Monday, August 22, 2005

Something both "true and nontrivial" in economics.

From a Sunday newspaper book review....
Three Billion New Capitalists: The Great Shift of Wealth and Power to the East, by Clyde Prestowitz, Basic Books, 336 pages, $26.95.

The new economic power rising in the East, smashing that atavistic American totem, "free trade," is headed toward economic hegemony. The United States is doomed to pauperization unless it adopts industrial policies. Such is the compelling message of former U.S. trade envoy Clyde Prestowitz's new book, "Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It."

Whoops! Did I describe the wrong book? Why, yes, I did. Prestowitz wrote "Trading Places" in 1990, just as Japan's "improvements" on free markets sent Japan into an economic plunge from which it has still not recovered.

But Prestowitz does have a new book out about, guess what? New economic power rising in the East that is smashing that atavistic American totem, "free trade." Same milk, new bottle. (I don't say "same wine, new bottle" because many wines improve with age.)...

Polish mathematician Stanislaw Ulam once tried to tweak Paul Samuelson by daring him to name one theory in the social sciences that is both true and nontrivial.

Samuelson's reply was the theory of comparative advantage, the insight that there are gains from free trade between two countries even if the absolute cost of producing all products is higher in one country than the other.

"That it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them," said Samuelson...