Re: trade and unemployment

To Gert:
Thanks for your season's greetings, something I also omitted in my last
posting.I wish you a happy New Year, century and millenium.

As to your comments, I  never thought that balancing trade would be enough
to solve unemployment completely or everywhere, but I feel, it could be
quite helpful in many cases. Unfortunately, that seems not to be the case
in Canada. Possibly in Europe and  WITHOUT going into the other extreme of
outright protectionism, it should be effective in limiting the reach of the
globalizing trends, which are certainly responsible for a lot of
unemployment in industrialized countries. 

In my first posting I mentioned that Keynesian policies are probably more
directly concerned with unemployment. In this context, I should like to
mention, what happened in Chile last year. After almost a decade of
continuos economic progress, the Asian crisis started a severe recession in
Chile and unemployment shot up to about half a million persons: from about
5% to more than 11%. Government was completely unprepared for such a
contingency and at first absolutely nothing was done to alleviate the
situation. An observer from the first World might not feel that to be very
serious, since he would not know, that CHILE HAS NO UNEMPLOYMENT INSURANCE
AND NO SOCIAL SAFETYNET. Therefore these newly unemployed people were
almost FORCED into criminal activity in order not to starve or to starve
their families. 


Furhermore the powerful Finance Minister pursued his policy to reduce
inflation through tightening the budget to the limit. He wanted private
enterprise to save the situation and harshly criticized them for letting
workers go, instead of making new investments. What he seemed not to
understand, is the fact that a private company must respond to the market
if it wants to survive in a market-based economy. To add insult to injury,
this same minister was then appointed to a very high executive post in the
IMF, where he is now in a position to throw MILLIONS out of jobs, instead
of only hundreds of thousands.

Only belatedly some completely insufficient emergency funds were made
available to municipalities, something comparable to applying a Band-Aid to
a major wound. They were spent on purely "make work" projects, with no
permanent value for the country (see below for what might have been done). 

According to what I understand are the basic tenets of Lord Keynes, instead
of leaving everything to market forces, Government CAN AND MUST CONSIDER
SOCIAL NEEDS and therefore should INCREASE spending and especially
investment in necessary public works in times of recession. To finance such
investments, Government should set aside funds during boom time. I like to
compare this idea to the situation of Chilean agriculture, which needs both
natural rainfall and irrigation to achieve a plentiful harvest. Therefore
during a dry spell more and not less irrigation is needed, with the
additional water having been accumulated behind dams during years of heavy
rainfall.

Since acting on such a prudent policy is very hard for any politician, the
Chilean government would have had to use some imagination for financing a
lot of public works, that the country badly needs anyhow. There are many
such projects, which could pay for themselves within reasonable periods and
for which foreign loans could easily have been negotiated, since the
country has a very good credit rating. Carrying them out during a recession
is not only very effective to mitigate the business cycle, but would also
reduce their costs very significantly.

Of course there are many more aspects of unemployment, that should be
discussed, such as the accelerating use of automation. I do not pretend to
have solutions for this problem; but they might be found in more
imaginative social policies.

Greetings                       Paul

At 12:24 p.m. 02-01-00 -0500, you wrote:
>see, comment at the end
>
>
>-----Original Message-----
>From: Paul Riesz <priesz@itn.cl>
>To: <wsn@csf.colorado.edu>
>Cc: gkohler@accglobal.net <gkohler@accglobal.net>
>Date: January 1, 2000 7:39 PM
>Subject: Balanced trade
>
>
>....>snip
>>
>>Such policies would benefit the great majorities in first world countries,
>>through retaining jobs in many of their manufacturing plants and
>>recapturing the full vitality of their economies. But they would also
>>benefit the populations of their trade-partners, where governments would
>>have to increase wages and promote consumption by many different means in
>>order to effect the required increase of their imports.
>>
>>MY CONCLUSION: IN THE LONG RUN TRADE CAN ONLY BE REASONABLY FREE, IF IT IS
>>ALSO REASONABLY BALANCED.
>>
>
>COMMENT:
>
>Paul, I agree and disagree. Agree-- that trade matters. Embargoes can be
>very damaging, see Cuba or Iraq today, or the retaliatory protectionism of
>the 1930's which you mentioned. Disagree --  I understand where you are
>coming from with respect to trade theory, but "balanced trade" per se does
>not seem to do the trick. Take Canada, for example. We have fairly balanced
>trade *AND* persistent high unemployment (in the 8-10% range over the last
>two decades). Thus, "balance" per se in our trade does not solve our
>unemployment problem. Something else is required. While you think in terms
>of "trade balance", I am thinking more in terms of "world demand" and how
>the income distribution in  the world-system affects world demand (and,
>hence, trading demand and job creation).  By the way, Happy New Year! (I
>forgot to say that in my last posting.)
>
>Gert Kohler
>
>
>
>