Monday, February 4, 2008

Rethinking Free Trade

I came across this same titled post on New Economist which reminded me of a letter to the Atlantic (still another unpublished attempt):

Armed with four numbers in four boxes, economists hope to convince the public of the benefits of free trade. If this is all they have then they have an uphill task. The logic behind Ricardo’s theory of comparative advantage is compelling. The assumed gains from trade is a comparison between two static equilibriums. However, economists have failed in terms of collecting the necessary data to validate the theory of comparative advantage. How much are the gains? Is the final equilibrium reached predicted by theory? If economics claims to be a science, where is the data that validates the theory? Here, economists continue to commit to the theory because of its elegance and simplicity without doing the hard work required to convince the public and themselvs of the benefits of free trade.

Unfortunately, opponents of free trade have plenty of anecdotal evidence of the pains from trade, job losses, for instance. It doesn’t take too many anecdotes before it becomes evidence against trade. What can economists point to as gains from trade – lower prices? They will need more than this to convince the public. As we all know, when free trade is not just economics but becomes politics, rhetoric becomes as important if not more important than data.

Moreover, economists do not have a clear understanding of the process that gets us from the initial state to the final state where trade is free.

The letter set up a straw man, of course: Complete specialization is never observed so rebutting Ricarod is easy but I wanted to make the letter short. This letter was in response to Clive Crook's Oct 2007 article.

No comments: