Business Week Should Call Paul Samuelson Before Writing on Trade
Business Week reads the latest from Paul Samuelson on trade theory and then writes Shaking Up Trade Theory. Brad DeLong objects to this paragraph:
But if white-collar offshoring swells enough, the resulting job losses could undercut a large swath of U.S. consumers. In part, this is a question of scale. There’s little doubt that globalization is likely to continue to cut into the country’s 14.5 million factory hands. Add in 57 million white-collar workers suddenly facing global competition, too, and more than half the U.S. workforce of 130 million could feel the impact. Then, economists conclude, the benefits of globalization would flow mostly to companies and shareholders who profit from the cheaper labor, with little pass-through to workers and consumers. “If a majority of Americans have lower wages from outsourcing, then capital would be the prime beneficiary, even if U.S. GDP goes up,” says Harvard’s Freeman.
Brad notes that the bulk of this paragraph is wrong:
Pass-through to consumers is very large. Workers making tradeables (and their households) lose; workers making non-tradeables (and their households) gain; shareholders gain.
He also notes:
But it’s not a challenge to, it’s a confirmation of conventional Stolper-Samuelson trade theory: the magnitude of the global gains from expanded trade opportunities is roughly proportional to the individual losses by those who find themselves ground by the millstones of the global economy.
Note that the Business Week article started with a statement of the Stopler-Samuelson theorem:
The lost jobs and lower wages in the U.S., economists say, are more than offset when countries specialize like this, leading to more robust exports and lower prices on imported goods.
But then the article continues:
The great debate percolating among the country’s top trade economists gained new prominence with a recent article by Nobel laureate Paul A. Samuelson in the Journal of Economic Perspectives (JEP). In the piece, the 89-year-old professor emeritus at Massachusetts Institute of Technology, who largely invented much of modern-day economics, questions whether rising skills in China and India necessarily will benefit the U.S.
But, but, – try reading Samuelson’s article and then understanding what he was saying is that in some situations, free trade might not lower the price of goods we import. Hence no gains to consumers – but then free trade would not be reducing wages either as Samuelson was not saying Stopler-Samuelson has been repealed. Picking and choosing from a scholar’s work and drawing unwarranted inferences is unfair to that scholar. And has Business Week bothered to call Dr. Samuelson before publishing, I suspect he would have gently pointed out the inconsistency in this article.