Home Economics Where Does Jonathan Freedland Get This Idiocy From?

Where Does Jonathan Freedland Get This Idiocy From?

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It’s more than a little dangerous to get your ideas filtered through the political rhetoric. For you end up believing things which ain’t so. Entirely good, simple and true observations of reality get maimed as they pass through those political considerations and you end up believing things that just ain’t so. The Laffer Curve does not, for example, say that all tax cuts pay for themselves. It says that some do and some don’t. Keynesian economics says that in a certain type of recession just go spend on whatever. It does not say so for all types of recession – like the recalculation one we’re in right now (for we’ve already dealt with the insufficiency of demand bit).

The gravity equation over trade is true but it’s not what Freedland thinks it is:

That’s doubly true of a certain kind of Brexiter, the type who bangs on about “the Anglosphere”. These are folk who couldn’t wait to be shot of the continentals and embrace our true cousins across the Atlantic.

Such a notion may defy the laws of geography – nations trade most with their nearest neighbours – but it turned into policy,

Nations do indeed trade most with their nearest neighbours but it’s not physical geography that we use as our measure of distance here. It’s economic geography. A simple proof of which being this:

Ireland is closer than China yet we trade more with China than we do Ireland. France is closer than Germany yet we trade more with Germany. And, as we can see, we trade more with the US than with any other country individually.

It’s more than a certain nuance being lost in Freedland’s misunderstanding too. In full the gravity model says that we’ll trade more with larger economies – that’s pretty obvious – and we’ll trade more with those economically close to us. Thus we trade lots with large economies economically – note again, not geographically, necessarily – close to us and very little with small ones far from us.

But it is that economic distance not simply geography. Here in the UK there was at least half a millennium of Newcastle doing more trade with London than Newcastle did with Carlisle. Because shuttling ships hundreds of miles up and down the east coast was a smaller economic – but not geographic – distance than the 80 miles across the peninsula. It’s impossible to explain the Viking, Frisian, or Hanseatic League economies without noting that water transport was, for well over a millennium, economically closer than land transport.

We can go further. In the 50s and 60s – up to 1989 in fact – we’d probably expect the FRG to have been trading more with the UK, or Italy, than the right next door DDR what with all that barbed wire increasing economic distance.

And further again for it ain’t just transport links that determine economic distance. The UK and US – OK, largely – share a language, system of law, at least parts of a culture and so on. We trade vastly more pop music with the place 3,000 miles away than we do with France, only 26. Or TV, books and so on. The economic distance for some things is shorter to the US than it is to France. For others – say electricity cables and yes, they’re internationally important – the distance to the US is vastly larger so much so that it would be insane to have a US/UK interconnector and stupid not to have the current one with France.

That Brexit stuff about the Anglosphere. Sure, some of it’s romantic claptrap. But the idea that we trade more with with our geographic neighbours is simply wrong. It is economic distance that matters and at times – only at times – the Anglosphere is indeed closer in that form of distance than Calais.

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8 COMMENTS

  1. And the invention of the container ship has made transport distance effectively zero to anywhere. In the 1980s it was cheaper to assemble BBC computers in Hong Kong than it was in Cardiff, even though the workers were broadly on the same pay.

  2. The word “gravity” is doing a lot of work there. It is surely the most useless economic theory. What predictive power does it have? What does it even explain?

  3. My support for Brexit was based on xenophobia, or maybe they call it anti-colonialism these days. I’ve no objection to trading with foreigners provided I get a reasonable deal.

  4. Fin and Pak are about the same size economically – Pak is about twice the distance – if the gravity model (an inverse square relationship) held up it would suggest trade with Pak should be 1/4 of that with Fin. It’s about 1/2
    Bel and Swe are about the same size economically – Swe is over 3 times the distance – gravity model should suggest trade about 1/9th, it’s about 1/2.
    In general though a straight linear inverse of the distance theory would be a better fit to the data , before then deciding if there’s a good model to inform public policy. A gravity theory is utter bollockios though.

  5. The gravity theory seems to amount to.. Countries trade with countries they like to trade with. A platitude dressed up as the “gravity theory”. Why do economists espouse it as a “theory”!

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