Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I've been wanting to write a diary for a while about some of the different ideas that are used to support why trade is a good thing.  So I'll take a swing at it here.

First, modern economics assumes that utility is independent.  This means that the value to me of a given quantity of utility is the same regardless of how much other people have.  So anything that makes everyone better off in terms of absolute utility is beneficial for all.  This is Pareto optimality.

Suppose that you and I both wish to purchase a pizza.  If we purchase them separately we will both spend 10 euros on a pizza.  Now suppose that there's a buy one get one free deal.  So if we cooperate and buy together, we get two pizzas for 10 euros , so that each pizza costs 5 euros.  Now to most people, it only seems fair that in this case the gains generated by cooperation by distributed equally, so that each person pays 5 euros.

But if the the measure of fairness that we adopt is that cooperation is economically beneficial so long as each party makes an absolute gain, then I can put in 2 euros for my pizza, and you 8 euros, and we are both still better off than we would have been had we purchased separately. Because you still saved 2 euros by cooperation.  But does that make sense?  If you go out into the real world do people really agree that economic transactions where both parties benefit in absolute terms, but the relative distribution of gain is unequal that a fair deal has taken place?  

And far from being an academic discussion, this is the way that societies like the US and the UK have developed such gross income inequality. It isn't that the wealthy took some existing quantity of wages from the poor.  It's that the cumulative effect of economic growth where the relative distribution of gains was unequal was to redistribute income in a society to increase the share of income going to the wealthy.

And if that wasn't bad enough, neo-liberal economists point to deadweight losses as a way in which to justify changes in the absolute distribution of wealth so as to benefit the wealthy.  And if you dare to disagree, you're being anti-social. But I'm not going to get into that now.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Jul 25th, 2008 at 01:06:44 AM EST
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