Those of you who tried to understand this
article by Nobel Prize winning economist Paul A.
Samuelson deserve a pat on the back. While I am not an economist, I have
read my share of academic papers as a professional editor, yet this one
had me scratching my head several times. Bear in mind that the intended
audience for this article is other economists. In it Samuelson attempts to
prove his assertion that free trade is NOT always "win-win".
Samuelson uses the same theories that pro-outsourcing free-traders use to
prove that there are cases when free-trade can damage economies, in effect
making free-trade a zero sum game under certain circumstances.
Unfortunately for America, the current circumstances seem to be against us
at this time.
Here are some definitions to make it easier for
you:
Autarky - a closed economy. Think North
Korea.
Ceteris paribus - "all else being
equal"
Self-immiseration - make yourself poorer
Read more
for a summary of the article (Read More)
We often hear from free-traders the assumption that
free-trade benefits both trading partners overall, and that the benefits
received by the "winners" in a trading country will offset the losses
suffered by the "losers" in that country. However, Samuelson seems to have
shot that assumption to hell in 1972 (in the paper "International Trade
for a Rich Country"). He goes on to show how this happens in the section
"Free Trade's "After" Equilbrium (p. 139). Money quote: "Most important is
the counterintuitive truth that a reduction of China's population relative
to the United States will raise China's per capita real income at
the expense of lowering the U.S. gain from free trade!". His analysis may
be hard to follow, but his conclusions aren't difficult to understand:
"Self-immiseration (making yourself poorer) by a nation is a well-known
phenomenon in the economic literature, and it does crop up here in the
debate over globalization."
He continues his thought experiment, and
then follow it thus: "The new winds of free trade have blown well for
China. But in my overdramatic example, they have blown away all of
the United States' previous enjoyments from free trade."
He concludes
by mentioning the income inequalities within the USA, and the fact that
outsourcing "will only grow in the future 2004-2050 period." He argues
that the productivity benefits from outsourcing are overblown, stating
"there is some evidence that French or German per-hour productivity does
surpass the U.S. per-hour productivity. If only the French and Germans
would match the U.S. weekly and monthly average number of total hours of
work," then there living standards would surpass ours. So much for the old
"outsourcing boosts productivity which lifts living standards" argument
that we are often faced with.
Overall, the article won't shut-up
pro-outsourcers, but it does remove a leg of the chair they are standing
on. It's up to us to continue sawing away at the other legs until the
chair collapses and they are left twisting in the
breeze.
