As far as I can see, mainstream economists generally believe:
- Policy changes that raise the level of growth of the economy are more important than one over changes to the level of output1.
- Free trade is a desirable policy.
- This policy preference falls out of the theory of comparative advantage.
- Abolishing protectionist tariffs will result in a one-time increase of the level of output of the economy, but not the rate of growth.
As I understand it, Post Keynesians generally think theories of growth cannot be neatly be separated from theories of business cycles - that is, theories of short run fluctuations in the level of output. This intertwining complicates policy recommendations. Nevertheless, one can look back to Keynes2 to see a concern with economic growth.
It is hard to see how the two beliefs in the list above are consistent. Why should mainstream economists these days care much about whether countries put in place so-called free trade agreements? Maybe the question is one of who should govern. Anyways, economists in the public sphere should strive to be clear on what they advocate, and why they do.Footnotes
- Robert Lucas famously said (that is, I do not know where), "Once you start thinking about growth, it's hard to think about anything else". I do know that in Lucas (1987), he estimated that consumers "would surrender 42 per cent across the board [in consumption] to obtain an increase in the growth rate from [3 per cent] to [6 per cent." On the other hand, to eliminate aggregate consumption variability of the magnitude seen in the USA from the end of the Second World War to the 1980s would be worth "something less than a tenth of a percentage point" in average consumption.
- Keynes wrote this paean to economic growth in the midst of the Great Depression:
"The modern age opened; I think, with the accumulation of capital which began in the sixteenth century... From that time until to-day the power of accumulation by compound interest, which seems to have been sleeping for many generations, was re-born and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.
For I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England’s foreign debt, balanced her Budget, and found herself with about 40,000 [pounds] in hand... Thus, every 1 [pound] which Drake brought home in 1580 has now become 100,000 [pounds]. Such is the power of compound interest!
If capital increases, say, 2 per cent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years. Think of this in terms of material things--houses, transport, and the like.
At the same time technical improvements in manufacture and transport have been proceeding at a greater rate in the last ten years than ever before in history. In the United States factory output per head was 40 per cent greater in 1925 than in 1919. In Europe we are held back by temporary obstacles, but even so it is safe to say that technical efficiency is increasing by more than 1 per cent per annum compound. There is evidence that the revolutionary technical changes, which have so far chiefly affected industry, may soon be attacking agriculture... In quite a few years-in our own lifetimes I mean-we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed.
...All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge."
- John Maynard Keynes (1931). "Economic Possibilities for our Grandchildren", in Essays in Persuasion, W. W. Norton.
- Robert E. Lucas, Jr. (1987). Models of Business Cycles, Basil Blackwell.
- Dani Rodrik (4 May 2015). The War of Trade Models