Saturday, March 24, 2007

Trade and Full Employment

OP-Ed, 23 March, carries an article by Richard Backus, ‘The Globalization Hoax’, which heads of into the stratosphere with this:

“Globalization, in theory at least, was an economic philosophy which espoused a more efficient production of the world's manufactures for the benefit of the world at large. It is based upon an economic theory proposed, I believe, by Adam Smith that if each manufacture was produced by the most efficient worker in the world, production would be maximized with the best use of the world's resources (manpower, materials, etc.). In theory this concept is sound except for the fact that it was based upon the presumption of full employment. Full employment these days does not exist and in the U.S. hasn't for some time.”

I hadn’t realized that Smith had said anything about full employment being a necessary condition for countries to benefit from trade. Come to think of it, I do not recollect Smith saying anything about employment being ‘full’, ‘partial’ or non-existent. Trade is about consumers, not producers, who may very well be producing domestic goods for local exchange and not goods for foreign trade.

The necessary condition is ‘effectual demand’ for markets to function. If the entire workforce, or most of it, is unemployed and without the means of subsistence, they won’t be buying much and this will reflect in their comparative states of, or lack of, opulence.

No economic system so far devised has it workforce fully employed all the time with nobody in-between jobs. There is always some unemployment at less than full employment (however measured), with millions changing jobs, others searching and some proportion unemployed for long periods (with incomes to match, usually low). Smith did discuss the theoretical possibility of an economy stagnating, even in absolute decline. But not about an economy no longer exchanging products in markets.

Anyway, read the whole article if you are willing to read crass nonsense, at:


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