WTO Director-General Pascal Lamy debunked some economic myths when he spoke to the Paris School of Economics

He covered the theory underpinning trade economics, what trade statistics show, how trade deficits should be tackled, the impact of trade on jobs, the “race to the bottom”, and why liberalization needs regulation. This is what he said:

It is a great pleasure for me to be here today. I can think of no better place than the Paris School of Economics for what I wish to discuss today — facts and fictions about international trade economics.

Economists have long analysed and helped us understand trade, why nations needed it to prosper, and what governments had to do to reap the gains while managing the costs. The many theories you and your predecessors have developed leave no doubt about the importance of trade to growth and economic development.

But if the economics of trade policy are clear, the politics of trade are highly complex. Trade policy, like so many other areas of policy, has ramifications on how resources are distributed, and this inevitably creates competing interest groups within society. Pressures exerted by such groups mean governments must balance these interests in ways that do not necessarily conform to what economic analysis might prescribe.

The public debate that inevitably accompanies contested policy formulation challenges the notion that open trade brings overall societal benefits. At the same time, contested policy provides a fertile field for the growth of urban legends and falsely premised ideas with popular appeal.

In my comments today, I wish to identify and address some of these fallacies. We need to bring sound economic analysis to centre-stage in this debate. Secondly, I want to locate trade policy in a wider policy setting because it is at our own peril that we take trade policy and all its political complexities out of their proper context.

Read more..

Source: WTO