The Shared Mistake. A shared mistake is a term that's used by some economists when they refer to a situation where there is an overwhelming consensus opinion and that overwhelming consensus opinion turns out to be wrong. In the past there have been a number of shared mistakes.

The dot.com boom is probably the best example of one. The mistake was the belief of unlimited and unprecedented growth due to the introduction of the internet.

Whoops.

Anyways, I think I've found what could be another shared mistake.

I found a link on another website (macromouse.blogspot.com), to a paper published by Paul Samuelsson, who is a Professor of Economics at MIT. The paper has the terribly boring and unbelievably long title , 'Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization'. But its not as hard to understand as it is to read the title. In a nutshell...

Globalization might not work after all.

Basically, what Samuelsson says is that in its initial stages economic theory teaches us that the benefits of globalization will raise the standards of living of all countries involved. The richer countries get cheaper goods and the poorer countries get higher wages. Everyone benefits from the increased productivity of countries focusing on the goods they produce best.

However, once those initial stages give way to a stage of more advanced production by the poorer nations, so that the poorer nation begins to produce the goods that the richer nation had up until then held a monopoly over, the richer nation may 'suffer permanent measurable loss in per capita real income', in other words they might not be as well off.

This is important because the argument for globalization has always been an economic argument, and its often presented as one that we don't dare argue against because we don't understand the theory.

The argument went something like this: 'Yes, there may be losses to individuals, but the gains of the winners will outweigh the losses of the losers and overall society will be richer as a result.' So the theory went.

Samuelsson's paper shows that this isn't necessarily so.

It would be correct to say that we have embarked long down a road of globalization under the assumption that the economic forces behind free trade will work to benefit society in the long run.

If Samuelsson is correct, this assumption may be flawed.

Thus, there may have been a shared mistake among those who wielded the power to make it.

It might occur to an objective observer that if the theory behind the policies is flawed, the next step would be to reopen the debate and then possibly to reexamine those policies.

But we won't. There's too much profit at stake.

- posted by Sigurd12/29/2004 11:54:00 PM