Thursday, January 03, 2008

Mr. Krugman Meet Mr. Ricardo

I have mentioned before how Princeton economist Paul Krugman did some respectable work in international trade before he gave up economics entirely and became a pundit for the New York Times. His latest rants pretty much sum this up. I recently purchased the volumnious collection The Real Price of Everything: Rediscovering the Six Classics of Economics edited by Moneyball and Liar's Poker author (and London School of Economics graduate) Michael Lewis. Weighing in at nearly 1500 pages, I have not read it yet, in fact upon seeing it my wife looked at me and asked, "You don't seriously intend to read that, do you?"

In any case the collection of economic classics includes Principles of Political Economy and Taxation by David Ricardo, in which the concept of comparative advantage was first introduced. Apparently Mr. Krugman has forgotten this concept and thrown 200 years of economic thought out the window, because it makes it easier to bash Republicans.

But for American workers the story is much less positive. In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult.

What basic economic concepts will he throw out next? Supply and demand? GDP = C + I + G + (X-M) ?