Having read your two suggested articles, this I find Krugman's condescension, arrogance and myopia even more appalling than before. His energies are directed toward explaining why so few of the ignorant masses accept the theoretical ideas of free trade and comparative advantage. It appears to have never occurred to him to seriously evaluate the real world implications and nuances of the theory. He would be much better served by addressing some of these issues.
<<When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries.>>
<< Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, "what would happen if people who work for such low wages manage to achieve Western productivity?" The economist's answer is, "if they achieve Western productivity, they will be paid Western wages" -- as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible. (And he is likely to offer those Bangladeshi factories as a counterexample, missing the distinction between factory-level and national-level productivity).>>
Isn't there a contradiction here? Is it not obvious to Krugman that wages will be endogenous not only within nations, but throughout the world in the event that trade barriers are removed and transportation costs are minimal (as with many products). I will grant you that the world will be more efficient and better off as a whole but contend it will be at the expense of the wealthy nations. And there are enormous social implications to having our lower classes earning the unskilled world wage level which is not even close to a living wage in the US. The notion that enterprises in the US will be inherently more productive to compensate for our higher wage levels (which free traders seem to accept as gospel) is rubbish. There is no logical explanation as to why this must be so. In this borderless world, capital, intellect, equipment, education can all migrate freely leaving the only difference as wages. Disk drive production, a capital intensive, technologically advanced product like so many other computer products that cannot profitably be produced in the United States, is a perfect example. As for developing countries wage levels rising to match our own, Japan is a poor example. Japan, with 100 million people, sucked a trillion dollars out of the US on its route to prosperity. Imagine what it will take to bring China, Vietnam, Thailand, Malaysia and the rest of Asia up to our wage levels. This brings my wealthy family analogy back in to play. Borrow and maintain a high living standard right to the bitter end.
<< Trade may be balanced in Chapter 2; but
Chapter 13 explains that the trade balance is equal to the difference between savings and investment, and that a country may justifiably run persistent deficits if it is an attractive site for foreign investment.
Again, none of this is obvious to non-economists. The essential accounting identity, savings minus investment equals exports minus imports, is if anything a better-kept secret than the concept of comparative advantage->>
Here Krugman is right. But he fails to address what has happened if the "investment" is merely loans to the people to finance their consumption (trade deficit) or loans to the government ("investment" in treasuries)or even investment in the stock market. The problems last fall show dramatically that a nation which has sucked up all these forms of short term "investment" are placing themselves in a very precarious position.
Last economic theory falls flat on its face when it comes to forecasting how the benefits of free trade are divided between countries when trade is not free and can be very inequitable. Our exports to Japan consist to a large degree of raw materials (as you might expect if we were a third world country) , not the advanced products which economic theory says Japan should be importing from us. Can importing $50 billion annually from China while exporting $3 billion to China possibly be beneficial to the US?
Until free trade economists bother to adequately address some of these issues, I'll maintain my "average layman's" opinions on so called free trade. -Z
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