Re: Shaking Up Trade Theory

From: Igor (jjweatherby_at_houston.rr.com)
Date: 11/30/04 

Date: Tue, 30 Nov 2004 14:57:19 GMT

Tim Keating wrote:

>>No it is not. It is a statement of what happens when there is no
>>technological growth. The Solow model has many problems but it does show
>
>
> Dependency on technology to support your growth theories has it's
> short comings.
>
> Most of us who work in the tech industry have noticed a dramatic
> slowing of technological innovation. I can think of several factors
> which come to play.
>

That is not what the data show. The tech industry is not the only source
of R&D. Over 80% of R&D is in manufacturing. That being said there are
diminishing returns shown to R&D and it is accounted for in growth
models. Well perhaps the problem is that price indexes do not account
fully for quality adjustment so there is some debate that about constant
growth rate and therefore diminishing returns to R&D.

> 1. Replacing the most skilled with less skill, results in inferior
> products. Outsourcing, importing of cheap labor, etc.. A
> substantial number of new products aren't worth buying. Usually,
> they can fool customers a few times, and then their reputation for
> inferior products spreads.
>

Like what? Data does not support this.

> 2. At the root of all technological advances is a ROI
> calculation. This applies down to the consumer level.
> The dramatic lowering of first world labor compensation shifts the ROI
> curve and eventually removes much of the demand for new products and
> services.

No it raises rates of return if you can manufacture it with cheap labor.
Third world labor is hardly an issue. Patents and secrecy insure
corporations enough time to recoup the investment.

> The spiral down feeds on itself. Less compensation equals
> less disposable income equals less demand, repeat, repeat, repeat.
> P.S. Don't let the government stats fool you. Consumer spending is
> lagging FAR behind the real inflation rate (>10%/yr).

Wtong again cost reducing R&D and product R&D increases worker
productivity which RAISES WAGES.

>
> 3. For businesses the ROI calculation becomes a requirement. Will
> this new expenditure save us money or time (in the form of labor
> costs).

Or will it create new demands and give the corporation A LARGER MARKET
SHARE.

>>the classical assumption of a steady state with no growth is wrong.
>>Technological change causes growth. The problems with Solow are many but
>>that basic idea still holds. It is the basis of all growth theory since
>>Solow. Modern growth has sought to explain technological change and HOW
>>it happens. If you have technological growth and therefore productivity
>>growth wages rise above subsistence. Which is why wages are so much
>>above subsisitence in the US, for most workers.
>>
>>This is not a statement of capitialism. It is a statement of a
>>Merchantilist economy still emerging from feudalism. The lack of
>>intellectual property rights and the oppressive tax system which tied
>>serfs to their lands kept technology from growing as it should.
>
>
> You just stated a Fallacy of Composition.
>

Do you know what a fallacy of composition is? There is none here.

>
> Again.. The rate of technological innovation and adoption is falling
> fast.
>

Data? Funny EVERY economic study on the issue would disagree. There may
have been somewhat of a slow down. Patents per a research has dropped bu
t the rate of innovation is not falling fast. Do you know how to measure
such a thing. It is not directly observable.

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