Friday, March 9, 2018

Economics 101

As the "best schools," attended by policy makers may have skipped Economics 101, it may be worthwhile to visit basic principles high school graduates understand. Ricardo's comparative advantage holds true in most cases and unilateral tariffs, however "strategic," are value destroying. There are many countries around the world who understood this after many years of bad experimentation. But now, one of the most advanced nations seems to be backtracking. Free trade and free markets are value enhancing for society and if the policy makers have any doubt, they may want to return to high school, perhaps this time avoid the "best ones," and attempt to learn something.
A few people making decisions that determine winners and losers has been shown to be sub optimal. In an integrated world economy, with firms and countries holding comparative advantages in differing competencies and production capabilities, it is always better to create an environment that allows specialization and trade freely. The socialists and worse have had difficulty understanding this concept. Some prescribed how many guns and butter to produce and others misguided by their elite education in the West, strategically imposed tariffs on selected goods and services. Underlying all these bad policies is the assumption that the policy maker has infinite wisdom to optimize. And, that has never worked out.
And now with infinitesimal wisdom, the one who is home alone, is attempting policies that have been conclusively proven to be bad. Education from the "best schools," may not be enough to have sufficient common sense.