Following Toque and MSO's entries (and excellent threads, good spirited discussion all), I caught this from
Brad DeLong, via
Atrios, as I'm sure many of you have already seen, and I think it's worth noting.
From
BusinessWeek (as quoted by DeLong):
Ever since Americans began fretting about globalization nearly three decades ago, economists have patiently explained why, on balance, it's a boon to the U.S. Yes, some Americans lose their jobs, either to imports or because factories move to cheap-labor countries such as China or India. But the bulk of this work is labor-intensive and lower skilled and can be done more efficiently by countries that have an abundance of less-educated workers. In return, those countries buy more of our higher-value goods made by skilled workers -- for which the U.S. has a comparative advantage. The lost jobs and lower wages in the U.S., economists say, are more than offset when countries specialize like this, leading to more robust exports and lower prices on imported goods.
Now this long-held consensus is beginning to crack. True, China is emerging as a global powerhouse, realigning many economic relationships. But in the long run a more disruptive trend may be the fast-rising tide of white-collar jobs shifting to cheap-labor countries. The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage. With these countries now graduating more college students than the U.S. every year, economists are increasingly uncertain about just where the U.S. has an advantage anymore -- or whether the standard framework for understanding globalization still applies in the face of so-called white-collar offshoring. "Now we've got trade patterns that challenge the common view of trade theory, which might not be so true anymore," says Gary C. Hufbauer, a senior fellow at the Institute for International Economics (IIE), a Washington (D.C.) think tank. A leading advocate of free-trade pacts, he still thinks white-collar job shifts are good for the U.S.
The great debate percolating among the country's top trade economists gained new prominence with a recent article by Nobel laureate Paul A. Samuelson in the Journal of Economic Perspectives (JEP). In the piece, the 89-year-old professor emeritus at Massachusetts Institute of Technology, who largely invented much of modern-day economics, questions whether rising skills in China and India necessarily will benefit the U.S.
So, it would certainly appear that not every single economist is in agreement on whether or not free trade is always good. In fact, the father of the theory, Paul Samuelson, seems to be revising his theory, and this is quite a shakeup on an issue that was once considered concluded and done. That models need updating, even on issues thought solved for good, isn't so shocking. A little over a hundred years ago, Albert Michelson was still trying to detect the absolute motion of the Earth by detecting it's movement through the ether.
Also, not to engage in Clintonite parsing, but as Atrios points out, whether or not free trade is "good" or "bad" is contingent upon what the definition of "good" is.
Economists will tell you "free trade good for all countries." Now, theoretically at least, that's somewhat (though not actually entirely) true. But, too many implicitly, though they know better, make the additional rhetorical leap that "free trade good for all people." It shouldn't actually be a big deal for a news magazine to point out that freer trade doesn't actually benefit all people.
The basic issue is that, theoretically (depending on the model), the gains from free trade offset the losses. In other words, the size of the pie increases unambiguously. And, as long as the size of the pie increases, in principle the winners could compensate the losers (because they're so generous, or through forced redistribution, or whatever).
...
Suppose "free trade" increases GDP by 100 billion overall. However, 60% of the population actually lose a total of $50 billion income, while the other 40% gain a total of $150 billion. For a majority of the population this is a bad deal. Is it good economic policy? Well, that depends on your social welfare function. The problem we have these days is that the default social welfare function is simply equal to "GDP."
In other words, if by good you simply mean make the pie bigger, then it would appear that (at least so far) free trade has in fact been "good" for the economy. But if you're talking about who benefits, it's not so clear cut. That part of the pie that's bigger is now less attainable by the majority.
Perhaps this is what Bush actually meant by the phrase, "make the pie higher".
Like most people, I'm not an economist, and I do require most of what Max and Brad talk about amognst themselves be but in layman's terms. But this seems pretty clear, the debate's back on, and the theoretical model (like so many before it) may be back on the bench for at least a tune-up.
Any of you economists out there care to discuss? I'm interested both out of intellectual curiousity and out of the concrete implications this debate suggests?