Additionally, going back to the original argument of what possible good the IMF has accomplished, here is an excellent study (it's actually a case study analysis in the event of future similar scenarios) of the S. Korean financial crisis in 1997 which details a $58.4 billion (13% of S. Korea's GDP) IMF loan to S. Korea to bail out its economy from the crisis. This is combination with IMF recommendations for monetary policy resulted in a recovery of the S. Korean currency market in only 1 year.

http://www.dallasfed.org/htm/pubs/pdfs/efr/efr0104c.pdf

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So are you a proponent of free trade without protectionism (which is my stance) or are you a proponent of “fair trade”? I’ve never heard anybody describe laissez-faire markets as a poison or a lie before. Are you advocating increased government intervention in the market economy? I thought we had learned our lesson from the late 19th and early 20th century.

There is no such thing as fair trade when you have corporations who are that powerful and mobile that they can dictate directly or indirectly economic policies.

The lessons from the past? Britain and United States never got their pre-eminent position because of free trade they used protectionism and then only when there industries were stable and other nations couldnt compete did they advocate free trade. There was an excellent article I read on EbscoHost(academic database) which dealt with this very topic) unfortunately I dont remember the name of the author and I dont have EbscoHost access at home. The Chicago School says that free trade was what made Britain and USA powerful. They are lying. Just the same as the Communists were lying when they taught that history is nothing more than a history of class warfare.

Just like Communism the Chicago School of economics theories is a pack of false promises which is used by the elite to justify why they are the elite. The real world doesnt fit into an ideology. Sometimes free trade can be good, sometimes it can be bad, sometimes it good for the rich and sometimes its good for everyone.

What I am saying is I dont have the answers and I cant see the future but the past so often repeats itself and very bleak trends are clearly developing.

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Isn't the theory behind GATT the reduction of tarrifs and trade barriers on GOODS?

And Europe and the United States and Japan have gotten rid of all the subsidies and indirect assistance that prop up their industries?

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Isn’t there already a free trade in labor? I had thought that the reason why a large number of corporations were basing their operations in countries like Mexico or China was to take advantage of this free trade of labor

Hardly, what you are saying is there is a free trade in capital. I read an ILO report which essentially said that corporations are finely tuned to the costs of labour and can move their capital to whereever it is likely to be cost effective/cheapest. If there was a free trade in labour the Mexicans could freely move to the United States and get the higher wages there and Africans could freely move to Europe. Right across the West there is concerted efforts to crack down on illegal migration, even though many countries and regions are secretly dependant on the same cheap migrant labour to keep prices down. You wouldnt get cheap oranges and apples if the Californian farmers didnt use Mexican labour which they dont have to pay federal minimum wages. Only the elite University educated technically experienced workers in the modern world have legitimate labour market mobility. The rest of the labour force stay where they are.

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That’s also odd since China has long been clamoring for free trade:

China doesnt believe in free trade, its capital market is highly restricted and its currency is pegged to the US dollar, it doesnt need to follow the dictates of the IMF because it is too powerful.

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Who would stand more to gain from free trade? The US with its $14 billion of exports to China, or China with its $71 billion dollars of exports to the United States? It has been the US who has been hesitant to engage in free trade with China with its tariffs on the textile industry.

The US will definitely lose from that relationship but China wont escape either.

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Many Americans fear their wages may decline because of trade. That fear of a "race to the bottom" is based on the erroneous premise that, with free trade, higher paid American workers will be forced to compete with lower paid workers in poorer countries, pulling down American wages in general. Jobs will always go to where costs are lower.

Their fears are right. Much of the manufacturing base of the US has gone, major corporations employ only a fraction of the number of employees they did in the seventies. Those jobs are gone, and the US and to a lesser extent Europe and the rest never get them back.

The free trade system is designed to benefit mulinationals not individuals. Sometimes it does, Joe Sixpack can buy a TV or DVD and prices which have never been cheaper but what are the costs associated with that.

The productivity gains of the nineties are largely illusory, there was a massive wealth transfer from wages to capital. what does that mean in English, it means the corporations increase their profits AT the expense of the workers. It means longer working hours, fewer vacations, greater job insecurity, fewer benefits. And it is a fact right across the Western world but especially in the US. That is where much of the productivity gains come from, make the workers work harder you can employ less of them. What are they going to do, complain go to a Union the government. The Union movement has had its back broken, how can the Union movement or even government tell off a major corporation. He who pays the piper gets to call the tune.

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With regards to the millions of “dirt cheap” university trained professionals trained world-wide, you are assuming that the US will maintain a stagnant labor force and capital market. In response to technological changes, US workers will likely become more educated to work in these new technological markets, especially since much of these technologies will originate from the US. Firms will then increase spending in capital such that the US will be one of the few countries that has the capability to produce these high-tech industries such that these workers can be employed.

An IT programmer or Industrial Chemist or call centre operator does the same thing no matter what the country they are employed in.

The technology exists for much professional work to be done in the third world or even cheaper first world countries. If a company could employ a worker at a tenth of the price, it must do it. That is the way capitalism works (All things being equal lowest price wins), So if the IT programmer is as productive in Mexico as it is in America that company has to use the Mexican programmer because if they dont there competitors surely will and their competitors will drive them out of business. So if the IT programmer wants a job he has to work longer hours, have reduced benefits or not have a job at all. And that is exactly what has happened.

And this trend will keep going. Right across the world prices will for the most part go down, not up.

In the nineties the US dominated because foreigners poored money into US equities to reap the "benefits" of the tech boom, this pushed the currency up and this (along with low interest rates) maintained the purchasing power of the almighty US consumer.

Those days are over, free trade benefited the US then because US corporations benefited from that situation. Now US equities are still way overvalued and its currency is way overvalued and right across the west governments spend money they dont have whether its weapons or welfare.

With regards to the millions of “dirt cheap” university trained professionals trained world-wide, you are assuming that the US will maintain a stagnant labor force and capital market. In response to technological changes, US workers will likely become more educated to work in these new technological markets, especially since much of these technologies will originate from the US. Firms will then increase spending in capital such that the US will be one of the few countries that has the capability to produce these high-tech industries such that these workers can be employed.

There is nothing that can only be done in the US that couldnt be done in China or India for a fraction of the cost. You underestimate the dire state of the global economy. Companies first and foremost need to maintain their profits, with price competition as fierce as it is, they cant pass the costs onto the consumer so they have to reduce costs. For example look at the airline industry. Price competition and too many airlines means the capital stock of the airline industry (the aeroplanes)is very old. The airlines for the most part cant afford the capital injection to buy new planes.

The global economy is driven by consumption not by production and right now there is too much production capacity and not enough people who can afford to buy the products produced which means jobs disappear and prices go down.

great post rupert, and u are exactly correct.

just today where my bro works he was speaking to a guy who used to work as a software programmer and asked him for sum advice...he asked him what the good engineering fields are (btw we're in the US), the ones in which there is good money to be made. the guy (he had a background in engineering) warned him to be careful if he was getting into software...why? it turns out that the company he used to work for moved their entire software production unit to india, and he was out of a job. software programmers there design and upload the programs at a fraction of the cost...highly qualified programmers there make only abt 400 dollars a month (which translates to ruffly 20,000 indian rupees), which is not a bad monthly income there...so what rupert says has much truth in it, and im beginning to worry abt the the US economy now that so many of the technical jobs are being outsourced

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Originally posted by rupert There is no such thing as fair trade when you have corporations who are that powerful and mobile that they can dictate directly or indirectly economic policies.

Well in idealistic terms. Are you an advocate of free trade or fair trade? If we argue that everything is futile since the big bad corporation ultimately controls the world than what’s the point of debating?

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The lessons from the past? Britain and United States never got their pre-eminent position because of free trade they used protectionism and then only when there industries were stable and other nations couldnt compete did they advocate free trade. There was an excellent article I read on EbscoHost(academic database) which dealt with this very topic) unfortunately I dont remember the name of the author and I dont have EbscoHost access at home. The Chicago School says that free trade was what made Britain and USA powerful. They are lying. Just the same as the Communists were lying when they taught that history is nothing more than a history of class warfare.

Well I would be curious to read the article. At any rate, yes it just so happens that the US achieved a preeminent position as a super power at the time when it was practicing protectionism. But does that imply a cause and effect relationship that the reason why the US achieved superpower status was because of its trade protectionisms? The US achieved its pre-eminent position at a time when the ENTIRE world at that time was practicing protectionism. Free trade was only really pushed when world isolationism ended after WW2.

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Just like Communism the Chicago School of economics theories is a pack of false promises which is used by the elite to justify why they are the elite. The real world doesnt fit into an ideology. Sometimes free trade can be good, sometimes it can be bad, sometimes it good for the rich and sometimes its good for everyone. What I am saying is I dont have the answers and I cant see the future but the past so often repeats itself and very bleak trends are clearly developing.

So how can you denounce laissez-faire economics without providing examples of a better system? I agree that laissez faire economics are not necessarily good ALL the time, but what economic theories can actually claim that distinction? I think that laissez-faire economics still stands as the best existing economic model for promoting growth.

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And Europe and the United States and Japan have gotten rid of all the subsidies and indirect assistance that prop up their industries?

No of course not, the WTO isn’t about telling nations what their economic policies should be. The WTO is a forum for nations to come to trade agreements and it is a body that encourages the reduction or elimination of tariffs and trade barriers. Additionally when I say that I am an advocate of free trade, I also mean that I’m all for eliminating ALL trade barriers, including subsidies when they aren’t for the strict purpose of aiding a developing industry.

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Hardly, what you are saying is there is a free trade in capital. I read an ILO report which essentially said that corporations are finely tuned to the costs of labour and can move their capital to whereever it is likely to be cost effective/cheapest. If there was a free trade in labour the Mexicans could freely move to the United States and get the higher wages there and Africans could freely move to Europe. Right across the West there is concerted efforts to crack down on illegal migration, even though many countries and regions are secretly dependant on the same cheap migrant labour to keep prices down. You wouldnt get cheap oranges and apples if the Californian farmers didnt use Mexican labour which they dont have to pay federal minimum wages. Only the elite University educated technically experienced workers in the modern world have legitimate labour market mobility. The rest of the labour force stay where they are.

Ok so there is still the free trade of goods and capital. How does the restriction on labor detract from the mutual benefit of free trade?

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China doesnt believe in free trade, its capital market is highly restricted and its currency is pegged to the US dollar, it doesnt need to follow the dictates of the IMF because it is too powerful.

Well if they don’t believe in it, why are they promoting it as the article I posted said??? Here’s another link about the ASEAN FTA http://www.aseansec.org/13125.htm
Dictates of the IMF? How do they dictate country policy? They do surveillance, provide technical assistance, and provide loans.

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The US will definitely lose from that relationship but China wont escape either.

Won’t escape what??? Are you saying both China and the US lose?? I mean hell why even bother trading if everybody is going to lose? Why would either party engage in trade if it isn’t MUTUALLY beneficial?

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Their fears are right. Much of the manufacturing base of the US has gone, major corporations employ only a fraction of the number of employees they did in the seventies. Those jobs are gone, and the US and to a lesser extent Europe and the rest never get them back. The free trade system is designed to benefit mulinationals not individuals. Sometimes it does, Joe Sixpack can buy a TV or DVD and prices which have never been cheaper but what are the costs associated with that. The productivity gains of the nineties are largely illusory, there was a massive wealth transfer from wages to capital. what does that mean in English, it means the corporations increase their profits AT the expense of the workers. It means longer working hours, fewer vacations, greater job insecurity, fewer benefits. And it is a fact right across the Western world but especially in the US. That is where much of the productivity gains come from, make the workers work harder you can employ less of them. What are they going to do, complain go to a Union the government. The Union movement has had its back broken, how can the Union movement or even government tell off a major corporation. He who pays the piper gets to call the tune.

Ok I’ll post the entire article in response to the argument that manufacturing is shifting away from America and to AnotherWay’s arguments:

Some people maintain that industries flee the United States for lower wage countries with which America establishes free trade; they have a difficult time, however, explaining the situation in Puerto Rico. That Caribbean island is a commonwealth of the United States and thus can trade with the 50 American states with virtually no restrictions. In 1993 disposable per capita income was about $6,260 in Puerto Rico, compared with $18,552 in the 50 states. Given protectionist theories, one would expect full employment in Puerto Rico. In fact, unemployment is around 17 percent and has been in the double digits for decades. That compares with around 5.5 percent for the rest of the United States.

In truth, many factors in addition to low wages attract enterprises. These include levels of worker skills; the cost and reliability of water, electricity, and other utilities; transportation infrastructure; access to input resources; and proximity to markets. More important is the freedom of individuals and enterprises to earn and retain profits, and freedom from confiscatory levels of taxation and from heavy-handed government regulations that hamper business creation. Further, if a state or country maintains a welfare system that removes incentives to work, the economy will suffer.

Puerto Rico is not a free market paradise; and this is the best explanation for its continuing poor economic performance. For many American industries, it would make little economic sense to locate in Puerto Rico or in other countries.

America’s Economic Place in the World

There are those who believe that other countries are overtaking the United States economically or that America is a country of shrinking wealth. They need only compare this country with others to be disabused of those notions.

Still the Largest Economy

America still has the world’s largest economy. Calculations by the Organization for Economic Cooperation and Development (OECD) place America’s gross domestic product (GDP) in 1994 at $6,649.8 billion. The next largest economy, Japan, has a GDP of $2,593 billion, not quite half the size of America’s. The reunited Germany comes in third at $1,601.7 billion. (See Figure 1.)

America’s Purchasing Power

As mentioned earlier, Americans on average have the highest standard of living. Such comparisons are never completely accurate or exact, but some measures are better than others.

World Bank’s misleading numbers. There are several ways to compare average earnings in different countries. The World Bank comparisons sometimes quoted by doomsayers are misleading. When comparing per capita GDP in various countries, the World Bank takes a country’s average per capita income in local currency and multiplies it by the exchange rate to show the equivalent in dollars. By that measure Americans in 1995 appeared have lower wages than the Japanese, Norwegians, and Danes and to tie with the Swedes. But ex-change rates do not accurately reflect differences in living standards. Rather, they reflect factors such as the international demand for a currency to be used for trade or investments.

Workers are paid in local currencies and make purchases in local currencies. A Japanese worker is paid in yen and must purchase food, housing, and all other goods and services in yen. Thus, a closer look finds that the average Japanese spends 25 percent of income on food compared with 15 percent or less for the average American, and as much as double the portion of income for housing than does an American. Two joint U.S.-Japanese government studies showed, respectively, consumer prices in Japan to be on average 41 percent higher than in the United States in October 1989 and 37 percent higher in April 1991.

OECD figures. A better overall measure for comparing living standards is purchasing power parity (PPP) as calculated by the OECD. PPP adjusts to a certain extent for exchange rate and trade flow effects, although imperfections remain. For example, some countries keep their national accounts in ways different from the majority of developed countries, creating anomalies in the statistics. Still, PPP better reflects real living standards than does the World Bank measure.

Using PPP, Americans are found to have higher average purchasing power than citizens of other industrialized countries. (See Figure 2.) In 1994 the average American earned $25,515, the Japanese $20,756, the German $19,675, and the Swede $17,442.

These numbers also show that there has been no decline in America’s per capita GDP over the past decades as America’s economy has become more integrated into the world economy.

Jobs in America

Strong job creation. The American employment situation is also better than in other industrial countries. Over the past decade more jobs have been created in the United States than in all the other major industrial countries combined. Between 1982 and 1990 America added 17.8 million workers to payrolls, an 18 percent increase. That rapid job creation occurred even though America’s trade deficit was reaching record levels. (See Figure 3.)

The rate of job creation in the United States compares favorably with the 6.1 million jobs or 10 percent growth for Japan during the same period and 1.8 million jobs or 6.6 percent growth for West Germany. The average job growth rate in the European Community countries during that period was 8 percent, and in the industrialized OECD countries it was 8.8 percent. Furthermore, most of the jobs created in the United States were in the private sector, whereas a high proportion of the net employment gains in Europe was in the public sector.

Lower unemployment. Unemployment in Western Europe now averages over 10 percent, or twice as high as America’s rate of around 5 percent. The rate for western Germany rose from 6.3 percent in 1991 to around 10 percent in 1995. Unified Germany’s unemployment rate has hovered between 10 percent and 12 percent, with a post-war record of more than 4 million out of work.

Sweden, once considered the socialist country that could guarantee full employment, saw unemployment jump from 1.6 percent in 1990 to around 12 percent in 1994. Swedish employment figures have always been deceptive because that country’s method of keeping national accounts differs from those in other countries. The Swedish government regularly places the unemployed in government-sponsored public works or job training programs and lists these individuals as "employed." Now, even by their own measure, the Swedes have had to abandon any pretense of government-created full employment.

Not only is Europe suffering from high unemployment levels, European unemployment tends to be longer term than in the United States. In 1989, 90 percent of unemployed Americans were out of work for less than six months. Only 6 percent were out of work for more than a year, compared with 44 percent of the French and 49 percent of Germans.

Unemployment in Japan rose from around 2.2 percent in 1990 to 3.3 percent in late 1996. Although 3.3 percent is low compared with the U.S. rate, it is high by Japanese standards. The wages of many Japanese workers, unlike those of most Americans, are flexible. As much as one-third of the average worker’s income is paid in the form of a bonus based on how well a company performed that year. As a result, during short-term economic slowdowns, Japanese firms effectively cut workers’ pay, thus avoiding the need to lay off workers. Nonetheless, most large Japanese firms are reevaluating their "employment for life" policies in the face of current economic problems.

A Closer Look at Income

Although one can say, simply, that Americans on average are doing well compared with citizens of other countries, a more refined picture of U.S. economic conditions is useful.

Average Earnings or Wages

One measure of economic well-being is hourly wages in the form of cash or money income. That measure shows actual deterioration since 1973, with a loss of about one-half percent per year through 1993. Critics of free trade use that statistic to justify their claim that Americans on average are growing poorer. But wages alone do not tell the whole economic story.

Average Total Compensation

Total compensation for work includes more than cash wages. Of great importance over past decades has been the rise in the value of nonwage and nontaxed income, principally health care and retirement contributions from employers as well as increased paid vacation.

Cox and Fox found that total per capita compensation rose by about one-half percent per year between 1973 and 1993. They observed that from 1953 to 1993 the portion of payrolls devoted to health benefits rose from 3 percent to 14 percent, and the portion going to retirement jumped from 5 percent to 13 percent.

Gary Burtless, a scholar at the Brookings Institution, found that employers’ contributions to workers’ health and welfare plans grew from 4.5 percent of personal income in 1973 to 6.6 percent in 1993. The government contribution in the form of Medicaid payments grew from 1.8 percent to 5.2 percent on average during that period.

Real Personal Income

A more inclusive gauge of economic well-being is real personal income per capita, which includes wages; benefits, such as employer contributions to health care; and other factors such as rents, interest, dividends, and government transfers. Cox and Fox found an average annual growth rate in real personal income of 1.65 percent between 1973 and 1989. That rate virtually matches their finding of 1.64 percent average annual per capita GDP growth during the same period. They further point out that paid vacation and holiday time have increased by about seven days over the past two decades. Such income gains are impressive.

Problems for Unskilled Workers

So far the evidence shows that there has been no general decline or even stagnation in the average American’s purchasing power since 1973, and certainly not during the 1980s when trade deficits hit record highs. That does not mean there are no problems in some sectors of the economy or segments of the workforce. To round out the earnings picture, it is necessary to examine these problems and determine how trade contributed to the situation.

Critics of the Reagan administration in the 1980s argued that many of the 18 million net new jobs created during that decade were low-paying service positions, often labeled "burger flipper" jobs. Now it is clear that many of those jobs were higher paying and required higher levels of skill and education. So what is the actual situation for low-skilled positions?

The Technology Factor

The role that education plays in explaining stagnant earnings for part of the workforce suggests that advances in technology also play a role. Bhagwati and Dehejia note that "the happy experience of the 1950s and 1960s may have been due to technical change that was substantial, was more uniformly spread among exportables and importables, and was more neutral than biased whereas, in the 1980s, it has probably been slower . . . has been more focused on skills-intensive exportables, and has been more skills-biased."

That is, when technological advances can be easily applied in manufacturing facilities employing semi-skilled workers, the differential effects on wages will be minimal. But the information revolution associated with personal computers, advanced software, and the Internet gives a clear advantage to workers with "knowledge." Indeed, knowledge itself is often the product being produced and sold. Furthermore, technological advances in recent decades have helped certain goods and services compete well with imports and indeed become major exports.

Bhagwati and Dehejia also suggest that the earnings gap is due in part to "the greater transferability of workplace-acquired skills by the skilled. An accountant handling IBM, for example, can shift his acquired know-how readily to a new job at Caterpillar or Chrysler, but working better on the assembly line for autos at Ford may not transfer to working at a blast furnace in Pittsburgh, or for that matter to flipping hamburgers at MacDonalds [sic]."

Transferability of certain high-tech skills would seem to be high. For example, someone who develops one kind of computer software would probably be able to retool easily to develop another kind.

The Trade Factor

Explanations other than trade seem best to explain wage differences. Does trade have any effect?

No doubt imports and international competition help determine which sectors and workers realize higher profits and incomes and which ones find their goods, services, and skills of less value. If the American market were flooded with a cheap, foreign-made product of reasonable quality, American firms would have to respond with changes. That is the point of competition, to allow for specialization.

Competing with technology. In a competitive situation such as that an industry could face several options. It might shut down its operation; it might move all or part of its operation overseas; it might specialize in the lines of products and services in which it remained competitive; or it might become more efficient, for example, through the introduction of new, less labor intensive technologies.

For example, during the recession in the early 1980s, the textile and apparel industries in America laid off hundreds of thousands of workers. That downsizing was no doubt due in part to foreign competition. Since the late 1950s, however, U.S. trade barriers had restricted textile and apparel imports. Those barriers had delayed the industry’s adjustment to competition and the introduction of new technology.

By the mid- and late 1980s, those industries, especially the textile segment, recovered and became very profitable. For example, in 1987 textile mills ran at about 94 percent of capacity, compared with 81 percent for American manufacturing as a whole. Total textile and apparel production rose by 6.5 percent between 1985 and 1986, with record consumption of inputs such as cotton, wool, and other fabrics. Profits rose by 46 percent in 1986. Yet in 1985 the U.S. merchandise trade deficit was $122.2 billion and in 1986 it was $145 billion.

One secret to the success of American textile manufacturers was their use of better technology, much of it imported. Anecdotal evidence also suggests another surprising factor. While touring several textile factories in North Carolina during the period of expansion, this author was told that the mills were experiencing problems with a lack of manpower. Apparently the demand for workers in newer, high-tech industries in the region forced some of the textile mills to increase wages to attract workers.

Competing with low-wage foreigners. Some critics of free trade might concede that higher skilled American workers have little to fear from foreign competition. But they would still maintain that lower skilled American workers will always find their wages falling as low-skilled jobs move overseas, raising wages for foreigners.

Burtless notes several objections to the assumptions behind that scenario. First, it is not clear whether technologies that make use of low-skilled labor are identical in developed and less developed countries. Thus, lower-skilled labor might be more useful in certain industries or aspects of production in developed countries.

Second, returns to scales of production in developed and less developed countries will not necessarily be constant. And finally, the wage-convergence scenario often assumes that trading partners will not specialize in separate export items. In fact, complete specialization does occur.

Low wages with no import competition. Imports may indeed be the principal cause of stagnant or declining wages in import-sensitive industries, so these industries might understandably turn to less labor intensive, higher technologies to remain competitive. But, as Burtless points out, one would not expect that reaction in industries not subject to competition from low-priced imports. In fact, one might expect the opposite. With abundant unemployed workers, industries not subject to import competition might well become more labor intensive.

Burtless examined industries that were highly affected, moderately affected, and not affected at all by trade. Within the highly affected industries he found relatively small wage disparities between higher and lower earners and thus, presumably, between higher and lower skilled workers. In industries not highly affected by trade he found greater disparities.

The trend toward divergence between high and low earners in industries least affected by trade and in those most affected by trade has been the same since 1969. Low-wage, and presumably lower skilled, workers in the heavily trade-affected industries saw their wages slip in comparison with higher skilled workers in those industries. But low-wage workers in the least trade-affected industries saw their wages slip as well in comparison with their higher skilled colleagues in the same industries. In other words, import pressures are not the primary cause of wage stagnation in certain segments of the workforce.


I edited out parts of the article because it’s so goddamned long. But at any rate I’m not necessarily seeing the trend you’re implying. Perhaps if you provide economic statistics to show the impact of free trade on the American economy?

Edit: Out of curiosity what field of economics are you majoring in?

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Last edited by occrider on May-08-2003 at 15:29

Additionally, consumer confidence and GDP is on the rise from Q4 2002. Perhaps you should place more concern where it is needed ... with the state of the EU economy. Given the recent reductions in GDP forecasts for the German economy (the largest in the EU):



Germany is showing signs of heading into a recessionary period as it is suffering from weak domestic and foreign demand for manufacturing orders. This in combination with the refusal of the European Central Bank to cut interest rates and the high value of the Euro seems to exacerbate Germany's problems. Here's an excellent article from the Economist that outlines one of the problems of the ECB. The ECB's monetary policies adopt a one size fits all approach across all nations in the EU. This could create problems for different countries within the EU experiencing varying economic conditions. For example a loosening of monetary policy might aid Germany's ailing economy yet would be disastrous for Ireland's inflationary economy.

http://www.economist.com/agenda/dis...tory_id=1770692

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Well in idealistic terms. Are you an advocate of free trade or fair trade? If we argue that everything is futile since the big bad corporation ultimately controls the world than what’s the point of debating?

I believe in whatever really helps people, economic prosperity comes from the bottom up not the top down if that makes sense, sometimes free trade is good sometimes it is catastrophic for a small economy. How can they really compete with the US or EU or match the power of the currency traders on Wall Street.

For instance take one example of the mantra of the IMF, privatisation. It is conditional for most IMF loans that a country privatise government industries. Why because the idealogy that they support says it must be done. Communism says you have to collectivise everything, the Chicago School says you have to privatise everything. Leave everything to the market it will sort everything out.

The reality is the market is a harsh mistress. So in the case of privatisation. Say a country is ordered to privatise its telecommunications industry. In Australia they did privatise the state owned phone company which is called Telstra and opened the telecommunication industry to competition. So what happened as a result of this, a windfall profit to the government, a much needed injection of private capital into an underresourced industry above and beyond what the government could have paid to upgrade the system and a better deal all round for the customers. Score one for the free market.

Now take privatisation in a third world country. Many industries are publicly owned because that is the only way that most people can afford the product produced. A guy on the forum once mentioned I think it was Croatia where they privatised the telecommunications industry and it was bought by a foreign multinational I think Deutsche Telecomm. I dont know the nuts and bolts of exactly what happened in that case but Deutsche Telecomm probably borrowed a lot of money to buy the company and in order to recoup its investment it jacked up the price making it more difficult to use the product and it wouldnt invest in upgrading the system because it is a heavily indebted company that cant afford to. Score one for the public sector.

It is the ideology which I despise, to say that something is owned by the government is automatically bad is insanity and that is exactly what the US, the WTO, the World Bank, the IMF do. I could give countless examples of where the ideology doesnt work in practice whats the point. America has a completely privatised health care system yet the cost of health care is far more expensive than Australia which has a hybrid private/public system which guarantees health care for everyone. Yet, the free market ideology would demand that the government stop subsidizing the health care system. 40 million Americans have no automatic access to health care insurance. 0 Australians have no automatic access to health care insurance. Weak countries in Africa have been forced to cut back on health care and education because those things should be privatised and of course governments according to the IMF must always live within their means. Which means in practice that the poor are worse off.

All of this is outlined in a book by Joseph Stiglitz called "Globalisation and its discontents."

I could think of no better punishment than for the US to be forced to accept a structural adjustment policy. I mean it subsidises industries, many of its industries are de-facto state run and it spends money beyond its means, all of which is heresy for the Chicago School.

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Well I would be curious to read the article. At any rate, yes it just so happens that the US achieved a preeminent position as a super power at the time when it was practicing protectionism.

This is the thrust of a just-published book, Kicking Away the Ladder (Anthem Press, 187 pages), by Ha-Joon Chang, an economist from South Korea who is an Assistant Director of Development Studies at Cambridge.

http://www.jpri.org/Critique/crit9.6.htm

I read a summary of that book on Ebscohost.

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I also mean that I’m all for eliminating ALL trade barriers, including subsidies when they aren’t for the strict purpose of aiding a developing industry.

If that happened many people in the US, in particular in its agricultural sector would be sent straight to the wall. US and EU farmers as one example get billions in subsidies of all forms from the governments and they will keep getting them because they are too politically powerful to ignore.

The corporations have free mobility of capital which means that governments including western governments are forced into competition to attract corporate investment, which means tax breaks, concessions to attract the corporations. So in effect whichever country or even local government which offers the biggest bribe gets the factory in their area. Of course if someone else offers a bigger bribe or the currency drops in another country making production cheaper then that company will move somewhere else. And this happens everywhere right around the world. It represents yet another wealth transfer from the public to the private sector. Money spend bribing corporations means less money for schools and hospitals.

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Won’t escape what??? Are you saying both China and the US lose?? I mean hell why even bother trading if everybody is going to lose? Why would either party engage in trade if it isn’t MUTUALLY beneficial?

The US will enter a prolonged period of deflation, the economy will pick up but it will be a jobless recovery. Just yesterday the federal reserve said that fighting deflation was its top priority. Which means that prices go down, fewer good jobs, less spending power and most importantly the cost of servicing debt goes up. Now China like all the other Asian "tiger" economies have seen that exporting is the key to growth. The main target is of course the US consumer.

The US currency will go down in value. This will happen. The Chinese currency is tied to the US dollar, which means that Chinese products become even cheaper. Already other asian economies are deathly afraid that growth in China will adversely affect them( i think incorrectly). Now if americans keep their wallet in their pocket, this knocks on to China. Lower growth rates in China because of reduced sales of its products may have serious consequences. Despite the rhetoric, from all the information I have read China is a bubble waiting to burst( overvalued assets, rampant corruption, environmental devastation, no corporate governance and no transparency).


And of course this means even lower prices all round. Deflation is a truly deadly cycle which is difficult to get out of. Look at Japan which has a lot of the same lack of transparency and debt problems that China does. Japan has been able to weather deflation because it has tremendous foreign reserves and the average Japanese is a good saver. Deflation remember is better for those with savings than those with debt because deflation means the cost of servicing debt goes up. Now the United States person has no domestic savings at all and the government doesnt know how to save. Which means that if the world goes into a prolonged period of deflation everyone suffers but especially the United States. Which is why tax cuts just arent going to work and in fact will only make things worse. America could stave this off by deep DEEP cuts in spending and increases in revenue but they will never to it.

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Some people maintain that industries flee the United States for lower wage countries with which America establishes free trade; they have a difficult time, however, explaining the situation in Puerto Rico.

The corporations will go wherever they can best maintain profit margins. So in some cases Japanese or Korean firms will in fact move their plants from a third world country to a first world country. It isnt just cost that goes into deciding where a corporation plants its factory, there are many other factors.

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There are those who believe that other countries are overtaking the United States economically or that America is a country of shrinking wealth. They need only compare this country with others to be disabused of those notions.

It depends on what you define as wealth. If you define wealth as the average wage then sure, US is still no 1. Why well the average wage is just the number of people divided by the wealth and given that the US has more billionares than anywhere else that skews things upwards. Now if you work out wealth as the Median wage minus the real cost of living you would get a much different result. If you take into account the access to affordable health care and education you get a lot different result. If you take into account working hours per week or how many paid vacations a worker can get per year you get a different result.

If I was Joe Sixpack blue collar worker in a service industry where would I choose to live the USA or Australia. There can be no doubt Australia. The USA federal minimum wage I believe is still $5.50 per hour with time and half after 40 hours per week with working hours going up every year. The average US worker gets about 1 week per year in vacation, and being a service sector worker is unlikely to get health insurance benefits.

Compared to Australia where the minimum wage is about $7.00 US per hour, full time workers work 38 hours per week, have 8 days sick leave and 4 weeks vacation per year and the government has universal health care.

Sadly a global capital system means in the long run both the US worker, the Australian worker the Swedish worker etc all in the long run lose. Sure some win, the managers and professionals and more importantly the stock holders. And in the end even the stockholders lose. I dont know the future, but in all likelihood there will be many, many years of stagnant or negative growth across the world. The global capital market means governments cant spend beyond their means, not for long anyway and the US isnt immune from what happens everywhere else.

The world has been down this road before. The first globalisation phase in the late nineteenth century ended in failure with the first world war. This globalisation phase will fail too. In all likelihood countries wont continue to reduce trade barriers but will erect them, eg the US erects tarrifs to protect its innefficient steel industry, the Europeans retaliate.

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Out of curiosity what field of economics are you majoring in?

i did some economics at University, but I have most of my money invested in the stock market so I religiously read anything that could relate to my investments or could earn me more money. Eg I have a lot(in my terms) invested in an oil company so I carefully read anything that relates to the middle east which will obviously affect my stock price. After a while you start to think like a capitalist and you realise how truly precarious things are everywhere but especially in the USA.

I think we successfully killed this thread with our economic analyses . At any rate I'm only going to make a few replies since I agree with some of what you say, and I'm actually having a rather busy day at work.

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Originally posted by rupert I believe in whatever really helps people, economic prosperity comes from the bottom up not the top down if that makes sense, sometimes free trade is good sometimes it is catastrophic for a small economy. How can they really compete with the US or EU or match the power of the currency traders on Wall Street. For instance take one example of the mantra of the IMF, privatisation. It is conditional for most IMF loans that a country privatise government industries. Why because the idealogy that they support says it must be done. Communism says you have to collectivise everything, the Chicago School says you have to privatise everything. Leave everything to the market it will sort everything out.

Well I agree that in some instances it may not be good for a developing country and in other instances it is a godsend. But I think that it is a general trend that free trade helps developing nations and helps everyone in general. To support my reasoning I'll refer back to the WTO study on the effects of free trade on the global economy over the past few decades:

"Free trade helps reduce poverty, says new WTO secretariat study

A new WTO Secretariat study published today (19 June) finds that trade liberalization helps poor countries to catch up with rich ones and that this faster economic growth helps to alleviate poverty. WTO Director-General Mike Moore said: “This report confirms that although trade alone may not be enough to eradicate poverty, it is essential if poor people are to have any hope of a brighter future. For example, 30 years ago, South Korea was as poor as Ghana. Today, thanks to trade led growth, it is as rich as Portugal.”


The following is a selection of the highlights of the study "Trade, Income Disparity and Poverty", by Dan Ben-David of Tel Aviv University and L. Alan Winters of Sussex University.(1)

Extreme poverty is a huge problem. 1.2 billion people survive on less than a dollar a day. A further 1.6 billion, more than a quarter of the world's population, make do with one to two dollars a day.
To alleviate poverty, developing economies need to grow faster, and the poor need to benefit from this growth. Trade can play an important part in reducing poverty, because it boosts economic growth and the poor tend to benefit from that faster growth.

The study finds that, in general, living standards in developing countries are not catching up with those in developed countries. But some developing countries are catching up. What distinguishes them is their openness to trade. The countries that are catching up with rich ones are those that are open to trade; and the more open they are, the faster they are converging.

The study also finds that poor people within a country generally gain from trade liberalization. It concludes that "trade liberalization is generally a strongly positive contributor to poverty alleviation—it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks". This concurs with a new World Bank study (2) which, using data from 80 countries over four decades, confirms that openness boosts economic growth and that the incomes of the poor rise one-for-one with overall growth.

The WTO study acknowledges that some people do lose in the short run from trade liberalization. Some are well-off, others not. The report argues that the plight of the losers should not be ignored, but that the right way to alleviate their hardship is through social safety nets and job retraining rather than by abandoning reforms that benefit most people."

http://www.wto.org/english/news_e/pres00_e/pr181_e.htm

The actual report is some 74 pages long and I took a brief look at the second chapter and the findings seem fairly sound. Parts of the statistical analysis went right over my head though so I'm not completely sure.

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Now take privatisation in a third world country. Many industries are publicly owned because that is the only way that most people can afford the product produced. A guy on the forum once mentioned I think it was Croatia where they privatised the telecommunications industry and it was bought by a foreign multinational I think Deutsche Telecomm. I dont know the nuts and bolts of exactly what happened in that case but Deutsche Telecomm probably borrowed a lot of money to buy the company and in order to recoup its investment it jacked up the price making it more difficult to use the product and it wouldnt invest in upgrading the system because it is a heavily indebted company that cant afford to. Score one for the public sector.

Ok well I did a little bit of reading into the Deutsche telecom acquisition of Croation telecom and it seems that the resulting situation occurred as a result of government greed. The initial bid for CT was for $611m from a Nordic consortium of telecom countries. The Croat government was hoping for more money and rejected the deal and put CT back on the market. Deutsche Telekom then engaged in confidential negotiations with the government and agreed to purchase it for $850m. The implications are that the croat government likely gave Deutsche Telekom a blank check to do whatever they would like with CT in exchange for more money. Perhaps Drug_tito can elaborate more on the issue if he cares to. But can this be considered a failure of free trade or a failure of government accountability?

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It is the ideology which I despise, to say that something is owned by the government is automatically bad is insanity and that is exactly what the US, the WTO, the World Bank, the IMF do. I could give countless examples of where the ideology doesnt work in practice whats the point. America has a completely privatised health care system yet the cost of health care is far more expensive than Australia which has a hybrid private/public system which guarantees health care for everyone. Yet, the free market ideology would demand that the government stop subsidizing the health care system. 40 million Americans have no automatic access to health care insurance. 0 Australians have no automatic access to health care insurance. Weak countries in Africa have been forced to cut back on health care and education because those things should be privatised and of course governments according to the IMF must always live within their means. Which means in practice that the poor are worse off.

Well the theory behind American health care is that although health care is privatized, those who cannot afford health care are provided for by medicare and medicaid programs. Those who can afford health care have the ability to choose which health care system they wish to subscribe to. Of course, these people also have the option to forego ALL health care at their own risk. Although the US has a privatisized health system, the US still spends $4,090 on health care per capita with Germany spending the next most with Germany spending $2,339 then Canada spending $2,095, etc. However, perhaps I should clarify my stance on free trade. I'm not a die hard free trade fanatic in everything, just in goods and services. I am not for the absolute privatization of all government programs. I think the government should definetely have a place in social welfare programs such as health care, education, etc.

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All of this is outlined in a book by Joseph Stiglitz called "Globalisation and its discontents." I could think of no better punishment than for the US to be forced to accept a structural adjustment policy. I mean it subsidises industries, many of its industries are de-facto state run and it spends money beyond its means, all of which is heresy for the Chicago School. This is the thrust of a just-published book, Kicking Away the Ladder (Anthem Press, 187 pages), by Ha-Joon Chang, an economist from South Korea who is an Assistant Director of Development Studies at Cambridge. http://www.jpri.org/Critique/crit9.6.htm I read a summary of that book on Ebscohost.

Seems interesting. I'll sit down to read it and comment when I have more time.

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If that happened many people in the US, in particular in its agricultural sector would be sent straight to the wall. US and EU farmers as one example get billions in subsidies of all forms from the governments and they will keep getting them because they are too politically powerful to ignore. The corporations have free mobility of capital which means that governments including western governments are forced into competition to attract corporate investment, which means tax breaks, concessions to attract the corporations. So in effect whichever country or even local government which offers the biggest bribe gets the factory in their area. Of course if someone else offers a bigger bribe or the currency drops in another country making production cheaper then that company will move somewhere else. And this happens everywhere right around the world. It represents yet another wealth transfer from the public to the private sector. Money spend bribing corporations means less money for schools and hospitals.

Perhaps a phased reduction in subsidies could be implemented to avert a market disaster, however, I am still for the removal of subsidies. They foster inefficiency in already developed industries. If American farmers cannot compete than they should adapt to become more competitive. If other farmers around the world are so adept at producing food, one would expect that they would easily fulfill demand in their own countries, make profits, and then export their goods outside of the country for further profits. Then this would result in an increase in wages as supply meets the demand. Then ideally there would be a balance in wages achieved by domestic american farmers and farmers abroad.

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The US will enter a prolonged period of deflation, the economy will pick up but it will be a jobless recovery. Just yesterday the federal reserve said that fighting deflation was its top priority. Which means that prices go down, fewer good jobs, less spending power and most importantly the cost of servicing debt goes up. Now China like all the other Asian "tiger" economies have seen that exporting is the key to growth. The main target is of course the US consumer. The US currency will go down in value. This will happen. The Chinese currency is tied to the US dollar, which means that Chinese products become even cheaper. Already other asian economies are deathly afraid that growth in China will adversely affect them( i think incorrectly). Now if americans keep their wallet in their pocket, this knocks on to China. Lower growth rates in China because of reduced sales of its products may have serious consequences. Despite the rhetoric, from all the information I have read China is a bubble waiting to burst( overvalued assets, rampant corruption, environmental devastation, no corporate governance and no transparency). And of course this means even lower prices all round. Deflation is a truly deadly cycle which is difficult to get out of. Look at Japan which has a lot of the same lack of transparency and debt problems that China does. Japan has been able to weather deflation because it has tremendous foreign reserves and the average Japanese is a good saver. Deflation remember is better for those with savings than those with debt because deflation means the cost of servicing debt goes up. Now the United States person has no domestic savings at all and the government doesnt know how to save. Which means that if the world goes into a prolonged period of deflation everyone suffers but especially the United States. Which is why tax cuts just arent going to work and in fact will only make things worse. America could stave this off by deep DEEP cuts in spending and increases in revenue but they will never to it.

I read an interesting reuters article yesterday that the US government might actually be seeking to reduce the value of the dollar in order to aid the economy. By reducing the value of the dollar american goods become more competitive abroad because they are cheaper. With the Euro achieving a 4 year high against the dollar the German economy is suffering due to decreased manufacturing orders as a result of the strong Euro. As long as the dollars decline is orderly it will be good for the US. If a quick and calamitous slide occurs however, that could be detrimental to the US economy

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It depends on what you define as wealth. If you define wealth as the average wage then sure, US is still no 1. Why well the average wage is just the number of people divided by the wealth and given that the US has more billionares than anywhere else that skews things upwards. Now if you work out wealth as the Median wage minus the real cost of living you would get a much different result. If you take into account the access to affordable health care and education you get a lot different result. If you take into account working hours per week or how many paid vacations a worker can get per year you get a different result. If I was Joe Sixpack blue collar worker in a service industry where would I choose to live the USA or Australia. There can be no doubt Australia. The USA federal minimum wage I believe is still $5.50 per hour with time and half after 40 hours per week with working hours going up every year. The average US worker gets about 1 week per year in vacation, and being a service sector worker is unlikely to get health insurance benefits. Compared to Australia where the minimum wage is about $7.00 US per hour, full time workers work 38 hours per week, have 8 days sick leave and 4 weeks vacation per year and the government has universal health care.

Median income is one of the segments that I axed from the super long article . Here is what it states on median income:

"Median Family Income

Another indicator of economic well-being is median family income. That measure differs from average per capita income in two ways. First, the unit of analysis is a group of individuals. Second, the median (as opposed to average) family income means the same number of families make more than the median as make less. Cox and Fox find that median family income has virtually stagnated, increasing only one-tenth of one percent per year between 1974 and 1993.

Critics of free trade also point to that statistic as evidence of the adverse effects of open markets. But international trade does not explain the situation. Burtless cites Census Bureau statistics showing that average family size decreased over the past two decades, from 3.44 in 1973 to 3.2 in 1993. Thus, a seemingly stagnant median family income is divided among fewer individuals, leaving more income per individual family member. Looking at income per person within the average now-smaller family, income is seen to go up. According to Burtless, per capita income per median family member increased 7.4 percent over the 20-year period.

Burtless also notes that average rather than median family income increased 13.2 percent between 1973 and 1993. Taking into account smaller family size, that means average real income per family member increased by 21.6 percent during that period."

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Sadly a global capital system means in the long run both the US worker, the Australian worker the Swedish worker etc all in the long run lose. Sure some win, the managers and professionals and more importantly the stock holders. And in the end even the stockholders lose. I dont know the future, but in all likelihood there will be many, many years of stagnant or negative growth across the world. The global capital market means governments cant spend beyond their means, not for long anyway and the US isnt immune from what happens everywhere else. The world has been down this road before. The first globalisation phase in the late nineteenth century ended in failure with the first world war. This globalisation phase will fail too. In all likelihood countries wont continue to reduce trade barriers but will erect them, eg the US erects tarrifs to protect its innefficient steel industry, the Europeans retaliate.

You take the pessimistic approach, I take the optimistic approach. I guess only time will tell how successful free trade will be. I always wonder ... for all those people who protest the world bank/imf/globalization, I wonder what feasible system they would set up as an alternative.

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