[OPE-L] Bernanke's homily on the benefits of trade

[Jurriaan Bendien <adsl675281@xxxxxxxxxx>]

Bernanke Raps Economic Isolationism. Published: May 1, 2007 Filed at 1:49
p.m. ET
http://www.nytimes.com/aponline/business/AP-Bernanke-Economy.html?_r=1&oref=slogin

The full text of Bernanke's speech is here:
http://www.federalreserve.gov/boarddocs/speeches/2007/20070501/default.htm

There is some theoretical argument in it, and good ol' David Ricardo gets a
look in again:

"Two centuries ago the economist David Ricardo famously observed that, if
England specialized in making cloth while Portugal specialized in producing
wine, international trade would allow both countries to enjoy more of both
goods than would be possible if each country produced only for domestic
consumption and did not trade. As in the case of individuals, this
conclusion applies even if one country can produce both cloth and wine more
cheaply than the other, so long as each country specializes in the activity
at which it is relatively more productive. A telling confirmation of
Ricardo's insight is that, when nations go to war, their first order of
business is often to try to block the other's access to trade."

(the true story of what really happened there is told in Sandro Sideri,
Trade and Power: Informal Colonialism in Anglo-Portuguese Relations.
Rotterdam: University Press, 1970).

It is the benefits of trade, and not equilibrium theory, that are really at
the core of theoretical controversy in economics these days.

The problem is that although few would trade if they did not gain by it,
they may not gain in the same measure, and the gains and losses of
trade might be very unequally distributed among all those participating
in it. Moreover, markets contain no mechanism of their own which
would ensure a more equitable distribution of wealth. Thirdly, trade
is a very abstract, general category since the range of things that
are traded is very great, and the majority of the population is
excluded from the larger part of what is traded at any time, in
dollar terms. Thus, a very large part of what is traded concerns
only a restricted circuit of people who own that trade, anyway.

Jurriaan