Krugman vs. Krugman, Again

by Don Boudreaux on December 28, 2007

in Myths and Fallacies, The Hollow Middle, Trade

In today’s edition of the New York Times, Paul Krugman offers up the old pauper-labor “theory” for why trade with low-wage countries is likely to harm typical workers in high-wage countries.

Here’s a letter that I sent in response:

Paul Krugman worries that, although trade between high-wage countries is mutually beneficial, “trade between countries at very different levels of economic development tends to create large classes of losers as well as winners” – and so is suspect because it likely harms ordinary American workers (“Trouble With Trade,” December 28).

A famous trade economist argues that this concern is misplaced.  In a 1996 essay, this economist – responding to a protectionist who fretted that western trade with low-wage countries would harm workers in the west – wrote that this protectionist “offers us no more than the classic ‘pauper labor’ fallacy, the fallacy that Ricardo dealt with when he first stated the idea, and which is a staple of even first-year courses in economics. In fact, one never teaches the Ricardian model without emphasizing precisely the way that model refutes the claim that competition from low-wage countries is necessarily a bad thing, that it shows how trade can be mutually beneficial regardless of differences in wage rates.”

Oh – the economist who wisely warned against the pauper-labor fallacy is none other than Paul Krugman.

Donald J. Boudreaux

It’s worth noting here also the apt and spot-on correct closing lines of this 1996 essay: “Ricardo’s idea is truly, madly, deeply difficult. But it is also utterly true, immensely sophisticated — and extremely relevant to the modern world.”


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