Tuesday, December 15, 2009

Maurice Allais Pleads for ... Protectionism

"Belief" in the dogma of free trade is sometimes taken as the quintessential credential of the economist--by people in a hurry. Those with more patience for subtleties know that the truth is actually more complicated. But Maurice Allais, France's only Nobel laureate in economics, isn't interested in the subtleties either. He offers a rather Manichean defense of protectionism: there is good free trade (between countries of roughly equal wage levels) and bad free trade (between countries of very different wage levels). And he doesn't even mention the Stolper-Samuelson theorem. Nor is he interested in the new trade theory (of Krugman et al.). Still, there is a likable cantankerousness about his argument of a sort that used to be characteristic of French economics.

As for the dogma itself, I am reminded that Paul Samuelson, who died on Sunday, was once asked by the mathematician Stanislaw Ulam to name one theory in the social sciences that was at once nontrivial and true. It took Samuelson a couple of years to come up with an answer: the theory of comparative advantage. That it was true, he said, is a matter of simple logic; that it is nontrivial follows from the fact that many intelligent people fail to understand it even after it has been patiently explained to them over and over.


FrédéricLN said...

That it is non trivial also follows from the full story of (Torrens and) Ricardo's canonical example for comparative advantages, ie the exchange of wine against cloth, between Portugal and England ( http://en.wikipedia.org/wiki/Comparative_advantage ).

True, Portugal had an advantage for producing wine, and neither of both had an advantage for cloth, but Portugal could buy (allegedly) cheaper cloth for the price of its wine sales.

But these two specializations were not a result of free trade. It was stipulated by a treaty, and this treaty was obtained by England's military power.

And, as "today's wikipedia" states it, there is an ongoing debate whether the treaty was positive or negative for Portugal. http://en.wikipedia.org/wiki/Methuen_Treaty


I do not intend to back Allais' stands (that I did not study).

But I would argue that "naive-support to free-trade", that we very often hear on French media ("protectionism, nothing could be worse", without any piece of argumentation), open doors to "naive-protectionism". Jimmy Goldsmith and recently Emmanuel Todd published books (essais) that very clearly (and naively, imho) advocate for economic protectionism.


My own pov is that there is something behind this. For example, mathematicians would argue that if you maximize the mean performance of a system, you may reduce robustness. For international trade, more robust behaviours in troubled times might be wished, even at the expense of some performance in optimal or stable environments. Maximization of transaction speeds, reduction of all public or democratic controls, reduction of transparency (direct trade between partners outside any transparent market) may reduce mean costs, and reduce robustness too.

Regulation can increase robustness imho, esp. democratic regulation and transparency. Old-style protectionism by taxing importations should, from my pov, have a very limited range of validity.

Unknown said...

Thanks for the interesting thoughts, Frédéric.

Unknown said...

From Paul Krugman's appreciation of Paul Samuelson ( http://krugman.blogs.nytimes.com/2009/12/15/the-incomparable-economist/ ):

5. Factor-proportions trade theory: Every time we talk about resources and comparative advantage, every time we worry about the effect of trade on income distribution, we’re harking back to Samuelson’s work in the 1940s and 1950s: he took the vague, confusing ideas of Ohlin and Heckscher, and turned them into a sharp-edged model that defined most trade theory for a generation, and remains a key part of the modern synthesis.

6. Exchange rates and the balance of payments: A bit of personal storytelling: Most people who work in international trade tend to lose the thread when the discussion turns to exchange rates and the balance of payments; as I’ve sometimes put it, the real trade people regard international macro as voodoo, while the international macro people regard real trade as boring and irrelevant (and when I’m in a sour mood, I suggest that both are right). But I was saved from all that when I read Dornbusch, Fischer and Samuelson 1977 on Ricardian trade, which among other things showed how trade and macro, exchange rates and the balance of payments, the possibility of gains from trade but also the possibility of unemployment, all fit together.

What I learned later was that Samuelson grasped these issues much earlier, although the neatness of the DFS formulation surely helped get them across. Here’s what he wrote in his 1964 paper “Theoretical notes on trade problems”: “With employment less than full and Net National Product suboptimal, all the debunked mercantilist arguments turn out to be valid.” And he went on to mention the appendix to the latest edition of his Economics, “pointing out the genuine problems for free-trade apologetics raised by overvaluation”. The solution, of course, was to end the overvaluation rather than restrict trade; Samuelson understood that good macroeconomic policies are a prerequisite for good microeconomic policies. More on that in a minute.