A Conversation With Robert Rubin (Page 4)

That is what I'm discussing actually. I'm coming from a different starting point, as you know, but that essentially is what my question is about. Is it possible that, given the differences and different strategies and policies of different countries, that an advanced and very effective country such as ours can become a loser in this situation? You noted that in your speeches. I was taken by that.

Well, I didn't say "loser." What I said is what [economist Paul] Samuelson said, which is a very different comment.... What Samuelson said, as I understand it, is what I by myself intuitively felt before I even read his article.... What he basically said was that trade creates a certain amount of incremental economic benefit--let's call it GDP--and that gets divided amongst trading partners, and how it gets divided depends on their relative cost advantages and disadvantages. So what he's saying is that China and India, having absolute cost advantages versus us in virtually everything they do that's tradable, the benefits of trade are going to get redivided so that--I'm just making up the numbers--maybe instead of we get 80 percent of the benefits and they get 20, we each get 50 or they get 60 and we get 40. I don't know.

Then he wrote a letter afterwards because a lot of people who are opposed to trade liberalization said Samuelson says we're right. He says, no, you're still better off with trade than without it. But your national income actually goes down because the benefits are redivided. In other words, you started with a GDP of 50 and then you add 20 points of additional because that's your share of total benefit of trade. That may now be reduced to 15 because the other guys now get that additional 5, so you actually could have lower GDP than you had before and you're still better off with trade than without.

Next question is about the global convergence of wages...that's been under way for quite a long time. Americans, again, have been peculiarly vulnerable, working class and above. I read the Hamilton Project's policy proposals, and I have a hard time understanding how any of those will have much, if any, impact on that downward, depressing trend for US wages.

Well, let's say you put up big trade walls, that makes things much worse. I mean, the people who buy cheaper consumer goods won't be able to get them. The manufacturers who get cheaper inputs won't be able to get them to compete with other countries.

But back to the question: Can those proposals themselves have much, if any, effect on the forces that are now at work on wages?

Well, I think that's a question to which nobody knows the answer. I think those proposals and the approach we are proposing are the way to get the best possible outcome for the United States in a complicated world. I think, in my judgment, that's the honest answer to that question.

But whether that's going to stop the global convergence of wages, I don't know the answer to that. I would guess that the answer to that question is no.... This stuff is really interesting. Unfortunately, almost nobody in the press asks this stuff--no, I'm serious--or tries to do it in a thoughtful way. So there's almost no public understanding of any of this stuff.

The question is: Will convergence happen because their wages go up or because our wages go down?

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