Dubious Assumption #4: Trade does not raise income inequality.

[tangent4ronpaul]

Even if free trade expands the economy overall (dubious), it can tilt the distribution of income so much that ordinary people see little or none of the gains.

For example, suppose that opening up a nation to freer trade means that it starts exporting more airplanes and importing more clothes than before. Because the nation gets to expand an industry better suited to its comparative advantage and contract one less suited, it becomes more productive and its GDP goes up.

So far, so good.

Here's the rub: suppose that a million dollars' worth of clothes production requires one white-collar worker and nine blue-collar workers, while a million dollars of airplane production requires three white-collar workers and seven blue-collar workers. So for every million dollars' change in what gets produced, there is a demand for two more white-collar workers and two fewer blue-collar workers. Because demand for white-collar workers goes up and demand for blue-collar workers goes down, the wages of white-collar workers go up and those of blue-collar workers go down.

But most workers are blue-collar workers -- so free trade has lowered wages for most workers in the economy!

This is not a trivial problem: Dani Rodrik of Harvard estimates that freeing up trade reshuffles five dollars of income between different groups of people domestically for every one dollar of net gain it brings to the economy as a whole.

http://www.ronpaulforums.com/showthr...92#post3202492

[Legend1104]

Suppose this situation is a real situation. At first this would cause wages for blue collar workers to go down, but this is only a problem in the short term. As the economy becomes better suited to it's new industry based on comparative advantage, it will begin to expand it's economy. Also prices will go down due to the fact that it is now more efficient. As a whole, as the market expands due to higher demand more jobs will be needed in both blue and white collar areas to meet the higher demand for air planes. Furthermore, with the increased demand for more white collar workers, more blue collar workers will begin to be converted into white collar to meet the need. Overall with a decrease in prices, wage decreases will, as a whole, be offset and produce a net benefit.

[axiomata]

Another strawman.

Income inequality doesn't matter. Trade is a positive sum game, if one partner gets +3 and the other only gets +1 it is better than no trade between them.

The fact is that the poorest among us have gotten richer as a result of trade, and magnificently so.



A large part is thanks to global trade.

Bottom Line: Assuming these estimates are accurate, the 80% reduction in poverty between 1970 and 2006 has to be the greatest reduction in world poverty in such a short time span in the history of the world, and the 97% reduction in East Asia has to be the most significant improvement in regional standard of living in history as well. The authors don't explore the reasons for the record reduction in world poverty, but some likely candidates might be: globalization, market-based reforms, liberalization, Information Age technology, productivity gains in agriculture, the collapse of central planning in China and India, etc.