chapter 1 government and trade.ppt

Government and Trade;;In class;In a 1963 speech pledging the continued defense of Europe, President John F. Kennedy stated: “As they say on my own Cape Cod, ‘A rising tide lifts all the boats.’” Since at least 1950, the slogan of the New England Council had been “The Rising Tide Lifts All The Boats.”? A rising tide lifts all boats?The aphorism?“a rising tide lifts all boats”?is associated with the idea that improvements in the general economy will benefit all participants in that economy, and that economic policy, particularly government economic policy, should therefore focus on the general macroeconomic environment first and foremost. The phrase is said to have been coined by Seán Lemass, the Irish Taoiseach (Prime Minister) in 1959–1966. Lemass himself attributed the phrase to John F. Kennedy. Kennedy employed the expression to combat criticisms that his tax cuts would benefit mostly wealthy individuals.?;The expression also applies to free-market policies, in that comparative-advantage production and subsequent trade would theoretically increase incomes for all participating entities. It is a favorite proverb of former U.S. Treasury Secretary Robert Rubin.?The substantive aspect of the statement is that economic growth which raises the GDP of the entire economy will also raise the incomes of all of the individuals within the economy. However, not all industries track the overall economy, and the creative destruction process of capitalism requires inefficient industries to yield to more efficient industries. For the aphorism to be strictly true, one would never expect to see a ‘going out of business’ sign during a rising economy. There are many examples in economic history in which an increase in GDP per capita did not raise the incomes of large groups of individuals in the society. According to the US Census, the real per-capita GDP in the United States increased by 71% between 1980 and 2006, but median household income increased by less than 20%.?;Asia’s New