• Introduction
  • Keynes
  • Hall
  • Clower
  • Wu
  • Trade
  • Elections
  • Author

Trade

Though proven wrong in data, for the past 50 years, there has been given great weight to Hall's consumption theoretical result. But because it does not consider income as a factor in consumption, economists were unable to study the effect of trade into personal savings or the change in personal saving, i.e., the link between trade deficit -> higher unemployment -> lower labor income -> excess consumption and lower saving.  The direct result of Keynes-Clower-Wu's consumption theory is that change in saving is a function of diminishing changes in labor income (unemployment due to trade deficit) or its labor income growth.  That is, unexpected losses of employment and labor income caused excess consumption, which lowered saving.  

 

So here is the effect of trade imbalance on manufacturing jobs:

GRAPH 1 1

 

The chart below (originally made in early 1990s and updated recently) shows the relationship between trade and savings.  Since imports of raw materials and other goods for production may benefit domestic manufacturing and jobs only imports of finished goods should be considered.  That is, not all imports are bad for personal saving.

 

GRAPH 1 2

 

Contrary to Hall's consumption result, Keynes-Clower-Wu result provides the theoretical support to explain the data on the effects of trade on the U.S. economy, specially labor income and saving.  One can extrapolate the same conclusion to other countries with significant trade imbalances (both positive and negative), which shows saving is in effect directely affected by the growth of their labor income.  The upward and downward shifts in saving in other countries show there is no such thing as super saving societies!  Otherwise, how could anyone explain the sudden decline in saving in countries such as Japan, Korea or China?  In sum, one cannot "force" saving when employment is mostly in disequilibrium.

Wu, Cheng (2017): "Does Clower’s Dual-Decision Hypothesis lead to the change in saving conclusion in Keynes’s General Theory?"  https://mpra.ub.uni-muenchen.de/82840/  

https://journals.econsciences.com/index.php/JEL/article/view/1497

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