1,000,000 economists can be wrong: the free trade fallacies

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Not only did the global financial crisis catch the vast majority of economists completely unawares, they instead expected tranquil and even buoyant times just as the biggest economic crisis since the Great Depression began. My favourite such observation is from the OECD's Economic Outlook for June 2007—in which the Chief Economist suggested that, "the current economic situation is in many ways better than what we have experienced in years . . . Our central forecast remains indeed quite benign." But there are countless other such utterly wrong prognostications about the economy, from the profession that is supposed to be the font of wisdom on the economy.

Those "in the know" understand that this is not an isolated failing. The Neoclassical model that dominates economics today is riven with logical and empirical fallacies. If economics were a real science, it would have long ago been overthrown and replaced by something more realistic.

Yet at least 90% of academic economists believe in this model, as do almost all economists working in government and private industry. Left to their own devices, they will continue thinking that this model does describe the economy as the real economy falls deeper and deeper into a crisis, even though their model says that this can't even happen.

Since economics has failed to clean out its own intellectual stable, it will be the public that finally forces reform upon it - as once-supporters like Anatole Kaletsky of The Times calls for "a revolution in economic thought" and George Soros funds an Institute for New Economic Thinking. With luck, in a decade or two, a more realistic approach to economics might emerge. But in the meantime, here's a simple guide for the public: Anything the vast majority of economists believe is likely to be wrong.

Which brings me to "Free Trade." The belief in Free Trade is one of the hallmarks not just of the Neoclassical school which began in the 1870s, but also of the original Classical school which began with Smith in 1776. It argues that almost everyone's material welfare will be increased if all countries specialise in what they are good at—a proposition that on the surface seems plausible, and a formidable body of mathematical economic theory has been erected to support it.

Unfortunately, like so much else in economics the model of Free Trade is, to quote the humorist H.L. Mencken, "neat, plausible, and wrong." The theoretical fallacies at its core have been there since David Ricardo first coined his model of comparative advantage during the political battle to repeal the "Corn Laws," which restricted the importing of cereal crops into England.

The arguments in favour of the Corn Laws included the belief that if trade were unregulated, English industry—in particular its agriculture—might be wiped out by foreign competition. Ricardo, in a brilliant debating ploy, conceded his opponents' case that a rival country (Portugal, which was then one of Britain's major rivals) was better at both agriculture and manufacturing than England and then preceded to "prove" that England would still benefit from Free Trade.

He assumed that in Portugal 80 men could produce a quantity of wine (say, 1000 gallons), whereas England would need 120 men to produce the same amount and that Portugal was more efficient too at producing cloth—needing 90 men to produce a quantity of cloth (say, 100 square yards of cotton) whereas England needed 100.

Without trade, both countries would have to produce both goods for themselves so that per 1,000 workers, Portugal would produce some combination lying between the extremes of 12,500 gallons of wine and 1,100 yards of cotton, while England would produce a combination lying between 8,333 gallons of wine and 1,000 yards of cloth.

If however Portugal specialised only in wine and England specialised only in cloth, the total output would be 12,500 gallons of wine and 1,000 yards of cloth. This is more than the total output of the two countries in the absence of trade. With Free Trade, they could specialise in their comparative advantages and welfare in both countries would be higher.

This argument was so clever that it aided the campaign to repeal the Corn Laws and it has seduced almost all economists ever since.

But there is an obvious fallacy to this neat and plausible argument: To effect specialisation, England has to shift labour and capital from wine to cloth (and Portugal has to do the opposite). Arguably labour can be retrained—a vigneron can become a machinist—but how do you convert wine press into a spinning jenny?

The obvious answer is that you don't. Instead, you sell the wine press and buy a spinning jenny with the proceeds. But because of the introduction of trade, the price of wine in England would have fallen, so that the sale price of the wine press will also fall (economists have modified Ricardo's model to introduce curves where Ricardo had straight lines, so that total specialisation is no longer required and there would still be some wine production in England under the "new" model of Free Trade), while the price of spinning jennies will have risen, given the new export market to Portugal. Some capital is necessarily destroyed by the opening up of trade and it applies in reverse in Portugal as well.

Since capital is destroyed when trade is liberalised, the watertight argument that trade necessarily improves material welfare springs a leak. If economics were a real science, this real-world complication to Ricardo's argument would be considered, but it has never been seriously addressed.

These and many other failings that explain why, when Dani Rodrik took a careful look at the empirical record of trade liberalisation, he found that it had frequently reduced material welfare rather than increasing it. Writing back in 2001, he summarised his findings for Foreign Policy magazine with the statement that:

"Advocates of global economic integration hold out utopian visions of the prosperity that developing countries will reap if they open their borders to commerce and capital. This hollow promise diverts poor nations' attention and resources from the key domestic innovations needed to spur economic growth."

As an economist who has specialised in dissecting the empirical claims for the role of free trade, Rodrik has the might of the majority of the profession against him. As noted above, that's a good rule of thumb that Rodrik is right.

About Steve Keen

I am a professional economist and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous debts accumulated in Australia, and our very low rate of inflation.
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48 Responses to 1,000,000 economists can be wrong: the free trade fallacies

  1. Cahal says:

    The prob­lem with peo­ple like War­ren is that when some­one chal­lenges their the­o­ries, they indulge in some spe­cial plead­ing, add an epicy­cle and sim­ply end up mud­dy­ing the waters.

    Your “refu­ta­tion” of Ricardo is laughable.’

    You could be a bit more civil. This is why peo­ple don’t like to engage with lib­er­tar­i­ans, par­tic­u­larly Austrians.

    Since Eng­land was more indus­trial, they would have a com­par­a­tive advan­tage in the man­u­fac­ture of wine presses. The pro­duc­tiv­ity gains in both coun­tries would enhance the pur­chas­ing power of every­one. The glut of wine presses in Eng­land would be exported.’

    This has noth­ing to do with what he said. He was talk­ing about a world where cloth and wine are being pro­duced by Por­tu­gal and Eng­land, and point­ing out that het­eroge­nous cap­i­tal causes prob­lems in the short term. You have not chal­lenged this idea; in fact, your sce­nario suf­fers from a sim­i­lar prob­lem as new wine presses would need to be created.

    The Key­ne­sian the­ory of every­thing pre­sumes a ris­ing price level, ie. a dimin­ish­ing pur­chas­ing power as excess credit pur­sues degraded work­ers. Ricardo’s argu­ment pre­sumes hon­est money.’

    Irrel­e­vant.

  2. Cahal says:

    War­ren* Jees I really need to proof read better.

  3. The argu­ment as set up is that even though net out­put after spe­cial­iza­tion is 1.5 times higher than before, that there is a net destruc­tion of cap­i­tal because the sur­plus wine presses in Eng­land would have a lower sell­ing price than before. Of course, the sell­ing prices of sur­plus spin­ning jen­nies would have a higher sell­ing price as well which would be a cap­i­tal gain, so the cap­i­tal destruc­tion claim is washed out.

    The work­ers of both coun­tries would enjoy a 1.5 times gain of pur­chas­ing power which, I rudely point out, would allow them to hoard a por­tion in their mat­tresses, fur­ther depress­ing prices and enhanc­ing pur­chas­ing power, unless a mad­cap Key­ne­sian were to come along and con­vince them that some­how that is a bad idea.

  4. SeanS says:

    An econ­o­mist that ques­tions the Free Trade mantra? You just went up 50 points on my esti­ma­tion scale.

    There are just so many fal­lac­ies with the free trade agenda it ceases to be amusing.

    Those espous­ing the ben­e­fits of free trade the­ory (and these are usu­ally peo­ple who do not and have never worked in the real world of inter­na­tional com­merce) sim­ply choose to ignore the real­i­ties of the prac­ti­cal appli­ca­tion of such poli­cies. Free trade works in the­ory because, like in many eco­nomic the­o­ries, there are crit­i­cal assump­tions that are made and have to be made to enable these prin­ci­ples to func­tion in a ben­e­fi­cial rather than detri­men­tal way.

    Of course there are numer­ous exam­ples of coun­tries that have not adopted free trade poli­cies and, as a result, have been enor­mously suc­cess­ful at dif­fer­ent stages of their development.

    Those that advo­cate free trade appli­ca­tion gen­er­ally fall into 2 categoreis:

    Cat. 1. Those that con­sider their coun­try will, over­all, be a big win­ner from the appli­ca­tion of such poli­cies — mean­ing that other trad­ing part­ners will come off sec­ond best. This is the cat­e­gory that the United States tra­di­tion­ally con­sid­ered itself to be in whilst simul­ta­ne­ously adopt­ing some highly pro­tec­tive trade poli­cies in cer­tain areas to sat­isfy a domes­tic polit­i­cal agenda.
    For many years in this worked but of course the US has for some years been very much on the sucker end of the deal.

    Cat. 2. Those that are too lazy and inel­lec­tu­ally stu­pid to set appro­pri­ate trade poli­cies and to nego­ti­ate trade agree­ments with part­ners that will oper­ate in the best inter­ests of their economies and pro­vide equi­table and fair access for all par­ties. This is the hard option. Yes Gov­ern­ments and their offi­cials have to work very hard to adopt this line and some are basi­cally too lazy. This is most def­i­nitely the cat­e­gory Aus­tralia falls into — which fre­quently advo­cates a uni­lat­eral free trade agenda for heav­ens sake.

    Those advo­cates of Free Trade (it can never be prop­erly free by the way), just love to ignore the prob­lems with such poli­cies when applied to the real world economies. For exam­ple (and this is not exhaustive):

    1. You can­not achieve free trade because of hid­den sub­si­dies, or even trans­par­ent ones, that you are forced to accept and there­fore should respond to in a bal­anced way. Such sub­si­dies do not exist and acn­not be estab­lished in the theory.

    2. Agri­cul­ture is a major trade sec­tor and a polit­i­cally sen­si­tive one. Where it has a choice, no sen­si­ble coun­try is going to allow a sit­u­a­tion where it is largely depen­dent upon for­eign­ers for it’s food sup­ply. (Just ask the EU). Of course in Aus­tralia our politi­cians and pub­lic ser­vants don’t care and are quite con­tent to pre­side over the near destruc­tion of entire sec­tors of agri­cul­ture only to see them replaced with huge vol­umes of food imports under our poorly and ineptly nego­ti­ated trade agreements.

    3. Coun­tries will abuse FTAs by export­ing items at below full cost in order to destroy the local com­pe­ti­tion. In Free Trade the­ory dump­ing just never hap­pens but unfor­tu­nately this does not match the real world. For exam­ple, Australia’s reponse to dump­ing is noth­ing short of pathetic and there is rarely any effec­tive action to stop it despite the protes­ta­tions of local firms. Indeed one line often dropped by the Can­berra trade elite types is that dump­ing is, in real­ity, good because the pro­duc­ers are offer­ing the prod­ucts at a very cheap price to the local mar­ket. Just a reflec­tion of their stu­pid­ity and typ­i­cal of their lazi­ness and inep­ti­tude in apply­ing anti-dumping regulations.

    4. Under Free Trade the­ory you will always export suf­fi­cient to pay for your imports. Unfor­tu­nately this does not match the real world. When you can­not pay for your imports you have to go into debt to main­tain the flow. Ulti­mately your freely float­ing cur­rency will devalue sub­stan­tially and those nice cheap imports that you were enjoy­ing so much are now so very expensive.

    Of course it is so much eas­ier and much quicker to dis­man­tle an entire indus­try than it is to re-establish it. So rather than hav­ing the option of import sub­sti­tu­tion you are forced to con­tinue to pay for your very expen­sive imports. Those with cap­i­tal and try­ing to re-establish local pro­duc­tion find that they are unable to find the essen­tial skilled empoy­ees as these have long since left the coun­try and gone over­seas to work or are now work­ing in other indus­tries. Essen­tially, the skills base you once had has been largely destroyed and takes many years to re-estabish.

    5. In free trade the­ory dis­placed work­ers in destroyed indus­try sec­tors always find employ­ment in alter­na­tive sec­tors. Hence the elec­tri­cal engi­neer can now now drive a trac­tor or the truck dri­ver will become a chem­i­cal engi­neer. It all works just fine. The real world? Go visit Detroit , MI.

    6. Free trade works if you are happy to accept a much lower stan­dard of liv­ing if you are on the los­ing side of the trade. In a free trade rela­tion­ship in the real world there is always a win­ner and a loser. Those with the pos­i­tive trade bal­ances are the win­ners. Rel­a­tively high cost coun­tries will often be the losers in such rela­tion­ships but are, of course, usu­ally unwill­ing to accept a lower stan­dard of liv­ing to rec­tify their lack of competitiveness.

    I could go on but I am like an Aus­tralian gov­ern­ment trade spe­cial­ist. I am too lazy .….….….to write any­more on this.

    I would like to leave you with a lit­tle gem told to me some years ago by a senior Aus­tralian gov­ern­ment trade nego­tia­tor. This guy was waf­fling on with the usual free trade reli­gion stuff . Inter­alia, I raised the issue of all of the pro­tec­tions, sub­si­dies and reg­u­la­tions estab­lished by so many of our trad­ing part­ners that make it impos­si­ble for our com­pa­nies to access for­eign mar­kets on any rea­son­ably equi­table basis. “Oh” he said “do you know what we do in our trade nego­ti­a­tions with these coun­tries.” “We tell them how eco­nom­i­cally inef­fi­cient such poli­cies are and how they will increase the wel­fare of their peo­ple by dis­man­tling all such poli­cies.” Wow. That must really con­vince them. How’s that been going then?

  5. Steve Keen says:

    Spot on Sean. Decades ago (1979 from mem­ory!) I ran a con­fer­ence on trade where one of the IAC types gave a paper show­ing what would hap­pen with a 25% tar­iff cut to Tex­tiles, Autos and a cou­ple of other sec­tors. There was a foot­note to their pre­dic­tions that said “Assum­ing good macro­eco­nomic management”–which was defined as “no net change in employ­ment as a con­se­quence of the tar­iff cuts”!!!!

  6. pfitzsimmons says:

    In Ricardo’s exam­ple there is a big advan­tage to mak­ing tex­tiles in place of wine. Devel­op­ment of the machin­ery for mak­ing tex­tiles allowed for pro­gres­sive gains in pro­duc­tiv­ity while wine mak­ing as an indus­try has remained sta­tic until very recently. Also the skills and tech­nolo­gies nec­es­sary for the tex­tile indus­try were trans­fer­able to other indus­tries giv­ing the nation com­par­a­tive advan­tage in these new indus­tries. As some­one said “Only God can cre­ate a tree but any gov­ern­ment can cre­ate a com­par­a­tive advan­tage”. There is a case to be made that a nation should apply its resources to those indus­tries that will yield the most in pro­duc­tiv­ity and growth even if it has lit­tle or no exper­tise in those indus­tries and shed other indus­tries with which it may have great exper­tise but which offer no evo­lu­tion to future prosperity.

  7. Cahal says:

    War­ren you are not engag­ing in argu­ment at all. You are going off on a tan­gent and mud­dy­ing the waters, whilst simul­tae­nously nurs­ing your fetish for using ‘Key­ne­sian’ as a self evi­dent insult.

  8. Philip says:

    SeanS,

    A very good overview. This is not sur­pris­ing to eco­nomic his­to­ri­ans e.g. Paul Bairoch, who have exam­ined the his­tory of devel­op­ment and trade. The coun­tries that really devel­oped — UK, France, Ger­many, Nether­lands, later the US — all had enor­mous trade pro­tec­tion in place, with tar­iffs going up to 60–80%!

    Con­ven­tional eco­nomic the­ory would stip­u­late that these economies should be back­wa­ters, includ­ing Aus­tralia. But it is unsur­pris­ing that the real world is vastly dif­fer­ent to eco­nomic theory.

    Strangely enough, the free flow of highly-paid pro­fes­sional and man­age­r­ial ser­vices, gov­ern­ment monop­oly (IP), crim­i­nal­ized drugs, and rights for cap­i­tal in the form of cor­po­rate char­ters never come up in dis­cus­sion about the ben­e­fits of free trade. Per­haps its because these poli­cies ben­e­fit the rich but that could just be a con­spir­acy theory.

  9. Derek R says:

    But if free trade is a bad thing surely that means that we should put trade bar­ri­ers and tar­iffs on trade between Vic­to­ria, Queens­land and New South Wales to improve the eco­nomic per­for­mance of the indi­vid­ual states. Log­i­cally speak­ing if free trade causes prob­lems then reduc­ing free trade even between the CBD, Para­matta and Chattswood should improve the over­all per­for­mance of Sydney.

    Tak­ing it to extremes, we surely end up say­ing that NIH syn­drome is actu­ally a ben­e­fit for an indi­vid­ual com­pany rather than a draw­back because NIH syn­drome is a bar­rier to free trade between companies.

    Now I’m not try­ing to pre­judge the case in favour of Free Trade by the above points. I’m a firm believer that empir­i­cal evi­dence trumps the­o­ret­i­cal argu­ments. And if Steve says there’s empir­i­cal evi­dence against free trade, then I believe him. I’m just try­ing to point out that any the­ory of free trade which shows it to be bad at the level of coun­tries has also to be able to show why it is good within a coun­try. If it doesn’t (and it might be that it isn’t good within a coun­try either), then the log­i­cal response is that not only should we be using pro­tec­tion­ism at the inter­na­tional level: we also need to use it for inter­nal trade.

  10. Steve Keen says:

    The proper log­i­cal deduc­tion Derek is that free trade is a red her­ring, because it focuses atten­tion on get­ting more out of your cur­rent resources and capa­bil­i­ties, rather than on devel­op­ing new ones.

  11. Cahal — The prob­lem I have with Key­ne­sians is that the infla­tion makes house­hold sav­ings impos­si­ble. This along with the dimin­ish­ment of the wage share reduces work­ers to the level of serfs.

    I don’t quite see what fal­lacy Steve is try­ing to point out.

  12. Derek R says:

    I think I under­stand what you mean, Steve. I can see that Free Trade would have the side-effects that you (and SeanS and Pfitzsim­mons above) describe. But then you’ve got to ask why this is more of an issue for inter­na­tional trade than for inter­state trade. After all surely Queens­land is going to end up with a lack of devel­op­ment rel­a­tive to NSW under free trade, isn’t it? Assum­ing that Queens­land con­cen­trates on resource extrac­tion and that NSW con­cen­trates on manufacturing.

    Of course the prob­lems might be mit­i­gated by other fac­tors such as the free move­ment of labour between Queens­land and NSW, the com­mon cur­rency, and the rel­a­tive ease of mov­ing intel­lec­tual cap­i­tal and the smaller phys­i­cal cap­i­tal items between the two states.

    There is a sim­i­lar issue where I live in Alberta. At the moment there is a plan to build a pipeline to pipe crude oil from the tarsands down to Texas for refin­ing. We could refine the oil in Alberta but we don’t cur­rently have the refin­ery capac­ity (not even in other parts of Canada appar­ently), hence the plan to ship the stuff to the US. I guess that the “free trade/comparative advan­tage” alter­na­tive would be to build a pipeline, whereas the “pro­tec­tion­ist” alter­na­tive would be to build extra refin­ery capac­ity in Alberta.

    So per­haps it really would be a good idea for Queens­land and Alberta to be more pro­tec­tion­ist. That way you are def­i­nitely going to have more local devel­op­ment and keep more of the added value in local hands, even if it’s just the wage ele­ment and the fixed cap­i­tal element.

    The US cer­tainly man­aged to fight Impe­r­ial free trade pol­icy using “the Amer­i­can sys­tem” to grow its econ­omy dur­ing the nine­teenth cen­tury. And that was basi­cally a pro­tec­tion­ist sys­tem. It’s only really dur­ing the late twen­ti­eth cen­tury that the US has switched to a free trade pol­icy. So there’s no doubt that pro­tec­tion­ist poli­cies can improve the eco­nomic health of a coun­try which uses them.

  13. Cahal says:

    War­ren:

    Steve’s basic point is that CA depends on a start­ing point. Since cap­i­tal is het­eroge­nous, the removal of bar­ri­ers can wipe out indus­tries that will not imme­di­ately be replaced by that coun­tries ‘com­par­a­tive advan­tage’ indus­try, as Ricardo effec­tively implied.

    As for infla­tion, well I’m not sure why you attribute it to ‘Key­ne­sians’ — I’m fairly cer­tain you mean fiat cur­rency, which in itself is not a Key­ne­sian con­struct. In any case, it is not worth debat­ing that here.

  14. Isn’t the case that great­est mod­ern fal­lacy about free trade arises from ignor­ing the flows of cap­i­tal and tech­nol­ogy that are asso­ci­ated with off­shoring jobs and out­sourc­ing ser­vices from high-wage to low-wage economies?

    Ricardo was explicit that cap­i­tal­ists would not off­shore their capital.

    This is clearly not the case today. So when peo­ple like Jeff Rubin, author of “Your World is about to get a whole lot smaller” tell you that Ricardo’s the­ory of com­par­a­tive advan­tage proves that off­shoring of jobs ben­e­fits us all, they are sim­ply lying about what Ricardo said.

  15. Cahal says:

    CA is also irrel­e­vant for devel­op­ing coun­tries if you buy the ‘infant indus­try’ argu­ment. To try and demon­strate this briefly, here is a CA exam­ple from Wikipedia:

    Sup­pose that in a par­tic­u­lar city the best lawyer hap­pens also to be the best sec­re­tary, that is he would be the most pro­duc­tive lawyer and he would also be the best sec­re­tary in town. How­ever, if this lawyer focused on the task of being a lawyer and, instead of pur­su­ing both occu­pa­tions at once, employed a sec­re­tary, both the out­put of the lawyer and the sec­re­tary would increase, as it is more dif­fi­cult to be a lawyer than a secretary.’

    What if the sec­re­tary trained to be an astro­naut? Both soci­ety and the sec­re­tary would clearly be bet­ter off.

  16. The so-called ‘effec­tive demand’ con­cept is pure Keynes, and focuses on demand stim­u­la­tion while ignor­ing loss of pur­chas­ing power which goes along with ris­ing price level.

    I believe the GFC is caused by the pur­chase power reach­ing its lower limit. Entropy is a real thing. The GFC is not merely spec­u­la­tion run amok.

  17. Nathan Scandella says:

    The ide­al­ized exam­ple of Eng­land and Por­tu­gal trad­ing is also bogus, if it does not account for the costs of mov­ing goods from coun­try to coun­try. Ship­ping is not free. If you’re one of the com­pa­nies involved in mak­ing wine, or cloth, you might only con­cern your­self with the nom­i­nal cost to ship your goods. How­ever, pol­i­cy­mak­ers con­cerned with decid­ing on pro­tec­tion­ist vs. free trade poli­cies, must go a lot fur­ther than that sim­plis­tic cost ben­e­fit analysis.

    The true cost of trans­port­ing goods is not even close to accounted for in the nom­i­nal cost of inter­na­tional ship­ping. Inter­na­tional ship­ping tends to be the least reg­u­lated way to move goods. The ships tra­vers­ing our oceans use bunker fuel, which is basi­cally the dirt­i­est, cheap­est, most pol­lut­ing pos­si­ble kind of fos­sil fuel. The huge exter­nal­ity of cli­mate change, or other pol­lu­tion issues, is totally glossed over by the over­whelm­ing major­ity of econ­o­mists, whose over­sim­pli­fi­ca­tion of every­thing is one of the pri­mary causes of envi­ron­men­tal dam­age. Then, there’s coun­tries like the US, that actu­ally sub­si­dize oil com­pa­nies, to make the mar­ginal cost of oil for end-users appear even cheaper.

    Mar­ginal cost analy­ses are fre­quently com­pletely inap­pro­pri­ate. There’s no prob­lem with one com­pany using fos­sil fuels like there’s no tomor­row. It’s only an issue when every­one thinks that way.

    I often use the anal­ogy of an overly sim­plis­tic strat­egy in gam­bling. You play black­jack (or what­ever) by start­ing with a bet of 1 unit. If you lose, you dou­ble your bet. The idea is that even­tu­ally, you will win, and then you’ll always wind up ahead by at least the 1 unit. This strat­egy only fools sim­ple­tons, how­ever, as it neglects the logis­ti­cal detail of table lim­its, which ulti­mately will pre­vent you from achiev­ing your goal by keep­ing you from dou­bling your bet past the table limit.

    This, “dou­ble when you lose” type of think­ing is per­va­sive in eco­nom­ics. Easy to process, over-simplified mod­els, that com­pletely fall apart in the real world.

    NOTE: you could cer­tainly argue that sim­ply tack­ing on the cost of exter­nal­i­ties to any con­sump­tion of fuel would be one way to imple­ment a more pro­tec­tion­ist strat­egy than the sta­tus quo, with­out resort­ing to explicit trade restric­tions. How­ever, deter­min­ing and enforc­ing the col­lec­tion of this cost is not some­thing the free mar­ket could do by itself.

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  20. Suvy Boyina says:

    Dr. Keen,

    I know this post is from a while back, but I just saw it. My point is with some­thing like pro­tected indus­tries. How long can you pro­tect indus­tries from com­pe­ti­tion abroad? At some point, it does become unsus­tain­able and harm­ful right? You can­not keep pro­tect­ing indus­tries for­ever as they even­tu­ally start to fall behind.

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