market logic

Sat Sep 5 16:55:18 PDT 1998

Paula pointed out that China funds are bucking the downward trend just as I was reading an excellent new paper by Jim Devine, "Globalization and the "Universal Market": Comments on Krugman on Increasing Inequality." Jim points out one possible reason: That China "is the low wage leader in world manufacturing" and thus a key player in the downward spiral of equalizing wages at the lowest (and falling) common denominator. Brad de Long has argued that the U.S. gains from trade with developing countries (but not at their expense). Brad thinks the U.S. economy is not open enough to suffer adverse consequences from trade with developing countries, nor open enough to be accused of exploiting them. In this light, it is interesting to note Jim's suggestion that we "reconsider the 2 percent of national income" that Krugman (Mother Jones, Nov./Dec. 1996, pp. 44-9) "assumes...U.S. citizens spend on third-world manufacturing." The producers of manufactured goods in developing countries compete "with [U.S.] workers who do similar types of work, for example, routine production labor with low skill requirements." Jim hypothesizes that such workers "in the U.S. earn one quarter of the total income...then, if imports from low-wage countries are only 2 percent of the total national income, that is 8 percent of the low-skill workers national income," i.e., more than enough to help us understand the growing income inequalities between skilled and non-skilled workers in the U.S.

But even if U.S. workers lose from free trade in manufactures with low-wage countries, don't the workers in the latter gain?

Jim answers "no" because the commercialization of agriculture and privatization of industries in developing countries is increasing the supply of workers more rapidly than the foreign direct investments from advanced capitalist countries is creating manufacturing jobs. Workers lose all around.

Edwin Dickens

P.S. Max, you praise the old-fashioned Keynesian mechanism that Brad de Long proffers to explain how bailing out Wall Street will help your cherished middle-class consumers, but you ignored Michael Perelman's retort. Kind've selective reading I'd say.

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