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The Forum > Article Comments > 1,000,000 economists can be wrong: The free trade fallacies > Comments

1,000,000 economists can be wrong: The free trade fallacies : Comments

By Steve Keen, published 30/9/2011

The Neoclassical model that dominates economics today is riven with logical and empirical fallacies.

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"Anything the vast majority of economists believe is likely to be wrong".
This extends to any majority in my view; whatever the popular majority hold to be so must be wrong. This is not merely droll, but can easily be sociologically defended. Ironically, if it ever becomes broadly accepted, it will cease to be true.

However.
The author fails to note that the division of labor also meant the loss of real life-skills and craftsmanship in favour ultimately of the production line, drudgery, a throw away society and a mentally ill population: http://www.mhca.org.au/documents/StatisticsonMHinAustralia.pdf
Life long since ceased to be satisfying in terms of "accomplishment", in being a self-sufficient and fulfilled human being--this isn't just a Marxist view (Marx btw was one economist who did get it right), Maw Weber's "iron cage" complains of the same thing: http://en.wikipedia.org/wiki/Iron_cage Taking satisfaction from "living" is displaced by some future prospect or expectation of happiness. According to Richard Sennett under "the specter of uselessness" many lead impoverished lives and "are incapable of enjoying the present for its own sake; delay of fulfilment [never to be realised] becomes a way of life".
But of course economists have never considered such drippy sentimentality. The division of labour was held to be economically salubrious, and if it brings in the dollars it must ultimately be healthy. On the one hand they failed to consider the cost of attrition due to an existential malaise. On the other hand, mental illness is big business and there's a killing to be made--that is unless the drugs are all made in Portugal! In that case there's only the service industry that sprouts everywhere to capitalise on the "mentally ill". In Australia this is funded, like most things, mainly by the resource industry, because though we can match it with the best in terms of generating mental illness, we're only a boutique industry in treating it. After the mining boom the service industry will collapse and mental illness will go largely unpalliated (people will have to be self-reliant again), and we'll be a literal basket case and not just an economic one.
Posted by Squeers, Friday, 30 September 2011 7:43:51 AM
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Heresy! Interesting article.

"If economics were a real science, it would have long ago been overthrown and replaced by something more realistic." Indeed, such as political economy and economic history.

There's far too much philosophy in economics and not enough science, however,there are encoraging developments which could establish economics as a real science. For example, one recent Nobel Laureate in Economics(Daniel Kahneman) is a psychologist,who apparently, has never studied economics.
Posted by mac, Friday, 30 September 2011 7:48:00 AM
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Steve
But doesn't that argument only prove that the capital lost was that misallocated by the original restrictions on trade?

None of the protectionists will answer these questions but perhaps you will:
1. if it's true that free trade makes societies poorer, why not abolish it altogether?
2. if not, then what is your argument in favour of the free trade that should not be abolished
3. what is the economic principle by which the free trade which should be restricted is to be distinguished from the free trade which should remain free?
4. why doesn't the same argument in favour of free trade apply to both?

All those criticisms apply to the neo-classical school. None of them applies to the Austrian school.
Posted by Peter Hume, Friday, 30 September 2011 9:54:06 AM
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Prof. Steve Keen,

You mean 1,000,000 Economists disagree wit you?

You mean that there are 1,000,001 people that have to be fed, clothed, housed, and amused by the non-economists?

Isnít this economic thing becoming a bit too uneconomic?
Posted by skeptic, Friday, 30 September 2011 10:45:37 AM
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The trouble with Keenís piece is that, like Ricardoís defence of free trade, it is neat, plausible and wrong. It is so wrong I donít even know where to start.

Iím tempted to say, quoting Wolfgang Pauli, >>That's not right - that's not even wrong.>>

Let me start here:

>>Since capital is destroyed when trade is liberalised, the watertight argument that trade necessarily improves material welfare springs a leak.>>

Technology advances destroy the value of capital. The laptop Iím using is worth a fraction of the $2,000 I paid three years ago.

Should we freeze technology so that my laptop keeps its value?

Absurd!

A small country like Australia cannot manufacture everything it needs on its own. Actually I doubt if even a giant country like the USA can be self-sufficient in manufactured goods or commodities. But the problem is more severe in small countries.

Does anyone seriously think we could manufacture our own chips to put into our own computers purely to serve the domestic market? Itís preposterous. There are things we need to import and to pay for them we need to trade.

Freeíish trade is not a panacea. Itís just better than the alternatives.

I am not a market fundamentalist. I think the Australian government could and should be doing much more to promote high value added product development and manufacturing in Australia. But thatís a different story.

I also think we need policies in place to ensure a better distribution of income. In the US the top 1% of earners now get 25% of the national payroll, double the proportion they got in the 1970s. Something like 90% of all the growth in income in the US has gone to the top few percent.

In Australia too there has been a surge towards greater inequality.

These inequalities are not, however, caused by free trade. Mainly they are a consequence of technology that substitutes capital for labour.

Inequalities should be addressed but putting up tariffs wonít help.
Posted by stevenlmeyer, Friday, 30 September 2011 5:32:38 PM
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Stevenlmeyer:
<A small country like Australia cannot manufacture everything it needs on its own. Actually I doubt if even a giant country like the USA can be self-sufficient in manufactured goods or commodities>

But how many of the "manufactured goods or commodities" do we actually "need"? The word "need" has lost its meaning; needs are now manufactured. There's no need for them!
Though I s'pose "he must needs go that the devil drives".
Posted by Squeers, Friday, 30 September 2011 5:53:36 PM
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