Will CoVid-19 Finish Comparative Advantage?

As the world we know writhes in pain some of the axioms that have driven our post Keynesian world are unravelling.

While our medical professionals struggle to find medical supplies, questions remain about our ability to even supply certain foods and household essentials. Self-sufficiency as a concept is gaining ground.

Exactly what the world will look like once this catastrophe is past in impossible to imagine. It may not be as long or problematic as our worse imaginings but it will certainly remake us. After the great depression Keynes turned his mind to deal with the result of failed economies on the human world. He postulated that when Demand was insufficient to drive production and employment it was time for the government to use all its powers to adjust demand to achieve full employment.

Not only did his theory become orthodox and adopted by much of the world, it successfully bought the world to the longest period of stable growth. Full employment was proven possible and government took responsibility for the outcome. A failure to deliver full employment would see a government sacked.

The critical issue was that Demand rather than Supply was seen as central, and government took responsibility for running the economy, rather than wallowing up and down through unstable economies and becoming bogged at high levels of unemployment and failing business government would act. If there was insufficient demand for workers to find work, the state would spend, often on infrastructure to drive that demand and watch as employment rose and step back when the private sector could carry the weight. The fact that much of our consumption and even labour and industrial production is imported now makes maintaining full employment rather difficult. The leakage opens a number of questions about our current exposure.

It was not a free market system, there was embedded a social contract, to employ all who wanted to work, to reasonably distribute incomes so as to minimise as much as possible the advent of a under privileged portion of our community and to maximise demand and economic efficiency.

Some argue it was over managed, however a very real effort was made to maintain economic stability for the benefit of us all.

As a result of the inflation of the seventies a new world of economic management embedded its self, so very much like the pre depression days, open unfettered free markets with minimal government intervention, let the invisible hand of the market sort it out was the refrain. Let the theory of Comparative Advantage distribute recourses rather than the heavy hand of government. I contend that as a result of the unfolding collapse, the theory of comparative advantage will be seen for what it is, a risky and irresponsible concept to manage human behaviour in contemporary times, unable to manage the production of essentials, employment and unemployment and income distribution. In fact fanciful and dangerous.

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