Learning Objectives
By the end of this section, you will be able to:
- Explain ways in which the Orthodox Economic Trade story is limited as a technique for analyzing trade.
- Define the different types of technical critiques of the orthodox free trade model
- Explain that critiques of the orthodox free trade model are of differing severity.
- Analyze applied examples of the limitations of the orthodox economic model.
Within the discipline of economics not all economists agree with the rather rosy picture presented by orthodox economists in their defense of free trade. Critiques of the orthodox free trade story tend to focus on two areas. Some heterodox economists emphasize what they see as the theoretical failures of the orthodox story, namely its disassociation with the “real world.” Other heterodox economists focus their criticisms toward the orthodoxy’s depiction of the outcomes of trade, particularly the orthodoxy’s conclusion that trade stimulates economic growth and economic development
Upon examination it can be argued that both paths of criticism really represent the two different sides of the same coin. For example, if the theoretical model presented by orthodox economics is, in fact, inaccurate because it is in some way divorced of “real world” context, then the theoretical conclusions drawn by the theory will likely also be flawed. Looked at the other way, if “real world” evidence points to outcomes different from the outcomes predicted or perceived by orthodox economics, then it stands to reason that the theoretical model utilized to predict outcomes is failing in some capacity.
In the following sub-sections each of the two critical paths will be explored. The careful reader will note that the two paths frequently intersect.
Technical Critiques: The Orthodox Model is Poorly Constructed
In this section of the chapter we will explore the model imperfections approach to critiquing the orthodox presentation of free trade. The model imperfections critique is, essentially, a failure of the techniques employed by orthodox economists. There are two main types of model imperfections.
- Type One – Mild
- Type Two – More Severe to Very Severe
For Type I critics of the orthodox economic free trade story, the shortcomings associated with the orthodox economic presentation of free trade is strictly the result of a failure of technique, but not necessarily a failure of the overall theory. In other words, the theory does generalize to the real world, but due to model imperfections such as the model’s choice of assumptions being overly simplified, the model is unable to fully capture actual real world circumstances. The degree of seriousness associated with these critiques can be classified as mild.
For Type II critics, the model imperfections critique represents a much more serious indictment of the standard orthodox free trade story. In this case, comparative advantage, specialization, and trade does not actually generalize well to the real world.