Fables seek to illuminate reality. The goal of the one I told last week – concerning “the grasshoppers and the ants” – was to provide a simplified account of the world economy. Today I wish to address two questions: who benefits from the trade flows between import-surplus grasshoppers and export-surplus ants? Can the two co-exist fruitfully?

First, who benefits? My colleague, Robin Harding, raised this question in response to my advice to ants: “If you want to accumulate enduring wealth, do not lend to grasshoppers.” He asked: what about the gains for the grasshoppers?

The traditional answer is that both sides should gain from any voluntary exchange. That includes these “inter-temporal exchanges” – in which ants offer goods to grasshoppers now in return for future repayment.