by Ian Fletcher
321 Source: 1965-2000: OECD Revenue Statistics 1965-2003 (Paris: Organization for Economic Co-Operation and Development, 2004), Table 3. 2006: “OECD Tax Database,” Table O.1, www.oecd.org/ctp/taxdatabase.
322 1965-2000: OECD Revenue Statistics 1965-2003 (Paris: Organization for Economic Co-Operation and Development, 2004), Table 12.
2004: “Fundamental Reform of Corporate Income Tax,” OECD, 2007, Table 1.12.
323 The phrase is the title of Chapter 6 of Thomas Friedman’s The Lexus and the Olive Tree: Understanding Globalization (New York: Farrar, Straus and Giroux, 1999).
324 “The Global Competitiveness Report 2009-2010,” World Economic Forum, 2009, Table 4, http://www.weforum.org/en/initiatives/gcp/Global Competitiveness Report/index.htm.
325 Dani Rodrik, “Sense and Nonsense in the Globalization Debate,” Foreign Policy, Summer 1997, p. 26.
326 This is corroborated by the failure of either Reagan or Thatcher to actually reduce government as a percentage of GDP. It is no accident that America’s own welfare state has grown in parallel with freer trade, and that back when the U.S. was a high-tariff economy, the American welfare state was very small.
327 The reason for this is that if we use the multiple-equilibrium model of international trade explained in Chapter 10, it is obvious that multiple equilibria also apply to economies domestically, so there is no one ideal economy toward which all developed nations should be expected to converge—even leaving aside issues of different factor endowments, etc.
328 Philip A. Klein, Economics Confronts the Economy (Northampton, MA: Edward Elgar, 2006), p. 228.
329 Thomas Friedman, The Lexus and the Olive Tree (New York, Anchor Books, 1999), p. 104.
330 According to one estimate, the price difference between a Toyota Corolla or Nissan Sentra sold in Japan, and the same cars sold in the U.S., jumped from about $500 to $3000 after the VRA. See Robert W. Crandall, “Detroit Rode Quotas to Prosperity,” The Wall Street Journal, January 29, 1986. See also Daniel P. Kaplan, “Has Trade Protection Revitalized Domestic Industries?” Congressional Budget Office, November 1986, p. 86.
331 U.S. International Trade Commission estimate, reported in Daniel P. Kaplan, “Has Trade Protection Revitalized Domestic Industries?” Congressional Budget Office, November 1986, p. 86.
332 Rachel Dardis and Jia-Yeong Lin, “Automobile Quotas Revisited: The Costs of Continued Protection,” Journal of Consumer Affairs, Winter 1985, p. 19. Also Joshua Yount, “The Voluntary Export Restraint: Bad Medicine for a Sick Patient,” The Park Place Economist, 1996, p. 24.
333 Blog entry, Bill Testa, “Regional Distribution of Assembly Lines,” Federal Reserve Bank of Chicago, http://midwest.chicagofedblogs.org/archives/Auto-Assembly-Table.html.
334 2006 model year, from Thomas H. Klier and James M. Rubinstein, “Whose Part is it? Measuring Domestic Content of Vehicles,” Federal Reserve Bank of Chicago, October 2007, p. 1.
335 Wal-Mart pays an average wage of $8.23/hr. “Wal-Martization of Workers’ Wages and Overtime Pay,” United Food and Commercial Workers, http://www.ufcw.org/press_room/fact_sheets_and_backgrounder/walmart/wages.cfm.
336 Hourly wages for different manufacturing jobs are recorded by the Bureau of Labor Statistics: http://www.bls.gov/oes/2008/may/oes_nat.htm#b51-0000.
337 Author’s calculation based on J. Bradford DeLong, “Estimating World GDP, One Million BC – Pre-sent,” University of California at Berkeley, May 24, 1998, http://econ161.berkeley.edu/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html.
338 A.G. Kenwood and A.L. Lougheed, The Growth of the International Economy 1820-1900: An Introductory Text (New York, Routledge, 1999), p. 79.
339 World GDP (exchange-rate basis) 2008: $61.07 trillion, exports $15.97 trillion, from CIA World Factbook, https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html.
340 In the sense that Ricardian tradeoffs define the standard for free trade to be beneficial, so other theories must project outcomes meeting or exceeding this standard if they are to vindicate free trade.
341 “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.” Adam Smith, The Wealth of Nations, Book IV, Chapter 2.
342 Patrick J. Buchanan, The Great Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed to the Gods of the Global Economy (New York: Little, Brown and Co., 1998), p. 67.
343 Paul Krugman wrote an entire essay in 1994, “Ricardo’s Difficult Idea,” complaining about how hard it is for people to understand it: http://web.mit.edu/krugman/www/ricardo.htm.
344 These are not necessarily the same size units, and prices are left out to keep things simple. The example would work the same way with these complexities added.
345 Absolute advantage is the difference in cost for the same product; comparative advantage is the ratio of costs for different products.
346 Comparative advantage is so fundamental an economic principle that it applies even outside capitalism; it applied to trade between communist Poland and communist Bulgaria in 1970. The difference is that under communism, there is no free market to make it work automatically thanks to the price system. So central planners must (somehow!) calculate the comparative advantages of the trading partners.
347 Ricardo’s own example is this: “Two men can both make shoes and hats, and one is superior to the other in both employments; but in making hats he can only exceed his competitor by one-fifth or 20 per cent; and in making shoes he can excel him by one-third or 33 per cent: will it not be in the interest of both that the superior man should employ himself exclusively in making shoes, and the inferior man in making hats?” David Ricardo, The Principles of Political Economy and Taxation (Mineola, NY: Dover Publications, 2004), p. 136.
348 Paul A. Samuelson, “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization,” Journal of Economic Perspectives, Summer 2004, p. 135.
349 Jorge G. Castañeda and Carlos Heredia et al., The Case Against Free Trade: GATT, NAFTA, and the Globalization of Corporate Power (San Francisco: Earth Island Press, 1993), p. 87.
350 Danny M. Leipziger, Lessons From East Asia (Ann Arbor, MI: University of Michigan Press, 2001), p. 85.
351 The idea that all voluntary exchanges must be mutually beneficial is misleading anyway, because it says nothing about the context of relative bargaining power in which exchanges take place. It may be mutually beneficial for a starving man to sell his shoes!
352 James Bovard, The Fair Trade Fraud: How Congress Pillages the Consumer and Decimates American Competitiveness. (New York: Palgrave Macmillan, 1992), p. 5.
353 Pace, for now, other criticisms we will examine later.
354 See pp. 46-48.
355 Joseph Kahn & Jim Yardley, “As China Roars, Pollution Reaches Deadly Extremes,” The New York Times, August 25, 2007, p. A1.
356 Partha Dasgupta, “World Poverty: Causes and Pathways,” University of Cambridge, June 2003, p. 16.
357 There are, of course, countervailing pressures due to pollution costs that cannot be externalized, especially at the level of the national economy as a whole, as opposed to the individual firm. This is why China, for example, appears to be now making some efforts to control pollution. And there are also empirical questions on how strong the pro-pollution incentive is. Nevertheless, the underlying dynamic described here is obviously real, regardless of its size.
358 “Genuine Progress Indicator,” Redefining Progress, http://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm.
359 John Cavanagh, Jerry Mander et al, Alternatives to Economic Globalization: A Better World is Possible (San Francisco: Berrett-Koehler, 2002), p. 204.
360 The commonly quoted figure of $70-$73 per hour for autoworkers includes health benefits and legacy costs. Their cash wages were about $28/hr, plus $2.25 for pa
yroll taxes and $7 for a health insurance package. Source: United Auto Workers.
361 “Average Weekly Hours of Production and Nonsupervisory Workers on Private Nonfarm Payrolls by Industry Sector and Selected Industry Detail,” Bureau of Labor Statistics, July 2, 2009, http://www.bls.gov/news.release/empsit.t15.htm. This does not contradict the fact, noted earlier, that Americans generally work longer hours than workers in other Western developed nations because these other nations have workweeks that are even shorter than ours. See “Annual Hours Worked: Per Capita and Per Worker, 2008,” Organization for Economic Cooperation and Development, 2009, http://stats.oecd.org/Index.aspx?DataSetCode=ANHRS.
362 World Bank figure, quoted in John MacArthur, The Selling of Free Trade: NAFTA, Washington, and the Subversion of American Democracy (New York: Hill & Wang, 2000) p. 81.
363 Sherrod Brown, Myths of Free Trade: Why America’s Trade Policies Have Failed (New York: The New Press, 2004), p. 137.
364 Lower consumer prices are equivalent to a higher real (inflation-adjusted) wage.
365 When we noted in Chapter 2 that deficit trade costs jobs in the present, these are gross, not net, jobs.
366 Betty McGrath, Employment Security Commission of North Carolina, statement before U.S.-China Economic and Security Review Commission, September 6, 2007, p. 3.
367 Bureau of Labor Statistics, quoted in Louis Uchitelle, “Retraining Laid-Off Workers, But for What?” The New York Times, March 26, 2006.
368 Quoted in Robert Kuttner, Everything for Sale: the Virtues and Limits of Markets (New York: Knopf, 1997), p. 25.
369 See http://upload.wikimedia.org/wikipedia/en/4/4d/EffectOfTariff.svg.
370 See http://upload.wikimedia.org/wikipedia/commons/0/0a/Actual_potential_GDP_output_gap_CBO_Jan_09_outlook.png
371 Dani Rodrik, Has Globalization Gone Too Far? (Washington: Institute for International Economics, 1997), p. 30.
372 See p. 34.
373 It is also the reason why economics recognizes such a subject as international trade, with facts and principles different from domestic economics.
374 David Ricardo, The Principles of Political Economy and Taxation (Mineola, NY: Dover Publications, 2004), p. 83.
375 Ibid.
376 In technical terms, there is no theorem guaranteeing that partial-equilibrium losses to import-competing producers are more than offset by gains to consumers due to reduced prices. This problem has been formally modeled in Masao Oda and Robert Stapp, “Factor Mobility, Trade, and Wage Inequality,” in Takashi Kamihigashi and Laixun Zhao, eds., International Trade and Economic Dynamics (Berlin: Springer, 2008).
377 David Ricardo, The Principles of Political Economy and Taxation (Mineola, NY: Dover Publications, 2004), p. 83.
378 Lance E. Davis, Robert E. Gallman, Evolving Financial Markets and International Capital Flows: Britain, the Americas, and Australia, 1865-1914 (Cambridge, UK: Cambridge University Press, 2001), p. 58.
379 Michael Porter, The Competitive Advantage of Nations (New York: The Free Press, 1990), p. 21.
380 Nathan Rosenberg, Inside the Black Box: Technology and Economics. (New York: Cambridge University Press, 1982), p. 73.
381 Remember that this toy example only works if all trade between Canada and the U.S. is barter of corn and wheat. For a fully computed analysis of this whole problem, see Paul A. Samuelson, “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization,” Journal of Economic Perspectives, Summer 2004, p. 141.
382 Paul A. Samuelson, “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization,” Journal of Economic Perspectives, Summer 2004.
383 “International Trade for a Rich Country,” lecture before the Swedish-American Chamber of Commerce, New York City, May 10, 1972 (Stockholm: Federation of Swedish Industries pamphlet, 1972). Samuelson won the Nobel Prize in 1970.
384 Ricardo also noted this problem in Chapter 7 of the Principles (the main chapter on foreign trade): “England exported cloth in exchange for wine because, by so doing, her industry was rendered more productive to her; she had more cloth and wine than if she had manufactured both for herself; and Portugal imported cloth and exported wine because the industry of Portugal could be more beneficially employed for both countries in producing wine. But let there be more difficulty in England in producing cloth, or in Portugal in producing wine, or let there be more facility in England in producing wine, or in Portugal in producing cloth, and the trade must immediately cease.” David Ricardo, The Principles of Political Economy and Taxation (Mineola, NY: Dover Publications, 2004), p. 86.
385 Paul Samuelson, “Mathematical Vindication of Ricardo on Machinery,” Journal of Political Economy, April 1988, p. 21. The actual passages to which Samuelson refers are not quoted here because they are drawn out and abstruse, but may be found in David Ricardo, The Principles of Political Economy and Taxation (Mineola, NY: Dover Publications, 2004), pp. 263-271.
386 Assuming nations have different opportunity cost ratios.
387 See p. 230.
388 Pace, for now, other problems we will look at later.
389 This is not true by definition; it is empirically true most of the time, other things being equal.
390 Stephen Tokarick, “Quantifying the Impact of Trade on Wages: the Role of Nontraded Goods,” International Monetary Fund, 2002, p. 14.
391 This phenomenon is familiar domestically, too. The high wage auto industry famously propped up wages in the industrial Midwest for decades during its heyday.
392 See Frank Ackerman, “The Shrinking Gains From Trade: A Critical Assessment of Doha Round Projections,” Global Development and Environment Institute, Tufts University, 2005.
393 Ibid., p. 19.
394 That is, prior to the thinking of John Maynard Keynes (1883-1946), the British economist who revolutionized economic theory and practice by understanding how economies do not naturally reach an equilibrium of full employment, and how deficit spending can help economies climb out of recessions.
395 Frank Ackerman, “The Shrinking Gains From Trade: A Critical Assessment of Doha Round Projections,” Global Development and Environment Institute, Tufts University, 2005.
396 See, for example, Scott Bradford, Paul Grieco, and Gary Clyde Hufbauer, “The Payoff to America from Global Integration,” in C. Fred Bergsten, ed., The United States and the World Economy: Foreign Economic Policy for the Next Decade (Washington: Institute for International Economics, 2005).
397 Josh Bivens, “Marketing the Gains from Trade,” Economic Policy Institute, June 19, 2007.
398 Michael Porter, The Competitive Advantage of Nations (New York: The Free Press, 1990), p. 12.
399 Most economics PhD programs no longer even require economic history.
400 See Douglas Irwin’s review of Ha Joon Chang, Kicking Away the Ladder—Development Strategy in Historical Perspective (London: Anthem Press, 2002) , http://eh.net/bookreviews/library/0777.
401 “About Us,” The Economist, http://www.economist.com/about/about_economist.cfm.
402 Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (London: Anthem Press, 2003), pp. 20-22.
403 William Cunningham, The Rise and Decline of the Free Trade Movement (London: Cambridge University Press,1914), p. 133.
404 The term England is used to refer to England prior to union with Scotland in 1707.
405 Erik S. Reinert and Arno M. Daastøl, “The Other Canon: The History of Renaissance Economics,” p. 34, in Erik S. Reinert, ed., Globalization, Economic Development and Inequality: An Alternative Perspective (Cheltenham, UK: Edward Elgar, 2004).
