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June 14, 2007



A strange thing happening in economics is that faced with the realities of their own country mainstream American economists are finally coming around to agree with the arguments of developing country economists (including those lefties in India). The latter have for long been ringing bells of caution on the issue of trade liberalization. What to make of it?

As for Krugman's comments, the guy is a brilliant economist, no doubt.His political commentaries are outstanding. But, sometimes,his economic commentaries are misleading: look at his verdict in 1994 that East Asian growth was all about "perspiration" (and not about technological change), which has now been discredited even by mainstreamers like Jagdish Bhagwati.



we must let past sinners repent without too much fanfare

the post bush II
krug is quite a different
and far far better and bolder fellow
then even his early
to mid 90's self
let alone
that earger for recognition
reaganite era self

but i'm fond
of that yearling bright bulb
that still
burns the midnight oil
still is achangin'


I agree, Paine. Krug is indispensable!


Nice to see you here, slink.

Heckscher-Ohlin, Stopler-Samuelson, and ever more sophisticated trade models that show how labor loses out from globalization basically recycle Marx's notion of capitalism's "internal contradictions."

Innovation--the mainspring of capitalism--is what will cause a backlash against capitalism as innovation enables returns to capital to gradually outstrip those to labor.

I do not really see why this point strikes mainstream economists as so novel as Das Kapital came out in 1867. From a Marxist POV, offshoring/outsourcing/globalization just represent another innovation in a longstanding process of worker exploitation.

I don't like to think of myself as a commie pinko (who would!), but the "internal contradictions" hypothesis explains a lot of things going on today very well--especially wage stagnation despite higher labor productivity which neoclassical models typically punt on.

Marxist economics are the unspeakable evil in modern economics, but I'll make this challenge to everyone: If you have a better explanation of the contemporary political economy in the developed world, put it forward.

I have written more on how the pieces of contemporary political economy fit into a Marxist "internal contradictions" framework:


Marcos Ancelovici

There was a similar discussion in yesterday's Wall Street Journal. It seems that now the consensus even includes former economic advisers of Bush:


Professor Rodrik, I have a great concern about the intellectual property rights treatment in the recently negotiated bilateral trade agreements between Latin American countries and the US. Recently Joseph Stiglitz proposed to change the way in which innovation should be retributed from patents to prizes. However there is little interest from pharmaceuticals and other corporations in changing this. Recently Brazil has shown the way by allowing the production of generics to aids treatment after unsuccessful negotiations with the lab. Do you think it is possible for smaller countries like Colombia to change patents to some other form of recognition to laboratories, and to do this facing free trade agreements?


Krugman states:
"in 1990...the original four Asian NIEs had hourly compensation costs that were 25% of the US level. Now ...China’s labour costs are only 3% of US levels."

One fundamental problem with this argument is that by the 1990s NIEs had almost become net importers of labor-intensive goods, and China had replaced both Japan and NIEs as the major net-exporter of these types of goods. As I have pointed out in my comment on Rodrik's latest entry "Globalization anxiety...", Chinese money wage is growing rapidly, which is likely to bring about the balance in US- China trade in the long run. My guess is that instead of comparing worker earning in NIEs in 1990 with worker earning in China today, we should compare the former with worker earning in China 10 years from now. That would, in my judgment, do more justice to the "ladders of comparative advantage"argument which Krugman seems to be alluding to.


"Chinese money wage is growing rapidly, which is likely to bring about the balance in US- China trade in the long run."


Will it happen before 2100 by any chance?

Can we count on 2150 as an absolute deadline?


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