Thursday, January 17, 2008

Another Hole in the Free Trade Ideology

A recent article in the Economist pokes yet another hole in the increasingly fragile ideology of free trade (and it has become an ideology - accepted as unbiased science, when it is anything but). The highlight of the article is that China's astronomical economic growth rates are not as driven by exports as numbers suggest (that's because exports are measured as gross revenue; while GDP is measured in value-added terms - that means the value of foreign inputs used in exports isn't subtracted - so it makes exports seem greater than they actually are). This contradicts the free-market mantra that export-led growth is the best way to realize an increase in national wealth. The numbers for China suggest that investment is more responsible for China's economic miracle than exports. Add this to the debunked myth of the Asian "Tiger" economies achieving growth following the "Washington Consensus" policies (we now know there was significant government intervention in their economies). Neoliberal economics may be a beautiful parsimonious theory - but so was Ptolemy's model of the universe.

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