KEY CONCEPTS AND THINKERS
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it is unfair that their competitors in, say, China, are able to produce
goods at a fraction of their own costs because of low wages.
» National defense and avoiding dependence on other nations in
the event of war, it may not be possible to import some products
and services from other nations. For instance, steel is regarded
as essential for national defense in the US. Any industry seeking
protection, however, tends to use the national defense argument,
so a question remains over which industries are truly essential to
national defense.
Weaker countries often argue that becoming over-reliant on a
larger trading partner for essential goods leads to the loss of polit-
ical independence; some protectionists claim that the superpowers
consciously create dependence in their small trading partners.
» Safeguarding new industries an industry that is just beginning in
a country may have the potential to develop a major competitive
advantage as it matures. Protection may legitimately be needed from
larger foreign industries to keep it alive in the early stages. However,
protecting a young industry that can never become efficient is a
waste of resources (labor, capital, and raw materials) that could be
better used (see Chapter 6, Peruvian car manufacturing).
JOHN MAYNARD KEYNES (1883 1946)
Much of macroeconomics is based on the work of the British economist
John Maynard Keynes, whose 1936 book, The General Theory of
Employment, Interest and Money
, attempted to explain the problems
of the interwar slump in Britain and the Great Depression. Hitherto,
prices and wages were thought to be the key determinants of employ-
ment levels, but Keynes argued that aggregate demand for goods and
services and aggregate expenditure were actually the most impor-
tant factors and that governments should stimulate aggregate demand
during recessions (see Chapter 3). According to Keynes, the govern-
ment's duty is to act as employer of last resort during recessions by,
for example, spending on large public projects, even if this causes a
government deficit. Keynes was also the first person to emphasize the
links between the money markets and goods markets.
The Roosevelt New Deal of the thirties was the first attempt to apply
Keynesian ideas to the problems of recession. Following WW2, many
