There is a famous theorem in international economics â€“ the Stolper-Samuelson theorem â€“ that says when a rich capital-abundant country (such as the U.S.) trades with a poor labor-abundant country (such as China), wages in the rich country fall and profits go up. The theoremâ€™s economic logic is simple. Free trade is tantamount to a massive increase in the rich countryâ€™s labor supply since the products made by poor country workers can now be imported. Additionally, demand for workers in the rich country falls as rich country firms abandon labor-intensive production to the poor country. The net result is an effective increase in labor supply and a decrease in labor demand in the rich country, and wages fall. (more…)
Archive for September, 2005
Hurricane Katrina was an immense natural disaster that has already inflicted great harm and suffering. It has also wrought huge regional economic damage, the local effects of which will belong-lasting. Now, people are wondering whether Katrina could also spawn a national recession.
The Wall Street consensus seems to be that it will not, but there are robust grounds for believing that the consensus is wrong. (more…)
For the last three decades laissez-faire conservatives have sought to systematically discredit the ideas known as â€œKeynesianism.â€ This assault has had deleterious consequences for economic policy and public economic understandings. It is time for Keynesians to fight back. (more…)