The Impossible Trinity

Most economic concepts are pretty dry, but the Impossible Trinity sounds like one of those dilemmas where you are in a burning house and can only save two out of three people. The term refers not to religion (that Trinity is impossible in its own way) but international trade and how governments can only two out of three options, each of which is desirable in its own way. The three options are fixed exchange rates, independent monetary policy and free movement of capital. If they don’t sound that exciting, they are crucial to understanding the crisis with the Euro and what we can do about it. Continue reading “The Impossible Trinity”

Challenging Economics – Theory Of Comparative Advantage

There are few debates that economists take only one side in and trade is one of them. Textbooks argue that trade creates prosperity always and everywhere. Students are required to answer questions on the benefits of trade and the costs of protectionism. There is a strong attempt to give the impression that all economists support free trade and the debate is only between those who understand economics and those who don’t. What is strange about all of this is how shaky the foundations for this belief are. It is mostly reliant on the “Law” of Comparative Advantage, which as I shall discuss, has some very significant flaws. Continue reading “Challenging Economics – Theory Of Comparative Advantage”