In the LSE’s James Meade Memorial Lecture from June 2007, Paul Krugman discusses three trade topics on which he has been “chastened.” [90 min, 21 MB mp3]

The first topic is trade and growth. This is a masterful discussion, in which Krugman explores the relationship between economic theory, evidence, and economists’ gut instincts. It is a worthy successor to Anne O. Krueger’s 1997 AEA presidential address. In the same fashion that she tried to explain why import substitution industrialisation was approved by economists in the 1950s and ’60s, Krugman tackles the beliefs of economists who were overenthusiastic in translating economic theory about the gains from trade into supposedly “rigorous” support for claims that trade openness could boost easily boost growth by a few percentage points.

The second topic is trade and income inequality. Much of this is covered in Krugman’s Vox column that ran the day after the lecture. There are a few more details, such as Krugman’s insightful rebuttal to the fact that Stolper-Samuelson effects no longer bite once there is complete specialization. (The fragmentation of production processes enlarges the spectrum of tradables, extending that limit.)

The third topic (income inequality in developing countries) is not very interesting, partly because Krugman only comments briefly on the subject and partly because I think that growth matters more than equality in countries that are desperately poor.

Krugman thinks we really face a problem of political economy with regard to trade and inequality, rather than a purely economic one. Interesting, he is skeptical of labour standards and fair trade, as they don’t address the underlying economic forces (comparative advantage) that are driving the big trends.

A few of the questions from some of the heavyweights in the LSE audience aren’t bad either.

If you don’t have much time to spare, I recommend at least the first twenty minutes of the lecture.