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Sunday, July 30, 2006



This debate reminds me of the great Mankiw debacle of 1989, when he (and his coauthor) quite reasonably predicted that house prices would collapse as the shrinking numbers of the baby bust cohorts would lead to reduced demand for homes.

As he revisited that paper a year later, Mankiw discovered that the immigration of very many young foreigners had more than compensated for the decrease in native births. Roll onwards, and more of the same.

The increasing trend to ever greater offshoring and immigration will change the balance of negotiating power between workers and owners even more, to the benefit of owners in rich countries, and to the benefits of workers in poor countries.

«That sounds like classic redistributive policies to me, which no Republican government would contemplate.»

That is quite absurd: the Republicans are very much in favour of redistribution and practice it extensively, in favour of their sponsors.

Just as they are against taxes on their sponsors, but in favour of taxes on the Democrat voting base, and similarly they are against big government when the beneficiaries are the Democrat voting base, but entirely support big government when it benefits their national and foreign sponsors.

Republicans are the party of class warfare even more so than the Democrats, to the benefit of their sponsoring class.


"Impending shortage: ... The message to policy makers is to forget about the sluggish real wage growth of the past three decades, the deterioration in pensions and employer provided health care, and fears of job loss from offshoring or low wage imports."

The deterioration in employer provided health care is a uniquely American experience, since most other countries in Europe (the only really demographically comparable economic system) finance this service out of taxes.

Why Americans continue to think that health car should be funded out of wages is beyond most. Health, like defense or education are fundamentally "social utilities" that underpin any economy. They should not be left to whimsy of "free enterprise", where they compete (in good times) to offer the best packages. Health is not an area that should be subject to competition. It is too important for the nation as a whole.

Ditto university education.

"Globalisation surplus" : Trade, offshoring, global sourcing of jobs, and flows of capital to the low wage giants combine to reduce the demand for workers in manufacturing and tradable services in advanced countries and in moderate income developing countries."

Outsourcing labor is a form of FDI and enhances purchasing power in the receiving countries. In part, these consumers then climb the consumption ladder and purchase goods (perfumes, computers, wines, cars) from abroad. This cycle is beneficial to all.

And, as the typical argument goes, outsourcing unskilled jobs DOES create unemployment, but such is the price to pay for a people to understand that not obtaining the requisite skills in developed western economies condemns them to lifelong job insecurity.

Is this "survival of the fittest"? In a word, yes. But, do low-wage earners in China not have just as fundamental right to work?

"I conclude that the forces of globalization associated with the doubling of the global work force will trump demographic developments associated with slower population growth in determining supply/demand balances in the labor market."

He's right. But, also, the lower birth-rate developed countries will tend towards educating better skilled workers, which (in theory) should obtain better wage jobs.

This will not happen, because both first and third world economies are engaged in a race up the skills ladder. Why are so many Chinese companies opening "design centers" in Germany. To obtain the skills necessary in machine tool design / development / manufacturing, which they will take back to China.

This tactic, observed not only in Germany, will inevitably compromise one of Germany's major and highly successful export sectors. Ditto America. If Germany and America are not prepared to see increased competition in traditionally "hegemonic" markets, then they both are in for great surprises.

Sic transit gloria mundi.

"If I am right, the overriding goal of labor market policy around the world in the next decade or so should be to assure that the absorption of China, India, and the ex Soviet bloc into world capitalism goes as smoothly as possible."

This is happening already, at least as regards China. The only sticking point remaining is the yuan's undervaluation with the dollar. China has mimicked the same strategy as Japan (after WW2). Namely, low cost labor and undervalued currency, both stimulants to exports.

The yuan must appreciate, so it will appreciate. The only question is when.

balayya pattapu

this report glanced me like any thing. It is a very nice and inivitable discussion.
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