Trade and prices: an attempted summary

Can we all agree on these?

1. Trade policy works through its effect on the relative prices of goods, not through the price level.
2. Depending on what side of the change in relative prices they find themselves, any specific group of consumers or producers can be made worse off by a move to free trade.
3. A corollary: there is no guarantee that free trade raises real wages.
4. The Carlos Diaz-Alejandro rule: For almost any particular conclusion you want to arrive at, there is some economic model that will take you there.
5. Throw in some scale economies (dynamic or otherwise), and then just about anything can happen (including free trade making some countries worse off).
6. The positive spin: This does not diminish the value of economic modeling; it simply means we have to be more careful with generalizations and be more explicit about the assumptions that lie behind our reasoning.
7. Bottom line: It is possible to have an illuminating (sometimes), intelligent (mostly), and entertaining (almost always) economic debate in the blogosphere.

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[Rafarsiv]

Can we all agree on these?

Trade policy works through its effect on the relative prices of goods, not through the price level.
Depending on what side of the change in relative prices they find themselves, any specific group of consumers or producers can be made worse off by a move to free trade.
A corollary: there is no guarantee that free trade raises real wages.
The Carlos Diaz-Alejandro rule: For almost any particular conclusion you want to arrive at, there is some economic model that will take you there.
Throw in some scale economies (dynamic or otherwise), and then just about anything can happen (including free trade making some countries worse off).
The positive spin: This does not diminish the value of economic modeling; it simply means we have to be more careful with generalizations and be more explicit about the assumptions that lie behind our reasoning.
Bottom line: It is possible to have an illuminating (sometimes), intelligent (mostly), and entertaining (almost always) economic debate in the blogosphere.

[Rafarsiv]

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For anyone who is interested in chasing down the reference to the "Carlos Diaz-Alejandro rule", it comes from "Trade policies and economic development" in International Trade and Finance: Frontiers for Research, Peter Kenen (ed.), 1975.

Here is the quote (p. 97) : "By now any bright graduate student, by choosing his assumptions regarding distortions and policy instruments carefully, can produce a consistent model yielding just about any policy recommendation he favored at the start."

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