Free Trade

Steven Landsburg, having recently dissed Paul Krugman, tries to do a little penance by praising this essay Krugman wrote [some time ago] in defense of Ricardo and free trade.

Landsburg thinks the issue in question can be deduced from pure logic:

Take, for example his essay on the widespread failure of intellectuals to grasp Ricardo’s theory of comparative advantage (the basis of the case for free trade). Instead of simply bemoaning the problem like the rest of us, Krugman makes a valiant and useful attempt to identify its root causes.

He starts with an analogy I’m also fond of (I’m not sure which of us has been using it longer): The theory of comparative advantage is like the theory of evolution by natural selection—to those who understand it, it is simple and compelling; yet non-experts can find it remarkably difficult to grasp.

In The Big Questions, I argue that this analogy ultimately breaks down: The theory of evolution is compelling largely because of the evidence that supports it, while Ricardo’s theory is compelling largely because of the logic that supports it. It’s not too surprising that a first-rate physicst or literary critic could be unfamiliar with a body of evidence, but it’s a little more unsettling when that same physicist or literary critic can’t follow a simple chain of logic.

I wrote the following comments:

Economists are always frustrated that others (even intellectuals) can’t accept the compelling logic of Ricardo’s theory of comparative advantage: I find it ironic that Krugman would think comparison with natural selection is appropriate.

I am pretty sure that I do understand Ricardo’s argument, and I’m also pretty sure that I understand why most non-economists instinctively reject it. The essential logic of comparative advantage is that both trading parties do better if they specialize since they can thus each get more goods. The problem with this idea is that the logic of our evolution teaches us that the struggle for existence is a nearly zero sum game.

If the wolf and the coyote cooperate in the hunt [or trade rabbits for deer] then they may each get more game, but they also hasten the day when the supply of wolves and coyotes is larger than the available supply of game can feed. The wolf knows (at some instinctive level) that it’s better for his long term progeny for him to lose some game in order to deprive the coyote of the chance to compete with him.

Similarly, the trade between China and the US brought the US a great bundle of cheap stuff (TV’s etc) and built China from a backward, impoverished country into an economic superpower – good for both in the short run. It also turned China from a minor competitor to a formidable rival in the struggle for energy and, ultimately, existence. From the standpoint of strategic evolutionary competition, that tradeoff was a disaster for the US.

In practice, most economists seem to act as if Darwin had never existed. They don’t understand why most people are skeptical of comparative advantage because they aren’t taking into account that those people’s brains were wired by evolution. When we live in a world where the only way nations interact is through trade, or where the struggle for existence has been repealed, Ricardo will get pride of place. Until then, I’ll stick with Darwin.


Popular posts from this blog

The Worst

Quora: Why Are Physicists So Smart?