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I see that Joseph Stiglitz has just made very similar points in an article about the TransPacific Partnership negociations:

Free trade was a central tenet of economics in the discipline's early years. Yes, there are winners and losers, the theory went, but the winners can always compensate the losers, so that free trade (or even freer trade) is a win-win. This conclusion, unfortunately, is based on numerous assumptions, many of which are simply wrong.

The older theories, for instance, simply ignored risk, and assumed that workers could move seamlessly between jobs. It was assumed that the economy was at full employment, so that workers displaced by globalization would quickly move from low-productivity sectors (which had thrived simply because foreign competition was kept at bay through tariffs and other trade restrictions) to high-productivity sectors. But when there is a high level of unemployment, and especially when a large percentage of the unemployed have been out of work long-term (as is the case now), there can't be such complacency.



Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sun Mar 16th, 2014 at 05:08:28 AM EST
Strangely enough I've found myself on the wrong (illiberal? UKIP?) side of UK immigration debates because I feel compelled to point out that "reasonable people" (e.g. sensible economist Jonathan Portes) are building their economic case for immigration precisely around this:

Yes, there are winners and losers, the theory went, but the winners can always compensate the losers, so that free trade (or even freer trade) is a win-win.
by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 16th, 2014 at 06:08:04 PM EST
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As Stiglitz points out later in his article, while the theory said that winners could compensate losers, nothing said that they would...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sun Mar 16th, 2014 at 06:13:12 PM EST
[ Parent ]
The winners could always compensate the losers, but they do not. This sleight of hand is called Kaldor-Hicks optimality.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Mar 21st, 2014 at 04:51:41 AM EST
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