Thursday, March 01, 2007

Global Forces, American Faces: Who Wins? Who Loses?

I am sitting in a class listening to Dave Richardson (Syracuse) talk about some results from recent research by a group of economists at the Peterson Institute for International Economics. Here is the summary of the policy implications from this research - "further deepening of America's global engagement needs newly creative, newly effective domestic policy. The recipe for American success involves pairs of ingredients always, cognates, global intiatives paired with domestic initiatives. Without domestic policy innovation, conversely, continued global integration may be unsustainable in this democracy."

Sound familiar - check it out.

Peace, The General


Tom said...

The author's idea for redistribution of gains from open-trade policies is novel, but in some sense contradictory. In the author's defense, it is a tricky situation with no easy anwser.

Instead of a protectionist policy, the author is arguing for a free trade policy where some of the gains from trade are redistributed to the losers. Initially, this seems appealing, but I wonder how different the results of the redistribution would be than the results of the protectionist policy? I say this because if the gains are redistributed from the winners to the losers, this would create a disincentive for firms to trade, which is tantamount to some of the effects of a protectionist policy.

I admit I don't have a good understnding of some of these taxes, but wouldn't the author's suggestion of letting "the firm move to China and raise the corporate taxes and capital gains taxes in order to help those who lost their jobs in the US" be another instance of protectionist policy? In that sense, the author contradicts himself, both aruging against protectionish policy, and then advocating specific protectionist policies. Again, this is a very complex question, and I enjoyed this author's new ideas, but I feel that he ultimately falls short.

-Andrew Sims

Hartley said...

In some of my other classes, we have talked about the benefits of US firms moving to other countries to use up the cheaper labor available in these other countries. I had always thought this idea made perfect sense, but until now I did not realize the effects that has on the US. This article makes it clear that if we let firms move into China, the firm should have to incur higher taxes in order to help those who lost their jobs in the US. But will that really help? Then, the firm would not be saving as much money using cheaper labor in China and therefore the price of the good would not fall as much as anticipated, if at all. Therefore, what is the incentive for US firms to move to China? They will get cheaper labor, but that will be offset by higher taxes. Don't we want to export some of our labor to others in order that those in the US can work on more skilled projects?

Anonymous said...

i actually don’t see anything novel in the article. He mentions basic economic principles that have been around since David Ricardo. The problem is that the subject has been politicized. As we should have discovered from the environmental issue, politics does not lead to objective decisions, it leads to a slow compromise of parts.
Anyway, the only thing i would contribute to this article is that instead of being worried with the income distribution he should be worried about the opportunity distribution. Even though its slightly different, we wanna teach people to fish.

Anonymous said...

Andrew brings up a good point in that redistribution could end up being a protectionist policy and give firms a disincentive to trade, but the idea of a redistribution policy is to have everyone win. Although there would be higher corporate and income taxes with a redistribution policy, firms should still want to move overseas and trade because the profits are still much greater there. If the firms make more profit in moving overseas, even with the higher taxes, then they would still be inclined to move.

In order for this policy to be effective, the right amount for a tax needs to be set so that firms still have an incentive to move overseas and trade, and are also willing to pay higher taxes. Unfortunately, setting the right tax can be difficult as it was discussed in class.

Anonymous said...

- Jon Malooly