Sunday, September 08, 2013

The Economist: Why Free Trade

The Economist was founded to "campaign for free trade" in 1843 (you learn something every day). It digs up some of its old arguments, explores new ones and again makes the case for free trade with arguments that remain as true today as they were back then:

However, some more recent economists have identified situations where the benefits of free trade can be inhibited. Charles Bickerdike and Francis Edgeworth argued in the early 1900s that large countries could benefit from imposing “optimal tariffs” by abusing their monopoly power over global markets. Similarly, John Maynard Keynes argued in 1931 that the introduction of tariffs in Britain, a big country, could help its economic recovery from the Great Depression. A 1989 paper by Michael Kitson and Solomos Solomou suggests there might be some credit in Keynes’ line of thought. They argue that the imposition of the General Tariff in Britain in 1932 “benefitted the British economy” by boosting new industries and accelerating the trend rate of growth in the 1932-37 period.

But economists are quick to admit that these policies only work in specific or temporary circumstances, if ever. Bickerdike and Edgeworth always maintained that free trade was only policy that could boost growth in the long run on a global basis. “Optimal tariffs” as a policy to them were “contrary to the highest morality”. Keynes himself never deviated from view that the free trade was the best policy for growth in the long run. Even Mssrs Kitson and Solomou admit that the lack of competition the General Tariff produced may have damaged “long-term economic growth” in Britain’s “1950-73 boom”. Perhaps the persistence in economic history of the idea that free trade provides the optimal long-run conditions for growth may be a better reason than any other why The Economist still supports free trade today— just as it did 170 years ago.

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