Paul Krugman, Globalisation, and the Point of Economic Theory
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- Опубликовано: 19 июл 2024
- Has economic theory helped us to understand globalisation and trade, or quite the opposite?
(Yes, the thumbnail is a joke)
Produced by Hobbie Stuart
Artwork by Jacob Cob
© 2020 Unlearning Economics
I am an academic economist from the UK who has long been critical of the economics profession and how economics is used in public policy. Mostly the channel will cover economics with a critical perspective but I aim to educate people about economics in the process, so I'll try to explain key concepts and ideas along the way. That way, even if you disagree with aspects of the videos you will hopefully learn something from them. Subscribe for more!
References (in rough order of appearance):
Case, A., Deaton, A., & Harper, K. (2020). Deaths of despair and the future of capitalism.
Poll of economists’ support for free trade: www.igmchicago.org/surveys/fre...
David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade," Annual Review of Economics, vol 8(1)
www.nber.org/papers/w21906
Krugman, P. (1999). The Accidental Theorist: And Other Dispatches from the Dismal Science. London: Penguin.
Krugman, P. (1995). Peddling prosperity: Economic sense and nonsense in the age of diminished expectations. London: Norton.
Krugman, P. (1996). Ricardo’s Difficult Idea. www.pkarchive.org/trade/ricard...
Krugman, P. (2019). What Economists (Including Me) Got Wrong About Globalization.
www.bloomberg.com/opinion/art...
Krugman’s Nobel Prize details, explainer, and papers:
www.nobelprize.org/prizes/eco...
Catalan, J. (2014) Krugman’s Alternative Theory of Trade: www.economicthought.net/blog/2...
Krugman, P. (1979). Increasing returns, monopolistic competition, and international trade.
books.google.co.uk/books?hl=e...
Krugman, P. (1980). Scale Economies, Product Differentiation, and the Pattern of Trade. The American Economic Review, 70(5), 950-959. Retrieved May 28, 2020, from www.jstor.org/stable/1805774
Krugman, P. R. (1981). Intraindustry specialization and the gains from trade. Journal of political Economy, 89(5), 959-973.
Krugman, P. R. (1985). Increasing returns and the theory of international trade (No. w1752). National Bureau of Economic Research.
Krugman, P (1994). The Fall And Rise Of Development Economics web.mit.edu/krugman/www/dishp...
Krugman, P. R. (1987). Is free trade passé?. Journal of economic Perspectives, 1(2), 131-144.
Baker, D. (2016). Rigged: How globalization and the rules of the modern economy were structured to make the rich richer. Washington, D.C.: Center for Economic and Policy Research.
Rodrik, D. (2012). The globalization paradox: Why global markets, states, and democracy can't coexist. Oxford: Oxford University Press.
"Everyone telling me I'm wrong is an uneducated fool!"
[later]
"NO ONE COULD HAVE PREDICTED I was wrong!"
The absolute arrogance
when the uneducated fools can all tell you're wrong, you're in deep, deep trouble.
And to this day he still stands in his soiled diaper, crying to the masses with a coin in his mouth
Every politician when the 124th Corona Wave hits
@@WhiteThunder121woosh
"He was so insufferable that the New York Times eventually gave him a column."
It's hard being a leftist and studying economics at the same time. I love the left and breadtube but there's very few people with a deep insight and understanding of economics, I'm glad this exists.
look into MMT
um no - this is gibberish on the level of Jordan Peterson, Trump, and Karl Marx.
@@rer9287 Karl Marx isn't gibberish lmao.
@@rer9287 The Irony is too strong
There’s a range of factual “left” leaning economics out there - but on the other hand right wing economics has given us the Laffer curve, austerity and justified much harmful inequality so not sure what your point is?
My understanding is that the comparative advantage argument is correct in that both countries end up overall wealthier. The issue is that we don't distribute those gains to the "losers" of globalization, they go to the stockholders of the multi-nationals. In addition, re-training programs are ineffective, so not only to the "losers" lose their well-paid jobs, they don't tend to bounce back. When you consider that it's very unlikely that we'd see any free trade agreements written with sufficient provisions to protect the working class, the alternative (protectionism) makes more sense if you don't feel that the trade-off is worth it (i.e., trading the livelihoods of many Americans for the enrichment of the upper class & cheaper consumer goods). This of course does not consider the effects on the countries we are trading with, beneficial or detrimental, but those rarely come into the calculus of writing policy.
Great channel, I look forward to seeing you get big.
Comparative advantage serves as a great way to prove that there are gains to be made from trading. It doesn't say anything about WHERE those gains end up.
For that question we need actual data, not just models.
There are also other problems.
As my father likes to say: Sure, the Germans build better cars and the Greek make better olive oil but imagine how much olive oil the greek would have to produce to buy a single car. So they resort to getting a loan for their car and paying it bit by bit and who likes to sell more cars? The Germans. So is it really a wonder Greek is so indebted to Deutsche Bank?
Basically the problem arises when your comparative advantages is in a less profitable industry.
@@PhilfreezeCH Well, the example usually used when describing comparative advantage is so banal and simple it REALLY shouldn't be used in any real world context.
Greece isn't just good at producing olive oil (them having one of the largest ports in Europe is one thing for example). But also, geography is a lot more complicated field than neoclassical economists give it credit for.
It's super easy to just point at Greece and claiming it is good at producing olive oil (or Japan as rice and fish producer, or Ethiopia as a flower producer). But in the real world, if an answer is that simple, it is probably lacking any real world relevance. Neoclassical economists told Japan to focus on rice, as Japan was one of the premiere rice producing countries back then, and without any natural advantige in industrial production (no good iron, coal or oil sources, consisting of small islands). So the World Bank economists told Japan to focus on rice, while Japan told em to fuck themselves and invested into steel, then machine manufacturing, then took over the car market. In the process, completely destroying the English car industry.
The Japan example really is a good example to shoot down the fallacy that just because specialization and trade leads to better economic outcomes, a country should embrace some surface level idea of what their comparative advantage is. The world is far more complicated than to use such a simple theory to guide policy in such large and complex entities as countries.
The world is not a computer game where you can math out what your comparative advantage is on a country level. But you can use the theory to figure out how to assign different work to different team members on a specific project. Or to accept that you don't need 100% self sufficiency in everything in a country. It is, after all, more effective to trade.
Why would a policy maker concern themselves with the welfare of people who can neither affect the vote nor have them couped?
We don't distribute the wealth to those who truly deserve it, that is, those who actually make the goods on the first place.
Finding your blog/twitter account a few years back was both the best/worst thing to ever happen to me academically. It allowed me to get a little bit closer to the truth but made it impossible to pay attention in my econ classes as an econ major.
could i ask why?
@@timnergaard3831 mainstream econ is bullshit
Please pay attention to your classes, because you cannot criticize something without knowing them, right?
This was really enjoyable. Interspersing economic arguments with Simpsons references is something I one day hope to see all economists do!
The Simpsons reverences made me miss Phil Hartman
Economics as a field has, for a long time now, had two major problems in my view.
The first is that it is inherently political, as any economic theory is going to promote one distribution of resources over others. There are lots of other reasons, but I wont list them for brevity.
The second problem is related to the first, and that is the enormous case of penis envy that economics has for physics. In my view this stems from the fact that economists like Milton Friedman kind of understood the political nature of econ on some intuitive level. The problem was that it's hard to make truly authoritative pronouncements from a political foundation. The solution they "found" was to rely on mathematical models, which to people who dont understand maths gives the appearance of objectivity (not saying Im a mathematician, but I have taken enough maths at uni to know that just because you can write an idea as a mathematical concept does not automatically make that idea objectively true).
It was basically an attempt to mimic the appearance of physics in order to gain legitimacy.
Not saying mathematical models cant be
useful, but I always laugh when I see economists say stuff like: we can see that this works if we model it "using a Golden Rule, steady-state economy where the rate of interest is equal to the rate of population growth"
Which is like a physicist calculating climate change by assuming that the atmosphere does not change.
If you want to see how full of it some economists can be. There is a great mini series called 'this is neoliberalism' it's 5 parts but believe me it is well worth the watch. Really going in depth as to why our current society is the way it is and why econ is an absolute joke in its current mainstream form.
I heard a discussion about the normative component to economics not too long ago. In order to sidestep notions of political bias, most economic work being published/shared in academia is only really concerned with pareto efficiency in terms of their recommendations, but that is generally quite useless as expecting win-win scenarios is idealistic at best and paralysing at worst. So, with free trade it's not just that models were simple, but there was an active pressure on those working on them to say 'there will be no losers', and so the ideal work of freeing up trade whilst enacting domestic aid policies for those who are adversely affected by it can't really get started because it's a scenario economists are asked to not consider. I think it's something that's represented more broadly in western politics: when was the last time a politician readily admitted that their policies may harm a portion of the citizenry? Even Trump, for all of his combative rhetoric, never suggested that any of his policies would hurt any Americans (though obviously he proudly claimed to be working against foreigners, be they immigrants or China). The best I can recall was the carbon pricing scheme brought in by Gillard in Australia about a decade ago (where substantial compensation was also offered), but she was excoriated for it.
I majored in econometrics at uni so I get the appeal for models to be developed and hopefully tested and that they can lend authority to ideas that otherwise would have little, but yeah, I think that obsession with strictly pareto gains is another sort of 'objectivity' that's obscuring the inherent subjectivity of economics and leading to an underdeveloped understanding of the economy for many people.
@@jameslaw6945 mate i never studied economics and probably for the better as i'm able to critical of all sides. I would suggest for truly mind blowing understanding of how we ended up here. Look on youtube for a 5 part documentary called 'this is neoliberalism' i knew things were messed up but this documentary really showed how much has been at play from the business and wealthy classes is truly astounding.
I don't think the problem is economics itself but rather what's attached to it and how it's used.
Economics is different than physics not just in being a soft science compared to a hard science. Physicists aren't advisors to the most powerful people in the world and don't influence decisions that affects billions of people.
Economics isn't just affected by politics, it's a political thing in itself.
Math is a very good descriptor. It's the perfect descriptor, actually. You can describe things that are real, you can describe things that could be real, and you can describe things that are not real at all.
I've been following your twitter account for many years and it was hugely helpful in getting me through my economics degree. Not feeling alone in thinking "surely this must be bullshit right?" at least got me through it so I could focus on other things. I think youtube is a great platform for this and it would be great to have videos to link to other economist friends for some unlearning
Though this information might come too late; there are organizations out there pushing for a more open, pluralist economics, giving voice to heterodox perspectives and pressuring for a a reworking of the science. If you're interested, check out the (student) organization 'Rethinking Economics'!
@@michaelm8265 Thanks! I am actually a member of Rethinking Economics as well as a few others, but this info is great for anyone else looking!
@@fcknoise Great! Likewise, hence the plug! :)
The gravel institute is a good youtube channel to look at.
This video largely misses the point, even if comparative advantage were completely true, the distrubtional issues could still be substantial. Moreover it in no way discusses that the empirical evidence was largely in favor of mild distributional effects of foreign trade until the early 2000s.
You are like Shaun but for economics.
that's an insult
Krugman, PhD, Nobel Laureate...
I remember watching a documentary years ago. I believe it was titled Animal Spirits. It was about Keynesian economics. There was a PhD economist being interviewed, who refused to acknowledge the existence of 'bubbles' in an economy. He was adamant and at one point challenged to interviewer to show him '...a bubble in those equations', as he pointed to the white board behind him. And this was post 2008, mind you.
Yanis Varoufakis calls neoliberalism a religion with equations.
Something we’ve needed on leftist RUclips for some time now. Truly appreciate your work here.
I’m both incredibly happy I found this channel and frustrated by my own lack of knowledge in this field. Thank you for your work.
Hey it'd be really cool to see a video on tax havens and how to prevent them if that's even possible. Enjoying to content hope to see your channel grow big!
As an economist, I agree that economists often confuse tractability for truth and often take models far too literally given the underlying assumptions. That said, I still think formal models are inherently valuable because they are can be tested rigorously and used to make specific predictions.
Note the words: predictions, not dictations. :)
Dear people in the comments, Sensible Critique of a scientific theory, way of thought or even ideological ground isn't an invitation for anti-intellectuallism and rejection of the whole study. Critique clears the path for new ways of analysis, skepticism and imagining a better alternative or proper fix of the problem. Critique isn't a destruction of concept but rather it's a deconstruction from which we can proceed forwards knowing past mistakes
Great video! As someone with a lot of interest in economics, but no formal education, I've always had questions about economic models.
Here's one of them: do the problems of these free trade models often boil down to the fact that people are unlikely to move for new job opportunities? And that they fact real costs in doing so? Or are there other problems involved (beyond assuming full employment, as mentioned).
Most of the models assume that workers can shift costlessly between sectors, there are some newer strands of literature which are more atuned to the adjustment costs but I think even casual observation can get you there quicker.
@@unlearningeconomics9021 Is it possible that economics is one of those fields where, the more you learn, the more you're wondering whether it's all just one giant Kafka novel?
I was just really getting involved in anti-capitalist political organizing and actions during the "anti-globalization" movement's (significantly made up of and driven by internationalists and trade unionists making the name a little suspect) glory years and can still remember how Krugman and others acted like we were all ignorant children while themselves acting like arrogant know-it-all's who were seemingly intentionally missing the point.
It didn't take an econ major to see what was coming but they were either so lost in theoretical idealism or intentionally dishonest that you'd never know it hearing them talk back then. I was pretty young and even I had a decent grasp on what was happening before I ever got plugged in with the anarchist movement, so they had no excuse.
We'd already seen the immediate aftermath of the signing of NAFTA and other trade deals so by the late 90's-early 00's this wasn't a mystery and it seemed clear that the equilibrium they claimed would fill the void of lost employment was not coming and things were trending in the opposite direction that they'd claimed. We already saw parasitic opportunist companies swoop in to provide "jobs training" to newly unemployed workers who's jobs had poured over the border only to quickly pull up stakes after getting fat checks from the federal government and leave them with nothing but worthless certificates, of that. We'd watched towns and cities that were barely hanging on from the deindustrialization push that started in the 70's start to crumble entirely.
But they held firm for decades standing by this quack econ model with little to no evidence behind it, and a lot against it, til they couldn't anymore cause no one was buying no matter how many Sunday shows they spewed their bs on. People like him stood by and offered reassurance to the public while providing cover for the corporations that obliterated communities and plunged working class areas into desperate poverty that there's still no end in sight for, "sacrifice zones" where the population has been forgotten after the employers left town.
That's unforgivable as far as I'm concerned. And further evidence that economics are not treated as a science by most economists and is very likely incapable of being a science even if they did. It's far more ideology than science which is why they cling to their schools of thought and models even when they're proven failures. Glad this channel exists 👍
✊👊🖤☮️🥀🏴🌐A///E
I often say and i took this from Prof Richard Wolff(though i paraphrase it), you don't need an economics degree to know when you are being shafted. There is often a gut feeling that can often teach you more than a uni degree.
I wouldn't assume that scientists don't cling to their schools of thought and models when they are proven failures. But other than that, this was a great read, and thanks.
Your channel is like exactly what I was looking for, great content
I'm in the first year of an economics(+mathematics) bachelors, I've just finished up a section including comparative advantage and it's good to be able to hear others' thoughts on stuff like this.
Thank you for this video. People need to understand that models are not truth, but are human-created, value-laden representations of a phenomenon. For instance, somebody needs to make a decision on what are the relevant outputs of the model or how to measure the phenomenon - these decisions are inherently subjective, there is no objective way to make those decisions.
But models are useful. For instance, putting ideas into mathematical form allows you to test if the idea fits with real-wolrd data. Or if you're confident in idea, the model can then allow you to make predictions based on the idea to help prepare for the future.
Importantly, when testing whether a model fits real-world data, we must keep in mind that many models with different underlying assumptions can fit the exact same dataset. Therefore fitting data shouldn't trick us into thinking that the underlying assumptions of the model are true. Rather, it's only when our model doesn't fit the data do we really get information (i.e. there's something wrong with our model).
I'm not a economist, but I'm a biologist who spends a lot of time thinking about models in my own field (so take me comment in the that context)
It seems to me that a key issue with globalization has been it's one-sidedness, establishing international protections for companies without international rules. For example with most trade deals focusing on giving investment dispute agreements that favor multinational corporations, but not including provisions for countries to go after multinationals based in other countries for tax avoidance, or failure to comply with regulations.
Yes, you just illustrated the very point of capitalist globalization.
That is the intention. Limitless exploitation.
If I could make a suggestion, in addition to Dani Rodrik's excellent book on international economics, there is the very accessible book written by Australian economist Graham Dunkley on 'Free Trade, Myth, Reality and Alternatives' (2004). It was written in the aftermath of the first big wave of alter-globalists, and though it features a somewhat idiosyncratic perspective influenced by Mahatma Gandhi's philosophies, it is a very solid and accessible companion to any student starting the study of international trade. I used it reliably as a source for engaging with the professor of my first course in international trade, and the experience was very, very productive. For example with regards to engaging with the idea of comparative versus competitive advantage. Strengths and drawbacks to each framework are usually ignored in standard courses.
absolutely brilliant, look forward to what you do in the future!
Great post. I moved away from economics to more historical approaches for some of the reasons you identify. I also read the article by Krugman on Development economics years ago and found it very disturbing. I am so glad you brought it up. Its demonstrative of an arrogance that can only have tragic consequences. Just one quibble - careful about attributing all the problems to globalisation. In rust belt areas, historians for a long time have pointed out that the rot started before globalisation - related to firm behaviour, the increasing power of shareholders and the weakening of labour organisations, to just start the list. You could argue that globalisation just dealt the final blow to industries that simply were no longer able to meet the challenge. I am not saying you do this, but also don't repeat the neo-classical economists mistake of regarding technology and globalisation as independent factors. Globalisation and technological change are related, they feed off each other, as we saw during the Industrial Revolution.
We need more economically literate people on the left. Good job!
Check out Grace Blakely and Yanis Varoufakis - both of them are excellent
We do, yes, but this guy isn’t one of them.
@@zoewells3160 How so?
@@sdprz7893 While I do admit they understand (mainstream, Bourgeois) economics miles better than about 98% of the people on “BreadTube”, they are still clearly not Marxist, and, from what I’ve seen of this person, they appear to be making some sort of attempt at “synthesising” Marxism and Political Economy, which is ironic, despite their name being “Unlearning Economics”, that they still have these ideas rooted firmly in their head. They also often (more on their Twitter than on this channel) argue for reformism, even using phrases like “making society more Socialist”, as if Socialism is something that can be measured by degrees. Like I said, I admit they are infinitely more economically literate than most of BreadTube, but they are still a Social Democrat, just a Social Democrat who knows more big words and economic terms. I can’t really make a detailed Marxist critique or anything since I’ll admit I haven’t seen enough of them (just enough to know I’m not a fan of what I DID see), but the best way I can put what I HAVE seen of it is that if RUclips had existed at the time they’d be someone who Marx himself would criticise but at least respect enough to consider their ideas worth criticising, and BreadTubers would be people he would consider too dumb to even bother with.
@@zoewells3160 I respect your point and position as a socialist, as I am one myself, but surely you have to engage with his ideas and show why their wrong? I dont think its beneficial for you, or anyone, to disregard the views of someone who you admit is better read, purely because the outcomes of their arguments indicate a different ideology to yours (and an ideology that is different by a matter of degrees some might say). Otherwise youre entering the space of political dogma. Im not saying to drop or suspend your position as a socialist because someone has a half decent argument, but just be open to it being changed and listen to people who are striving in large part for an economy that serves human need rather than oligarchic greed.
Also, Id argue that some forms of social democracy, that have a Marxian basis, can bring us incredibly close to what many imagine as socialism as an ideal type, and if someone knows how to do that then why should we ignore them when most of us admittedly dont have a clue lol.
Great stuff - I am looking forward to future videos.
I love your content. It’s exactly what I was looking for and it’s exactly what we need!
MUCH needed context for leftube's Political Economical standpoints. Great work, man.
i gave up on economics after listening to yanis varoufakis. i realize its just mostly subjective philosophy and politics about resources
@@Confucius_76 I wish I could thank yanis. He's a wise man
It IS politics about resources, which is exactly why its important
@@ghufrankhalid1719 i understand but it's not taught in that way.
@@gengiz80 Yeah I get that. I'm a student of Economics myself and it can get pretty frustrating at times how the mainstream academia is committed to approaching Economics as an objective science free from any value judgements. Have had some heated arguments with my classmates over this, who see no problem with this approach
@@ghufrankhalid1719 Economics is inherently a subjective science though. Economics is dictated by human wants and needs, and both of those are always subjective and changes with time.
Yesss! More of this!!
🖤💜💙💚💙💜🖤
Thank you for creating this channel and making these videos!
I don't think that Paul Krugman is always right, but there is a lot of value in listening to him. The man understands politics incredibly well. If you want to know what the democratic establishment is thinking, Krugman will tell you.
As someone who protested against “free trade agreements” like NAFTA and the MAI in the 90s, it was frustrating to be condescended to by economists explaining comparative advantage when much of the critique was that these “agreements” were only marginally about eliminating trade barriers and were largely about insulating businesses from democratic regulation.
Paul Krugman, the greatest economist of our time, who had the foresight to see the internet (arguably one of the most profound achievements of human kind) being no more impactful than a fax machine.
My background is in history. Specifically labor history with special attention to economic perspectives to historic interpretation. My general way of looking at economic models is basically "if it mathematically works out on paper, it is a possibility. But it relies on all variables lining up exactly how you plan them to in the model." I think economic models would could be perfect if not for the existence of people. Tell me if I'm wrong here. That's been my general interpretation of economics from a historians perspective. But, in the end, I'm a historian not an economist.
Just shows that economists and people many other academic fields need to study history (as it relates their field of study) as well as economics or whatever they are seeking a degree in. Because history tends to be more firmly grounded in the real world.
Economists should study history. Far too many are dogmatically attached to their models and modes, and don't seem to care if their economies never function as designed. Flexibility is a necessity.
i feel like protectionist arguments generally fail on two fronts:
firstly, the relocation of jobs is not a net loss of jobs, and any criticism not considering the jobs on the "other side" is just nationalist.
secondly, jobs are not an economic good in the first place. if people suffer because an unproductive jobs disappeared, then the reason of this suffering is wage dependency. instead of using resources to promote unproductive labour, these same resources can be used to decrease poverty directly via UBI and stakeholder ownership.
Yeah, I agree, but then again, as someone from a third world country, I feel the worse problem when it comes to open trade between countries at hugely different levels of development is that it can be a tool for economic dominance (and whether or to what extent that is intentional or not I don't think is all that important)
@@user-sl6gn1ss8p i would think that limiting who someone can trade with is much more of an act of domination than any voluntary business offer.
i'm not saying a voluntary agreement can never be bad, but that the solution is not less choice in agreements. rather one should solve the conditions that get people into bad agreements and give people a way out of them. no matter the nationality.
if different parts of a country have a different level of development, do you think protectionist measures would make sense?
@@user-sl6gn1ss8p oh, another thing that's probably more important than free trade is free migration.
and of course the existing "free trade agreements" are just as much about protecting monopolies, especially copyright patents. instead of rulers hashing out some foul compromises (which are necessarily more about them and their cronies than about their subjects) we should just get rid of border enforcement.
@@sofia.eris.bauhaus sure, I'm all for getting rid of border enforcement, capitalism and the government and letting people go wherever they want and trade with whomever they feel like, but I'm talking about "free trade agreements" as they are presented to the third world now and for the past few decades. In the medium to long run, they can in fact reduce choice in agreements for the poorer countries and, specially, their populations, by helping to deny their development in key areas and/or shoehorn them in others, for example.
Also, neither those agreements nor protectionism can be seen as voluntary anyway - again, specially for the people at large - when such disparities and the current economic and political systems are factored in, even more so taking into account things like the IMF or US meddling in latin america. There's really no free choice to be spoken of here.
You kind of do have the truth but it also defeats your complaint. The relocation of jobs is very bad because it's a shift in power that makes unions more passive and usually lowers the wages of the jobs that remain. Allowing unchecked outsourcing of jobs is very bad cause it means the capitalists will have more power as they have the means to shift locations much more easily than the workers do and can use this to play workers off against each other. Also using national and linguistic barriers to divide them.
The globalization issue is overstated, most of the job losses are from automation.
No. Technological advancements the last several decades have mostly been digital so it feels like we've gone through some sort of tech revolution, but this hasn't really affected the production of consumer goods noticeably. The rate of growth in production has been very low since the 70's which is the opposite of what would happen if we had lots of automation.
@@PizzaRollExpert
Their is the fact that spending on capital goods has declined, as well as declining birth rates, monopolization doesn't help as well.
The bit about the importance of models over observed data made me think of the story of how the humors theory of medicine destroyed a cure for survey
This is the good shit right here. Concise & informative. Love it.
This video has around 8 times the views of Krugman interview recommended to me below.
I like how economists immediately discarded the idea that consolidated/older companies tend to be really inefficient, despite overwhelming amount of data that seems to point towards it being the case in decent percentage of said firms
I would love to see a video about Post-Keynesian view on the economic consequences of brexit. Given that the topic is highly relevant for the future of whole Europe, I would love to see your perspective. Brexit is also controversial among leftists so it would be an interesting topic.
The video could be structured as a response to Three Arrows' video on brexit, which presents a pro-EU left-wing view.
I wish you made far more clear the general policy you hold towards free trade granted all this. The understanding that Krugman has come to, and that I generally agree with, is that free trade does as a whole raise wages in a country and has a negligible impact on overall unemployment. However, the losses and gains from free trade are not equally distributed, so without state intervention certain sectors of the economy will be harmed in very real and visible ways. The conclusion from this seems to be that we should engage in free trade but redistribute its gains, rather than reject it.
Are you confident such an approach can work? Wouldn't there be an opportunity for people who've acquired the gains to use them in order to limit efforts to redistribute them? Where does the political power come from to achieve this redistribution?
Then why dis krugman support protectionism like NAFTA
It's state intervention that causes this problem in the first place.
12:00 lol good one, comparative advantage was taught as a straight up undeniable fact in my intro to macroeconomics lecture (alongside every other oversimplified neoclassical model with ludicrous assumptions)
Currently taking Microecconomics and we have to use a book by Krugman. The book is insufferable in its opinions. It is actually pretty good when it just talks about the models and the math behind them but its opining and general complete disregard for anything other than free trade is always good, price controls are always bad, etc. is grating. It completely ignores any other contributing factors to policy other than its version of economics. While I can understand focusing on the economic theories for why some public policies may be more desirable than others, completely disregarding sociology gives dangerously wrong impressions. I've taken many other courses in other areas and have not seen such disregard for other fields having contributing importance.
Unlearning Economics: Comparative advantage...is a neat way to illustrate the gains from specialisation and trade, and it's so obviously unrealistic that as long as it's taught properly it would never be taken too literally.
The Laffer Curve: [Pretends to check watch] Oh is that the time already? I really must be going...
can confirm that when i was studying economics in australia (2014 to 2018), they were using comparative advantage examples *exactly* as described in this video; there was no critique of globalized free trade whatsoever
Everyone wins!
I learned a lot and really like it! Thank you very much
On that final point about comparative advantage over Krugman, it's almost like how web and app designers use wire-frames rather than fully realised-seeming imagery. If the plan (or in the case of economics, the theory and related mathematical formula) are too polished, they give an impression of finality which is spurious and relates more to the presentation than the content.
Another great video!
Great video
Great channel, watched 3 in a row here. You ask if we have any questions- I do.
What might a functional economic system based on sustainability rather than profit actually look like?
This model is very vague in a way but I suggest reading Doughnut Economics by Kate Raeworth. Her model includes social issues and environment issue(sustainability as you want).
Worth listening to Michael Hudsons views on economics and Paul Krugman.
Singling out globalization for a loss in manufacturing jobs is missing a lot of other factors. It's not even the primary reason. The largest contributor is the rise of automation - if a machine can do the job of a human more efficiently and less costly, manufacturers are going to opt for that route. Manufacturing output of the US has actually _increased_ over the past three decades; the difference is that the products are being manufactured by machines. Similarly, outsourcing manual labor is a choice of the manufacturer. Tariffs will not prevent that.
As far as rising wage inequality goes, that can be more closely linked to union-busting than trade. Manufacturing jobs are also not the only types of jobs that exist. Less manufacturing jobs does not mean less jobs overall, as other industries and types of jobs have grown in the meantime.
Would you say that comparitive advantage is a reasonable explanation of why the UK moved away from manufacturing and more towards financial services?
Seems like it but, Keynes' criticism of Ricardo applies here too: beware economists that are telling you that a policy change you are thinking about will be frictionless. The same poor understanding of Comparative Advantage permeates Patrick Minford's analysis for the ERG.
Great video!
I came for the economics, but I subscribed for the relevant Simpsons clips
Economists knew there would be losers from trade, they just didn't care because markets will sort things out on aggregate. Sure they will... maybe over the course of 50 years. I mean I find it ironic that many new-Keynesians recognised that short term recessions can have long lasting scarring effects on an economic growth, but didn't think that sustained and concentrated economic depression in particular sectors and geographic locations might be bad.
Hiii, just found your channel. Would love it if you also talk about ideas of Thomas Sowell
Great video.
An economic theory on trade that ignores employment and other social issues is like a physics theory on electromagnetism that ignore electrostatic force.
I have a really hard time deciding whether you understand the limitations of models, or whether you don't understand models.
What are your thoughts on the notion that wealthier countries can simply buy their way into comparative advantage, either by creating protectionism in trade deals, having a head start in the global economy overall (r > g), or using their existing wealth to buy up or imperially take control of poorer countries who may compete with them? It seems like the problems of capitalist accumulation make equitable global trade impossible in the long run, would you agree?
Remember that very few countries had a "head start". Most impoverished nations were impoverished by centuries of colonialism, and then engineered to be further exploited after so-called "decolonization".
In terms of the regional or "local" impact o trade, both Krugman and Sachs have now said that trade can create systemic winners in losers in certain areas, but that capitalists or elites could compensate the losers to make the system more suitable, I was surprised you didn't mention it. It should be a red-flag to anyone the idea of compensating. Just looking at money flows is not enough in this context. If we gave every ex-car manufacturer a lifetime wage as compensation, I don't really see that "fixing" everything. Where there is work and participation, there is community. Leaving people "outside" the outcomes and as spectators in their own circumstances seems to me one of the biggest problems we create in these systems.
I know this is months after you uploaded this video, but I'll post my idea anyway, and hope you see it, and at least think it's interesting.
I call it "Single industry, multi-lateral free trade" The idea is that, instead of trying to harmonize the whole economies of dozens of countries, you only do so for single industries, with the countries that currently participate in said industries.
I look forward to the books mentioned at the end because we know that countries like Denmark practice free trade and yet do a better job of sharing its wealth.
Thank you.
I fucking love this. Or. It is perhaps a bit too close to my own thoughts and reflections when I studied development studies, economics, and human geography myself. It being close to my own field, and my own opinions, it might get boring. But I will certainly recommend you to people
this is good stuff.
Keep it going we need more leftist content
This comparative advantage between countries seems pretty much almost the application of the same notion of why we're individually better off specializing rather than being all survivalist Jacks-of-all-trades. But perhaps this more individualistic view or analogy of the principle also exposes more how different specializations are differently valuable in the market. I'm not an economist or anything, but somehow I don't feel protectionism or Jack-of-all-tradism are the best ways to deal with the problem(s). Maybe investing in others' businesses somewhat like Norway's sovereign fund is more desirable at the country level, I don't know. And individual forms of savings for the individual level, even though maybe universal basic income and the like would also help.
Of course there is some specialization in a country's production that is due to their geography and what grows there, but that was far more relevant 200 years ago. Today such regional climate dependent products are a much smaller percentage of a country's economy.
I recognise the comparative advantage table from Mariana Mazzucato's book (which everyone should read) :-)
I'm curious about people's reaction to econometric modelling in relation to this argument. As kind of a hybrid of a hybrid between qualitative historical analysis and more standard econ models, they fill an interesting niche but tend to be relatively complicated in a way the conclusion to this video probably wouldn't love, but I'm not sure.
There has also been a lot of positive findings coming out of these empirical studies, at least from my perspective, like support for minimum wage increases (up to a debatable point) and land value taxes. These findings have been useful to me in shaping my world view, but also in convincing more right leaning folks that these ideas are actually good economics with justified support. Then again, they could suffer from similar issues that plagued traditional modelling. Curious about people's takes here.
Can you link me to some of those studies (or give me some good search terms)? minimum wage increase/LVT etc seem like a good idea intuitively, but I feel like I need to learn a lot more about it before I'd be comfortable debating in support of them.
Fundamental issue with Comparative Advantage that is ridiculously easy to understand is that it COMPLETELY ignores power dynamics between traders. It assumes away all coercion. At best, it provides for coercion to be added as an additional layer of complexity on top of the non-coercive base model, when the reality is the exact opposite: most trades in the real world have some degree of coercion, and it is the exception (pure commodity exchange in an open, equally accessible market) that is non-coercive.
It's this kind of magic hand-waving that makes the Economics profession the butt of so many jokes, and makes a joke of the entire enterprise.
And it's pretty obvious why Ricardo and his followers would ignore coercion, and attempt to hoodwink the world into believing that colonies were happy to send all their riches to the Motherland in exchange for death and destruction. Doesn't take a genius to see that politics, then as today, always trumps intellectual honesty amongst economists.
This is somewhat true. Actually everything up to the point about colonies is true. Coerced trade is still trade, colonies gained capital from their exports, its just a matter of where that capital went in those colonies that was often the problem. That is to say, in all but a few instances the gains for a colony went entirely to its aristocratic owners who immediately invested it into further specializing the colony to make money for them and only for them.
There were colonies where coerced trade expanded the economy into a more proper one like the US. The colonial economy was too diverse to specialize and too populous for all the gains from trade to go only to their respective upper classes.
My point is essentially trade does legitimately always widen the pie, instead the problem is that doesn't mean everyone gets to eat it.
@@bread1958 The thing is what you said doesn't defeat his argument. Equal trade in an open and fair manner is the exception in the real world, not the norm.
@@MrMarinus18 I mean yeah, because he's kinda right! I was reconstructing not deconstructing.
When Krugman says he has a model that means that there is something that is testable. If it is not testable, it is not worth learning.
Globalization may make economies wealthier but do not mean that there will not be winners and losers; the government might step in and help the losers. And it is not just globalization that causes winners and losers; capitalism causes winners and losers. When Donald Trump said that he wanted to help coal miners, by the end of his term 25% of them were out of jobs.
As mathematics student working in modelling I find the modelling approach presented to be bizarre. You can only validate a mathematical model if it reproduces observed patterns in the data , i.e. there is no basis declaring that we should use a model or that it is correct without comparison to what is actually happening. What was the level of validation for the result I wonder? Mathematics is always based on assumptions so is a supplement to traditional understanding not a replacement.
Comparative advantage is just an idea the example show is just there to illustrate the point it's not a model. It's saying that specialisation + trade will leave you with more goods. It doesn't have to be trade among countries. Every individual is different in their talents, abilities and opportunities. Let's have two people a fisher and a woodsman, they could dedicate their time by both gathering wood and catching fish through their day. Fisher has an advantage perhaps just because he lives nearer water to fishing and woodsman because he lives more near the woods. Let's say they are 50% less effective because they have to travel the percentage does not matter. If they spent the same amount of time doing both tasks individually they both would end at 25% loss in overall goods. That happens even if one is overall better at both tasks it shows that specialisation + trade brings you more goods.
It has nothing to do with Globalisation or "free trade" deals. Those are political in nature and contrary to free trade as an idea. Economics by itself on the other hand is free of value judgements, what it can at most do is say if then. If you want more goods, specialise and trade. In addition to all of this Comparative advantage is not empirical concept, it's a rational deduction, you can't prove it with data nor disprove it with out showing logical flaws in it. All of the "maths" in it are there only as an example to illustrate the point, that if you specialise in things you are good and trade the surplus for goods you need you will have more goods in the end, than if you would produce everything yourself.
I agree that Keynesian economics brought us a lot of problems, but this doesn't really address the flaws in it and then throws the baby with the bath water by trying to discredit solid economics. And it's obvious what you are doing here you are constructing a narrative and you wanna find a bad guy in your story that is responsible for all of the ills we face now.
I think I understand your example, there is an advantage to trade because of time wasted travelling. I wonder if you could explain for the example about the UK and Portugal, how it is in Portugal's interest to trade, when it appears to be better at making both? I read policonomics.com/comparative-advantage/ but I feel dumb because it still seems to me like Portugal would be better off just making everything itself.
@@OhSeriously Put it this way - Both the UK and Portugal want 100 cloth and 100 wine. Portugal would spend 5 hours producing wine and 5 hours producing cloth, and have 100 each. The UK would need to spend 20 hours producing cloth and 10 hours producing wine to have 100 of each.
If instead, Portugal agrees to swap the UK 60 cloth in return for getting 100 wine. The UK spends 20 hours producing wine (100 for itself, and 100 for the trade), while Portugal spend 8 hours making cloth (100 for its own need, and 60 for the trade).
The UK then needs to spend 8 hours producing the remaining 40 cloth that it wants. In total, both have the same amount of resources, but now Portugal has only worked 8 hours instead of 10, and the UK has worked 28 hours instead of 30 - so both are better off from trading.
Hope that makes sense. Admittedly, as said in video, it is a simplified example, but it shows the general idea.
Paul Krugman in the 90s iwas the archetypal centrist greybeard who thought Augusto Pinochet did nothing wrong but that having a tax and tariff policy is a war crime.
He got better, but he still re-printed "The Return of Depression Economics" in 2009, complete with nice things about Pinochet, sweatshops and Porfirio Diaz (of all people.) And still somehow became the hero of the Occupy.
The fundamental problem with "Economics" as a field is that economists pay far too little of a price for being wrong. It's amazing to me how blithely economists will admit to being wrong, and almost congratulate themselves for being brave and honest enough to say so.
They can and have been wrong about issues of civilizational importance (see 2008, see the Greek crisis, developing countries, etc. etc.), and none of them even so much as got fired, let alone thrown in jail.
They all have tenure (which contradicts the "free-market" ideology they recommend for everyone else) so it literally doesn't matter to them if they are wrong. The worst they can suffer is some minor embarrassment.
Meanwhile, their theories can and have led to the ruined lives of millions of people.
The upshot is: never listen to someone who doesn't pay a price for being wrong. That includes the entire discipline of Economics.
The fundamental problem with „Science“ is that scientists pay for too little of a price for being wrong. That doesn’t sound right, does it?
@@setfyo9959 Because scientists do pay a price for being wrong. Academic obscurity, debunking by their peers, etc.
If someone dies in a scientific experiment, ethics board will be all up in the face of the scientist running the experiment. Yet when economists use their half-assed "models" to prop up policy to the loss of millions, they don't face even the slightest loss in credibility.
@@antonioscendrategattico2302 An issue also lies in the way economics works as a 'science.' You can look at previous data and use it to model a forecast of the future in a relatively scientific manner, but accurately modeling what will happen when you change something is much harder. In this case, the only real way to see if the model is valid is to change the policy and capture data. As you said, the results of this could be disastrous.
Since economists are often disconnected from the actual policy implementation (the experiment) it is almost impossible to hold them accountable if that experiment fails.
As a layman in this field but someone who's done research, I think maybe we should rethink the ability that economists have to drive policy decisions just based on models rather than trying to hold them accountable. And, perhaps move our economic policies towards a more scientific direction with control groups, etc. This would reduce the impact of an experiment with negative results, though it would certainly make legislation more complex.
For example, you can test a UBI in several counties of different population densities, wealth, and racial backgrounds before trying to implement a UBI nationally (I think this is something that has actually been attempted). For free trade, you could have possibly created a small-scale trade agreement across a few small industries and captured data - this would probably be a harder experiment to create.
White collar crime isn't shunned in todays society. The only crimes you pay prices for is ripping off wealthy shareholders or reacting to the economic situation that you have been placed in by said white collar crimes.
I highly suggest you look for a documentary called dupont poisioning the world. Has next to nothing to do with economics but illistrates the point of white collar crime going unpunished.
This sounds very similar to the argument made by Taleb in his book "Skin in the game". I would be very interested to know what more economically left-leaning people think about his argument.
My memory of the free trade arguments was that along with opening up trade the US would massivley increase spending on infrastructure and education/jobs training.
That second part didn't happen in any serious manner.
Not to say that was the only problem with free trade.
Do workers' rights or democratic vs private control of industry ever factor into this model? Or does it treat nations like monoliths?
Just as I started to watch this.. I was thinking back to what I'd learned and thought, "trade is good for consumers... Only if consumers have money to buy stuff with. If you shift jobs overseas, how do they buy stuff?"
Economic models of trade don't account for jobs lost do they?
Hello! I just stumbled upon your channel through a reddit search, as I've grown more interested in politics and economy. I'm entering my second undergrad year of international business management, and the majority of my courses are in economics and overall administrative management (obv lol) but as my interests keep growing I'm considering specialising in economics. So here's my question! As a newbie and someone that basically knows nothing about economics yet, how can I avoid this "box" most economists find themselves in? Since I have to follow the curriculum my university and professors set, I'll really only be exposed to these limited povs, or studies. I acknowledge a certain amount of research in my personal time is of my own responsibility, but where do I start? If most economists are and stay within the confines of these limitations, does that mean not enough information is out there to "unlearn" economics? I just don't want to "go with the flow" and end up with a shallow mindset, you know?
Whats your opinion on models from econometrics? I think that Econometrics has allowed economists to awnser prieviously unawnserable questions with empirical data. I think the problem is macroeconomics, most macroeconomic models fail because they try to explain something way to big. Macroeconomics is a psuedoscience when compared to labor economics or other branches of micro economics. I think Kahneman explained this pretty well.
i didnt understand but you sound smart
Honestly I'd say comparative advantage can explain the pain of globalization. When some countries have high ratios of capital to labor and others have low ratios of capital to labor, you'd expect those with lots of capital to export goods that require a lot of capital relative to labor to produce and import goods that require a lot of labor relative to capital to produce. This situation would be reversed for less wealthy countries. This would lead to a redistribution of income from labor to capital in wealthy countries and a redistribution of income from capital to labor in poorer countries. Whether the working class in wealthy countries or the capitalist class in poorer countries end up net winners or losers depends on how great these effects of redistribution are compared to the total gains of comparative advantage.
I'm very interested what Your opinion on Austrian school of economics. It's quite populat among libertarians, but almost recognised pseudo-economics by everybody else. Thanks for this video!
So to be clear, PaulKrugman is actually an ideologue with a math degree, like so many economists.
I feel like it's probably concentrated heavily in economics and a few other areas, but science--especially the upper echelons--is riddled with them.
The DSM is run by pharma. Astrophysicists keep running similarly incomplete models to the economic ones, not just through ignorance of the variables, but specifically ignoring variables that contradict their preconcieved notions, like gravity's effect on redshifting. The leading expert on honesty turned out to be a fraud, as did the dean of Standford.
The reproducibility crisis is ENORMOUS. A group trying to reproduce a hundred experiments that are just assumed to be fact by the scientific community found that less than 40% of them could be replicated. It might have been less than 30%. Covibrain.
There's also the positive result bias of journals, and a few problems with peer review in the form of people pretending they understand things that they do not.
I wouldn't call them ideologues so much as narcissists and narcissistic enablers. It's always helping some big financial interest get away with something awful or at the very least appealing to some authority figure in the face of the evidence.
I should think that with everything that's come out about Stephen Hawking and Neil deGrasse Tyson, people would reconsider their trust in scientists that have broken the glass ceiling so thuroughly, and that Michio Kaku's omnipresence after the debunking of his life's work, with him being used to explain "science" in every field, should sew some distrust for all the platforms he goes on and the subjects he "explains."
to be comprehensive and fair, you need to address trade adjustment assistance and other subsidy programs like employment subsidies that reduce income inequality and increase employment. currently, the unemployment rate is at historic lows in the US (generating 'full' employment), despite or because of decades of free trade policies with multiple nations, including mexico, canada and china.
also, if free trade is good (and it generally is), restricted trade is bad (and expensive). that is the main point of comparative advantage theory.
7:30 id argue there is some evidence for diseconomies of scale in large organizations, but great freaking video
This is great but I could’ve done with 2-4 more Simpsons references. Heading in the right direction though.
I recall Marx pointing out that the theory of comparative advantage doesn't work because it misses the effect of increased liquidity on interest rates, which causes a net capital outflow from the country with an absolute advantage in the production of both goods. Essentially, the increase in liquidity lowers the relative interest rate, causing capital to flow to the country without an absolute advantage (with lower liquidity and higher interest rates) as loans seeking greater returns. The outflow causes the money supply to return to pre-trade levels, leaving prices unchanged.
Anwar Shaikh added that even if the lower interest rate stimulates production and income and, importantly, raises prices, it raises prices and *costs* (the Sraffian point being prices affect costs) for both countries in the world market (in fact, it has to given Ricardo's real wage assumption). Consequently, the country without an absolute cost advantage never gains a comparative cost advantage and, effectively, becomes a debtor to the country with an absolute advantage.
It’s very frustrating watching a video about “globalization bad” without any mention of the alternative.
Saying that globalization has drawbacks is not sufficient for saying we should curtail it, especially if the alternative is a poorer country overall.
What are your thoughts on Alice Amsden?
I always assumed that the presence of international patient law and much of intellectual property in ''free trade'' deals, as a trade barrier. So much of what a ''free trade'' deal really is, is not free trade. Since the government is restricting or granting international monopoly rights to companies.
This is a slap in the face of the argument that free trade restricts the power of domestic monopolies, when ''free trade'' deals turn domestic monopolies (where political power can restrain them) into international monopolies (where there is no political power to restrain their influence).
Comparative advantage works in a world where there is no technological progress, and aggregate demand does not exist. Keynes understood that, that is why he wanted an international body to regulate trade. New-keynesians, like Krugman, have forgotten.
But as Keynes also understood that protectionism could only offer help when exchange rates were fixed and protectionism couldnt solve unemployment. Protectionism doesnt increase aggregate demand.
There's a lot of mistaking maps for territories
One of the characters on The West Wing laughs at protesters against globalization, NAFTA and all of that and says literally that "commerce stops wars" and points out how certain consumer goods are now cheap thanks to it.
I mean, the smugness of the (neo)liberal centrism, it was almost a parody of it.
To be fair, there is a case to be made for thay, even though New Optimists are entirely too triumphalist.
For what it's worth, economists aren't immune to ideology. I would argue that Krugman got so popular because his work aligned with powerful economic interests. If he wrote an economic theory saying we should eat the rich and run a planned economy, I doubt he would have ever gotten that column of his
before this I only knew paul krugman as that guy in the 2010 comedy get him to the greek