Wednesday, July 4, 2007

An Economist's Take on Free Trade

All economists are taught the beauty of Ricardo's demonstraton of the benefits of free trade. In a nutshell, if countries would just focus on producing what the produce the most efficiently (compared to other countries...see comparative advantage), and trade freely, all countries would be better off.

There are qualifications to this theory, of course. Generally, in the public dialogues, these finer points get truncated. But the most simple to understand is that, since in the short term there will be economic losers as a result of free trade (just about any labor intensive industry in the west, but I think in Ricardo's 1830's example, it was Wine Makers in Britain), it is the Responsibility of the government (sorry Libertarians, you'll have to add that to the list) to smooth such economic transitions. In fact, although not very publicized (on purpose, I would say, under cynical administrations), the United State government does provide programs for workers displaced by foreign competition. My take on this is that the United States government does not do enough (even if it is just a matter of publicizing the programs), and this is probably the result of ideological messiness and lack of clear vision on the matter. Furthermore, I find that Republicans are reluctant to even acknowledge this as a government responsibility, not to mention a priority. They irresponsibly minimize the effects of economic dislocation, just as they do with all policy decisions.

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