Steve Waldman: “Ricardo is dead”
The annals of apologists for protectionism generally do not make for auspicious reading. But Steve Waldman has a very good whack at it today, explaining that the positive-sum game that is free trade doesn’t actually work very well if you’re running a big and expanding trade deficit:
I’ve done no study, but here’s a conjecture: The countries where protectionism is becoming popular are those with both growing current account deficits and shrinking tradables sectors. A shrinking tradables sector is not the same as a declining industry. Declining industries are normal and good. Even the near extinction of manufactures as a whole is okay. But a shrinking tradables sector is not. A shrinking tradables sector means a decline in nation’s capacity to produce goods or services of any sort that citizens of other countries want to buy, at competitive prices…
Ricardo is dead, and we live in a brave new world where, at least for a while, some countries are willing to trade persistently for debt not backed by expanding (if adjusting) tradables capacity on the part of the debtor. This is not a Ricardian paradise. This is economic terra incognito, and citizens are right to be spooked.
Maybe Jim Webb should hire this guy as a speechwriter.
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