Matías Vernengo: On Free Trade and Economics Consensus

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By Matías Vernengo, Associate Professor, Department of Economics, Bucknell University. His website is Naked Keynesianism. Cross-posted from Triple Crisis.

Mankiw tells us in his most recent NYTimes column that economists agree that Free Trade is good. He links to a poll in which, essentially, mainstream economists of different persuasions, some Keynesian and some not, and different political views, some liberal and some conservative, say that trade agreements are good. He backs his argument by suggesting that theoretically the argument is at the heart of the economics profession since the beginning; I guess an argument of authority.

And no better authority than Adam Smith. Mankiw says:

“The economic argument for free trade dates back to Adam Smith, the 18th-century author of ‘The Wealth of Nations‘ and the grandfather of modern economics. Smith recognized that the case for trading with other nations was no different from the case for trading with other individuals within a society.”

And it is true, Adam Smith was for laissez-faire, in general, and thought that less intervention in trade would be good. But there is in Mankiw’s argument an implication that does not follow from careful analysis of Smith’s doctrines, namely: that Adam Smith can be seen as a forerunner of modern neoclassical trade theory based on the Heckscher-Ohlin-Samuelson (HOS) comparative advantage argument (for the limitations of that theory go here).

Comparative advantage implies that countries should specialize on the production of commodities for which they have a lower opportunity cost. Specialization would increase productivity domestically, and importation of goods for which other countries have a lower opportunity cost would lead to mutual advantageous trade to all parties involved. This was actually first noted by Ricardo and Torrens more than 40 years after the publication of the Wealth of Nations. Smith believed that absolute advantage, meaning lower costs of production, not comparative advantage determined trade patterns.

Smith thought that free trade was a better policy than protectionism, since he believed that trade would expand the potential markets for home producers, which would lead to more division of labor, that is, higher productivity, leading to lower costs, more access to external markets and additional growth. A cumulative process of export growth and higher labor productivity, referred to as the vent-for-surplus model, was behind Smith trade optimism. It is important to note, however, that Smith’s vent-for-surplus works in both directions. Higher costs (e.g. higher real wages) may lead to loss of external markets, no incentives for additional division of labor, and stagnation of domestic industry. In his model, success breeds success, but failure breeds failure.

There were very good reasons for Smith to think that free trade would be good for England in the late 18th century, and there even might be good reasons in the United States now, or at least for American corporations that would gain access to markets abroad. But the argument is far from universal, and the dressing of Smith’s theory in modern garb is dangerous (for a classic explanation of Smith views on trade go here; subscription required; or here; also needs subscription).

The idea of absolute advantage, used by Smith, suggests that there is space for managing trade. I noted before that the opposite of Free Trade is not Protectionism, but Managed Trade. Nobody really wants to be in a completely closed economy, probably not even North Koreans. And once you admit a certain amount of management, say for sanitary rules to avoid importing poisoned toys, for example, or for security reasons to preclude defense secrets to leak out, you are discussing what are the good reasons for managing trade. Perhaps employment should be one of the reasons for managing trade. Free trade versus protectionism is a false dichotomy. The question is: how much management and for the benefit of whom (and who bears the costs of more or less trade as a result).

Note that comparative advantage theorems assume that employment is fixed, in the Ricardian system perhaps below full employment, and in the modern neoclassical HOS theory at full employment. Not surprisingly, on employment Mankiw tells us:

“Economists respond that full employment is possible with any pattern of trade. The main issue is not the number of jobs, but which jobs. Americans should work in those industries in which we have an advantage compared with other nations, and we should import from abroad those goods that can be produced more cheaply there.”

That full employment is possible with any pattern of trade is theoretically true. But from that does not follow that comparative advantage should guide trade. That is a theoretical non-sequitur and is simply wrong. The US could pursue using macroeconomic policies (not the lower taxes for the rich that Mankiw advocates, but that is another story) full employment.* That would lead to high current account deficits, which for the US, because of the privileged position of the dollar, are sustainable. But that is not true for most countries.

In that case, if free trade is pursued, absolute advantage might determine trade specialization, and lead to large current account deficits that would be unsustainable and lead to a balance of payments crisis, the need for austerity, with lower growth and unemployment following. Even in the US, patterns of trade integration might lead to the elimination of good manufacturing jobs being substituted by low paying service jobs, something that has led to trade unions’ reasonable rejection of Free Trade Agreements (FTAs). In other words, “which jobs” one can get if one “import[s] from abroad those goods that can be produced more cheaply there [sic; that’s actually absolute not comparative advantage]” might end up leading to lower wages at home.

For that reason it is hard to agree with Mankiw when he says that:

“People tend to underestimate the benefit from conserving on labor and thus worry that imports will destroy jobs in import-competing industries. Yet long-run economic progress comes from finding ways to reduce labor input and redeploying workers to new, growing industries.”

And there is evidence for that. The most famous FTA signed by the US with Mexico, has not favored workers in Mexico or the US, the North American Free Trade Agreement (NAFTA), even if corporations and wealthy individuals have benefited in both countries as shown in these reviews of the evidence by Robert Blecker and Mark Weisbrot and co-authors. So if mainstream economists agree on this, once again it is because they ignore logic (that does no require for trade to be determined by comparative advantage) or evidence (which suggests that FTAs might hurt workers).

* And also there is not tendency to a natural rate of unemployment, which Mankiw, of course, also defends.

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About David Dayen

David is a contributing writer to He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. Oregoncharles

    Sigh. The environmental economist Herman Daley demonstrated years ago that the standard economic argument for “free trade,” based on comparative advantage a la Ricardo, is fraudulent (my word, not Daley’s).

    Ricardo was very clear that comparative advantage depended on at least two requirements (the economist habit of calling these “assumptions” is misleading): that neither labor nor capital move freely between the countries compared. if they do, you’re back to absolute advantage – which means either geographic differences like climate or minerals, or a race to the bottom in wages or social regulation.

    Yet somehow, ” comparative advantage” is used to magically support PRECISELY the free movement of capital. Any economist promoting this idea is either profoundly ignorant of his field’s basic precepts, or is openly dishonest. (For reasons that Daley lays out, involving paying pipers, I favor the latter.)

    If there were the slightest intellectual honesty in the field, they would have stopped invoking comparative advantage once Daly published that book (the title of which I don’t remember at the moment. Daley can be found at It was at least 10 years ago. Or the whole investor-protection element of the trade agreements would have been dropped.

    1. susan the other

      Thanks OC for this CASSE link. I wish someone would take on “competition.” This way: It is no longer the 1700s. It is 300 years later. The concept of competition does not even apply because we have technologies that span the globe now so that every state can produce what it needs cheaply and efficiently. And not overproduce anything just to have a “trade surplus” and etc. My opinion is that we don’t need trade at all. It’s just a big scam.

      1. Oregoncharles

        We will still be trading apples for oranges – literally, because they require different growing conditions. And other things – many minerals are found only in certain places. There’s always been a big trade in salt, for instance, and Native Americans traded very widely – on foot. Obsidian for sea food, for instance.

        That’s “absolute advantage.”

        MAXIMIZING trade is another matter altogether, and usually depends on a “race to the bottom.” I’m also concerned that diversity biological or cultural, depends on barriers. If we’re truly “globalized,” there are no refuges, either; we stand or fall together, and sooner or later, that means we all fall. But that may be a fantasy, too.

        You’re right that Adam Smith and Ricardo’s assumptions worked a lot better in their own day – for instance, labor and capital really didn’t move between countries much.

    2. Dwight

      I think you are referring to For The Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future [Herman E. Daly, John B. Cobb Jr.] – great book from late 1980s..

      1. Oregoncharles

        Thank you. My memory isn’t quite what it used to be. So it’s THIRTY years back. None are so deaf as those who don’t wish to hear.

  2. Mello Hello

    Nice article. Whenever I hear an economist or layperson use Adam Smith as an argument for free trade, my reaction is always 1. please stop using an 18th century pre industrialist thinker responding to mercantilism to explain contemporary corporate capitalism and 2. please actually go read the wealth of nations because he doesn’t say half the things you think he does 3. please stop being a corporate sell out and read a book on the history of thought 4. UGH.

    1. Economics Considered

      Mello Hello – thank you for an extremely pertinent as well as concise and encompassing and powerful 4 points. To use vernacular – you have really hit it on the head.

  3. Cassiodorus

    The whole of economic policy today is to prop up profit rates in an era in which productive capital has become less and less profitable. As financial capital becomes the parasite which eats the host organism of productive capital, government increasingly interferes with the resultant decline in global growth rates — but only to “lock in” profits for capital as a whole.

    We can thus expect free trade agreements to fulfill that “locking in” of profit as their main function while capitalist economy as a whole continues to decline.

    1. James Levy

      You’re right, of course, but what strikes the thinking reader is the vagueness, the abstraction, of the arguments about “free trade”. The most obvious is, trade in what? The British thought that free trade should include opium, which was not illegal in Britain or the United States in those days, but almost no one today argues that Afghanistan should be allowed to exercise her comparative advantage in opium production so she can profitably export heroin, or Bolivia cocaine. Hell, the Irish peasantry died so that “free trade” and “free markets” could live, as did the slaves of the sugar plantations. What you see in all these cases are specifics, not generalities. Trade is like medicine or surgery–it’s good when and where you need it, but it’s not a panacea. Some nations, like some people, need more of it than others (think Iceland or Japan). And the underlying myth that we all get rich just the same via trading is just that, a myth, which could be disproved in about 15 minutes of research. Just look at Ricardo’s classic example of comparative advantage: England and Portugal. Well, if any Economists ever took note, England grew rich and Portugal did not through specialization and trade. Terms of trade matter, and controlling high value added production while dumping marginal, low-return production on someone else makes for both a division of labor and immiseration.

    2. MikeNY

      In practice, I agree the dynamic has worked largely as you describe.

      In theory, all else being equal, I can’t argue with the efficiency of comparative advantage (i.e., that the sum of output should be higher). How that product is distributed is the vexing problem. In the US, at least, it has been distributed to the oligarchs. But this was a sovereign political decision, IMO. I don’t see that result as inherent to trade.

      1. Jesper

        Yep, the gains are unevenly distributed so while free trade might increase GDP the median citizen might be worse off. Some people lose all of their income when their jobs disappear but there’ll be deflation as prices fall with the efficiency gains…
        How would the future look if the comparative advantage and free trade would be recklessly pursued? Depopulated countryside, depopulated countries and wast slums around the centers where the comparative advantage can be found. Or is there a good outcome? If so, what would it look like?

        1. Cassiodorus

          From the blog post:

          2) “efficiency”–economists define efficiency in a way that is far different than the normal understanding of the word, and rather naive from a purely technical standpoint. To wit, there is no place for ideas of sustainability in the economic usage of efficiency. Anything that increases the monetary value of the goods produced (amt. of goods X price of goods) is considered efficient, and therefore good, even if the method of increasing the value of goods is itself destructive and unsustainable. It would be like a driving instructor saying that anything that makes the car go faster is “efficient” (i.e. good), without consideration for things like sharp corners or pedestrians.

          This paragraph has the right idea — i.e. that mainstream economics has little to do with real-world contingencies — while at the same time needing a bit of work in refining the concept of efficiency. Since individual firms can usually do next to nothing to control the price of goods, they usually try to implement “efficiency” by producing more, which (given that productive capital must have an organic component) usually means that said firms try to produce as much as possible, for the sake of profits and market share and all that. The prerequisite of producing more, however, is that the raw materials be cheap, including the labor used to produce the goods themselves. Thus the “method of increasing the value of goods” is “itself destructive and unsustainable” because it cheapens society, nature, the quality of the goods, and the capitalist system itself.

          1. hunkerdown

            Allow me to introduce a portmanteau, which you all may use with my compliments: satisfice + efficiency = “satisficiency”

            Anyway, the diametric opposite of efficiency (using nothing beyond what is normally necessary) is resilience (using more than what is necessary under abnormal conditions), isn’t it? Resilience has an intuitive and fairly similar meaning in the jargon and the vernacular, and unlike efficiency admits of the possibility of abnormal conditions.

            Since individual firms can usually do next to nothing to control the price of goods,

            It is certainly possible by any number of means to exercise, or at least not lose, control over distribution, especially if one has an enforceable monopoly (patents, copyrights, geographical designations) or direct contact with customers (by selling direct to consumers, providing direct services necessary to enhance or enable the product, or legally mandated due diligence or licensing regimes such as with fine chemicals and medical goods and services). Commodities, rather less so.

        2. MikeNY


          1. I agree the the ceteris paribus assumption rarely holds. But unless we invoke it, how are we to analyze rationally the likely effect of any policy or action? We don’t have perfect knowledge, i.e., of the entire system.

          2. IMHO, the mis-pricing of inputs, and the failure to price externalities, is a separate issue from the distribution of production or wealth. You can resolve the first and still have egregious, unconscionable (to my mind) disparities of wealth — unless you can perfectly calculate the “value” of such things as social cohesion and comity. We are a very long way from that, I’d submit. I’m not at all sure such a thing is calculable.

          1. hunkerdown

            1. Absolutely. But it’s far from certain that the system works deterministically, or for that matter any human (hah, Hume-an) system, which tend to be taken outside of nominal specifications whenever well-connected constituencies so desire. Occasionalism, at least the first half, may be a more accurate principle of operation, if you want to avoid getting in over your waders in the soft earth of the “soft” sciences.

            2. I’m reminded of the section in Graeber’s Debt on bride prices often being paid in parallel currencies, such as wampum before paleface came along and debased it. I’m certain that the money value of intangible social goods (i.e. relationships) is not calculable. By the very act of offering them for sale for any price, they are transformed in their very nature from relationships to contracts, from mutual obligations into adversarial services. Even the serfs knew better than to take that deal, until starvation was the only other option.

            1. MikeNY

              I agree with you.

              Economics will never be a ‘hard science’ because of the free will inherent in human beings. This is utterly different from macro physics, and even from probabilistic quantum mechanics.

      2. Cassiodorus

        “Trade” is of course the public relations front for the capitalists, who love to depict themselves as sovereign individuals participating in “trade” or, to emphasize the propaganda point, “free trade.” Nothing so innocent is occurring. Rather, “trade” is unequal trade, in which those who are cheap (i.e. the working class) are exploited by those who are not (the owning class, few in number and each individually powerful). “Comparative advantage” exacerbates the inequality of “trade,” and this becomes clear once one realizes that the “comparative advantage” is a comparative advantage in cost efficiency, which in plain English is known by the term “cheapness.”

        Thus in international trade one can observe “cheap” nations, the “Third World,” being exploited by “not-so-cheap” nations, constituting the core of the international world order. Jason W. Moore (/ ) argues a critique of capitalism in which “cheapness” is the vital quality which holds the whole system together. For Moore, the capitalist appropriation of society/ nature is held together by the Four Cheaps — food, labor-power, energy, and material resources — and it is when the Four Cheaps are not so cheap that the capitalist system as a whole appears most endangered.

        1. MikeNY

          Would you deny that trade has enriched countries in the past — or do you maintain that it is always a “zero-sum” game?

          I do not think it’s a zero-sum game. I do not begrudge e.g., the Chinese, their relative enrichment vis a vis Americans. My complaint is, specifically, that the spoils of trade have been distributed almost entirely to capital (the oligarchs) in the US. I think wealth distribution should be more equal.

          I think the same of the entire world.

          1. Cassiodorus

            Labor-power enriches “countries” — and in capitalist nation-states labor-power enriches the owners of capital within those countries. Trade is just a means of spreading the enrichment around or, under capitalism, of helping capital to realize the surplus appropriated from the working class. I thought the capitalist propaganda hard line was that trade was a zero-sum game and that what enriched you was good old-fashioned hard work, such as what plenty of Chinese do.

            1. MikeNY

              Labor and resources, no?

              So I should not be able to buy tires because we have no gum trees in my country; I should not be able to drink coffee or tea; my farmers should not be able to use phosphates, because I don’t live in Morocco? I don’t buy such a hermetic vision of countries. I don’t think it’s necessary, and I don’t see its wisdom.

              I see no reason why trade is inherently a zero-sum game; what I do see is grossly inequitable distribution of wealth because governments have sold themselves to oligarchs. I don’t think protectionism is the only solution for that.

              1. MikeNY

                And I forgot: chocolate! I can’t have chocolate?!! That alone is a deal-breaker for me…

              2. Cassiodorus

                Perhaps a less hermetic philosophy on your part would allow you to read my posts more carefully. Start, for instance, with where I said: “Trade is just a means of spreading the enrichment around or, under capitalism, of helping capital to realize the surplus appropriated from the working class.” Wealth is not created when you drink coffee or buy tires. It is, however, spread around.

                “Resources,” for that matter, do not just exist as wealth without being appropriated by labor — and under capitalism, resources are created by labor for capital. Resources require subjective users — they don’t just exist objectively.

                1. MikeNY

                  I submit that gum trees exist ‘objectively’. Cacao plants exist ‘objectively’. That one country is rich in them, while another is poor, is the basis of comparative advantage. As is the differential in wage rates.

                  Viewed ideally, free trade is an equalizer of global wealth; that it has not been so entirely in practice is due to of the venality of governments and men.

                  Still, there are plenty of studies that show that, globally, wealth is migrating toward the developing world (China, Brazil, India), and away from the developed world. Living standards and market capitalizations also prove this fact out. And this is as it should be, morally, in my opinion.

                  Why should we be rich, and they be poor?

                  1. JTMcPhee

                    The “they” that gets rich, for SOE unfathomable reason, is not the mopes that pick the cacao or coffee or cotton, or grind the copper out of the rock, but a narrow set of kleptocrats who will surely reward you for sharing your insights that help carry the kleptocracy on to ever greater efficiency…

                    1. MikeNY

                      Tell that to China’s 300MM+ (and growing) middle class.

                      In any event, national wealth distribution is a matter of SOVEREIGN politics. In other words, it is a CHOICE.

                  2. Cassiodorus

                    You miss the point. Gum trees aren’t “resources” until someone decides to make them into “resources.”

              3. Oregoncharles

                Tea grows very well in the Pacific Northwest, and wherever camellias grow (it is Camellia sinensis). Not coffee or chocolate, or rubber, of course; though rubber can be extracted from dandelions.

                A further thought: national boundaries are often pretty accidental. They weren’t intended to provide sel-sufficiency.f

                1. MikeNY

                  ITA about national boundaries, and I concede your point about tea.

                  But I gotta have my chocolate. ;-)

  4. Ben Johannson

    If we look at a map, will each country have its area of competitive advantage stamped on its territory?

  5. gordon

    The Mankiw piece aims to support “fast-track” negotiating authority for the TPP and TTIP. Prof. Krugman, however, thinks Mankiw’s appeal to free-trade is irrelevant: “…[the TPP] is not a trade agreement. It’s about intellectual property and dispute settlement; the big beneficiaries are likely to be pharma companies and firms that want to sue governments. Those are the issues that need to be argued. David Ricardo is irrelevant.”

    I’m with him on that.

  6. Tom Hammett

    The world may come to an end. Someone said Managed Trade or Managed Economy. I am not for sure what Matías Vernengo definition of Managed Trade is but I have my own and it is not the classic the government did it but I include corporations.

    Managed Trade is classically defined as:

    From the Business Dictionary:
    Local and/or international trading restricted by a government’s market intervention policies.

    From the Collins Dictionary:
    A system whereby the government sets and specifies trade targets and policies.

    From the Law Dictionary:
    Government’s market intervention policies restricts this type of local and/or international trading.

    I believe that we do not have a “Free Market Economy” we have a Managed Economy. Our “Free” or Managed Economy exist with controlled supply of production and resources altering what goods and services are produced and who produces them, the creation and support of cartels and monopolies of resources and production, Wall Street speculators and market manipulation, government sanctioned “price-fixing,” government subsides, laws that limit or create barriers to competition, and central bank intervention. The factors of production will be employed only if it has short term profitability, and will fail to provide certain goods and services that do not meet the required profit marginal, including public goods such as roads, bridges, levees, education and schools, street lighting, safe drinking water, waste collection, transport, processing and disposal, and basic scientific research. There is nothing “Free” about any market!

    Where is a modern day Theodore Roosevelt when we need him or her?

  7. Tony Wikrent

    From a more historical perspective, according to the considerations of political economy of a republic, the fundamental problem with the idea of free trade is that it was never conceived or implemented as a means to the end of nation building. Rather, the doctrinal bases of free trade were created as a justification for the pillaging, plundering, and outright murder committed by oligarchs: the slave trade, and the opium trade and Opium War of the British East India Company. Free trade was never intended as a justification for sovereign nation states seeking to develop their own economies in their own interests by steering their own course in human affairs in defiance of the international masters of trade and finance. Rather, the doctrine of free trade has always been the excuse used by oligarchs to suppress, subvert, and squash any independently minded program of actual national economic development. (Careful readers will probably note the similarities between this analysis, and that of Joe Firestone a couple days ago:

    This fundamental problem is the exact same as the problem with classical economics and its concept of the invisible hand: unregulated free trade, like unregulated free markets, do not operate to the benefit of a society, unless that society imposes direction and will on those trading or market activities. Like markets, imports must be subject to the overview and governance of a national political authority to ensure the protection and promotion of the General Welfare. This necessarily involves repudiating the classical economic, neo-liberal idea of organizing political and social affairs to conform with the dictates of the marketplace.

    It is disheartening that Americans in particular don’t understand this, because the foundational documents of the USA economy are unambiguous in their repudiation of free trade. The first major legislation passed by the First Congress were The Tariff and Tonnage Acts of July 4, and July 20, 1789. This legislation was drafted by Treasury Secretary Alexander Hamilton, and, indeed, are known as “the Hamilton tariff.”  Less than a year and a half later, in his Report on Manufactures, Hamilton included pointed rebuttals of Adam Smith’s arguments in favor of free trade. (The 1964 edition of The Reports of Alexander Hamilton, by Jacob E. Cooke, is especially useful. In his footnotes, Cooke identifies the specific section of Smith’s Wealth of Nations which Hamilton is attacking.) In the last part of the Report, Hamilton reviewed the domestic situation of specific goods and commodities, and whether and how duties and tariffs would promote domestic supply. While he called for no changes in existing tariffs on several common items such as lead manufactures, Hamilton asked for decreases in tariffs on specific raw materials and goods required by American producers. He recommended that the tariffs on sulfur (needed for gunpowder), copper, silk, and scientific books be entirely eliminated and allowed to be imported duty free.

    One of the most worn-out arguments used by advocates of NAFTA, WTO, TPP, and other “free trade” agreements, is that opponents are provincial isolationists opposed to all trade. The modern, interconnected world, the advocates argue, simply cannot survive without trade. Well, I believe that the world needs a $100 trillion program to stop and even reverse climate change. And I think such a program is exactly what a new system of international trade should be focused on. I further think that implementing such a $100 trillion program will result in world trade volumes that may very well be multiples of what they are now. I am not against trade – what I am against is the current global regime of trade which locks in advantages for large international companies, and which often make it difficult, if not impossible, for nations to actually achieve national development of an integrated national economy, not just an export sector.

    1. financial matters

      Excellent comment, thanks.

      As an aside, I also thought you were very insightful on health care from a comment you made here earlier this year.

      “This is such typical ideological blindness to actual policy results. How many more years do we have to try the experiment before you accept that, no, market forces do NOT work when applied to health care. And there are reasons why: Dr. Lown restates what Dr. Arrow explained 54 years ago: “…the serious flaws in the theory and the practice of market-driven managed health care are neon lighted. Key assumptions in market theory are that the consumer knows what he needs, appreciates differences in quality, is offered these at different price levels, has bargaining power and can exercise free choice to buy or not to buy. None of these is true in health care. Patients usually do not know what is wrong; they do not comprehend the diagnostic possibilities; they are not familiar with the therapeutic options, they cannot assess the quality of care needed, and they do not appreciate the numerous potential outcomes.”

      At some point, we are going to have to put aside civility and manners, and start labeling the ideologues who insist on these disastrous experiments as the ghouls and murderers they are.”


      And your NC blogpost from a few years ago.

      “Reality is more often characterized by complex financial arrangements that, when boiled down, amount to asset stripping and outright de-capitalization through imposing debt.”

  8. Tony Wikrent

    Jeesh, I almost forgot the most important point. You can look through Mankiw’s economics textbooks, and find nary a mention of Hamilton. Intellectual oversight, or oligarchical bias? Or does Mankiw somehow not believe that Hamilton was the key player in creating a new national economy, pretty much from scratch? In my view, what Hamilton achieved as our first Secretary of the Treasury is one of the most singular accomplishments in political economy of the past three centuries. Were it not so obvious who Harvard caters to, you would wonder how a charlatan like Mankiw can keep his job in the face of such a monstrous lie of historical omission.

    1. financial matters

      In her recent public bank book Ellen Brown includes some interesting history on early American banking. One of the first acts of the Continental Congress was to issue paper script, the Continental. This helped allow the colonists to finance a war against a major power with virtually no ‘hard’ currency.

      William Penn had used this method successfully previously in Pennsylvania and found a somewhat amazed supporter in Benjamin Franklin who stated ‘the riches of a country are to be valued by the quantity of labor its inhabitants are able to purchase and not by the quantity of gold or silver they possess.’

      The Continental was subsequently ruined by counterfeiting and disagreement between the states without a strong central authority. When Hamilton created the First U.S. Bank he had the memories of this to deal with. But I think Hamilton had the right idea in that he stated ‘such a bank is not a mere matter of private property, but a political machine of the greatest importance to the State.’ ibid

  9. Jack King

    Let me add one more name in support of free trade to Mankiw’s list……Paul Krugman who says:

    “Opponents of global trade, whatever their intentions, are doing their best to make the poor even poorer.” NT Times; April 22, 2001

    1. skippy

      Must be desperate to quote the elitist mouth piece from the so called left that still worships before the IS-LM.

      Skippy…. absurdity abounds…

    2. bob

      Please show name one, single, example of “free trade”. I asked on another post on this subject. You refused, only giving the WTO website and “look it up retort.” Well, if everyone in the WTO is an example of “free trade” why do we need more of it?

      I’m asking again. Name One. Single. Example.

      Also funny that PK, your new hero, has come out against the TPP. Does that mean that he’s against free trade? Actually, it’s probably worse in your world, he’s a hypocrite, and/or a liar. In which case, why bring him up at all?

      1. Jack King

        Are there some barriers to trade? Of course. For example we protect the domestic sugar crop which is produced primarily by a few well connected farms in Florida and Louisiana. But it is completely illogical. As Spock says, “The needs of the many outweigh the needs of the few”. Barriers to trade, however, are anti-Spock. The few (well connected domestic producers) outweigh the many (you and I….the consumers). And sugar is in just about everything we eat. You don’t have to be a Nobel Prize economist to figure out that it is just illogical. Everyone knows it. That is why we have the global economy of today with ever decreasing barriers to trade.

        1. bob

          All I asked for was one example. One single example. Name a place. One place.

          Not another 500 words straight out of Larry Summers mouth. One words might do it.

          Just one place. I dare you.

          1. Jack King

            Did you not read my post above?! Do you not see an example? Please re-read, then, if you can, justify the logic of increasing trade barriers which would kick off a trade war and a global recession. There is no single example of perfectly free trade just is no example of perfect competition. But we are continually moving closer and closer toward it.

            1. JTMcPhee

              So, in other words, Jack ain’t got jack when it comes to examples of “free trade.” The more one thinks about it, the more the present arrangements look like parasitism with a side of metastasized sarcoma. Every “argument” in support of whatever this present horror is properly labeled is pure puerile self gratifying selfishness dished up to curry favor with people who use the power they mostly steal to turn the rest of us into aphids, sucking the life out of the plant we infest, controlled and corralled by ants that make a show of “protecting” us while milking the ck out of us and if they feel the desire for a little protein, eating us.

              The wishful apologists for plutocracy would have us ants believe it’s a symbiosis. As with so many received “truths” these days, open- eyed research says otherwise…”Herding Aphids: How ‘Farmer’ Ants Keep Control Of Their Food”,

              Chemicals on ants’ feet tranquilise and subdue colonies of aphids, keeping them close by as a ready source of food, says new research. The study throws new light on the complex relationship between ants and the colonies of aphids whose sugary secretions the ants eat.

              1. Jack King

                Here I’m attempting to have a serious logical discussion on a current topic in the news, and all I get are wild eyed conspiracy theories. It is virtually impossible to squeeze a modicum of understanding into a vacuum.

                1. bob

                  Please educate us more, Spock.

                  While you’re at it- Again- Name one single example of free trade?

            2. Ben Johannson

              He asked for an example of free-trade and your response is to talk about an area for which you think trade isn’t free enough.

              Do you hold a single position which is not endorsed by Cato?

              1. Jack King

                Cato? I hold a position that is overwhelming supported by professional economists. About the only ones who support barriers are politicians….the majority of which are lawyers….GONG!

                1. skippy

                  The Majority of your so called politicians are financed by corporatist and have the majority of their policy’s written by them, you might say they are on retainers as lawyers for the corporatist.

                  Skippy…. whats this garbage qualifier of professional economists… was Mises a professional economist?

                2. bob

                  You keep pretending that free trade exists, and in order for it to exist “better” all we need are more fast track laws out of DC politicians.

                  They’re all lawyers, you know?

                  Also, please name one single “professional economists” that you agree with.

                  You can also answer the original question about one single example of free trade.

                  Your choice.

                  1. Jack King

                    “You keep pretending that free trade exists”

                    I give you an example of trade barriers (US sugar), and you still make a comment like above?! There are similar examples all over the world. But trade is certainly much freer than it was 50 years ago. You must have heard of….ready for this (drum roll)….the global economy. I feel like I’m talking to a 5th grader.

                    1. bob

                      I asked for an example of free trade. You gave an example of non-free trade.

                      non-free trade isn’t free trade. It’s the opposite.

                      So, once again, name one example of free trade. I’m not looking for an example of non-free trade, I’m looking for an example of what you would call free trade.

                      You seem to the the one with reading comprehension problems. Most fifth graders know that when asked for an apple, if they give someone a banana, they fail.

                      You keep failing, and being abusive about it. Temper-tantrums and yelling.

                      You get one more chance, then off to the corner for quiet time.

                    2. skippy

                      I had the same sort of conversation with the same stripe as Jack not to long ago Bob. Wanna know their answer after endless rhetorical wanking.

                      Daaa…. ***Middle Ages*** – in Regional Central Europe….

                      That’s right Bob… agrarian – artisan economic activity with no central government and bimentalism backed exchange romanticized to orgasmic Nirvana.

                      Skippy…. not to forget the extra heaping of esoteric sociopolitical organization in a ridged authoritarian decree… whats not to like mate…

                    3. bob

                      “ridged authoritarian decree”

                      But, but, but…he’s TELLING US.

                      He can’t answer what would seem to be a very easy question for a man of his implied stature.

                      It’s almost like he isn’t able to answer the question, and uses any question to inject his faulty world view onto the rest of us.

                    4. skippy

                      I was waiting for him to pop “Somalia” out there Bob, but, for some reason he went to Florida [not pure enough yet I guess].

            3. bob

              Are the sugar subsidies or Spock your example? Neither is “free trade” you even say so. Or, pardon, spock does.

          2. skippy

            Don’t sweat it bob…

            Friday, January 10, 2014
            The Great Recession of 2008
            The cause was the housing bubble, but just how did we get there? In 2001 after the collapse, housing prices actually rose. This gave a false sense of security to real estate. The FED kept interest rates way down and this spurred demand for housing. With government programs like the Community Reinvestment Act, banks were encouraged to loan to potential buyers who normally could not qualify. Historically it was very difficult for buyers to get a loan with a FICO score of less than 660. But the standards were lowered. In 2003 Only 8% of loans were sub-prime. But by 2007 it had jumped to almost 25%. Nonetheless, the sub-prime mortgages were not scams. The intent was to eventually convert them into conventional mortgages once equity was built.


            Skippy…. this his level of acumen –

            About me
            Gender Male
            Occupation tycoon

              1. Skippy

                I actually like the Buchanan Committee hearings on illegal lobbying activities in 1950 staring Milton Friedman and his U Chicago cohort George Stigler, in 1946, as professional economists for Herbert Nelson – the chief lobbyist and executive vice president for the National Association of Real Estate Boards, and one of the highest paid lobbyists in the nation.

                Sadly we don’t have a nifty YouTube to display such egregious low ethical and moral bearing from professionals saved for posterity.

                Skippy… BTW C/RE was just an observable whisker of the cat wrt a much more massive problem…. attenuating risk…

            1. bob

              Skippy, he’s educating us. Kneel down and stare in awe and wonder at him. He’s clearly our better.

              What don’t you understand? Maybe he can bring spock back to explain it, if we’re really, really lucky, and don’t actually challenge any of his propaganda, circular reasoning and DC lobbyist talking points.

  10. digi_owl

    I find myself reminded of something i heard from a scholar about religious texts, that they need to be read with the time and place they were written in mind. They may be presented as timeless, but most often they have been written to deal with political situations of that day and place.

    Damn it, why do economists cling so to Smith and his contemporaries when Psychology has written off Freud as hogwash?!

  11. Calgacus

    I admire Mathias Vernengo and greatly respect his learning but the baseless claims he makes here, shared by many or most non-MMT “post-Keynesians” need comment.
    The US could pursue using macroeconomic policies .. full employment.* That would lead to high current account deficits, which for the US, because of the privileged position of the dollar, are sustainable. But that is not true for most countries.

    In that case, if free trade is pursued, absolute advantage might determine trade specialization, and lead to large current account deficits that would be unsustainable and lead to a balance of payments crisis, the need for austerity, with lower growth and unemployment following

    Nonsense. The oft-seen ‘MMT is ok for the USA, but not for non-hegemons’ non-argument. What unsustainability? What balance of payments crisis? What constraint? Show me the constraint. There is no constraint on a normal fiat issuing country, like everybody outside the Euro death pact.

    This shows clearly the need for MMT’s philosophical “what is money?” pondering. Or for reading say Abba Lerner, who called the edifice of thought around such beliefs “the cult of exchange rigidity” – and who was unable to see this mystical, imaginary constraint or crisis or need for austerity and unemployment. EVER.

    “..we can achieve all the desirable effects, maintain prosperity, and continue to make the best use of the international division of labor by following the extremely simple procedure of doing nothing at all
    ….If we would only concentrate on maintaining domestic full employment no matter what …” (Economics of Employment, p. 338)

    It has relevance because this brand of illogic is if not the same, a kissing cousin to the delusional terror of Greece leaving the Euro. There would be real, but temporary, problems then, but illogic magnifies them enormously – for the most likely result of Grexit would be a robust recovery!

  12. Ray Tapajna

    Adam Smith held workers and labor as something sacred and to compare his thoughts to what it is like today is a serious error.

    First of all, the globalist free traders tell us protectionism is what caused the great depression. It did not happen that way. The stock market crash triggered the great depression. President Roosevelt went into the 1930s with power to raise, lower or cut out tariffs. However, nations did not have sufficient money to conduct trade as usual. Towards the end of the 1930s, President Roosevelt said he was not going to let the lack of dollars stand in his way. He announced the Lend Lease Program where the U.S. was able to ship goods to other countries without being concerned about payment upfront. This triggered an increase in production and farming in the U.S. Then the war came and Lend Lease triggered the most awesome industrial might the world has ever known. Without it the allies would have never won the war. Lend Lease Act Was Real Free Trade, Not Chopped Liver, As in Globalist Flat World See also

    The U.S. came out of the war as the most powerful industrial power in the world and in history. We were able to fund the Marshall Plan which helped restore economies in Europe and Asia. However, the U.S. showed others how to duplicate success. The globalist free traders came and shredded our economy into pieces and sent the pieces around the world for the sake of making money on money for a select few instead of making things. There is no free market. It is isolated to the top 10 percent class. They practiced protectionism in many ways and destroyed the real free enterprise system.

    The U.S. was able to fund the GI Bill which created a vast working middle class. Now college graduates are faced with loans that many will never be able to pay back. Free trade economics created a new working poor class and smashed the production workers middle class. I worked in several factories while going to college and if these jobs were still available, there would be millions standing in lines across our country to get them including college graduates.

    Free trade actually never worked. President Clinton had to bail out the process in 1995 after thousands of U.S. factories had been moved to Mexico and to far away places across the globe. Then in 2008, President Obama took over and had to bail out the whole process by borrowing trillions of dollars from the future. In effect tariffs have been taken off products and put on workers for many years to come. He only bailed out big money interests, investment communities, wall street, stock portfolios, banks and the “too big to fail” corporations. He ignored the millions who lost their jobs and businesses. It is obvious there are “too small to save” businesses. They have been decimated by free trade economics.

    This did not stop the globalist free traders from going for broke announcing super trade deals which have nothing to do with real trade and human dignity in the workday. They have pulled off the biggest con game in history.

    It should be noted that former Federal Reserve Chairman Alan Greenspan in his book The Age of Turbulence takes time to tell how New Harmony, a Christian workers community never worked while ignoring the stories about Lend Lease and the Marshall Plan.

    And actually former Federal Reserve Chairman Ben Bernanke had it right when he said – the best way to stimulate the economy is to buy “domestically produced goods.”

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