Date: Sat, 20 May 2000 19:52:23 -0400 From: Mark Weisbrot <weisbrot at cepr.net> Subject: Re: The China Deal: If You Can't Sell It, Buy It
Doug,
I'm not sure what your argument is. The standard argument you see in the business press is that the lower import prices "allowed" the Fed to refrain from raising interest rates, and therefore let the economy grow faster than it otherwise would have. But this takes Fed policy as fixed and necessary; I can't believe this is what you are saying.
Or are you referring to the efficiency gains from trade-- i.e., neoclassical, comparative advantage? These are tiny for the US-- e.g., maybe three-hundredths of one percent of GDP, at most, for the reduction of tariff and non-tariff barriers in the Uruguay Round of GATT. I think it is not misleading in the least to ignore these-- they are certainly trivial compared to the loss of wages for most of the labor force over the last 26 years.
For most of the last 26 years, we have had a declining real median wage-- by definition this means that the downward pressures on wages had more influence than the gains from trade. I would measure the decline relative to what, in the absence of such pressures, the real wage gains would have been-- so even the current expansion has been pretty bad. Even if only a fraction of this loss is attributable to trade, it is still enormous, especially when compared to the very small efficiency gains from trade.
Mark
At 06:26 PM 5/20/00 -0400, Doug Henwood wrote:
>Mark Weisbrot wrote in his latest column:
>
>> Let's get one thing straight: a widening trade deficit cannot
>>create growth or jobs. One can argue, under certain assumptions,
>>that exports create jobs. But by the exact same logic, imports take
>>them away. So when imports exceed exports-- as they do now by a
>>record amount-- it means that trade can only have a negative
>>impact on employment and growth.
>
>As with the EPI argument, I think this is way too simple; it assumes
>there are no gains from trade at all. Making this argument may cause
>people to brand me a covert right-winger, but hey, I've been there
><http://english-www.hss.cmu.edu/bs/36/henwood.html>. Yes, a cheaper
>import may displace or replace domestic production. But imports have
>also kept a damper on domestic prices (the evidence of Nike shoe
>prices to the contrary). The CPI increased an average of 2.9% a year
>between the first four months of 1990 and the first four months of
>2000; import prices, 0.7% over the same interval. For all imports
>excluding oil, they were up 0.3% a year. If imports keep domestic
>prices down, then people (those who don't lose their jobs to
>imports, of course) have more money to spend on other goods. We can
>argue about the relative importance of the two influences - lower
>prices vs. job loss - but to ignore the lower price angle is
>analytically incomplete.
>
>Doug
Name: Mark Weisbrot E-mail: <weisbrot at cepr.net> Co-Director Center for Economic and Policy Research 1015 18th Street NW, Suite 200 Washington, DC 20036 Phone (202) 293-5380 x228 Fax (202) 822-1199 (202) 333-6141 (home) www.cepr.net