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My GMU Econ colleague Alex Tabarrok summarizes important new research on trade [2]. Here’s Alex’s opening paragraph:
Trade increases development but the main driver appears not to be comparative advantage and the standard microeconomic “gains from trade” but rather factors emphasized by Adam Smith and Paul Romer such as the increasing returns to scale that drives innovation and investment in R&D and also the ways in which trade increases exposure to and adoption of foreign ideas.
By the way, my late colleague Jim Buchanan (along with his co-author Yong Yoon) would endorse the above vital point [3]. One of the misleading moves often made by opponents of free trade is to (1) assert that the case for free trade rests entirely, or overwhelmingly, on the principle of comparative advantage (2) as that principle was explained by David Ricardo 200 years ago. While no one surpasses me in admiring both the real-world operation of the principle of comparative advantage and the genius of James Mill, Ricardo, and others in discovering, and elaborating on, that principle, its reality is only a part – and not a necessary part – of the theoretical and practical case for free trade.
It’s amazing that France – a nation in which the interests of consumers and future, as-yet-unknown producers are routinely sacrificed to serve the interests of existing producers – is still a first-world country [4]. (HT Ronald Guillemette)
David Henderson rightly calls out some sloppy thinking by Daniel Goleman [5]. My vanity compels me here to add my two cents to David’s criticisms. While Goleman is undoubtedly correct that each of us empathizes less with strangers and people whom we do not see than we empathize with people whom we know and whom we actually see, this problem is one that is greatly enlarged by politics. No matter what he says, Barack Obama doesn’t know me and, hence, cannot possibly empathize with or care about me in any way beyond some purely academic one. Likewise for every president; Bill Clinton in fact did not feel my pain. Ditto for each of the 535 members of the U.S. Congress. And ditto for all but a vanishingly small sliver of American citizens who vote. One of the deepest problems with government is the (let’s call it) empathetic distance between the people who make decisions (including voters) and the flesh-and-blood individuals who bear the consequences of those decisions. All the talk of “We the People” only masks with a plural pronoun the fact that “We” in the U.S. are more than 300 million individuals – each of whom knows only a minuscule fraction of the others – and each with his or her own distinct tastes, needs, history, aspirations, and challenges. Long ago (here comes the vanity part) I wrote an essay that remains one of my favorites of any thing that I’ve ever written: “Losing Touch [6].”