Author Archives: Yves Smith

We’ve regularly derided the notion of “national competitiveness” as a an inevitable accompaniment to the oversold notion of “free trade”. Economists are aware of, yet choose to ignore, the Lipsey-Lancaster theorem, which says when an idealized state cannot be attained, moving closer to it may not be an improvement; it can often produce worse outcomes. You need to evaluate the “second best” options specifically and not go on faith.

But economists and policy makers treat “free trade” as an article of faith, and with that comes the idea that countries must compete to find customers overseas. There is too little consideration of the fallacy of expecting countries to be competitive and by implication, seek to be exporters. It is impossible for all countries to be net exporters. Moreover, countries are often better served to design their policies primarily for the benefit of domestic workers and markets, and to promote export-oriented programs only to the extent that they do not undermine conditions at home, or will clearly produce a net benefit.