The whole issue of Krugman has become a bit too personalized for my
tastes. The so-called new trade theory is not just a bit of intra
academic intrigue, but a lesson in how money and wealth affect the
course of ideas.
The idea of strategic trade actions was anathema within neo-classical
economics not because of any internal logic of neo-classical
economics. Not because of its emphasis on equilibrium and smooth
functioning. Not because of its emphasis on frictionless markets.
Not because of its emphasis on perfect competition. But because for
several decades the interests of US capital was in tearing down
various national barriers and the instruments of strategic trade
policy in other countries: and for the same decades neo-classical
economics was nothing but US economics. Suddenly the US is one among
a couple of powerful trading blocs, suddenly we have a balance of
trade problem and a competitiveness problem, and suddenly US
economists become willing to explore the nature of imperfect
competition and economies of scale, etc. The rest is just the
personal particulars. If not Krugman in his rather imperious manner,
then it would have been others. In fact, it was many others.
The whole episode should be a good example that neo-classical
economics does not have as much of a durable internal
logic as some radical critiques claim. It stands ready and willing
to do service as needed. Of course there is some internal logic,
but it is not absolute.
John Parsons
