Friday, September 30, 2011

The Wall Street Journal Explains David Ricardo – The Great British Economist, Not the Blogger

 The Dismal Political Economist Just Wanted to Clear that Up


RICARDO
Getty Images
Nineteenth-century British economist David Ricardo
advised nations to focus on what
they produced best, such as his
nation's textile manufacturing industry,
pictured above, at the time of the Industrial Revolution



International trade is one of those economic things that get people all riled up, and for good reason.  Free and open trade can propel a society into a period of strong economic growth, and at the same time result in the impoverishment of a subset of individuals within that society.

The intellectual underpinnings of internal trade were best elucidated by a 19th century British economist with an Italian name.

British economist David Ricardo changed how people think about trade when he came up with the theory of comparative advantage: Countries do best, he said, by concentrating on their strengths, and then trading with others for everything else.

The result is that over time the economics profession and liberal (in the European sense) have come to believe that free trade is the appropriate economic system.  Germany is currently Europe’s strongest economy, and Ireland’s recovery, if indeed it has one, will be driven by exports.

But, and there always is a “but”

But while it holds that countries are better off for trading, that isn't always true for all people—such as textile workers. Moreover, free trade critics contend that in the real world, where governments promote and protect industries, things are lot messier than in Mr. Ricardo's model.

This is good information for ideologues of every persuasion.  Get rid of your certainties, the world is a lot messier than you think it is.

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