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Quotation of the Day…

… is from Paul Krugman’s insightful 1996 essay “Ricardo’s Difficult Idea” (link added):

Many economists – myself included – have tried to extend this same courtesy to people who seem, on a casual reading, not to understand comparative advantage.  Surely, we have argued, the problem is one of different dialects or jargon, not sheer lack of comprehension.  What these critics [of free trade] must be trying to do is draw attention to the ways in which comparative advantage may fail to work out in practice.  After all, economists are familiar with a number of reasons why the gains from free trade may not work out quite as easily as in the simplest Ricardian model.  External economies may mean underinvestment in import-competing sectors; imperfect competition may lead to a strategic competition over industry rents; because of distortions in domestic labor markets, imports may reduce wages or cause unemployment; and so on.  And even if national income rises as a result of trade, the distribution of income within a country may shift in a way that hurts large groups.  In short, there are a number of sophisticated extensions to and qualifications of the model introduced in the first few chapters of the undergraduate textbook (typically covered later in the book – for example, in Chapters 10-12 of Krugman and Obstfeld (1994)).

Here are a few additional points.

– This essay by Krugman (and each of the essays collected in his superb 1996 volume, Pop Internationalism) defends a policy of free trade despite the recognition that reality is more complicated than are even the most comprehensive theories that succeed in giving us useful insights into reality.  That is, of course economists have long known that reality is more complicated than is theory and that, therefore, it’s possible to spin stories of how protectionism at home, in principle, can yield net benefits to the home country (and even to the global economy).  And also – contrary to what, perhaps, David Autor believes – economists have long understood that changes in the pattern of trade ‘redistribute’ income away from some people in ways that leave these people worse off than they would have been had the pattern of trade not changed.  (I’d go even further than does Krugman in the above quotation: rather than say that, because of free trade, “the distribution of income within a country may shift in a way that hurts large groups,” I’d say that because of free trade “the distribution of income within a country will shift in a way that hurts some groups, many of whom will often be large.”)  Yet the case for a policy of free trade is so strong that those who advocate unfree trade bear a very heavy burden of proof that all of the facts of reality, taken together, really are such that free trade is failing (or will fail) and a very heavy burden of persuasion to convince us that the task of improving economic well-being with ‘scientifically’ guided tariffs and other trade restrictions will indeed be achieved if we entrust this task to politicians.  (Likewise, it’s child’s play to make a list of many potential harms that are possible as a result of a policy of freedom of the press – potential harms that, in principle, create the possibility for government restraints on the press to generate net benefits to society.  Yet anyone proposing such restrictions bears heavy burdens of proof and persuasion.)

– The principle of comparative advantage, while certainly supplying a major theoretical and practical justification for a policy of free trade, is not the only economic justification for such a policy.  Adam Smith’s economic case for free trade remains valid and, even absent any reliance upon the principle of comparative advantage, alone supplies ample justification for a policy of free trade.  (See, for example, this 2002 paper by my late colleague James Buchanan and his co-author Yong Yoon.)


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