Economics Questions

Re: NAFTA Pros and Cons

BrianAnderson — Fri, 23 Jul 2010 00:33:48 GMT

Brian, why is your avatar serial killer Ted Bundy’s mugshot?

I'm very surprised it took someone this long to figure that out. But I just change it to different criminals every now and then. Today it's Ted Bundy, a few weeks from now it may be Pablo Escobar, etc. No real reason.

Free trade will thus cause higher rates of growth in the long run only if it works through these other factors.

If I understand this correctly, if they allowed completely free trade tomorrow, the real income would go up immediately. Just say it went up by 100%, for ease. But what you're saying is, the next year it won't magically go up 100% like perpetual motion, but instead we'll have growth in the long-run instead of these bust-and-boom cycles?

In the middle of writing this, I finally understood the analogy you were talking about. I was confused and now it makes much more sense. Thank you.

Re: NAFTA Pros and Cons

Gero — Thu, 22 Jul 2010 21:55:53 GMT

Brian, why is your avatar serial killer Ted Bundy’s mugshot?

Economist Robert P. Murphy addressed NAFTA: First, NAFTA is not a free trade agreement, just as the PATRIOT Act was not about patriotism and the Social Security Act was neither social nor secure. The NAFTA is over 1,000 pages, detailing all sorts of environmental and labor regulations and establishing supranational boards to rule on disputes. If NAFTA really did nothing but establish free trade, it would be the size of a postcard, and there would currently be no tariffs between Mexico and the US.

But even setting aside this problem, Dr. Rodrik is wrong to claim that free trade is supposed to achieve higher rates of growth than protectionism. (In fairness, many pro-trade economists make just this argument.) Lowering trade barriers will cause an immediate increase in real income, but it won’t necessarily lead to perpetual increases year after year. Per capita economic growth (and even here we run into all of the difficulties in GDP calculation) is due to such factors as technological innovation, institutional reform, and net capital investment. Free trade will thus cause higher rates of growth in the long run only if it works through these other factors.

For an analogy, suppose a manager hires a green worker fresh out of college. Naturally the new employee will have rising productivity as he learns on the job. Now one day the manager discovers that her new hire works with his left arm tied behind his back. After she unshackles his left arm, the new worker experiences an immediate boost in productivity. But after this initial surge, there is no reason to suppose that the percentage increase in productivity growth will continue to be higher, year after year, than it was while he worked with an artificial handicap.

NAFTA Pros and Cons

BrianAnderson — Thu, 22 Jul 2010 21:42:42 GMT

What are the Pros and Cons of NAFTA? I have a hard time understanding it. I know a lot of people have criticized it because it lowers the purchasing power of the USD. I'm not saying this is true or false considering I don't really understand it, but I figured I'd ask around on here.