This is the basis of the doctrine of the ‘foreign trade multiplier’, according to which the production of a country will be determined by the external demand for its products and will tend to be that multiple of such demand which is represented by the reciprocal of the proportion of internal incomes spent on imports. This doctrine asserts the very opposite of Say’s Law: the level of production will not be confined by the availability of capital and labour; on the contrary, the amount of capital accumulated, and the amount of labour effectively employed at any one time, will be the result of the growth of external demand over a long series of past periods, which permitted the capital accumulation to take place that was required to enable the amount of labour to be employed and the level of output to be reached which were (or could be) attained in the current period.
Keynes, writing in the middle of the Great Depression of the 1930s, focused his attention on the consequences of the failure to invest (due to unfavourable business expectations) in limiting industrial employment below industry’s attained capacity to provide such employment; and he attributed this failure to excessive saving (or an insufficient propensity to consume) relative to the opportunities for profitable investment. Hence his concentration on liquidity preference and the rate of interest, as the basic cause for the failure of Say’s Law to operate under conditions of low investment opportunities and/or excessive savings, and the importance he attached to the savings/investment multiplier as a short-period determinant of the level of production and employment.
On retrospect I believe it to have been unfortunate that the very success of Keynes’s ideas in connection with the savings/investment multiplier diverted attention from the ‘foreign trade multiplier’, which, over longer periods, is a far more important and basic factor in explaining the growth and rhythm of industrial development. For over longer periods Ricardo’s presumption that capitalists only save in order to invest, and that hence the proportion of profits saved would adapt to changes in the profitability of investment, seems to me more relevant; the limitation of effective demand due to oversaving is a short-run (or cyclical) phenomenon, whereas the rate of growth of’external’ demand is a more basic long-run determinant of both the rate of accumulation and the growth of output and employment in the ‘capitalist’ or ‘industrial’ sectors of the world economy.
Capitalism and industrial development: some lessons from Britain’s experience, Camb. J. Econ. (1977) 1 (2): 193–204, link
Eric Lonergan has written an interesting post about US trade deficits on his blog Philosphy Of Money/Sample Of One. In the post Eric claims that the United States is not a debtor of the world but that she is a creditor of the world! Eric also says that a lot of talk of all this is conventional wisdom and in reality the United States is getting paid to have lunch.
First, it’s no conventional wisdom. Most of standard macroeconomics is simply denying the importance of balance of payments. It is held that market mechanisms will correct imbalances, if only the government does its job. So there’s no conventional wisdom worrying about the trade deficit of the United States of America. It is exactly the opposite – a heterodox view.
Second, there is no “free lunch”. Imports put a drain on demand and output and because of the imbalance of the U.S. trade, full employment has been a distant dream. With so much of unemployment (especially in the crisis) and the slow recovery, one cannot claim that the U.S. has some free lunch. Only if there is full employment and that too remaining sustainable, can one claim that there’s some “free lunch”. A smaller point is that one needs the correct counter-factual: if the U.S. trade deficit had been lower, interest income (one of Eric’s main points) would have been even higher. So one more reason to avoid the phrase “free lunch”.
Moving to more important points. Eric claims that net return of FDI is high and hence BEA’s numbers are not right. Specifically he claims:
So here’s the crux: American generates a high positive net income from its net international asset position – which implies its net external asset position is a positive number. Despite running permanent current account deficits, the US has accumulated net external assets. this sounds less counterintuitive if you think that all it means is that US assets oversees are more valuable than foreign holdings of US assets.
To highlight how significant the difference is, BEA measures of US net external liabilities are around $7trn, if we simply value the net income on a PE multiple of 14x, the net external assets of the US are around $2.7trn!
An inconsistency this large seems extreme, but consider the valuation of foreign direct investment (FDI). According to the BEA, net FDI of the US has a value of less than $1trn, although the US earns $424bn on its overseas FDI and foreign FDI in the US only earns $153bn. If we value both income streams on 14x earnings, the US has net FDI assets of $4.2trn – the BEA ‘market value’ estimates are out by $3trn.
Now, that is not a correct way to approach this. To see the error, assume the stock of outward FDI is $100 and the stock of inward FDI is also $100 at market prices. Suppose investment receipts is $10 and income paid is $9. So it looks like the United States is earning $1 on a net FDI of 0. So according to this argument, the return is infinite!
It is better to look at the actual numbers:
Outward FDI: $6,695bn
Inward FDI: $6,196 bn.
Direct investment income: $776bn
Direct investment payments $592bn.
There is nothing drastically wrong about these numbers. Perhaps, it can be argued that direct investment in the US by foreigners will take time to pay off, or that foreigners are satisfied with this or something else. These numbers do not appear wrong.
Netting inward and outward and comparing returns to the net stock is an invalid argument, as I showed above with an example of inward/outward FDI of $100.
In addition, on Twitter Eric says a DCF (discounted cash flow) model also supports his thesis that the United States is a net creditor. The loophole in this argument is that it holds assets and liabilities vis-à-vis foreigners fixed. But because the United States runs current account deficits, liabilities rise faster than assets attributable to the deficit. So even if the U.S. earns interest income, net, from abroad, this effect will catch up.
There’s other way of saying all this. If r is return on assets A and L are assets and liabilities.
rA > rL
rA ·A > rL·L
is not inconsistent with
A < L
Second, using subscripts, 0 and 1 for now and some point in future,
rA0 ·A0 > rL0·L0
does not imply automatically that
rA1 ·A1 > rL1·L1
because liabilities can rise faster than assets (because of current account deficits) and even if return on assets is higher than return earned by foreigners on U.S. liabilities, net interest income can turn negative.
Anyway, the point of this post is that while netting is a good concept, one cannot blindly net accounting numbers. The example, a net FDI of $0 earning a net income of $1 and hence infinite return(!) is not a valid way of doing accounting. BEA’s numbers look correct.
Last edited: 26 Mar 2016, 6:35 pm UTC
Who is right? Answer: Neither. Global output will rise under non-selective protectionism (or has an expansionary bias, to be more precise). Protectionism reduces the propensity to import. That doesn’t mean imports will fall. Total imports of an individual nation will rise because of higher income. World trade will rise because of higher world income.
In other words, non-selective protectionism acts by reducing the propensity to import by price elasticity effects but raises volume of imports via income elasticity effects.
The world as a whole is balance-of-payments constrained, not just individual nations. Raising tariffs on imports incentivises producers to produce more as they will face less competition from abroad. Consumers will shift to domestically produced goods because of price elasticity effects.
Moreover, since governments of most nations won’t have a balance-of-payments constraint if there are large tariffs, they will be free to boost domestic demand by fiscal policy, limited only by the economy’s capacity to produce. If it is done, it will be a conscious behaviour by the government.
There is of course another way fiscal policy gets relaxed because of balance of payments. Reduction of current account deficits, relative to gdp, reduces the budget deficit, relative to gdp (as can be shown by a behavioural model and this shouldn’t be surprising as the two are related by an accounting identity). Typically governments follow some rules even if they aren’t explicitly required and their expenditure is endogenous to the government budget deficit: they tighten fiscal policy when the budget deficit goes out of a limit and relax fiscal policy when the budget deficit is within the limit. So improvement in a country’s balance of payments position would lead to a relaxation of fiscal policy, automatically.
To summarize, protectionism if done the right way can raise world trade because of rise in world income. There is no economic case against protectionism. There is opposition because few corporations want to increase their share in world markets. Protectionism reduces share of these mega corporations instead of reducing world trade. So “free trade” (which is managed trade for a few) only benefits a few and imposes a huge cost on the world economy.
All that is for the current world economic outlook. Typically in deep recessions governments take protectionist measures. In such scenarios, since output is falling, there is a tendency to confuse this with causation. It is more accurate to say that protectionism prevented a deeper implosion in such cases.
‘Free Trade Loses Political Favour,’ says the front-page of today’s Wall Street Journal.
Paul Krugman has two articles conceding that he held wrong views earlier.
But it’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict.
Krugman claims that he hasn’t done any of it but a reading of his 1996 article Ricardo’s Difficult Idea says the exact opposite.
The earliest cri de cœur of the U.S. balance of payments situation came from Wynne Godley in his 1999 article Seven Unsustainable Processes.
In his sub-heading ‘Policy Considerations,’ he says:
The main conclusion of this paper is that if, as seems likely, the United States enters an era of stagnation in the first decade of the new millennium, it will become necessary both to relax the fiscal stance and to increase exports relative to imports. According to the models deployed, there is no great technical difficulty about carrying out such a program except that it will be difficult to get the timing right. For instance, it would be quite wrong to relax fiscal policy immediately, just as the credit boom reaches its peak. As stated in the introduction, this paper does not argue in favor of fiscal fine-tuning; its central contention is rather that the whole stance of fiscal policy is wrong in that it is much too restrictive to be consistent with full employment in the long run. A more formidable obstacle to the implementation of a wholesale relaxation of fiscal policy at any stage resides in the fact that this would run slap contrary to the powerfully entrenched, political culture of the present time.
The logic of this analysis is that, over the coming five to ten years, it will be necessary not only to bring about a substantial relaxation in the fiscal stance but also to ensure, by one means or another, that there is a structural improvement in the United States’s balance of payments. It is not legitimate to assume that the external deficit will at some stage automatically correct itself; too many countries in the past have found themselves trapped by exploding overseas indebtedness that had eventually to be corrected by force majeure for this to be tenable.
There are, in principle, four ways in which the net export demand can be increased: (1) by depreciating the currency, (2) by deflating the economy to the point at which imports are reduced to the level of exports, (3) by getting other countries to expand their economies by fiscal or other means, and (4) by adopting “Article 12 control” of imports, so called after Article 12 of the GATT (General Agreement on Tariffs and Trade), which was creatively adjusted when the World Trade Organization came into existence specifically to allow nondiscriminatory import controls to protect a country’s foreign exchange reserves. This list of remedies for the external deficit does not include protection as commonly understood, namely, the selective use of tariffs or other discriminatory measures to assist particular industries and firms that are suffering from relative decline. This kind of protectionism is not included because, apart from other fundamental objections, it would not do the trick. Of the four alternatives, we rule out the second–progressive deflation and resulting high unemployment–on moral grounds. Serious difficulties attend the adoption of any of the remaining three remedies, but none of them can be ruled out categorically.
[italics in original, underlying mine]
Over his blog The Beauty Contest – A blog on Spanish and international affairs, macroeconomics and finance, Javier López Bernardo has an analysis of Bernie Sanders’ economic plan (written with his colleague Rafael Wildauer).
Javier López Bernardo and Rafael Wildauer stress the importance of the U.S. balance of payments constraint on U.S. growth. He uses a sectoral financial balances model to highlight how sectoral balances would look under Bernie Sanders’ plan: an exploding combination of U.S. private debt and negative net international investment position because of exploding negative financial balance of the private sector and the U.S. economy as a whole.
Also, they say:
We have not intended to bash Mr. Sanders’ economic program (actually, we are quite sympathetic with most of its measures) or Prof. Friedman’s economic exercise (which is useful to frame the economic discussion), but simply to highlight the incompleteness of economic analysis carried out in closed-economy frameworks – as the critics and Prof. Friedman’s exercise have exemplified.
Their projection is this chart:
The trouble with Neochartalism (and called “Modern Monetary Theory” by the Neochartalists) is that what is correct is not original and what is original is not correct.
A popular heterodox blogger writing under the pen name “Lord Keynes” and blogging at Social Democracy For The 21st Century has written a post Limits Of MMT.
It’s good to see the blogger point that the main trouble with Neochartalism is the balance of payments constraint. He/she has said this in the past in posts while promoting it, so it’s good to see a special post for this. I don’t agree with many things with “Lord Keynes” but given the blog’s popularity, I think it’s a good thing to have happened.
There is one thing I would have liked to see differently. It is sometimes said that Neochartalism works for advanced/rich nations and not for poor nations. But this gives too much importance to Neochartalism. This is because the rise and fall of nations itself depends on competitiveness in international markets. Saying “MMT works for advanced nations” makes it look as if the success and failure of nations is to be explained elsewhere. It’s still true of course that advanced nations can expand domestic demand by fiscal expansion but they also have to look after the being being of firms selling products in international markets, to stay competitive and not lose edge. Similarly as the blogger Lord Keynes says, “What is needed for much of the Third World is heterodox development economics, not MMT.”
More generally a concerted action is needed by world political leaders in which fiscal policies are coordinated with a set of consistent balance of payments targets.
Neochartalism has confused people more than they were confused earlier. It has to be debunked.
Thirlwall’s Law is counter-intuitive and comes across as shocking. It says that the growth of a nation’s economy is directly proportional to the rate of exports and inversely related to the income elasticity of imports.
The reason it comes as shocking and difficult to believe is that our planet, with all inhabitants and institutions considered resident cannot export (unless there are non-residents such as aliens), but the world still grows.
Now there are several pitfalls in this argument. First, Thirlwall’s law doesn’t fail because the expression for growth rate is indeterminate. Rate of exports is indeterminate and the income elasticity of imports is indeterminate.
So we have
growth = inderminate/indeterminate
Second, the world does not have a central government. So the world as a whole is not comparable to a closed economy with a government.
There is a way in which the world as a whole is balance-of-payments constrained. The argument is by Nicholas Kaldor. In his 1980 article Foundations And Implications Of Free Trade Theory, written in Unemployment In Western Countries – Proceedings Of A Conference Held By The International Economics Association. At Bischenberg, France, Kaldor makes the argument for the world balance-of-payments constraint.
Nicholas Kaldor on free trade
In a recent article on the ‘Causes of Growth and Recession in World Trade’,1 T. F. Cripps has demonstrated that a country is not ‘balance of payments constrained’ if its full employment imports, M*, are less that its import capacity M̅ (as determined by its earning from exports). Such a country is free to choose the level of domestic demand which it considers optimal for its own circumstances,2 whereas the other countries from whom M* > M̅, must, under conditions of free trade, reduce their output and employment below the full employment level, and import only what they can afford to finance. He then shows that the sum of imports of the ‘unconstrained’ countries determine the attainable level of production and employment of the ‘constrained’ countries, and the remedy for this situation requires measures that increase the level of ‘full-employment’ imports or else reduce the export share of the ‘unconstrained countries’. The ‘rules of the game’ which would be capable of securing growth and stability in international trade, and of restoring the production of the ‘constrained’ countries to full employment levels, may require discriminatory measure of import control, of the type envisaged in the famous ‘scarce currency clause’ of the Bretton Woods agreement.
In the absence of such measures all countries may suffer a slower rate of growth and a lower level of output and employment, and not only the group of countries whose economic activity is ‘balance-of-payments constrained’. This is because the ‘surplus’ countries’ own exports will be lower with the shrinkage of world trade, and they may not offset this (or not adequately) by domestic reflationary measures so that their imports will also be lower. Provided that the import regulations introduced relate to import propensities (i.e. to the relation of imports to domestic output) and not to the absolute level of imports as such, the very fact that such measures will raise the trade, production and employment of the ‘constrained’ countries will mean that the volume of exports and domestic income of the ‘unconstrained’ countries will also be greater, despite the downward change in their share of world exports.3
1Cambridge Economic Policy Review (March 1978), pp, 37-43.
2Owing to the widespread view according to which a given increase in effective demand is more ‘inflationary’ in its consequences if brought about by budgetary measure than if it is the result of additional investment or exports (irrespective of any limitations of import capacity) the inequality or potential inequality in its payments balance may cause a surplus country to regard a lower level of domestic demand as ‘optimal’ in the first case than in the second case.
3In other words, if countries whose ‘full employment’ balance of payments shows a surplus because M* < α W (where M* is the level of full employment imports, α is the share of a particular country’s exports of in world trade W) after a reduction of α to α̂ (α̂ < α) through the imposition of discriminatory measures, the country will still be better off if α̂ W* > α W where W* is the volume of world trade generated under full employment conditions.
What Kaldor is saying that because of balance of payments constraint of economies, the world as a whole has a slower growth because surplus nations do not expand domestic demand to the level needed. He is also saying that import controls raise imports rather than reduce them (this because of higher national income) and the exporters’ exports will also increase (even though their share is reducing.).
So the world as an built-in deflationary bias in the way it works.
Brian Romanchuk has written a post as a response to my post Limits To Growth? referred above. In that his tone seems to be that the U.S. does not face an external constraint fundamentally, and that trade acts as a drag only because politicians have an impression that there exists a constraint.
To hold that claim Brian should to able to defend the dynamics which is likely if that were the case: the U.S. public debt and the net international investment positions deteriorate without limit (relative to gdp). Not sure at the moment if he thinks that debt/gdp ratios can grow without any limit.
That is the financial aspect of his argument. From the trade perspective, Brian says:
In any event, the U.S. could get away with strong GDP growth without causing external difficulties right now. There is plenty of spare global manufacturing capacity, so rapid U.S. growth would be accommodated by exporters. After awhile, there would be a self-reinforcing global growth spurt, which will reduce the pressure on the U.S. trade balance.
There are two things. One is capacity constraint and the other competitiveness. Both I and Brian agree there is no need to worry about the former. (Unlike neoclassical economists who are worried about the former!). It is about the latter where the debate is. This is in addition to the financial aspect mentioned in the previous paragraph.
The U.S. having plenty of spare manufacturing capacity has little impact on competitiveness. At a micro level, one can think of a firm with lots of idle resources but the sales team not being able to win projects for the firm. So two things—capacity and competitiveness—need to be studied separately. If the rest of the world does not expand, there is not much U.S. firms can do. If they produce more stuff, it will just be left as additional inventories forcing a clearing sale in domestic markets at the year end. So presence of spare capacity cannot make U.S. exports grow if domestic demand rises, either due to rise in private expenditure or via fiscal policy. In addition, there’s no self-reinforcing global growth because exports won’t take off to begin with.
To be more technical, there is one way in which U.S. exports may rise. If production rises, then via the Kaldor-Verdoorn process, U.S. productivity will also rise and this affects pricing of products and U.S. exporters may get some price advantage.
So rise in production can lead to a rise in competitiveness.
But this effect is quite negligible in the short run because competitiveness is both about non-price competitiveness and price competitiveness.
There is an additional effect. U.S. production rising means rise in national income and rise in imports. This implies a rise in global output and demand and helping U.S. exports. Again, this effect is small and doesn’t prevent a deterioration of balance of payments and international investment position. So U.S. production rising helps exporters a bit but not much.
What the world needs is a coordinated policy to raise output by fiscal policy and putting limits on balance of payments imbalances.
Whoever becomes President of the United States has to not only take care of domestic policies but also act as a leader in world wide policy.
All this is about the future. But it’s not that the U.S. balance of payments hasn’t mattered in the past. Because of imbalances in trade, the U.S. fiscal policy could not save the U.S. i.e., could not bring the economy back into full employment quickly. It has taken about 9 years and there is still not full employment. So much has been lost. The critical imbalance in U.S. trade is the numero uno reason for the lack of a quick recovery. It could be said that the U.S. could have expanded fiscal policy and that is quite true but it would have put the U.S. debts on unsustainable path.
It is sometimes said, such as by a commenter in Brian’s blog that “balances balance”, so there is no need to worry about them. There is no imbalance as per an economist. This is a dubious argument. Surely the private sector can be in deficit for long and it is matched by items in the financial account of the system of national accounts. But surely private sector deficits for long is unsustainable as agreed by everyone around here. So “balances balance” is no argument.
There has been a debate led by vicious attack by Paul Krugman that Bernie Sanders’ plans cannot achieve growth of 5.3%. And there have been replies by others.
Coming from a third-world country and seeing an annual growth rate of about 8% in the 10 years of the rule of the UPA government (mid 2004-mid 2014), —meaning real GDP more than doubling in 10 years — despite a global financial crisis and economic slowdown, it appears comical to me that Paul Krugman claiming such a thing is not possible for the United States.
I am a bit unsympathetic to those who quote historical data to try to sneak in an argument that 5.3% is possible. It sounds too apologetic.
If the U.S. fiscal policy was run with a restrictive bias since a long time, there is obviously a huge deflationary bias imparted by policy. So you cannot use that data to either argue one way or the other. The ones using data to try to show it’s possible are playing into the hands of economists such as Paul Krugman whose writing appears nothing but a support for Hillary Clinton.
For a closed economy, the only constraint to growth is the capacity to produce. The United States’ economy suffers no such constraint. At full employment, growth is constrained by rises in productivity and addition to the working population. But productivity itself is endogenous to production because of learning by doing. In addition, rises in incomes motivate people to work harder.
So imagine an economy in which the government’s fiscal stance is held constant for 10 years – i.e., the government expenditure and the tax rates are held constant. Output might fluctuate and even grow but finally the deflationary bias in fiscal policy will drag growth. But you cannot average out 10 years of economic data of hardly any growth to argue out that the economy cannot grow for the next n years.
But things are not easy. What surprises me is that in none of these discussions from either side, is there any discussion of the U.S. balance of payments. The U.S. does not have exports of just a couple of hundred billions and a GDP of some $16 tn. It has exports of about $2.5 tn and GDP of about $16 tn, meaning the GDP is a few multiple of exports. The United States is a net debtor to the rest of the world. So a rapid rise in growth by any means will come at the expense of terribly deteriorating balance of payments which cannot last long.
Of course the above doesn’t mean that things are as pessimistic. It depends on what is going on in the rest of the world and the United States being the economic center of world activity can convince others to boost their economies and there is no reason to assume that it cannot. if there is rapid growth in other economies, the U.S. balance of payments is not something to worry about.
The importance of balance of payments is seriously missing in all discussions. Use of historical data is so wrong here.
tl;dr summary: supply constraints cannot put a limit of some 5% on U.S. growth. It depends on policy makers’ decisions worldwide.
There have been many critiques of Neochartalism. Almost all of them, simply ignore the most important issue which makes Neochartalism the so-called “Modern Monetary Theory”, a chimera. A delusion.
Bill Mitchell has written a post on his blog about the balance-of-payments constraint, which among other things makes fun of physical appearance of Nicholas Kaldor. In that he correctly recognizes Nicholas Kaldor as the main proponent of this idea. Mitchell rightly represents Kaldor’s views:
In fact, Kaldor thought that exports were the only true ‘exogenous’ source of income growth, given that household consumption and business investment are considered to be ‘endogenously’ driven by fluctuations in (national) income itself.
In the post, Bill Mitchell doesn’t offer any argument as to why the literature behind it is supposedly wrong. He quotes Australia’s example but doesn’t recognize that Australia’s growth rate fits Thirlwall’s law. Had Australia grown much faster, its international indebtedness would grow to a much bigger size than now, which means its growth is limited by the balance of payments constraint.
Instead, Mitchell’s main point is:
While Thirlwall adopted a Keynesian position, the ‘balance of payments constraint’ he defined has underpinned the obsession with export-led growth strategies. It is a case where the IMF and others have co-opted the ‘Keynesian’ literature to impose neo-liberal solutions on nations.
In part, this is because ‘Keynesian’ literature was flawed.
Supposedly, its the Kaldorians who succumb into policies of the IMF because of their confusions! This is quite funny, given that Nicholas Kaldor was quite opposed to free trade which imposes a huge constraint on nation’s fortunes. In fact Kaldor and his colleagues at Cambridge were advocating import controls for Britain, which is obviously not a right-wing solution and was opposed by all.
One of my favourite articles is Foundations And Implications Of Free Trade Theory by Nicholas Kaldor, written in Unemployment In Western Countries – Proceedings Of A Conference Held By The International Economics Association. At Bischenberg, France.
Nicholas Kaldor on free trade
Kaldor main point in the essay is a major opposite to the doctrine of free trade. Free trade is a policy of international organizations such as the IMF. So it’s not Nicholas Kaldor and others who are being fooled by the IMF, but Neochartalists themselves who think that if nations simply float their currencies, they get rid of their external constraint.
Owing to increasing returns in processing activities (in manufactures) success breeds further success and failure begets more failure. Another Swedish economist, Gunnar Myrdal called this’the principle of circular and cumulative causation’.
It is as a result of this that free trade in the field of manfactured goods led to the concentration of manufacturing production in certain areas – to a ‘polarization process’ which inhibits the growth of such activitiesin some areas and concentrates them on others.
So as you see, there is an opposition to the “consensus” view. But according to Neochartalists, there is no problem with free trade: just expand domestic demand by fiscal policy. Imports are benefits, exports are costs according to them!
The main point of the post is that it is Neochartalists whose views are orthodox, not other Post-Keynesians following the work of Nicholas Kaldor. It’s funny of them to assert the other way. Look at it this way: opposition to free trade requires import controls, tariffs and things such as that. Is that the mainstream view – to put tariffs? However it is funny if you see a Neochartalist arguing against free trade as it would mean an inconsistency. If fiscal policy alone can bring full employment, why oppose free trade?