Re: The Economy IS The Colateral Damage of War on Terrorism.

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

To begin with, unrestricted and unregulated capital flow distorts the meaning of
trade, free or not.  This distortion is obscured by the adoption of GDP over
GNP. GDP registers transient foreign capital as domestic product, while GNP
reflects real factor income to the owner of capital.  Thus, China, the economy
supposingly most benefitting from trade, has seen trade growth accompanied by
unemployment growth.  That is caused by three conditions: 1) export trade forces
a restructuring of the domestic economy (China) to serve the needs of the
importing economy (US), but not China's needs, 2) because of the dollar's
special status as the sole reserve currency for trade, trade surplus (current
account) for the exporting economy only fuel the capital account surplus
(investment) of the importing economy, leaving the exporting economy constantly
starved for more foreign capital, thus preventing wages to rise with "growth" as
return to capital remains unnaturally large, and 3) this type of globalization
perpetuates an uneven and unfair division of labor, with the exporting economic
needing to force wages down to survive while high-paying service jobs in design,
sales and finance are retained by the importing economy.

In this context, Says Law is totally irrelveant.  Supply for exporting goods
creates no demand in the domestic economy for those goods because of lack of
purchasing power.

Take a look at Argentina, you will see how operative theoretical macro-economic
policy translates into disaster for market participants big and small.

Henry C.K. Liu

"J. Barkley Rosser, Jr." wrote:

>       I agree that the usual argument assumes
> full employment.  Obviously the big problem
> with free trade agreements involve the layoffs
> in import competing industries.  Thus, I am for
> serious assistance to those affected in such
> industries, such as Sweden has traditionally
> had, not like the penny ante stuff the US proposes.
>       I don't see a more general problem unless
> there are big differences across countries
> in unemployment rates with this issue.
>       I do see some dynamic problems that can
> arise.  The infant industry argument has always
> struck me as a reasonable exception.  There is
> also clearly a problem for any country to get too
> specialized on a good that has a low income
> elasticity or that is or uses a depletable natural
> resource that will run out in the not too far distant
> future.
>      There are other problems.  But I still hold the
> burden of proof to be on those who wish to restrict
> trade rather than the other way around.  A bit
> traditional on that one, I guess.
> Barkley Rosser
> ----- Original Message -----
> From: "pdavidso" <pdavidso@xxxxxxx>
> To: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> Sent: Friday, December 07, 2001 11:33 PM
> Subject: RE: The Economy IS The Colateral Damage of War on Terrorism.
>
> >===== Original Message From "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> =====
> >     I would suggest that free trade should be
> >kept distinct from free capital movements.
> >The arguments for free trade remain fairly
> >strong,
>
> The argument for free trade rests on the law of comparative advantage-- but
> unfortunately, that law requires the assumption that both trading partners
> are
> full employed both before and after free trade is put inplace and there is
> never a lack of effective demand even if we can produce more globally with
> the
> same global quantity of resources (inputs).
>
> Otherwise the argument is much weaker-- and as I have demonstrated can
> bedevasting if one country has the absolute advantage in the most important
> trading products.  Also there are problems in terms of relative income
> distributions if the poor trading partner has the comparative advantage in a
> product that has aa inelastic income elasticity.
>
> \ and I would assert that the burden of
> >proof is on those who favor protectionism in
> >any particular case, with a strong case needing
> >to be made.
>
> i think I have made a case in my Post Keynesain Macroeconomics Theory book
> that , at least, we should not accept the idea that free tgrade is an
> absolute
> and ubiquitous good!  That does not mean that protection is also an absolute
> good.
>
> What it means that one must make a casse by case stury as to whether freer
> trade is an absolutew improvement for both tgrading partyners.
>
> I think the case for free trade as an absolute good even in a global economy
> without fuyll employment-- as Barkley implies -- requires justification and
> not vica versa.
>
> >      Unfortunately, many so-called free trade
> >agreements are really just stalking horses for
> >agreements that involve opening up the capital
> >accounts of countries for free capital movements.
>
> There is never a good argument for free capital movements without the
> possibility of constraints if there is liquidity crisis -- in a world that
> requires liquidity!
>
> >This is not the same as free trade, and there are
> >many good reasons to be very skeptical about this.
> >I am personally sympathetic with the stance of
> >Jagdish Bhagwati of Columbia University who
> >strongly supports free trade while supporting
> >restrictions on capital movements.
> I think Bhagwati's arguments are, like most classical theorists, very
> questionable as to whether they are rfelevant to the real world.
>
> Paul
> >Barkley Rosser
> >----- Original Message -----
> >From: "Gunnar Tómasson" <gunnar.tomasson@xxxxxxxxxxx>
> >To: "pdavidso" <pdavidso@xxxxxxx>; "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
> >Cc: <pkt@xxxxxxxxxxxxxxxx>
> >Sent: Thursday, December 06, 2001 8:01 PM
> >Subject: Re: The Economy IS The Colateral Damage of War on Terrorism.
> >
> >
> >> Henry is right on target in this respect:
> >>
> >> "Free trade and market fundamentalism are conceptually flawed."
> >>
> >> As for his conclusion that
> >>
> >> "their supporters are also dishonest,"
> >>
> >> perhaps he did not factor 'dumb' into the equation.
> >>
> >> Gunnar
> >>
> >>
> >> ----- Original Message -----
> >> From: "pdavidso" <pdavidso@xxxxxxx>
> >> To: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
> >> Cc: <pkt@xxxxxxxxxxxxxxxx>
> >> Sent: Thursday, December 06, 2001 4:41 PM
> >> Subject: Re: The Economy IS The Colateral Damage of War on Terrorism.
> >>
> >>
> >> > >===== Original Message From "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
> >=====
> >> > >
> >> >
> >> > >Increasingly, free market globalization for the advanced economies is
> >> > >openly a game of head I win, tails you lose.
> >> > >Free trade and market fundamentalism are not only conceptually flawed,
> >> > >their supporters are also dishonest.
> >> >
> >> >
> >> > I tend to agree with most things Henry posts on the net -- but I do not
> >> think
> >> > free traders-- at least the economists who advocate free trade (I can
> >not
> >> > speak about the business community)-- are dishonest; I just think they
> >> worship
> >> > a false god (model).
> >> >
> >> > Paul
> >> >
> >> > Paul Davidson
> >> > University of Tennessee
> >> > SMC 523
> >> > Knoxville, Tennessee 37996-0550
> >> > phone # (865)9744221; fax # (865)974-1686; email pdavidson@xxxxxxx
> >> >
> >> >
> >>
> >>
>
> Paul Davidson
> University of Tennessee
> SMC 523
> Knoxville, Tennessee 37996-0550
> phone # (865)9744221; fax # (865)974-1686; email pdavidson@xxxxxxx