Ricardos difficult idea

By Paul Krugman
By Jos Rivera - 201290042
Contents:
Introduction
Factors that affect the acceptance of his idea:
You just dont understand
The cult of the new
A harder concept than it seems
The two cultures
What can be done

Introduction:
The author compares the aversion of intellectuals to accept the idea
of evolution through national selection and Ricardos idea of
comparative advantage.

The article mentions 3 hypothesis:
Fashionable.
Needs a proper audience.
Aversion to mathematical models.
Factors that affect the acceptance of the idea:
The Trap by Sir James Goldsmith, mentions that Ricardos ideas are
not valid in todays world. Goldsmiths argument is based in:

Pauper labor fallacy:
Foreign competition based on low wages harms the domestic economy.

The truth: It does not matter whether a foreign country's advantage in
producing goods at low cost is due to high productivity or low wages.
Each country should specialize on the goods on which they have
comparative advantage.

1. You just dont understand:
Modern intellectuals are supposed to be daring innovators, not
respecters of tradition.

The article explains how missunderstood is the analysis of
productivity increase, benefits and wage variation by author
Michael Lind.

2. The cult of the new:
Wages are determined in a national labor market:
Workers can move from one industry to the other.
If they achieve western productivity, they will be paid western wages.

Constant employment is a reasonable approximation:
Economy has a natural self-correcting tendency to full employment.
Countries have central banks, which try to stabilize employment.

The balance of payments is not a problem:
David Humes Price-Specie flow mechanism.

3. A harder concept than it seems:

The successful books dont explain mathematical models, they are not
even based on mathematical reasoning.

Economics is not as well served by its writers as evolution.

4. The two cultures:
Facts
What people
want to hear
Take ignorance seriously:
When the economist try to explain or argue in favor of free
trade, they make the mistake of overestimating both their
opponents and their audience.

Adopt the stance of rebel:
Defend old ideas that are proved to be true is not well seen by
everyone, no matter how true those ideas may be.
5. What can be done:
1
2
Dont take simple things for granted:
Dont assume that people understand why it is reasonable to
assume constant employment, or a self-correcting trade
balance, or any other basic argument.

Justify modeling:
Do not presume that people accept and understand the idea
that models facilitate understanding.
5. What can be done:
3
4
Thank you for your attention
Ricardo's idea is truly, madly, deeply difficult.
But it is also utterly true, immensely sophisticated
and extremely relevant to the modern world.

- Paul Krugman