Economist's February 5, 2009 Print Research Proposal

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3. At its heart, this editorial promotes the underlying principles of free market capitalism. Trade is assumed to be a net generator of wealth by the authors; therefore the reduction of trade will result in a reduction of wealth. One of the key points they authors make is with regards to capital flows. Economic nationalism, they point out, will alter and in some cases diminish global capital flows to the detriment of the nationalists.

Global trade, they argue, needs leaders that strongly support its institutions and mechanisms. They advocate the completion of the Doha Round, and reduced trade sanctions. Such sanctions are the inevitable consequence of economic nationalism, and will reduce trade overall.

The issue of sovereignty also comes up in this piece. Each nation must deal with its own crisis, but to put sovereignty and local interests ahead of global economic development would be a mistake - sovereignty itself is not put on the table but clearly the role of sovereignty is something the authors wish world leaders to consider during this time of crisis.

Other concepts that relate to this piece are globalization, economic specialization (the value of comparative advantage), and protectionism under the Smoot-Hawley Act. Globalization supports economic specialization; protectionism undermines it. Thus, the move towards increased protectionism is a move towards reducing economic specialization, which in turn reduces economic growth and global economic strength.

4. In general, I agree with the authors. They make the case that support of, for example, bad banks, is detrimental to economic growth.

The rationale for a globally-integrated economic system is to encourage the specialization of labor, something that is discouraged by economically nationalist policies.

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Also discouraged are external cash flows. If nations respond to nationalism with nationalism, as is typical, cash flows will be reduced. This will lead to decreased incidence of specialization and reduced global cash flows. Capital may remain domestic in the short run, but because that capital will not be used as efficiently as it otherwise would be, the benefits will be fewer. Thus, some jobs may be created but not as many jobs as would have been created had the markets been left open.

Moreover, trade reprisals are a very real possibility. One consequence of economic nationalism on the part of the U.S. is that other nations would see the losses they suffer as a result of American policies, and respond in kind.

This would not only lead to economic catastrophe in the U.S., but would have similar impacts around the globe. Hardest hit would be developing nations, who would likely be deemed to risky for investment and therefore see a reduction in capital inflows. We can see this already, in 2008, at the outset of the crisis.

The global economic systems required strong leadership from the richest nations. We may be in a global recession at present, but a contraction in capital flows would result in a global depression as investment is reduced to a trickle. I agree with the authors that the Buy American clause run contrary to American economic principles, and will not convey the benefits they are intended to convey.

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