Thomas Palley

Psychologists refer to the “elephant in the room” phenomenon as a condition where people talk about everything except the most important issue. I recently (January 10, 2006) attended a conference at Washington’s prestigious Institute for International Economics on the likelihood of a financial crisis in developing countries. All morning the elephant sat quietly in the room sipping coffee. (more…)

The Economist magazine (September 24, 2005) recently ran a story about the threat posed by global financial imbalances. The front cover showed a picture of a teeter-totter (see-saw in English) atop the globe. On the upper-end of the teeter-totter was a small stars-and-stripes piggy bank representing thriftless America; on the lower-end was a plump piggy bank representing the thrifty rest of the world. The moral of the story was that the U.S. is saving too little, the rest of the world is saving too much, and the net result is a dangerous global saving imbalance that requires an adjustment of saving patterns. (more…)

General Motors and Ford have both recently announced plans to restructure their parts supply arrangements, the result of which will be the loss of thousands of middle-class manufacturing jobs. These plans involve slimming down the number of suppliers, as well as forcing domestic suppliers to match the lowest global price (the “China price”) if they wish to retain business. (more…)

There is a famous theorem in international economics – the Stolper-Samuelson theorem – that says when a rich capital-abundant country (such as the U.S.) trades with a poor labor-abundant country (such as China), wages in the rich country fall and profits go up. The theorem’s economic logic is simple. Free trade is tantamount to a massive increase in the rich country’s labor supply since the products made by poor country workers can now be imported. Additionally, demand for workers in the rich country falls as rich country firms abandon labor-intensive production to the poor country. The net result is an effective increase in labor supply and a decrease in labor demand in the rich country, and wages fall. (more…)