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Mercantilist Myths Persist

Here’s a letter to the Los Angeles Times:

Michael Kinsley eloquently defends free trade and understandably bemoans the public’s and politicians’ Alice-in-Wonderland confusion about trade (“Outsourcing’s bad rap,” July 12).

Mr. Kinsley’s article reminds me of a truth noted years ago by a world-renowned international-trade economist who, like Mr. Kinsley, laments the fact that “The compelling economic case for unilateral free trade carries hardly any weight among people who really matter….”  This economist explained that “the problem free traders face is not that their theory has dropped them into Wonderland, but that political pragmatism requires them to imagine themselves on the wrong side of the looking glass.  There is no inconsistency or ambiguity in the economic case for free trade; but policy-oriented economists must deal with a world that does not understand or accept that case.  Anyone who has tried to make sense of international trade negotiations eventually realizes that they can only be understood by realizing that they are a game scored according to mercantilist rules, in which an increase in exports – no matter how expensive to produce in terms of other opportunities foregone – is a victory, and an increase in imports – no matter how many resources it releases for other uses – is a defeat.  The implicit mercantilist theory that underlies trade negotiations does not make sense on any level, indeed is inconsistent with simple adding-up constraints; but it nonetheless governs actual policy.”

Nothing – not the reality that unilateral free trade is beneficial; not the public’s and politicians’ stubborn refusal to grasp this reality – has changed since these words were penned in 1997 by Paul Krugman.*

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

* Paul Krugman, “What Should Trade Negotiators Negotiate About?Journal of Economic Literature, Vol. XXXV, March 1997, pp. 113-114.

UPDATE: Cato’s Dan Ikenson offers wise words on off-shoring.