Dan M wrote: > Kevin wrote: > > >> I can give a longer explanation, but most normal people >> seem to display eyes glazing over whenever an economist explains anything. >> > > I wouldn't be so fast in assuming that here. We have had a couple of > economists as contributing members at Brin-L: Brad DeLong and John D. > Giorgis. I'd guess you've heard of Brad, and John's at BLS and has won a > fellowship from the White House IIRC. And, my Zambian daughter has interned > with the IMF, will graduate with a MA in econ. from American University, has > applied for a World Bank fellowship (?) that is intended as a 2-3 year job > for people between their masters and Phd. We've talked econ for hours. So > I, and probably many others here, would enjoy some detailed economic > discussions. > > So, please, go on. In particular, I have a couple of questions on free > trade and such. > > 1) Economists pretty universally see free trade as beneficial. Do you see > any exceptions? In particular, do you see any trade restrictions that help > our competitors (such as Japan and China) and hurt the US. > > 2) Do you have any idea why the job participation % has gone down for the > last 6-7 years or so? > Full disclosure: While I was professor of economics for about 20 years, I have since switched careers, so I may well be slightly out-of-touch with the most current thinking.
Economists often think a lot of things are good, but when when you look at these assertions, you need to be *very* careful about the assumptions they make. Economists even make jokes among themselves about this, but it is still a weakness in a lot of analyses. So, for instance, Paul Krugman, who is an acknowledged expert on trade (like may others, I used his textbook when I taught the subject), was a long-time supporter of free trade for all of the usual reasons, but has lately come to question whether those arguments make sense in the real world. The assumptions of the free trade arguments, like most arguments in favor of unfettered markets delivering superior results, almost always begin with an assumption that the markets in question are either perfectly (or for the more measured, substantially) free markets. Now, this term has a very specific meaning in economic analysis, and that makes it a much more restrictive assumption than a layman might first think. There is a good article on this at Wikipedia (http://en.wikipedia.org/wiki/Perfect_competition), but what it all boils down to is that no market participant has the power to influence the market price. My former prof, Geoff Shepherd, published a paper in the 1980s that said this could perhaps describe 10% of the U.S. economy, and I doubt the percentage has gone up since. If you look at the international economy, I think there is some evidence each way. Looking at economies that are in the "developing" category, there is generally a trend to see more growth among economies that are substantially open than among those that are substantially closed. If you were to look at Asian economies in the years immediately following WWII, it would have been plain that India would be a country that would grow rapidly, while So. Korea obviously would stagnate. It did not turn out that way, and I think gov't. policy would have to be a large part of the difference. So. Korea had a policy of being predominantly open to trade, while India pursued something closer to autarchy. And since the policy changed in recent years, India's economy has indeed started to grow fairly rapidly. OTOH, it is not immediately obvious that what may be true for a developing economy will also be true for a developed economy like the U.S. And even if it is true, what are the implications? Trade theory often looks at overall GDP growth, and if a policy makes GDP go up, it must be good. But it is quite possible to have a policy that promotes a short-run increase in GDP, but reduces GDP growth in the long-run. This is not just true for trade, but for all aspects of the economy. A classic case is increased saving: this will certainly reduce demand in the short-run, but equally surely it will increase the supply of capital, reduce its cost, and promote investment and growth in the long-run. If trade causes wages to be depressed, for instance, that may in the short run reduce the price of exports, and lead to increased exports. But it also reduces domestic saving and capital formation. The question that is not addressed as much as it should be is: What should the objective of economic policy be? Back in the 1980s, for instance, a lot of people were worried about the competitive threat of Japan, and drew the conclusion that American wages needed to fall to restore competitiveness. This was a flawed analysis in several ways. First of all, the wage difference between the U.S. and Japan was only one of several differences, and no one ever mentioned the other differences: Japanese companies had fewer executives, a flatter hierarchy, and paid their executives comparatively less than in the U.S. Moreover, the environment was different in other ways, such as different government policies (I'm sure we are all aware by now that the U.S. is the only developed economy to rely on private firms to provide health coverage). And in hindsight, the only major industry to be really threatened waas the Automobile industry, and I honestly cannot think of an industry that has been managed so reliably badly as the U.S. auto industry. Those guys could screw up a free lunch, as my father used to say. But the most interesting critique I can recall was by Michael Porter, who wrote a pretty well-received book called "The Competitive Advantage of Nations". He simply pointed out that anyone who advocated reducing the standard of living of our citizens as a sound policy was not living in a reality-based community. So the bottom line is that in a world where all markets are perfectly competitive, and no one has any market power, it is pretty easy to prove that unrestricted trade is going to be a good thing. But in the real world, where many markets are controlled by a handful of firms, it is not nearly as clear that this result holds, particularly when the firms themselves have often become trans-national and owe nothing to the country of thier origin. As to your second question, I admit this is an area where I have not kept up. I will observe that the time frame you posit coincides pretty neatly with a Republican administration, and one fact that is pretty firmly established by now is the economy nearly always does worse when the Republicans occupy the White House. Regards, -- Kevin B. O'Brien TANSTAAFL [EMAIL PROTECTED] Linux User #333216 "Military justice is to justice what military music is to music."-- Georges Clemenceau _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
