The Puzzle Book

Dani Rodrik starts a specific discussion with this Post. What he is trying to say is that Trade allows for a cheaper acquisition of Goods, not necessarily cheaper levels of Prices. Producers and Consumers, though, cannot pass on the possible higher Pricing of all Goods equally, so can potentially acquire losses from Trade due to their inability to charge higher Prices for their own Product or Labor. Free Trade can only raise real Wages if domestic employment is increased, or the greater Productivity is translated into Wage Raises; again dominated by Producer ability to pass on Costs in the form of higher Prices. The rest of his reasons deal with the ability of Economists to formulate their Economic models with the fundamental base assumptions, so that the model Readouts can say practically anything.

Dani follows up on his previous Post with this One, which attempts to put his Thoughts on Trade into an Example spectrum. It is a good try, but still peers through a Looking Glass Darkly. Brad DeLong gives a valiant effort to justify Free Trade in this Post and Quote:

It seems perfectly fine to me to give the following shorthand description of trade: Trade on average raises the prices of what you make and sell, and lowers the prices of what you buy and consume. A better description might be: Trade raises your income relative to the prices you pay if you are a net buyer of importables, and lowers your income relative to the prices you pay if you are a net buyer of exportables--but as a country, on average, we are net buyers of importables (that's why we import them) and net sellers of exportables (that's why we export them). But the first shorthand description seems to me to be correct, if incomplete.

The trouble with this explanation falls in the realm of the real Production process. Being a net Buyer of importables does not actually increase you relative Income, unless you are a net seller of exportables; it simply increase the number and quantity you purchase, here engendering a net loss of relative Income. A Producer who is a buyer of exportables will have to increase his sale of Product domestically or as an Exporter; else he will endure a relative loss of Income. Here We have the real crux of the matter: The real physical Product increase of Production must match the growth of Inportables, or there will be a loss of relative Income; quite irrespective as to what it does to the Price ranges of Imports or Exports.

The Above discussion may go far to explain the Economic Puzzles of Kash and Irwin Kellner. They examine the fact that economic growth has slowed since the beginning of 2006. It would be expected that Unemployment should of increased while the rate of Inflation decreased; it didn’t. Unemployment actually fell, and the propellent of Inflation keeps hacking away at real Incomes. Consumer Spending, I concur with Kash, is slowing; but Corporate Profits are maintaining record Highs. How? Kash blames the Fed increasing the Money Supply; but I deem that too easy. I believe Consumers are finding Imports relatively too expensive, are altering their Purchase patterns to Necessity purchasing which employs far more domestic help, and the increased Demand for domestic labor is keeping Unemployment rates down. Increased Demand of Product in the Domestic market, plus rising relative Pricing of Imports, generate the pressure on the rate of Inflation. lgl