUT GLOBALIZATION




This is how Paul Samuelson--no radical, anarchist, Starbucks-smasher--describes the virulent positions of most economists-cum-pro-globalization cheerleaders. Samuelson's piece in last year's Journal of Economic Perspectives 18(3)--a journal aimed at more "popular" debates (i.e. containing little to no Greek mathematical formulas) is one of the most intellectually honest explorations of the welfare effects predicted by standard international trade theory. (But what do I know about trade theory?)

Samuelson highlights how results from the standard free trade model can show that productivity improvements may actually reduce social welfare with trade.

Whoa.

Is Samuelson totally off the reservation? Well, let's just say he's no Steve McQueen. Samuelson's honesty is rare, and evoked the now standard visceral reaction from the free trade automotons, in this case an intellectual equivocation diametrically equal to Samuelson's honesty from Jagdish Bhagwati, et. al. Samuelson's is not a critique of standard trade theory, though there is much to be critiqued (with this only skimming the surface). Rather, Samuelson's affront is to open for general discussion what intellectual, political, and technocratic elites would prefer to keep swept under the rug.

Inexcusable. Nixon could go to China, but even someone of Samuelson's stature as a pillar of the neoclassical mainstream cannot escape the free-trade pathology (as the History of Economic Thought website describes him, "Perhaps more than anyone else, Paul A. Samuelson has personified mainstream economics in the second half of the twentieth century." After all, one of the two core trade theories does bear his name.). It's a good thing Samuelson is Emeritus, else Xavier Sala-i-Martin might try to get him fired.

A further conclusion from Samuelson, though not following from his theoretical discussion, is that mainstream trade economists have totally missed the boat in regards to the effect of trade on US wage inequality:

"[E]conomists have insufficiently noticed the drastic change in mean US incomes and in inequalities among different US classes [Ed: Gasp, the "C" word!]...Historically, US workers used to have de facto monopoly access to the superlative capitals and know-hows of the United States [Ed: meaning higher productivity]...and that importantly explained the historically high US real wages [for low-employed skills workers]."

But then, after World War II, the US began exporting capital and technology, and other regions endogenously developed their own sources of capital and technology, and then "foreign educable masses could and did genuinely provide the same kind of competitive pressures on US lower middle class wage earnings that mass migration would have threatened to do." His conclusion left unsated (can't stray too far from the farm): trade caused wage inequality.

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