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Home / Mike Norman Economics / David Ricardo’s explanation of the case for free trade rests on some basic economic principles, but also has a big public policy blind spot — Miles Corak

David Ricardo’s explanation of the case for free trade rests on some basic economic principles, but also has a big public policy blind spot — Miles Corak

Summary:
There are more issues with David Ricardo's theory of trade than Miles Corak observes, but it highlights an important one. Worth a read. To summarize, Ricardo built a toy model that is useful for thinking a simplified level but it is too simplistic to useful as a model for the actual practice of political economy. Miles Corak points out that failure of trade specialists, not to mention economists that don't specialize in trade, can be traced to their being overly influenced by Ricardo's model without seeing the limitations imposed by its assumptions. Note further than conventional economics is based on assuming scarcity, opportunity costs, and marginal reasoning," and, I would add, maximization and equilibrium, as the starting points. This severely limits the scope of economy

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There are more issues with David Ricardo's theory of trade than Miles Corak observes, but it highlights an important one. Worth a read.

To summarize, Ricardo built a toy model that is useful for thinking a simplified level but it is too simplistic to useful as a model for the actual practice of political economy.

Miles Corak points out that failure of trade specialists, not to mention economists that don't specialize in trade, can be traced to their being overly influenced by Ricardo's model without seeing the limitations imposed by its assumptions.

Note further than conventional economics is based on assuming scarcity, opportunity costs, and marginal reasoning," and, I would add, maximization and equilibrium, as the starting points. This severely limits the scope of economy theory and vitiates its use as it stands for political economy and policy formulation.

Economics for public policy
David Ricardo’s explanation of the case for free trade rests on some basic economic principles, but also has a big public policy blind spot
Miles Corak
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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