Tuesday, May 26, 2015

Trade, Bribes and Yardsticks

In the conclusion to their 1941 article "Protection and Real Wages," Wolfgang Stolper and Paul Samuelson wrote:
...it has been shown that the harm which free trade inflicts upon- one factor of production is necessarily less than the gain to the other. Hence, it is always possible to bribe the suffering factor by subsidy or other redistributive devices so as to leave all factors better off as a result of trade.
This is an instance of the infamous Kaldor-Hicks compensation criterion, which David Ellerman has shown to be a "same yardstick" fallacy. Ironically, Ellerman took the same yardstick analogy from another paper by Samuelson and elsewhere Samuelson is dismissive of the Kaldor-Hicks criterion.

Ian Little described the K-H criterion as unacceptable nonsense. But, hey, let's fast-track the TPP and maybe one of those winners will toss us a bribe!

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