1. No category

American Economic Association
Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists
Supporting Globalization
Author(s): Paul A. Samuelson
Source: The Journal of Economic Perspectives, Vol. 18, No. 3 (Summer, 2004), pp. 135-146
Published by: American Economic Association
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fournal
Ricardo
Where
Confirm
and
Arguments
Economists
Paul
18, Number 3?Summer
of Economic Perspectives?Volume
Mill
Rebut
of
Mainstream
135-146
and
Globalization
Supporting
A.
2004?Pages
Samuelson
noneconomists
by their
are
still
fearful
low
when
an
emerging
China
and
real
or India,
miracle
wage rates, outsourcing
cause layoffs from good American jobs. This
developments,
export-led
is a hot issue now, and in the coming decade, it will not go away.
enter into the debate to
and competent
mainstream
economists
Prominent
helped
Most
educate
and correct
a fair paraphrase
warm-hearted
of the
protestors
who are against globalization.
that has been used recently
argumentation
Greenspan, Jagdish Bhagwati, Gregory Mankiw, Douglas
academia.
or Jane Doe spread widely throughout
Here is
by Alan
Irwin and economists John
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 democ?
alongside admitted
racy want. Never forget to tally the real gains of consumers
in
out
of
what Schumpeter
this
working
possible losses of some producers
called "creative capitalist destruction."
Correct
economic
free
by dynamic
ative" destruction
big enough
trade.
that some American groups can be hurt
law recognizes
the word "cre?
law vindicates
But correct economic
by its proof [sic] that the gains ofthe
the losers.
to more than compensate
American
winners
are
? Paul A. Samuelson is Professor of Economics and Institute Professor Emeritus, Massachu?
setts Institute of Technology, Cambridge, Massachusetts.
136
fournal
of Economic Perspectives
The last paragraph
can be only an innuendo.
For it is dead wrong about
I proved in my "Little Nobel Lecture
necessary surplus of winnings over losings?as
of 1972" (1972b)
and elsewhere
in references
here cited (see also Johnson
and
and
The
Stafford, 1993; Gomory
Baumol, 2000).
present paper provides explication of the popular
Here Ricardian
untruth.
polemical
no permanent
loss of jobs
equilibrium
analysis will presuppose
either in China or America. Instead, it focuses on the vital question,
"Will inventions A or B lower or raise the new market-clearing
real wage rates that sustain
in both places?"
high-to-full
employment
Act 1(a) of the present paper first rigorously investigates
by twenty-first century
Ricardo-Mill analysis the following contrived scenario: In the autarky absence of any
trade at all, China's precisely measured real income per capita is set at one-tenth
of
U.S. autarky real income. This for the reason that China's labor productivities
are
here
to
out
to
one-tenth
those
of
the
United
States.
specified
average
only
Quasiis posited here to be ten times that ofthe
realistically, China's total labor population
United States?so
that in autarky any biasing effects of differences
in total regional
size can be kept out of the analysis. In this example, only a good 1 and a good 2 are
assumed to
And, a la the young J. S. Mill, demand tastes are everywhere
be the same: more precisely, consumers
their
even-handedly
always spend
disposable incomes 50-50 on good 1 and on good 2.
involved.
the initial
overall
10-to-l
of the United States in absolute
superiority
that
in
China's inferiority of produc?
1,
productivity,
my example
stipulates
good
is
much
worse
than
in
China's
2
one-tenth;
tivity
good
inferiority vis-a-vis the United
States is not as bad as one-tenth.
in opinion make for horse-race bets.
Differences
Despite
Differences
in relative (!) geographical
productivities
from specialization
and trade.
the bounties
explain
In Act 1(a) 's first part, geographical
specialization
to happen to double exactly each place's measurable
a big brownie point for the economist
debaters.
between good 1 and good 2
Vive les differencesl
and fair free trade are shown
autarky
real income.
So far,
Act 1(b) goes on to address how the United States and China will fare when
technical
in China has quadrupled
her labor's pro?
Schumpeterian
improvement
to the United
ductivity in good 2, which is the good that China has been exporting
States.
below
In my stipulated
that of the United
far below
the United
China's average productivity
still remains far
example,
States. But, remember
that so too are China's real wages
States'.
In a nutshell,
the new fair trade equilibrium
must definitely
create for the
States a better real net national product?better
because we can buy our
does also in my Millimports cheaper now. China's good 2 elevated productivity
Ricardo scenario raise her real net national product; and it happens to do so equally
United
with the United
States?even
some?
though China's terms of trade do deteriorate
to lower China's per capita net national product when
what, albeit not enough
demand elasticity is Mill-like. Acts 1(a) and 1(b)'s valid numerical
deductions
are
debaters.
pluses for the economist
proglobalization
Act
II, however,
deals
some
weighty
blows
against
economists'
oversimple
Paul A. Samuelson
137
about globalization.
It shifts focus to a new and different kind of
complacencies
In Act II, China's progress takes place (by imitation
Chinese technical innovation.
or home ingenuity or . . . ) in good 1, in which the United States has previously had
a comparative
advantage.
(High I.Q. secondary school graduates in South Dakota,
who had been receiving from my New York Bank wages one-and-a-half
times the
U.S. minimum
wage for handling phone calls about my credit card, have been laid
off since
Bombay
exceeds
unit has come to handle my inquiries. Their
1990; a Bombay outsourcing
rate
falls
far
of
short
South
Dakota's, but in India their wage far
wage
what their uncles and aunts used to earn.) What does Ricardo-Mill
arith?
tell us about
In Act II,
effects from such outsourcings?
this
that
invention
abroad
that,
productivities
imply
gives to
China some of the comparative
had
that
to
the
United
States
advantage
belonged
can induce for the United States permanent
lost per capita real income?an
Act II
metic
realistic
U.S. long-run
the new Ricardian
loss even equal to all of Act 1(a)'s 100 percent gain over autarky. And, mind well,
this would not be a short run impact effect. Ceteris paribus it can be a permanent hurt.
means for as long as the postinvention
still apply.)
("Permanent"
technologies
In Ricardian
equilibrium
analysis, there is never any longest run unemploy?
So it is not that U.S. jobs are ever lost in the long run; it is that the new
labor-market
clearing real wage has been lowered by this version of dynamic fair
free trade. (Does Act II forget about how the United States benefits from cheaper
ment.
imports? No. There are no such neat net benefits, but rather there are now new net
harmful U.S. terms of trade.)
on the robustness
and relevance
of the
will comment
Finally, the Epilogue
spelled out analyses in the two Acts. Qualitatively
most part remain relevant.
my Ricardian
Act
Nations9
1(a):
Incomes
How
Free
Compared
Trade
Benefits
Both
theorems
Real
Per
do for the
Capita
to Autarky
law. Here we begin with
Analytical proof trumps mere talk about economic
China possessed
of average productivity
a
tenth
of
the
U.S. level. To remove
only
in
differences
the
two
total
and
labor force, China's
complicating
outputs
places'
workforce
is set at ten times that of the United
States: say that the total U.S.
is 100, while China's total workforce
is 1,000.
Ricardian productivity
are
exogenously
given in my initial
parameters
scenarios.
For
the
the
are
United
labor
States,
two-good
respective
productivities
= 2 and
= -; for China
= ? and
? 77
are
Hl
7^
II2
tt2
they
(Notationally,
capital
workforce
Four
letters
observe
denote
U.S. variables;
that U.S.
lower
case
denote
out
Chinese
to ten
times
variables.)
China's.
Readers
will
But the
U.S.
productivities
average
superiority is more than ten in good 1; and China's inferiority in good 2 is not as
bad as one-tenth.
is
Before any trade, China's autarky per capita real income
contrived to work out to precisely one-tenth
of U.S. autarky per capita real income;
138
fournal
before
States.
of Economic Perspectives
trade, good 2 is relatively
Here are the details.
cheap
in China while good
Autarky's "Before" Equilibrium
In autarky, if the United States devotes
1 is cheap
in the United
to good 1, it can
to
produce
good 2, it can
workers:
500 produce
for
China's
1,000
produce
100 of good 2. Because people all
only 25 of good 2; and the other 500 produce
50-50
their
incomes
on
the
two
will assume that, in
spend
goods, competition
a quantity of 100; if it devotes
holds
25. A parallel calculation
50 of its 100 workers
the other
50 workers
autarky, each place must allocate its labor supply 50-50 between goods 1 and 2.
In this autarky example, the opportunity
a unit of good 2 in
cost of producing
the United States is 4 units of good 1. However, in China, the opportunity
cost of
in
a
of
is
unit
of
1.
These
differences
relative
unit
producing
good 2
good
and
in
autarky
geographic
productivities
price ratios provide the basis for com?
parative
advantage-induced
geographical
specialization
that
will
amplify
world
productivity!
tactical advance over nineteenth-century
Ricardo-Mill is
My twenty-first-century
to recognize
that Mill's assumption
of 50-50 expenditures
on the two goods gives us
a firm measuring rod for an exact index of real national incomes and for real world
is the geometric mean of consumption.1
Thus, in the United
income
can
be
as
mean of producing
real
measured
the
States, autarky
geometric
100 of good 1 and 25 of good 2, which is the square root of 100 multiplied
by the
root
or
50.
the
assumed
U.S.
of
U.S.
of
25,
100,
square
Dividing by
population
per
income.
This
index
capita real income will then be 0.5. In China, autarky real income is the geometric
mean of producing
25 of good 1 and 100 of good 2, which is the square root of 25
of
the
multiplied
by
square root of 100, or also 50. Dividing by China's population
1,000, we calculate per capita autarky real income in China as 0.05.
is a second,
these various real national
equivalent
way of measuring
It
is
useful
because
it
involves
the
mean, not of
geometric
outputs.
especially
or consumed,
but of the real wage rates of the two goods in each
quantities produced
In
the
U.S.
real
place.
autarky,
wage rates are respectively
precisely, for W/Px and
= 2 and
= - Ricardian
U.S.
the
real per capita autarky
Yil
W/P2,
II2
productivities.
in the previous paragraph is (for Mill) also given by the
income of 0.5 as computed
There
duality
China,
=
=
Likewise, for
\V(W/P1)(W/P2)
\Vn^2
\ J^\.
its real net national product per capita of 0.05 is given also by - VTiyn^ = ?
formula:
0.5
20 10
2V10;
The above exact
=
equality
of U.S. and Chinese
total outputs
results
only from
1 The use of the
geometric mean and the harmonic mean as money-metric utilities, and how they can
be derived from indifference curves, is explained in Appendix 2, which is appended to the paper at the
journal's website (http://www.ejep.org).
Where Ricardo and Mill Rebut and Confirm Arguments
my contrived simplifying
example. We now replace autarky by free trade,
a substantial gain in real per capita welfare in both places.
deducing
139
thereby
Free Trade's
"After" Equilibrium
The present model puts capital movements
at zero. In free trade equilibrium,
the trade balance is here always zero. With no tariffs, quotas or transport costs, in
free trade relative price ratios will end up everywhere
Of course, real
equalized.
wage rates will still diverge after free trade has raised them in both places.
The first step in analyzing free trade is to deduce the qualitative
pattern of
Because
the opportunity
cost of producing
in
specialization.
good 1, expressed
terms of good 2, is lower in the United States, competition
will impel the United
States to specialize
on good 1. Because the opportunity
cost of producing
good 2,
in terms of good 1, is lower in China, China's competitors
will specialize
expressed
on good 2. Indeed,
avaricious
U.S. Darwinian
on
will concentrate
competition
level of 2 will
good 1 only; so that its 100 workers with a productivity
produce 200 of good 2. China's comparative
advantage will impel her competitors
to produce
workers with productivity
of
good 2 only, and the 1,000 Chinese
two-tenths will produce
200 units of good 2. This free trade geographical
special?
producing
ization
can thus vastly raise world income
as compared
to autarky. Each good's
autarky global outputs of 125 are raised 60 percent by free trade's specializations.
Each place imports some of the good it does not produce,
and does so at the
market
that equate
The combi?
supply and demand.
nation
which use the regions' respective labors to
specializations,
what
can
produce only
they
produce relatively (!) best, and then trade, does iron out
the huge autarky price ratio divergences.
about income being evenly divided in both countries
Using Mill's assumption
clearing prices
of geographical
international
between
both goods, and the fact that global production
with specialization
will
=
a
of
for
both
then
the
free
trade
200
ratio,
equal
quantity
goods,
P2/Pi
price
in
both
frictionless
auctioneer
becomes
p2/p!,
equalized
places by
exchange,
or 1. At this balanced
artifact
200/200
(which is a contrived
price configuration
from my example's
whose purpose was to simplify read?
cunning skew symmetries
ers' quick understanding),
it is self-evident
that both nations will share equally (not
in world total real outputs. When each country
per capita equally) half-and-half
consumes
100
geometric
tries, each
mean
of each
necessarily
be equal.)
realistic asymmetries
of the 200 world outputs?their
free trade
good?half
will be twice their autarky geometric
mean. (Without my symme?
place's relative gain over autarky will still be positive but will not
Many
in this
benefits
Most
could
the exact equality
negate
is
the
counterintuitive
important
of percentage
truth that a
example.
of China's population
relative to the United States will raise China's per
real
income
at
the
of lowering
the U.S. gain from free trade!
capita
expense
Noneconomists
and Marxian economists
but that is their 180?
guess otherwise,
reduction
wrong
error.
140
Act
fournal
When
1(b):
Raise
Must
of Economic Perspectives
China's
U.S.
Per
Technical
Capita
in Its
Progress
Real
But
Income,
Sector
Export
When
It Might
Lower
China's
has China exogenously
a quadruexperiencing
9
of 7r2 = ?
sector: that is, the initial productivity
=
All other productivities
remain the
tt2>
y^.
Here
our thought experiment
in her export
of
pling
productivity
in good 2 becomes
postinvention
same.
Both
before
invention
and after, the Ricardian
of comparative
inequalities
to
to
the
United
States
specialize
only on good 1 and
advantage
compel
China to specialize only on good 2. When all 100 U.S. workers produce good 1, they
still produce a total of 200 only; when all 100 Chinese workers produce good 2, with
800. World output is clearly
the higher
level, they now produce
productivity
continue
in China's productivity.
by this improvement
United
States
the
garners some part of the world gain in measured net
Always
of China's q2 relative to
global product. Why? Because the new superabundance
U.S. Qx necessarily
lowers P2/Pi to us as consumers.
unchanged
increased
Millian demand,
China also gains in measurable
well being. Suppose,
in Mill's demand
than
that
demands
are
much
more
inelastic
however,
empirically
structure. Then the quadrupled
supply of China's good 2 output could so much
lower China's export terms of trade p2/pi as to plunge postinvention
per capita
Under
income
share
China's
(Postinvention,
per capita income.
all
the
down
to
only one-fifth, no
way
drops
Self-immiseration
phenom?
by a nation is a well-known
painfully below preinvention
of world net national product
longer staying at one-half.)
enon in the economic
literature,
and it does
up here
crop
in the debate
over
globalization.2
Act
II: Proof
Loss
in Per
Productivity
Production
that
Capita
Gain
of
the
United
Real
States
Income
in Good
When
1 Large
Permanent
Suffers
China
Enough
to
Measurable
Enjoys
Exogenous
Cut Some
U.S.
It
By contrast with Act I's proof of U.S. benefit from Chinese technical progress
in her export sector, Act II's analysis will rebut any mainstream
economist's
claims
abroad in a
that the United States cannot suffer tong-term harm from innovation
world of free trade.
I begin
2 In
with
the same
initial
two-good
Ricardian
productivities
as in Act I.
concluding Act I's brief in favor of globalization, I remind readers of my Appendix 2's discussion
of how replacing Mill demand by realistic inelastic demand will actually cause China to be hurt by her
own invention. Appendix 2, which offers detailed proofs, is appended to this article at the journal
website (http://www.ejep.org).
141
Paul A. Samuelson
112 = ?
= -;
and 7r2 = ?. But now, for dramatic
the invention,
ni =2 and II2
ttx
in good 1 mightily, from 7rx = ? to
I expand China's labor productivity
emphasis,
=
remain unchanged.
(Note: Despite the great
ttv
jr-. The rest ofthe productivities
for good 1 to above the U.S. level of labor
increase in China's labor productivity
for good 1, China still remains poorer in autarky than the United
productivity
Before
still with a lower average real wage.)
the invention, just as in Act I, the United States produces only 200 units
of good 1, while China produces
only 200 units of good 2. But now, after the
has markedly grown. However, all comparative
world output potential
invention,
the reason that now, in every place, Ilj/r^
emasculated?for
have
been
advantages
States?and
Before
and ttx/tt2 both now equal 4. Each place can do as well in its new autarky as it can
do under free trade. (Indeed under free trade rules, no one is any longer motivated
there is no need or advantage in doing either exportto specialize geographically;
whole story can be easily told. To appraise U.S.
or
So
this
example's
ing
importing.)
well being, ignore Ricardo
postinvention
States' postinvention
autarky geometric
mean.
geometric
and Mill; just simply compare
mean with its preinvention
the United
trade
free
free trade elicited 200 of good 1 from the
that the preinvention
numbers
200 of good 2 from China. Also, these balanced
=
that
both
a
nice
balance
meant
of
Such
mandated
places
(P^Pj)'
unity.
(p2/pi)'
mean as
measured
with the geometric
shared one-half of world national income,
V200 ? 200 = 200. Focusing on U.S. per capita welfare, that meant preinvention
= 1.0.
free trade per capita net national product had been - (200)/100
Query: Can
We've
United
seen
States
and
mean ever reattain that earlier
U.S. autarky per capita geometric
postinvention
the
level? The answer is a surprising "no." Forced into autarky by China's invention,
in our crucial thought experiment
United States with its unchanging
technology
goods 1 and 2. Producing
again divides its 100 workers evenly between producing
50 ? 2 = 100 of good 1, and 50 ? | = 25 of good 2, then U.S. real per capita income
= 0.5.
= 50/100
mean as VlOO ? 25/100
can be measured
by the geometric
Assuredly that does fall short of her initial per capita national income with free
trade, which was 1.0. The new winds
in my overdramatic
they
example,
from free trade.
previous enjoyments
of free trade have blown
have
blown
well for China.
all of the
United
But
States'
away
(Test question: Could there be any pattern of
reduce absolutely
future inventions
abroad that would repeatedly
per capita U.S.
Correct answer: Yes?however
benefits from free trade and globalization?
unlikely
pattern would be.)
One example can sometimes
that dramatic
own spontaneous
killing
be "too clever by half." In this one it is free trade's
off of all trade that does harm to the United States.5
3 To avoid
breeding misunderstanding, my Appendix 1, which is appended to this article at the journal's
website (http://www.ejep.org), analyzes a more realistic three-good scenario. Add to goods 1 and 2, with
their original productivities in the two countries, a good 3, which begins with n3 = 1 and irs = ?. The
example therefore happens to force initial equal sharing by both places of world total output of good
3: that is, shared comparative advantages. Then, exogenously, let China's productivity in good 3 double
142
fournal
of Economic Perspectives
numerical
results are not mere numbers
drawn from a
my reported
black box. In every case, it is terms of trade changes in (Pg/P^ W/P1?
in those variables mandated by exogenous
W/P2; w/p! ,w/p2)?changes
changes in
relative scarcities?that
have had their intuitively
effects
on
expected
supplyAgain
mysterious
demand
free trade.
equilibrium
price ratios under competitive
Economic
first insidiously
and later
history is replete with Act II examples,
in
the
United
moved
from
east
to
west
two
centuries
States,
decisively:
farming
ago;
moved from New England to the low-wage South
textiles, shoes and manufacturers
became replaced by
early in the last century; Victorian manufacturing
hegemony
Yankee inroads
after 1850. Even where the leaders
continued
in
to progress
absolute growth, their rate of growth tended often to be attenuated
an
adverse
by
headwind
generated
from low-wage
competitors
and technical
imitators.
Epilogue
Acts I and II have demonstrated
that sometimes
free trade globalization
can
change abroad into a benefit for both regions; but sometimes
a productivity
gain in one country can benefit that country alone, while perma?
nently hurting the other country by reducing the gains from trade that are possible
between the two countries.4 All of this constitutes
effects,
long-run Schumpeterian
quite aside from and different from transitory short-run harms traceable to shortconvert
a technical
run adjustment
costs or to temporary
on
nopolies
knowledge.
rents from
patents
and from
eroding
mo?
It does not follow from my corrections
and emendations
that nations should or
not introduce
selective protectionisms.
Even where a genuine harm is dealt
out by the roulette wheel of evolving comparative
in a world of free
advantage
should
trade, what a democracy tries to do in self defense may often amount to gratuitously
itself in the foot. A pragmatic
and scientifically
more correct brief for
shooting
globalization
might go as follows.
If the past and the future bring both Type A inventions
and Type B inventions
that help?and
when both
that hurt your country
add to world real net
to 7r3,= ? >which isjust enough to kill off a/ZU.S. production of good 3. Does that hurt us permanendy
ceterisparibus net? Yes, indeed it does. But this time the hurt to us comes from an increasein foreign
trade?from initial zero trade in good 3, all of U.S. consumption of good 3 comes after China's irs
invention from imports alone.
4 Some
past scholars have wondered whether cheapening of transport costs and speedier spreading of
knowledge across national boundaries might in the future decimate comparative advantages and foreign
trade. They have also wondered whether, when all peoples are as productive as Americans, some of their
new benefit might come out of reduced U.S. well-being. So far, economic history has reported gain
rather than loss in the ratio between Total Foreign Trade + Total World Output. If trade were ever to
cease spontaneously under competition, since shipping goods back and forth for no good reason makes
no sense, humanity ought to deem such a result to be good rather than bad, even if it exacts some price
from the erstwhile most productive geographical place.
143
Where Ricardo and Mill Rebut and Confirm Arguments
national
to be
free trade may turn out pragmatically
product welfare?then
tariffs and
for each region in comparison
with lobbyist-induced
and nonsubtle
dead?
of democracy
which involve both perversion
"Tariffs are the
distortion
losses. In 1900 free traders proclaimed,
still best
quotas
weight
Mother
of trusts." In this millennium
are the breeder
A few words
a more
truth may be: "Tariffs
pregnant
arteriosclerosis."
of economic
to judge
are needed
robust
how
my simplified
Ricardo-Mill
paradigm is to real-world complexities.
to international
1. Adding nontradable
goods or other realistic impediments
not
fundamental
reflection
deduces
will
findings.
negate my
exchange,
analytic
to Ricardo's
also remain valid after adding
conclusions
2. My qualitative
the post-1930
by Heckmultifactor trade models pioneered
labor-only technologies
McKenzie, Jones and
Lerner, Stolper-Samuelson,
scher, Ohlin, Viner, Haberler,
others, to say nothing of earlier Marshall and Edgeworth
multifactor trade models.
the
Dornbusch-Fischer-Samuelson
(1980)
nicely generalized
Just as multifactor
Dornbusch-Fischer-Samuelson
found
that the qualitative
to labor-only scenarios.
so will it be
(1977) Ricardian labor-only paradigm,
as
results of Acts I and II do apply as well to multifactor
3. In this paper, along classical lines, all my free trade equilibria are analyzed
the assumptions
of zero net capital movements. In this epoch of chronic longsuch simple Ricardo-Mill smacks of
U.S. net foreign indebtedness,
term cumulative
Buffett?the
Noneconomists
like Warren
the Gloomy
Dane.
Hamlet
without
under
and most
richest
world's
blamed
successful
the chronic
is one?in
investor
deficit
(2003) Fortune
on free trade and
paper
to do
November
U.S. international
payments
zero U.S. borrowing-andauction
taxes that would enforce
proposed
could
deduce
the
measurable
This
net.
self-imposed
lending
paper's techniques
But
harm America would bring down on itself by following the Buffett philosophy.
magazine
therefore
one-way
U.S.
justice.
4. What
balance-of-payment
deficits
need
another
that
topic
in a two-country,
model can be shown to
two- or three-good
in
an
Ricardo-Mill
A^country, M-good
paradigm.
essentially
based squarely on the
trade paradigms
5. Smith-Allyn Young-Ohlin-Krugman
returns
to scale technol?
from
of
increasing
inseparable
imperfections
competition
holds
hold
Ricardianisms.
However,
by classical
competitive
analyzed
(2000) have reported findings similar to mine for various increas?
Gomory-Baumol
enlargeing returns to scale scenarios. I should add that it has been globalization's
model to greater
ment of market size that has done much to elevate the competitive
ogies
are
not
well
in the 1890-1950
model possessed
than the competitive
epoch.
policy relevance
6. My most important omission, for realism and for policy, is treating all people
our
That inhibits
laborers.
in each region
as different
homogeneous Ricardian
grappling
with the realistic
computer
experts)
cases where
may be being
helped
and skilled
(capitalists
the real free-trade
by what is decimating
some
Americans
144
of Economic Perspectives
fournal
or of the blue-collar
wage rates of the semi-skilled
factory workers. My geometric
mean approach
can fortunately
be adapted to handle just such problems.
Instead of attenuating
this paper's theses, heterogeneity
amplifies its impor?
tance.
a scenario where Schumpeter's
fruitful capitalist destruction
Contemplate
harms a really sizeable fraction of the future U.S. population
and, say, improves
welfare of another group and does that so much as to justify a calculation
that the
winners
could
be made to transfer some of their gains and thereby leave no
U.S. group net losers from free trade. Should noneconomists
accept this
as cogent rebuttal if there is no evidence
that compensating
fiscal transfers have
been made or will be made? Marie Antoinette
said, "Let them eat cake." But history
substantial
records
no transfer
sometimes
Greenspan
1930s?Hicks,
of sugar and flour to her peasant subjects.
sounds Antoinette-ish.
The economists'
Even the sage Dr.
literature
of the
of earlier
Lerner, Kaldor, Scitovsky and others, to say nothing
Pareto
and
ofa shell
Mill,
writings byJ.S.
Edgeworth,
Viner?perpetrates
something
in
ethical
debates
about
the
conflict
between
and
game
efficiency
greater
inequality.
aside
and ethical
trade economists
have
aside, mainstream
judgments
the
in
drastic
in
mean
U.S.
incomes
and
insufficiently
change
inequalities
among different U.S. classes. As in any other society, perhaps a third of Americans
are not highly educated and not energetic enough to qualify for skilled professional
Policy
noticed
into the United States of similar workers to
jobs. If mass immigration
been permitted
to actually take place, mainstream
economists
could
a
substantial
in
of
this
native
while
the
predicting
drop
wages
group
rise over what their old-country
real
grants were earning a substantial
them
not
had
avoid
new immi?
wages
had
been.
as a result of my 1948-1949
revival and perfecting
of the 1919Therefore,
1933 Heckscher-Ohlin
of
argumentation
factorprice quasi-equalization by trade in goods
the following
at World War IFs end. Historically,
alone, one could have foreseen
U.S. workers
and
used
to have
know-hows
kind
of a de facto monopoly
access to the superlative
and
of the United
(scientific,
engineering
managerial)
so to speak, were born with silver spoons in our mouths ?
capitals
States. All of us Yankees,
and that importantly
explained
the historically high U.S. market-clearing
real wage
house
small
business
owners
and so
others)
(among
janitors,
helpers,
forth. However, after World War II, this U.S. know-how and capital began to spread
rates for
faster away from the United States. That meant that in a real sense foreign
in western Europe, then throughout
masses?first
the Pacific Rim?could
the same
of competitive
pressures on U.S. lower
that mass migration would have threatened
to do.
genuinely
provide
class wage earnings
Post-2000 outsourcing
as 1950.
future
And
in accordance
2004-2050
kind
Japan
in temporary
chaos)
and did
middle
is just what ought to have been predictable
as far back
with basic economic
law, this will only grow in the
Other authors could add, to my presented
Acts I and II,
there
took
a
in
historical
the
U.S. share
why
place
drop
period.
Acts explaining
of total global output from almost
additional
educable
50 percent at 1945 war's end (with Europe and
down to 40 percent, down to 30 percent and, according
Paul A. Samuelson
to the Penn World Tables of purchasing-power-corrected
per capita
these trends
down to perhaps only one-fifth to one-quarter.
Although
an absolute decline in U.S. affluence,
they arguably did reflect a head
rate of real growth in the last half of
down the U.S. post-Keynes
145
now
incomes,
did not mean
wind slowing
the twentieth
century.
as Japan, Hong Kong,
Not surprisingly,
successful
nations?such
developing
and the Philippines?
Indonesia
South
even
Taiwan,
Thailand,
Korea,
Singapore,
lead over their
were able at the end of the twentieth century to reduce America's
for western Europe in the
own per capita real incomes. The same thing happened
1950-1980
whether one or more of these trailing bicycle
period. One wondered
riders would fully catch up with the U.S. bicycle and then maybe even forge ahead
of it. The Penn World Tables and Angus Maddison's
similar estimates seem not to
as yet. Could that be a sign that the United States' original
report that happening
as they spread abroad, have been the important
factors in explaining
innovations,
America's diminishing
lead?
One hesitates
to say. Actually there is some suggestive evidence that French or
If only
German per-hour productivity
does surpass the U.S. per-hour productivity.
the French and Germans would match U.S. weekly and monthly average number of
total hours of work, their bicycles would be running ahead ofthe U.S. frontrunner.
in
Ricardo-like
tastes can modify technological
Evidently subjective
parameters
economics.
explaining
global and domestic
dynamic patterns of contemporary
more
are exaggerated,
Even if my hypotheses
they are what both
Ricardo
models
seem
to
be suggesting.
would
general
Ricardo-Mill
and
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