Excerpts from Greenspan’s Remarks

1. Excerpts from Greenspan’s Remarks • “I am concerned about the recent evident weakening of support for free trade in this country,” Mr. Greenspan said. “Should we endeavor to freeze competitive progress in place, we will almost certainly slow economic growth overall, and impart substantial harm to those workers who would otherwise seek more effective longer-term job opportunities. • DISCUSS TWO THINGS – 1) CYCLICALITY OF FREE TRADE AND 2) IN THE DUB-CHUD EXAMPLE, WHO WAS IT THAT WAS SUBSTANTIALLY HARMED FROM PROTECTION?

2. Another Excerpt • “History tells us that not only is it unwise to try to hold back innovations, it is also not possible over the longer run.” • So Greenspan is straightforward – free trade leads to more innovations and more innovations lead to higher levels of productivity. • Higher productivity is the Key to increasing living standards!

3. Another Excerpt • Mr. Greenspan said antidumping suits and countervailing duties, sometimes labeled as aiding fair trade, often have the opposite effect. “They are just simple guises for inhibiting competition.” • What to do? Let’s call in the world’s trade police – the WTO!!! Help!!

4. Next Article:Globalization Gets Mixed Grades in U.S. Universities Columbia Spat Isn't Academic: StudentsOften Go On to Top Posts Back Home

5. Quick Summary • For decades, international students have been preached about how great freer trade and freer flow of capital is (Globalization) • Most go back to their countries and take important posts and often have considerable influence • Now, looking back, we see what happened in E. Asia, Russia, Argentina, Brazil, and perhaps Venezuela.

6. Excerpt • Santiago Pardo remembers listening to an inspiring pro-trade speech in 1995 when he was at the University of the Andes in Bogota, Colombia. The speaker, Colombia's Harvard-trained trade minister, convinced the student of the country's need to open more to foreign trade and investment. Before long, Mr. Pardo was working at the trade ministry himself and pushing that agenda.

7. The US and Higher Education • The US, with few exceptions, has the best, at least the most respected, higher education system in the world, especially at the graduate level. That is, the best colleges are in the US. • We essentially educate, here in the US, many people who will someday have a lot of policy influence across the world. For decades they have been learning how great globalization is. Now two big shot economists, stationed at Columbia University, are at odds. Now students are going back home confused.

8. Excerpt • This year Mr. Pardo is doing postgraduate work in international affairs at New York's Columbia University, where two of the world's leading economists offer sharply different views of globalization. It's a high-stakes debate being repeated at universities across the country, and it affects hundreds of avid foreign students who will return home and preach the gospel of economic development according to their American mentors.

9. Excerpt • One of the Columbia luminaries is Joseph Stiglitz, the 59-year-old winner of last year's Nobel Prize in economics and chairman of the Council of Economic Advisers during the Clinton administration. He argues that 1990s-style globalization -- broadly defined as the freer movement of money, goods, services and people across borders -- has put many developing countries through a decade of financial and economic turmoil. His "Globalization and Its Discontents" is among the most talked-about books in the field today.

10. Excerpt • The other is Jagdish Bhagwati, 68, a leading adherent of free trade, who is working on a book to be called "In Defense of Globalization." He describes Mr. Stiglitz's argument as "Jurassic Park" economics, "trying to revive dinosaurs which we hoped we had slain.“ • What exactly does the reference to dinosaurs mean and how does one slay a dinosaur? • Mr. Pardo, a stocky 29-year-old with dark, short-cropped hair, has classes with both. "It makes you think twice about the things that you believe," he says.

11. So who looks more believable?

14. So why such a debate? • I would say both are right!!! Discuss why both are right laying out the arguments each would have to defend their position!

15. Next Article, article #3; A World Apart • What is this article all about??

16. A life upended • The Corning Plant was a major industrial employer in the Centre Region for 36 years. It drew workers from 16 central PA counties, operating around the clock. • For workers such as Welch, a 49 year old farmer’s son who started factory work two weeks after he graduated from high school, the job promised a middle class life.

17. A life upended (cont) • Welch earned a $17 an hour base wage. During good times, overtime kept the money rolling in. • He and his wife bought some land, build a house and raised three children. • “We had big plans” • He lost his house to creditors and now works part time seasonal jobs driving snow plows and school buses.

18. Mr. Welch is not alone. Many US workers lose their jobs due to the extremely cheap labor abroad. Should we do anything about this?

19. Next 2 articles – about the Samuelson model • Trade Articles #4 and #5. Both of these articles should impress upon you that the doctrine of free trade in the field of economics continues to be re-examined. One of the biggest names in economics, Paul Samuelson, is suggesting that if the innovation gap closes, then the US can actually be worse off, than we are now, if free trade continues. We already did the Samuelson model in detail using Dub-Chud!

20. Use the following numbers • Dub learns to mow in 3 – the terms of trade and comparative advantage flips! • Chud weeds now! Let him spend 4 hrs on his own yard and 2 hrs and 45 min on Dubs – does (2.75/4 = .6875 of Dub’s garden). It is up to Dub to finish weeding his own garden. He needs to work 1.5625 hours (X/5 = .3125, solve for X) to finish the .3125 of a garden that remains. • With this set up, total gains from trade, 15 minutes for chud and 26 minutes (.4375 X 60) for Dub.

21. Excerpts about Samuelson • Samuelson's insight is that if a low-wage country like China suddenly makes a major productivity leap in an industry formerly led by the United States, the result can be a net negative for the American people. Although American consumers may benefit via low-low prices at Wal-Mart, their gains may be more than outweighed by large losses sustained by laid-off American workers.

22. “At the age of 89, Samuelson is finally stepping onto the road to wisdom,” says Choate. “It is a road where uncertainty prevails over the certainty of the ‘laws’ of economics, which are not laws but ruminations by closeted academics. His article is important, for it effectively gives permission to his disciples to begin to think about the real world, rather than try to postulate assumptions and develop elegant models which ultimately are irrelevant.”

23. From second Samuelson article • Sure, Mr. Samuelson writes, the mainstream economists acknowledge that some people will gain and others will suffer in the short term, but they quickly add that "the gains of the American winners are big enough to more than compensate for the losers."

24. That assumption, so widely shared by economists, is "only an innuendo," Mr. Samuelson writes. "For it is dead wrong about necessary surplus of winnings over losings." • Trade, in other words, may not always work to the advantage of the American economy, according to Mr. Samuelson.

25. Up to now, he said, the gains to America have outweighed the losses from trade, but that outcome is not necessarily guaranteed in the future. • In his article, Mr. Samuelson begins by noting the unease many Americans feel about their jobs and wages these days, especially as the economies of China and India emerge on the strength of their low wages, increasingly skilled workers and rising technological prowess (the spying lawnmower). "This is a hot issue now, and in the coming decade, it will not go away," he writes.

26. According to Mr. Samuelson, a low-wage nation that is rapidly improving its technology, like India or China, has the potential to change the terms of trade with America in fields like call-center services or computer programming in ways that reduce per-capita income in the United States (The Pie is getting smaller!) "The new labor-market-clearing real wage has been lowered by this version of dynamic fair free trade," Mr. Samuelson writes (chud has to work more for the same welfare! Isn’t this by definition a lower real wage?).

27. But doesn't purchasing cheaper call-center or programming services from abroad reduce input costs for various industries, delivering a net benefit to the economy? Not necessarily, Mr. Samuelson replied. To put things in simplified terms, he explained in the interview, "being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses.“ (we are not supporting American jobs when virtually everything at Walmart is produced abroad)

28. The Samuelson model, Mr. Bhagwati said, yields net economic losses only when foreign nations are closing the innovation gap with the United States. • "But we can change the terms of trade by moving up the technology ladder," he said. "The U.S. is a reasonably flexible, dynamic, innovative society. That's why I'm optimistic.“ (i.e., don’t worry, chud’s lawnmower will learn how to mow in 2 hours!)

29. The policy implications, he added, include increased investment in science, research and education. And Mr. Samuelson and Mr. Bhagwati agree that the way to buffer the adjustment for the workers who lose in the global competition is with wage insurance programs (Adam Smith is freakin!)

30. Show Jib – Jab!

31. Talk about all the protesters at WTO conferences • Who is protesting and why?? • How can a country or firm lower their opportunity cost of production to gain a comparative advantage? • Environmental implications? Child labor. Organized labor (labor unions) • Discuss

32. Show movie #2

33. The Bulleted List (review to see if we fulfilled all of our objectives!) • Understand clearly the concept of comparative advantage and how to identify it by comparing opportunity costs.

34. Understand the benefits of specialization and freer trade.

35. Understand clearly why Alan Greenspan is such a proponent of free trade.

36. Understand exactly why so many are against free trade.

37. Understand why human rights activists, labor unions, and environmentalists protest at WTO (World Trade Organization) meetings.

38. Understand why developing countries, especially those with significant command and control elements are against free trade and in fact, may be better off without free trade.

39. Understand what flexible labor markets mean and why they are so important in a free trade context. • Be sure to discuss the S. Korea example and the role of labor unions in many countries.

40. Understand what “ Jurassic Park Economics” means.

41. Understand the current controversy amongst two leading economists and the connection between what is taught at institutions of higher education in the US and global trade policy.

42. Understand the Paul Samuelson Model and what the closing of the ‘innovation gap’ means and implies.

43. Understand clearly both sides of the free trade argument and why countries set up barriers to free trade.

44. Be able to discuss, intelligibly, the politics underlying trade policy.