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David Ricardo, Free Trade, and Hostess December 11, 2012 9:00 AM | Tagged as free trade, Hostess, Ricardo

WSJ 12/7/12 A16: Energy Economics in One Lesson (Editorial)

David Ricardo is the British economist from a few hundred years ago who established the Law of Comparative Advantage which is the basis for free trade. In short, free trade benefits both trading partners. This law is well understood by true statesmen and stateswomen of both political parties, but is often swept under the rug by other Washington politicians who lack the moral gumption to explain the truth to their constituencies. 

The crisis of the Hostess Bakery bankruptcy has no effect in Washington, D.C. There is no shortage of economic Ding Dongs and pandering Twinkies in our nation’s capital.

For an example, consider the referenced article on exports of natural gas. Unlike oil which is more easily transported, the price of natural gas is fragmented. Oil has a world price. Natural gas prices vary according to location and supply. The best thing that has happened to America in the past decade is the technological breakthroughs of extracting natural gas and to a lesser extent oil from shale. Hydraulic fracturing (better known as “fracking”) has allowed the US to become awash in natural gas. Our natural gas prices peaked a decade ago to over $15 per million BTU.  With fracking, it dropped to a low of $2.00. Currently is it about $3.75. Compare that with Japan, whose natural gas prices are now $17 per million BTUs. Yes, all the Liquid Natural Gas (LNG) delivery facilities we built to import LNG can now be used to export it!.

But the Ding Dongs and Twinkies in government -- who were once critical of our trade deficit -- are now imploring the US to limit LNG exports even though every credible study shows increasing exports of LNG is an economic boon to the USA, not just large companies, but every citizen.

Where is David Ricardo when we need him? He’s no Twinkie.


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