This paper examines the relation between some prevailing neoliberal ideas on the nexus between openness and inequality issues and mainstream economic theory, more specifically, neoclassical economics. It examines three neoliberal propositions regarding economic openness and inequality that are commonplace in multilateral financial organizations, the business community, and even in the academia which claim that free trade and capital account liberalization should, on one hand, help the poor and decrease inequality in developing countries, and on the other hand these policy reforms should reduce inequality between developing and developed countries by fostering income per capita convergence. These propositions are argued to be fallacies in the sense of their being a non sequitur of mainstream neoclassical economics, some being based on wrong simplifications and generalizations of empirically contentious textbook models while others stem from basic confusion between static theory results and dynamic theory problems. Given the weak theoretical foundations of these fallacies, it is then argued that their persistent popularity in mainstream academia deserves an explanation.

October 29, 2006.