29 July, 2006

Voodoo Economics

I have been reading this book Silent Revolution: The Rise of Market Economics in Latin America by Duncan Green. It's about how Latin America, hit by the debt crisis of the early 1980s, found itself caught in the embrace of neo-liberal economics. The book is interesting enough, and I may talk about it at more length when I eventually tell you everything you need to know about Latin America.

Green's thesis is that neo-liberalism is BAD. Fair enough, it's not like the region has done particularly well since it embraced the creed. However, he displays a less than total understanding of basic economics, which undermines his credibility when he scoves at the discipline in general or attempts to draw conclusions about particular economic models. The error that most struck me was when he attempted to explain Ricardo's theory of comparative advantage by giving an example of a situation where the different concept of absolute advantage applies. The error is not fatal to his analysis, but it did make me wonder what other clunkers had crept in there. So I am somewhat more sceptical about his overall conclusions.


Paul said...

I think you may be underestimating Mr. Green. The theory of comparative advantage actually builds on the theory of absolute advantage, afaik. Therefore it is not a exactly a "different concept", as you say. There follows an evidentiary quote from a textbook* which I'm reading in preparation for our upcoming module on IPE:
"Ricardo's singular achievement [in developing the theory of comparative advantage] was to demonstrate that trade was a positive-sum game in which all parties benefited even if one party had an absolute advantage in the production of all goods and services".

Then again, I haven't read 'Silent Revolution, so Duncan Green may well be full of shit economically. But perhaps you shouldn't dismiss him too swiftly...

* 'Global Political Economy: Evolution and Dynamics'; 2004; Robert O'Brien and Marc Williams; p. 139

ian said...

As a concept, comparative advantage builds on absolute advantage, but it is a major elaboration. The example Green gives is one where one country can produce one good more efficiently and the other country can produce the other good more efficiently. This is a pre-Ricardian situation of absolute advantage.