October 13, 2006

Theory and Policy

One of America's all-time great economists, Professor William J. Baumol recently has made a major contribution to economic theory, along with Ralph E. Gomory, in their book Global Trade and Conflicting National Interests. It's the first systematic reworking of trade theory since David Ricardo, and in it they show, beyond any doubt, that in some circumstances—not uncommon circumstances in today's world—free trade will not be to the overall benefit of one of the trading partners. To my mind this clearly implies that in certain circumstances it would be unwise to trade. Professor Baumol, however, eschews the consideration of all programmatic trade policies. Instead of devising a trade policy to deal with imbalances his preference is for the state to subsidize economic activity that is export competitive. At least that's half a loaf. More generally Professor Baumol and I find ourselves in agreement (thank goodness) on such things as the need for a national health care plan and that economists should think much more seriously about questions of distribution which aren't susceptible to quantification. And other matters. It was a real honor to talk with Professor Baumol and I'm deeply grateful to him. Those of us who are interested in economic policy can certainly learn a few things here. Total runtime of slightly over an hour and two minutes. Listen carefully, think twice.