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Richmans' Trade and Taxes Blog
Bretton Woods and Balanced Trade
In a recent piece in Project Syndicate, Roger Farmer gets some things right and some things wrong in assessment of the link between globalization, populism, and trade. What he gets right, first, is the significance of the end of the Bretton Woods system of exchange rates in shaping the modern era.
And then the decline of the Bretton Woods controls as the harbinger of what has come since:
But his next rhetorical move assumes an answer in economic theory that does not exist:
This is the result of a static analysis of comparative advantage that is simply wrong. In a world of mutable productivity, the blithe assertion that countries gain from trade simply does not hold as Gomory and Baumol showed some time ago. Indeed, globalization can leave some countries winners and others losers.
From that point the article treads some familiar ground in terms of the argument that capital mobility has disadvantaged workers, though without noting the concern that capital mobility may undermine the advantages of trade for capital rich countries made by Roberts and Schumer. And without dealing with the inconsistent fact that capital mobility from capital rich to capital poor countries should generate a goods and services trade surplus for the capital rich when the opposite has happened. It ends with a supposed dilemma:
Ironically, though, the essay never mentions trade deficits at all. One way to bring more of a balance to the advantages and costs of trade would be to impose policies that push trade into balance. If trade is balanced, then workers in one country exchange goods and services of equal value with workers in another country. And as a result both benefit. What Bretton Woods offered was one way to keep trade relatively balanced.
Journal of Economic Literature:
Atlantic Economic Journal: