Comparative Advantage,Trade and Employment

[Paul Davidson <pdavidson@xxxxxxx>]

Henry wrote regarding the argument that comparative advantage is not
applicable in a world of less than full employment:
	"The above conclusion is theoretically water tight. Since we are far from
global full employment, not even near zero structural unemployment globally,
and not likely to be in the foreseeable future, a condition that itself may
be structural to the existing trade regime, does this mean that trade is in
fact counter-productive economically unless full employment is set as a
pre-condition?  Anti traders have made the argument that the net effect of
trade on employment is in fact negative in many economies, even though
positive in the export sector.  The AFL-CIO thinks it is true even in the
US.  What is the post Keynesian view on this?"

Keynes's response (and I hope the Post Keynesian response) is:

Free trade, free mobility of capital and full employment are
incompatible.  This is Keynes's so called "incompatibility thesis" (See my
plumber vs architecture article in  a minisymposium involving Irma Adelman,
Barry Eichengree, Stanley Fischer, Jim Tobin, and myself in WORLD
DEVELOPMENT, June 2000 issue ( My article is available on my web page).

Ther Post Keynesian view, I believe, should be that as in a closed economy,
there is a necessity for governmental controls of liquidity in order to
bring effective demand up to full employment (in a global economy-- global
full employmernt). Apart from such central controls (as suggested in my
IMCU proposal for an international clearing union), then we need not
interfere in the economy to achieve both private and public advantage....

Paul