Read the article, “More Pain than Gain”, from The Economist. The article is available from TITANium
1. Summarize the main points of the article.
2. How has trade impacted the wage patterns in developed countries and emerging economies?
3. What does Ricardo’s comparative advantage theory say about relative wages? What about Heckshcer-Ohlin theory? Can these theories explain the increasing wage inequality revealed in the article? Clearly comment on both theories regarding relative wages.
4. Richard Freeman suggests that the traditional trade theory need modifying. Do you agree with his points? Why?
5. The article suggests that governments redistribute the benefits of globalization more fairly through the tax and benefits system. However, in an open world governments cannot raise taxes and spending in isolation. How would an increase in income tax affect a country’s trade balance according to the National Income Identity (Y=C+I+G+X)? How can a country with huge government budget deficits and trade deficits, like the U.S., finance its social-insurance and redistribution costs?