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Quotation of the Day…

… is from pages 70-71 of the 2005 7th edition of Paul Krugman’s and Maurice Obstfeld’s excellent textbook, International Economics: Theory & Policy (emphasis added):

1. Income distribution effects are not specific to international trade.  Every change in a nation’s economy, including technological progress, shifting consumer preferences, exhaustion of old resources and discovery of new ones, and so on, affects income distribution.  If every change in the economy were allowed only after it had been examined for its distributional effects, economic progress could easily end up snarled in red tape.

2. It is always better to allow trade and compensate those who are hurt by it than to prohibit the trade.  (This applies to other forms of economic change as well.)  All modern industrial countries provide some sort of “safety net” of income support programs (such as unemployment benefits and subsidized retraining and relocation programs) that can cushion the losses of groups hurt by trade.  Economists would argue that if this cushion is felt to be inadequate, more support rather than less trade is the right answer.

3. Those who stand to lose from increased trade are typically better organized than those who stand to gain.  This imbalance creates a bias in the political process that requires a counterweight.  It is the traditional role of economists to strongly support free trade, pointing to the overall gains; those who are hurt usually have little trouble making their complaint heard.

Most economists, then, while acknowledging the effects of international trade on income distribution, believe that it is more important to stress the potential gains from trade than the possible losses to some groups in a country.


Dr. Krugman the economist often says things that are not easily reconciled with the proclamations of Mr. Krugman the pundit.