Which is better to address problems of a global recession, mercantilism or liberalism and why?

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pohnpei397 eNotes educator| Certified Educator

The answer to this question essentially depends on whether you believe in the teachings of mainstream economics.  Mainstream economists would almost unanimously say that liberalism is the best solution to a global recession and is the best way to promote worldwide growth in general.

According to economic theory, mercantilism ends up hurting everyone.  When a country practices mercantilism, it ends up having to be relatively autarkic.   This is because a country that tries to practice mercantilism will end up without many trade partners.  Some people might say this is a good thing because now each country will have to produce all of its own goods and services.  This will mean more jobs for more people in every country.

Economists argue, however, that this is inefficient and it leads to a situation where fewer goods are produced overall in the world.  If fewer goods are produced, the world must be worse-off than it would be if more goods were produced.  If countries practice liberalism (which I will define as, essentially, free trade), all countries could specialize in producing things for which they have a comparative advantage.  If this happens, every country will be producing the things that it can produce most efficiently.  No country will waste resources trying to make things that it is not suited to making.

When every country produces things efficiently, the amount of overall global production will rise.  With more goods and services being made, more people will have jobs.  This is the best way out of a recession if you believe the teachings of mainstream economists.