Saturday, 30 May 2009

Thinking about trade

If only more people would. One person who does think about trade is Don Boudreaux and he sent the following letter to the American Prospect:
You boast that your magazine is "the essential source for progressive ideas." And yet your contributors, including recently Dean Baker in the blog that you host, are forever lamenting the U.S. trade deficit ("China Knows It Will Take a Beating on Its Treasury Investments," May 21). Alas, these laments reveal no progress beyond the poor economic thinking and mercantilist policy proposals of the late middle ages.

For example, in 1381 Richard Leicester, worried about England importing more than it exports (and paying for these extra imports with money), could have been featured in your pages when he wrote that "Wherefore the remedy seems to me to be that each merchant bringing merchandise into England take out of the commodities of the land as much as his merchandise aforesaid shall amount to; and that none carry gold or silver beyond the sea, as it is ordained by statute."

True progress in understanding the nature of trade and the absurdity of fretting about the "balance of trade" - in understanding that wealth is access to goods and services and not gold, silver, or currency per se - did not begin until the late 17th century, especially with Nicholas Barbon. Adam Smith capped this progress when in 1776 he noted that "Nothing, however, can be more absurd than this whole doctrine of the balance of trade."
Why is it that more than 600 years after Richard Leicester little appears to have changed? Basic mercantilist policy proposals seem just as common today as they were in the middle ages. How aften do we hear that we must do something about out current account deficit? How often do we hear that when a country runs a current account deficit it must borrow or run down its foreign assets, or do both, and something must be done because of this? How often do we hear that import restrictions will save jobs? How often do we hear that we must do something about our international competitiveness? And so on ......

Is trade really so difficult to think about and understand?

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