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

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

The Cold War, which ended with the fall of the USSR, was a struggle of
competing ideologies. There was little world trade and no trade at all
between the two opposing ideological blocks. It was an all-out war.    Each
block attempted to show its ideological superiority through aid to weaker
economies. Since the fall of the USSR, foreign trade has replaced foreign
aid as the development tool. Internal development is replaced by
concentration on export.

Whether trade and economic cooperation can be facilitated within the
framework of security conflict will be the challenge facing political
leaders. History is not without examples of such arrangements. The US
traded with Japan until Pearl Harbor. General Motors and Ford, among other
US companies, operated in Germany even after German declaration of war on
the US after Pearl Harbor. History is less clear on the
ability of trade to prevent war.

Bush defends his free trade agenda by arguing that his administration's
effort to break down tariffs is "a
moral imperative". "Open trade is not just an economic opportunity, it is a
moral imperative," he declared before 9:11.  "Trade creates jobs for the
unemployed. When we negotiate for open markets, we are providing new hope
for the world's poor. And when we promote open trade, we are promoting
political freedom." Such claims remain highly controversial when tested by
actual data. Besides the hemisphere-wide pact that he pursued at the summit
meeting in Quebec, Bush is seeking bilateral
trade agreements with such countries as Jordan, Chile and Singapore, as
well as a new round of global trade accords. He also said China, which
reached a trade agreement with the United States at the close
of the Clinton administration, would benefit from political changes as  a
result of liberalized trade policies. Yet it is clear that political
freedom is often the first casualty of a garrison state mentality which
inevitably results from hostile foreign security policy toward it. For
trade to truly benefit the trading economies, two conditions are necessary:
1) the removal of trade from ideological/political objectives  and 2) a
recognition that global full employment is the prerequisite for true
comparative advantage in global trade. Yet, the organization of the Bush
administration puts the National Economic Advisor under the supervision of
the National Security Advisor.  The War on Terrorism takes place also in
international banking, following the path of the Drug War and Organized
Crimes money laundering, propbaly with equal ineffectiveness.

With regard to Europe and Japan/Australia, the US faces the opposite
situation. While the US is likely to be able to preserve its Old Cold War
security alliances with Europe and Japan, despite mounting
difficulties in identifying a common adversary, the conflict between Allies
lies in trade contradictions. The US has benefited from an international
financial architecture that gives the US economy a structural monetary
advantage over those of the EU and Japan, not to mention the rest of the
powerless world. Competition between these leading economic heavyweights
could spill over into security areas,  allowing economic interests to
conflict with ideological sympathy. All three of these engines of
production are desperately seeking new markets, which inevitably leads them
to China, with its 1.2 billion eager consumers bulging with rapidly rising
disposable income. Even the US defense establishment has largely come
around to the view that US industry must export, even to China, which the
US considers a long-term security threat, to remain on top. This was
spelled out for  Congress recently by Donald Hicks, a leading Pentagon
technologist in the Reagan administration. "Globalization is not a policy
option, but a fact to which policy makers must adapt," he said. "The
emerging  reality  is that all nations' militaries are sharing essentially
the same global commercial-defense industrial base."

Trade is no longer a valid measure of global competition.  Today,
transnational firms compete in the world marketplace through
foreign-affiliate sales instead of exports - and they do so with
unparalleled success.  This creates a big gap between GDP and GNP. With the
fall of the  USSR, the US's attitude toward the Third/Fourth Worlds
changed. It no longer needs to compete  for the hearts and mind of the
Third /Fourth Worlds. So trade has replaced aid.  The US has embarked on a
strategy to use Third/Fourth Worlds cheap labor and non-existent
environmental regulation to compete with its industrialized rivals, taking
advantage of the US anti-labor tradition to export low pay jobs. In the
meantime, the US pushed for global financial deregulation and emerged as a
500 lb gorilla in the global financial markets that left the Japanese and
Europeans in the dust, playing catch up.

The tool of this strategy was the role of the dollar as the sole reserve
currency for world trade. Out of this emerged an international financial
architecture that does real damage to the actual producer economies for
the benefit of the financier economies. Money, instead of a neutral agent
of exchange, has become a weapon of massive economic destruction (WMED)
more lethal than nuclear bombs or biological warfare and with more
blackmail power, which is exercised ruthlessly by the IMF on behalf of the
Washington Consensus. Trade wars are fought through volatile currency
valuations. The dollar enables the US to use its trade deficits as the bait
for capital account surpluses. To mask this tilted playing field and unfair
regime, GNP is quietly replaced by GDP.

Gross Domestic Product: Total value of a country's output,  income or
expenditure produced within the country's physical/political  borders.
Gross National Product: Gross Domestic Product plus " factor income from
abroad" - income earned from investment or work abroad.

Under globalization, these two technical measurements take on new  meanings
and relationship. In 1991, the GNP was replaced by the GDP - a quiet change
that had very large implications, as the 1990s were the decade of rapid
globalization. Gross National Product attributes the earnings of a
multinational firm to the country where the firm is owned and where profits
would eventually return (factor income).  Gross
Domestic Product, however, attributes the profits to the country where
factories or mines or financial institutions are located, regardless of
ownership, even though profit and investment may not stay there
permanently. This accounting shift has turned many struggling nations into
statistical boomtowns, while helping national leaders to push for a global
economy. Conveniently, it has hidden a basic fact: the rich
nations of the Core are walking off with the periphery's  resources and
calling it a statistical gain for the periphery, with the help of the
local elite - a new comprador class which is celebrated by the neo-liberal
press as heroes. GDP figures are 'gross' because GDP does not allow for the
depreciation of physical capital - wear and tear on factory machines,
office equipment obsolescence etc, or environmental
degradation, let alone the abuse of human resources. When the value of
income from abroad is included - what domestic companies earn abroad minus
what foreign companies earn here and expatriate - then the GDP becomes the
GNP. This is particularly important for economies with large trade sectors,
which includes many developing countries which have been forced to rely on
export as the sole development path.

Foreign direct investment (FDI) has changed the face of the international
economy. Since the early 1970s, it has grown faster than global trade and
is the single most important source of capital for developing countries,
not domestic net saving. FDI is denominated in dollars, a fiat currency
that the US can produce at will since 1971. Thus FDI is concentrated in
exports related development, mainly destined for US markets or markets that
also sell to US markets for dollars with which to provide the return on
FDI, which is mostly denominated in dollars. US economic policy is shifting
from trade promotion to FDI promotion. A trade spat with the EU over beef
and bananas, for example,  risks large US investment stakes in Europe. And
the suggestion to devalue  the dollar to promote US exports is dismissed
for it would only make it more expensive for US affiliates to do business
abroad while making it cheaper for foreign companies to buy American
assets. An  attempt to improve the trade balance, then, would actually end
up hurting the FDI balance. This is the rationale behind the slogan: a
strong dollar is in the US national interest.  The U.S. Trade Deficit
Review Commission (http://www.ustdrc.gov/) provides a definitive analysis
of the trade deficit as a positive contribution on balance.

In the US, and now also in Europe and Asia, capital markets are rapidly
displacing banks as both savings vehicles and sources of corporate finance.
This shift, along with the growing integration of global financial markets,
is supposed to create promising new opportunities for investors around the
globe. Neo-liberals even claim that these changes could help head off the
looming pension crises facing many nations. But
so far it only created sudden and recurring financial crises as those in
Asia in 1997, and Mexico, Russia, Brazil, Turkey and Argentina
subsequently.

The introduction of the euro has accelerated the growth of the EU region's
financial markets. For the current 12 members of the European Monetary
Union, the common currency nullified national requirements for pension and
insurance assets to be invested in  the same currencies as their
liabilities - a
restriction that had long locked the bulk of Europe's long-term savings
into domestic assets. Freed from foreign-exchange transaction costs and
risks of currency fluctuations, these savings fueled the rise of larger,
more liquid European stock and bond markets, including the recent emergence
of a substantial junk bond market. These more dynamic capital markets, in
turn, have placed increased competitive pressure on banks by giving
corporations new financing options and thus lowering the cost of capital
within euroland. How this will interact with the euro-dollar market is
still indeterminate.

Interestingly General Electric received a thumbs down to its proposed $41
billion purchase of Honeywell International from European regulators.
European Union Competition Commissioner Mario Monti cited concerns about
whether the combination of GE's strong position in aircraft engines and
Honeywell's in
avionics would give the merged company an unfair advantage in the European
market. "We have concerns with regard to possible bundling or  tying that
could allow the new entity to extend its dominant position from one market
to another,'' Monti said. The EU was particularly concerned about the
impact of vendor financing on market share. Other regional markets,
particularly Asia, will no doubt become more aware of such concerns going
forward.

Before the Senate Committee on Banking, Housing, and Urban Affairs on July
20, 2000, Greenspan summarized his since-proven-flawed view of the
economy:  "For some time now, the growth of aggregate demand has exceeded
the expansion of  production potential. Technological innovations have
boosted the growth rate of potential, but as I noted in my testimony last
February, the effects of this process also have spurred aggregate demand.
It has been clear to us that, with labor markets already quite tight, a
continuing
disparity between the growth of demand and potential supply would produce
disruptive imbalances."
Eighteen months later, the economy is now facing a rising unemployment
problem and excessive capacity cuased by overinvestment.

Greenspan repeatedly insisted that it was to address this anticipated
"imbalance" that governs his one note monetary policy of manipulating
(raising) short term interest rates, and not to target the equity market
bubble.

Greenspan continued:  " I also pointed out in February that there are
limits to how far net imports--or the broader measure, our current account
deficit--can rise,  or our pool of unemployed labor resources can fall. As
a consequence, the excess of the growth of domestic demand over potential
supply must be closed before the resulting strains and imbalances
undermine  the economic expansion that now has reached 112 months, a record
for peace or war. The current account deficit is a proxy for the increase
in net claims against U.S. residents held by foreigners, mainly as debt,
but increasingly as equities. So long as foreigners continue to seek to
hold ever-increasing quantities of dollar investments in their portfolios,
as they obviously have been, the exchange rate for  the dollar will remain
firm. Indeed, the same sharp rise in potential rates of return on new
American investments that has been driving capital accumulation and
accelerating productivity in the United States has also been inducing
foreigners to expand their portfolios of American securities and direct
investment. There has to be a limit as to how much of the world's savings
our residents can borrow at close to prevailing interest and exchange
rates. And a narrowing of disparities among global growth rates could
induce a narrowing of rates of return here relative to those
abroad that could adversely affect the propensity of foreigners to  invest
in the United States. But obviously, so long as our rates of return appear
to be unusually high, if not rising, balance of payments
trends are less likely to pose a threat to our prosperity. In  addition,
our burgeoning budget surpluses have clearly contributed to a fending off,
if only temporarily, of some of the pressures on our balance of
payments. The stresses on the global savings pool resulting from the excess
of domestic private investment demands over domestic private saving have
been mitigated by the large federal budget surpluses that have developed of
late. In addition, by substantially augmenting national saving, these
budget surpluses have kept real interest rates at levels lower than they
would have been otherwise. This development has helped foster the
investment boom that in recent years has contributed greatly to the
strengthening of U.S. productivity and economic growth. The Congress and
the Administration have wisely avoided steps that would  materially reduce
these budget surpluses. Continued fiscal discipline will
contribute to maintaining robust expansion of the American economy in the
future."

It is now clear that a budget surplus leads to a decline in aggregate
demand, which is fatal to an economy fueled by overinvestment.

Price volatility in the equity market is the bastard child of derivatives
and portfolio insurance, which Greenspan repeatedly celebrates as the
innovative financial tools of the new prosperity. The irony is that these
tools were originally designed for market participants to handle
volatility.  Sudden changes in short term rates also create volatility in
commodity prices. Greenspan was merely trying to defend himself from the
monetarist criticism. He defends interest rate volatility as an effective
means of combating price volatility. That is fighting fire with dynamite.
It may work for forest fires, but not very desirable in house fires.

Clinton's Council of Economic Advisers pointed out with some accuracy that
the current account deficit of the 1990's reflects the  nation's economic
health. Paul Davidson also has insightfully observed that the
price of US-led globalization is a perpetual US trade deficit.

The flip side of the current account deficit is the nation's capital
account surplus. Ironically the surplus was what worried Greenspan, his
support for US-led globalization notwithstanding. The current account
balance consists of goods, services, unilateral transfers and investment
income.  The current account deficit reached an annual rate of $409 billion
in the first quarter of 2000, or 4.25% of GDP, compared with $372 billion
and 4% in the second half of 1999. In the first quarter of 1999, the
deficit in trade in goods and services widened to an annual rate of $345
billion, a considerable expansion from the deficit of $298 billion recorded
in the second half of 1998, up from $198 billion in 1997. With the economy
slowing, the trade deficit in February, 2001 was $27.0 billion, $6.3
billion less than the $33.3 billion in January 2001. U.S.-owned assets
abroad increased $63.3 billion in the second quarter of 2001, following an
increase of $243.1 billion in the first.   The US imports so much because
the economy is relatively strong and consumers spend a record share of
income, as well a future income through debt.    Exports are down due to
the lingering economic weakness of the rest of the world. With the US
economy now slowing, the trade deficit in February 2001 was $27.0 billion,
$6.3 billion less than the $33.3 billion in January 2001. Still, the US
enjoys a healthy surplus in services. The deficit in goods and the surplus
in services add up to the trade deficit. The current account also includes
unilateral transfers (the net transfer of money from government and private
citizens). The U.S. generally sends more money abroad than it receives,
which is a sign of strength, not weakness.
The U.S. current-account deficit--the combined balances on trade in goods
and services, income, and net unilateral current transfers--decreased to
$106.5 billion in the second quarter of 2001 from $111.8 billion (revised)
in the first, according to preliminary estimates of the U.S. Bureau of
Economic Analysis.  The downward trend is expected to continue.

Greenspan was also concerned with the balance of investment income. U.S.
investors own assets abroad and foreign investors own assets in  the U.S.,
both of which yield income.  Prior to 1997, US investment income balance
ran a surplus each year. In 1997, the US earned less than foreigners on
investment income  by $5 billion and in 1998, this widened to $22.5
billion, primarily due to foreign currency devaluation. The mix of U.S.
securities purchased by foreigners in the first quarter, 2000, showed a
continuation of  the previous year's trend toward smaller holdings of U.S.
Treasury securities and larger holdings of U.S. agency and corporate
securities.  Private-sector foreigners sold more than $9 billion in
Treasury securities in the first quarter while purchasing more than $26
billion in agency bonds. Despite a mixed performance of U.S. stock prices,
foreign portfolio purchases of U.S. equities exceeded $60 billion in the
first quarter 2001, more than half of the record annual total set the
previous year. U.S. purchases of foreign securities remained strong in the
first half of 2001.

Foreign direct investment flows into the United States were robust in the
first quarter of 2001 as well. Capital inflows from foreign official
sources in the first quarter of 2001 were sizable--$20 billion, compared
with $43 billion for all of 2000. As was the case the previous year, the
increase in foreign official reserves in the United States in  the first
quarter was concentrated in a relatively few countries. Preliminary data
for 2001 show only a small official outflow.  As in the past two years,
direct investment inflows have been elevated by the extraordinary level of
cross-border merger and acquisition activity. Portfolio flows have also
been affected by this activity.  For example, in recent years, many of the
largest acquisitions  have been financed by swaps of equity in the foreign
acquiring firm for equity in the U.S. firm being acquired. The Bureau of
Economic Analysis estimates that U.S. residents acquired $123 billion of
foreign equities in this way in 2000. Net U.S. purchases of foreign
securities were $48.2 billion in the second quarter, up from $31.6 billion
in the first.  Net U.S. purchases of foreign stocks were $52.2 billion, up
from $27.3 billion; the increase was attributable to a rise in exchanges of
stock related to purchases of U.S. companies by foreign companies.Separate
data on market transactions indicate that U.S. residents made net purchases
of Japanese equities but sold European equities. The latter sales likely
reflect a rebalancing of portfolios  after stock swaps. U.S. direct
investment in foreign economies has also
remained strong, exceeding $30 billion in the first quarter of  2001.
Again, a significant portion of this investment was associated  with
cross-border merger activity.  Foreign-owned assets in the United States
increased $188.0 billion in the second quarter of 2001, following an
increase of $346.7 billion in the first.

U.S. liabilities to foreigners reported by U.S. banks, excluding U.S.
Treasury securities, increased $50.1 billion in the second quarter of 2001,
following an increase of $6.9 billion in the first.  The second-quarter
increase was partly attributable to the transfer of funds to U.S. banks
from foreign bank offices as a result of a weakening of foreign demand for
bank credit, as well as to an increase in U.S. banks' custody liabilities.

Net foreign purchases of U.S. securities other than U.S. Treasury
securities were $132.7 billion in the second quarter 2001, down from $148.8
billion in the first.  Net foreign purchases of U.S. corporate and other
bonds were $98.7 billion, down from $107.7 billion.  Net foreign purchases
of U.S. stocks were $34.0 billion, down from $41.1 billion; the decrease
was largely attributable to a decrease in net purchases by investors in
Western Europe.

Transactions in U.S. Treasury securities shifted to net foreign sales of
$8.3 billion in the second quarter of 2001 from net foreign purchases of
$0.7 billion in the first.

Net financial inflows for foreign direct investment in the United States
were $67.2 billion in the second quarter of 2001, up from $52.5 billion in
the first. A substantial increase in net equity capital inflows,
attributable to a step-up in foreign acquisitions of U.S. companies, and a
small increase in reinvested earnings were partly offset by a large
decrease in net intercompany debt inflows.

All of these deficits brought the annualized 2000 current account deficit
to over $400 billion, compared to $155 billion in '97.  This money
eventually comes back as money invested in US assets, meaning the US runs a
capital account surplus. Because foreigners have bought all the US good and
services they want, they will buy US assets instead. For a long time they
have been eager to buy US assets, and the buildup in
their ownership of US stocks and bonds has caused the U.S. investment
income account to run a deficit.

The ominous part of this situation is the hot and cool money issues. If
foreign investors suddenly exit US markets, a crash can result from hot
money flight. The extra investment income coming from abroad in
the form of cool money can eventually cause US entrepreneurs to take too
much risk. According to Greenspan, this could create significant  problems
for the US economy.

Hot money movement is directly linked to interest rate. As Greenspan raises
US rates to moderate inflation fears, he pushes up the exchange value of
the dollar, thus forestalls potential capital exit.
Greenspan is now forced to lower rates aggressively. It is anybody's guess
when US rates will trigger a hot money flight from US assets. The euro was
at  all time low around August 2000. As the dollar got stronger,  the trade
deficit continued to increase and also moderated US inflation rates through
cheaper imports. Thus it is clear that high interest  rate, and high trade
deficits and low inflation are all in
the same basket under currency conditions.

The dollar continued to strengthen during most of the first half of 2001,
despite continuing negative news on the performance of the U.S. economy,
lowering U.S. short-term interest rates, and for much of the first half,
expectations of further lossening of monetary policy. Early in 2000, the
attraction of high rates of return on U.S. equities was an additional
supporting factor, but the dollar maintained
its upward trend even after U.S. stock prices leveled off near the  end of
the first quarter and then declined. For the year 2000, the dollar was  up
on balance about 5.75% against the major currencies; against a broader
index of trading-partner currencies, the dollar appreciated about 3.75% on
balance. The data of 2001 are quite opposite, but the dollar remains
strong.  Obviously, more than market fundamentalism is at work.

The dollar has experienced a particularly large swing against  the euro.
The euro started 2000 already down more than 13% from its value  against
the dollar at the time when the new European currency was
introduced in January 1999, and it continued to depreciate during  most of
the first half of 2000, reaching a record low in May.  Despite a modest
recovery since, the euro still was down against the dollar almost
 7% on balance for 2000 and about 3.75% on a trade-weighted basis. At this
writing, the dollar trades at 1.122 euro and 126 yen.

The euro's persistent weakness posed a challenge for the  European Bank as
it sought to implement a policy stance consistent with  their official
inflation objective (2% or less for harmonized  consumer prices) without
threatening the euro area's economic expansion.

Supported in part by euro depreciation, economic growth in the euro area
in 2000 was somewhat stronger than the brisk 3% pace recorded the  previous
year. The average unemployment rate in the area
continued to move down to nearly 9 percent, almost a full percentage point
lower than a year earlier. At the end of the first half of 2000,  the
euro-area broad measure of inflation, partly affected by higher oil
prices, was above 2%, while core inflation had edged up to 1.25%.
Variations in the pace of economic expansion and the intensity of inflation
pressures across the region added to the complexity of the
situation confronting ECB policymakers. After having raised its
refinancing rate 50 basis points in November 1999, the ECB followed with
three  25-point increases in the first quarter and another 50-point
increase in  June 2000. The ECB pointed to price pressures and rapid
expansion of monetary aggregates as important considerations behind the
moves, but most analysts see the falling euro as the real reason. The
reluctant lowering of key interest rates (overnight Refinance Rate) a
quarter point to 4.5% by the ECB on May 11, 2001 was solely a response to
Greenspans aggressive fifth rate cuts in
2001, supported by three cuts by the Bank of England, in reaction to a
slowing global economy. The surprise ECB rate cut. coming only one week
after ECB said it was keeping interest rates on hold, boosted EU share
prices but sent the euro down. With inflation at 2.6%, well above the ECB's
2% limit, few had expected the ECB to lower. But the move came abruptly
only days after Germany reported that manufacturing orders declined 4.4% in
March from the  previous month and industrial production fell 3.7% on the
month, the worst drop in six years. This produces a convergence effect
between the  Nikkei 225 Stock Average Index and the Dow Jones Euro Stoxx
Index which uncharacteristically diverged in late March.  Greenspan is
expected to deliver his 11th cut this year, by another 50 basis point,
bring the FFR to 1.5%.

While the US historically claims security monopoly in the Americas under
the spirit of the Monroe Doctrine, economic and trade conflicts have
emerged as problems with uncertain future, despite Bush's
recent declaration of trade as a moral imperative, a paraphrase of
Kissinger's peace is a moral imperial dating back to his rhetoric in the
Vietnam conflict and Détente. Ironically, the weaker economies in the
Americas now have alternative options away from US domination because of
globalization, despite US push on a regional free trade zone.

Yet resentment against US hegemony is growing around the world when
government policies are constrained if not dictated by US ambassadors;
when globalization turns out to be a trade regime used for the special
benefits of US transnationals; and when the global financial architecture
is dominated by dollar hegemony. Nationalism developed historically against
the forced internationalization of the Napoleonic
empire, despite the fact that the French Revolution began as a liberating
force against the Ancient Regime. Nationalism rose up against the
Napoleonic idea of a supranational European Order unified by uniform law
and administration, with a Continental economic system, a
single-dimensional anti-British foreign policy backed by a Grand Army under
unified command. In the post Cold War world, US hegemony has many parallels
with the Napoleonic empire.

Trade in the post Cold War world also has domestic consequences in all
countries. Widening income disparity in both rich and poor countries are
justified as necessary for security reasons and are unemployment and
environmental abuse. The battle is increasingly shaping up to be one
between an international elite against the world's poor, many of whom are
in the riches economies.

Henry C.K. Liu


"J. Barkley Rosser, Jr." wrote:

> Paul P.,
>       Oh my.  This is final exam time and I am
> busy as hell.  The last thing I wanted to get into
> was some extended debate about employment
> effects of free trade.
>       I have just taken a quick look at the articles in
> the Winter Journal of Economic Perspectives, 2001
> on the North American economy, with an emphasis
> on the impacts of NAFTA.  They may be wrong, but
> the general outcome for Canada seems to be very
> little impact either way.  Also, not much impact on
> the US, with if anything a slight gain in jobs.  Mexico
> is where there have been larger impacts.  The decline
> in wages you cite was due to the peso devaluation that
> happened in 1994, and cannot be blamed on NAFTA.
> General consensus is recovery from that decline was
> aided by NAFTA.  Wages much higher in export sectors
> that have grown strongly.  Not clear what overall job
> effect is.
>       The sector that has hurt worst in Mexico has been
> traditional agriculture.  Wages are down there.  Income
> has become more unequal in Mexico.   If one wants to
> point a finger at evils of NAFTA, there it is.  But this does
> not seem to be much of an employment issue.
>       And, I think this is all I am going to say on this issue.
> I am way too busy with other stuff to bother further.  Sorry.
> But, I retain my position that the critics need to prove
> their cases (which can be done sometimes), not the
> other way around.
> Barkley Rosser
> ----- Original Message -----
> From: <phillp2@xxxxxxxxxxxxxxx>
> To: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> Cc: "Post Keynesian Thought" <pkt@xxxxxxxxxxxxxxxx>
> Sent: Monday, December 10, 2001 6:19 PM
> Subject: Re: The Economy IS The Colateral Damage of War on Terrorism.
>
> > Barkley wrote:
> >
> >
> > From:           "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> >
> >
> > > Henry (and Paul),
> > >       Of course if free trade reduces employment
> > > then one can not expect it to improve things.
> > > But I think the fair assumption, both in a full
> > > and in a not-so full employment regime, is for
> > > it not to change employment very much in any
> > > direction, and not especially systematically.
> > > Jobs lost in the import competing sector will be
> > > at least partly offset by jobs gained in the export
> > > sector.  Indeed, the expectation would be for the
> > > latter to outweigh the former most of the time.
> > >       The argument about free trade is a microeconomic
> > > argument, and a boringly standard one at that.  I hate
> > > to even be spouting it here, it is so conventional.  Say's
> > > Law is about macroeconomics.
> > > Barkley Rosser
> > > ----- Original Message -----
> >
> > Barkley, I think you are quite wrong about free trade not being a net
> > job destroyer and that export jobs will offset jobs lost to imports
> > (both in theory and in actual practice).  See the studies of Canada,
> > the US and Mexico on the EPI website.  The Canadian study was
> > based on a report to Industry Canada (which favours 'free trade') on
> > the employment effects of FTA/NAFTA.  Using input-ouput
> > statistics they estimate the loss of jobs due to exports  being less
> > labour intensive than  (replacment) imports at around a quarter of a
> > million.  The US study, using a slightly different methodology,
> > found the net loss of US jobs at around 600,000+.  In Mexico,
> > unemployment was very low both before and after NAFTA but real
> > wages fell about 40% after NAFTA.  Many of the jobs created were
> > in Maquiladora plants which source only about 2 per cent of their
> > non-labour inputs from the Mexican economy.
> >
> > Paul
> >
> > Paul Phillips,
> > Economics,
> > University of Manitoba
> >