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Saturday, August 23, 2014

The end of comparative advantage

As I have repeatedly pointed out for several years, David Ricardo's Law of Comparative Advantage has been shown to be based upon false assumptions. Now the mainstream economists are beginning to recognize this:
David Ricardo's Theory of Comparative Advantage has broken down after 200 years, or so I learned at the Lindau forum of Nobel laureates in Bavaria.

The theory published in 1817 has been a guiding principle of free trade, taken as a given by every student of economics in the modern era. It has served us well, but just as Newton's theories ran into limits and were overtaken by Einstein's relativity, comparative advantage no longer explains the world.

Under Ricardo's model, inequality was supposed to narrow within countries as globalisation accelerated exponentially in the Nineties. Instead it is getting wider....

Ricardo described a world where free trade in goods was opening up, but labour markets remained largely closed. This is no longer the case. Globalisation bids up the wages of high-skilled engineers or software analysts towards international levels wherever they live.
The Nobel laureates at Lindau aren't willing to give up on globalization yet (although they should), but the cracks in the economic wall are showing as they express their fears that it is "going horribly wrong". But it's not going wrong. It's going the only way it could possibly have gone.

Free trade is incompatible with national sovereignty. International labor mobility is incompatible with the very existence of nations. And the heterogeneous populations are economically detrimental and a material barrier to the growth of capital and national wealth. I shall repeat my core argument against free trade, which I first articulated in 2012 following a quasi-debate with Gary North:

1. Free trade, in its true, complete, and intellectually coherent form, is not limited to the free movement of goods, but includes the free movement of capital and labor as well. (The "invisible judicial line" doesn't magically become visible when because human bodies are involved.)

2. The difference between domestic economies and the global international economy is not trivial, but is substantive, material, and based on significant genetic, cultural, traditional, and legal differences between various self-identified peoples.

3. Free trade is totally incompatible with national sovereignty, democracy, and self-determination, as well as the existence of independent nation-states with the right and ability to set their own laws according to the preferences of their residents.

4. Therefore, free trade must be opposed by every sovereign, democratic, or self-determined people, be they American, Chinese, German, or Zambian, who wish to preserve themselves as a free and distinct nation possessed of its own culture, traditions, and laws.

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80 Comments:

Anonymous 0007 August 23, 2014 5:18 AM  

How's 'bout "Free Trade isn't"?

Blogger RandalThorn August 23, 2014 5:28 AM  

My thougts exactly 0007, if the world-wide financial game is rigged in favor of some players then there is no free trade whatsoever.

Anonymous VD August 23, 2014 5:29 AM  

How's 'bout "Free Trade isn't"?

No. Defenders of free trade theory often try to hide behind the fact that free trade as practiced isn't entirely free. That is irrelevant. Truly free trade will be even more deleterious than its partial realization.

The problem isn't that "free trade isn't free", the problem is that "free trade is a net negative".

Anonymous PhillipGeorge(c)2014 August 23, 2014 5:31 AM  

Idealists and Utopians are oversimplifiers and must necessarily gloss over/ wall paper over reality.
I visited Captain Cook's cottage recently. For most of recorded history most people lived within a 20 minute walk of where they worked and most people could farm most of the things they ate. Trade was, thus, largely discretionary spending. Why not look fashionable and listen to music for example?
Today you couldn't get the bureaucrats to issue all the licenses you'd require to live that way.

There is one law in engineering/ economics/ sciences/ sociology/ politics that never fails, always obtains positive results and outcomes. The law of pragmatics. "Do what works".

I think the Chinese and Russians now have this as their moral and political compass. It is the West that has become riven with ideologues/ dangerous Utopians/ theorists and gambit players/ relativists and the non-absolutist-absolutism purveyors of fraud.

Anonymous VD August 23, 2014 5:32 AM  

if the world-wide financial game is rigged in favor of some players then there is no free trade whatsoever.

Again, irrelevant. I am attacking free trade theory at the abstract, theoretical level. I am pointing out that the arguments for it being beneficial are false and based on incorrect foundations. The fact that it can also be successfully attacked in terms of the material effects of its partial realization is not important.

Anonymous pdimov August 23, 2014 5:38 AM  

The problem I have with this argument (actually, not with the argument itself, but with its typical application) is that, after accepting (1) and proceeding to (4), people tend to switch back the meaning of "free trade" to "free movement of goods" in (4).

Anonymous NorthernHamlet August 23, 2014 6:01 AM  

Need 1 and 2 be accepted?

1. Free trade can be open on goods, slightly limited in labor by work passports, etc.
2. Economic activity historically has functioned with these, such as the Venice trade routes. Some domestic economies (likely?) function through characteristics such as these as well. What's significant globally can exist domestically with economic activity, but not sex, culture sharing, etc.

Anonymous Luke August 23, 2014 6:02 AM  

Not often mentioned in discussions on free trade are things that the U.S. simply cannot currently produce as a practical matter. Sure, we're close to being a net exporter of petroleum for the first time in about 5 decades. No argument that gov't is what keeps us from being able to competitively produce the computer chips and spare parts we mostly get from Asia now. However, short of essentially free energy (presumably via practical nuclear fusion power) where actions like boiling granite and fractionally distilling it, we're hosed without certain metal imports. Chromium and arguably Platinum lead the way, but there are numerous other crucial elements that even the recent Idaho/Montana rare earth finds won't help with.

Anonymous VD August 23, 2014 6:05 AM  

I found this to be amusing:

1. "after accepting (1) and proceeding to (4), people tend to switch back the meaning of "free trade" to "free movement of goods" in (4)."

2. "Free trade can be open on goods, slightly limited in labor by work passports, etc."

As for (2), no, it cannot, because in that case, it is not free trade. It is practically possible, of course, but it is simply a different form of managed trade. I will, in the future, logically demonstrate why the free movement of capital is also intrinsically damaging.

Anonymous Roundtine August 23, 2014 6:22 AM  

I think the economists are liars. I was a free trader for many years, but it is obvious now that it means wages will equalize ACROSS nations, not within them. This is trivial: the low skill labor pool is massive, therefore a move towards a global economy will push low skill wages in high wage countries down to the low end. With greater ability for stars to sell into foreign markets, the wages of the high skilled workers will rise. Overall, the world does become richer, but it comes at a price of extreme inequality within a nation. I notice that most of the open borders/free market libertarians have become honest about this and admitted that they want to help the poorest people, i.e. not Americans.

Blogger Northern Hamlet August 23, 2014 6:26 AM  

My second point is stronger: selling you water need gave nothing to do with the significant factors you're concerned about, historically or technologically.

For the record, I don't support free trade.

Blogger Eric August 23, 2014 6:39 AM  

I've always thought comparative advantage was the one non-obvious insight to economics. But it's always troubled me - the idea you can make cars profitably even if I can make them cheaper because I make even more money on airplanes rests upon the assumption I can't satisfy the demand for both products.

Anonymous rt August 23, 2014 6:55 AM  

"The assumption I can't satisfy the demand for both products."

I think the theory does allow for that and it's called absolute advantage.

Blogger Rantor August 23, 2014 7:01 AM  

The founding fathers somehow understood this as import taxes were the first major source of revenue for the newly organized states. Tariffs on imports remained the major source of federal income from 1789 through 1913 (introduction of the income tax). As all these tea partiers talk about getting rid of the income tax and going to a sales tax, I do what I can to remind them that better yet is the tax the US was founded on, the import tax.

The beauty of the import tax in the modern international world is that it will incentivize companies to produce locally. Why is BMW the biggest exporter of American assembled SUVs? Because we have a large import tax on foreign made SUVs. They avoid it by making SUVs in South Carolina. Import tariffs combined with immigration controls are the best way to improve US industry and reasonable wages for US citizens.

Open borders and regulated free trade is designed to destroy nations.

Anonymous Lowly Lurker August 23, 2014 7:09 AM  

Well, libertarians are the biggest supporters of free trade, so convince them. I've never been a libertarian.

Blogger Jorge Morales Meoqui August 23, 2014 7:18 AM  

Prof. Maskin is referring to the so-called Ricardian trade model of economic textbooks. The textbook trade model, though, differs very significantly from what Ricardo actually wrote in chapter 7 of the Principles. According to a new interpretation, Ricardo proved two propositions with the famous numerical example: First and foremost, that his labor theory of value does not regulate the relative value of commodities exchanged between two or more countries; and second, that a country might import a certain amount of a commodity although it could produce the same amount internally at lower real costs than the exporting country.
The unrelenting validity and importance of Ricardo’s two propositions for the present process of economic globalization become evident when applying them to what has been mostly perceived as a growing threat in the developed world in recent years: the emergence of China and India as active players in the world economy. It has been said that these two countries could soon undersell the developed countries in the production of every commodity because of their lower nominal labor costs and vast human resources. However, these inferior nominal labor costs are the result of meager nominal salaries prevailing in the two countries, which are the direct consequence of a low level of productivity of the labor force and its inability to emigrate to countries with higher productivity. Therefore, both China and India have higher real labor costs (= amount of labor time) compared to the developed countries, which is exactly the situation in England in Ricardo’s famous numerical example.
For further reading about this new interpretation of Ricardo’s version of comparative advantage go to: http://www.researchgate.net/publication/48375753_Comparative_advantage_and_the_labor_theory_of_value

Anonymous rt August 23, 2014 7:22 AM  

Good points Rantor.

Anonymous VD August 23, 2014 7:30 AM  

According to a new interpretation, Ricardo proved two propositions with the famous numerical example: First and foremost, that his labor theory of value does not regulate the relative value of commodities exchanged between two or more countries; and second, that a country might import a certain amount of a commodity although it could produce the same amount internally at lower real costs than the exporting country.

I am very dubious about this. Moreover, it has nothing to do with the problems that I pointed out, which go well beyond the economic effects.

For further reading about this new interpretation of Ricardo’s version of comparative advantage

I've downloaded the paper, thanks. I will read it and comment on it in the next few days.

Anonymous DJF August 23, 2014 8:05 AM  

Yes, real free trade gets rid of national borders and along with it nations

But the free traders don't seem to know that once you get rid of nations you have increased the number of borders, there are 7 billion people in the world and without governments to force people to engage in "free trade" you could end up with as many as 7 billion borders and mini-states

Moving goods or people from Mexico City to Chicago now only involves two nations, get rid of the nation and you end up with thousands or tens of thousands of mini-states all of whom have to be negotiated with to use their land/water/air to transport your goods and people

There is no such thing as the right of free movement in a market economy, every movement would have to be negotiated and it certainly would not be free. Its only nations which have created the illusion of free movement by the force of law, get rid of that law and nation and you go to a system where every land/water/air owner becomes their own nation and can make their own rules.

Blogger Rantor August 23, 2014 8:29 AM  

Hey Jorge,

I question "higher real labor costs" in your assertion. Both India and China have an over abundance of labor. Their economic problem is in finding enough work to keep the people busy (so they don't protest, commit crime, etc.). While they may spend more hours at work and that may be indicative of some kind of real cost, I am not buying it.

While I accept that the Chinese car factory worker may work more hours and achieve less than his American counterpart, thus costing more real hours of labor. That worker is paid less and spends less on housing, food, clothing, and luxuries.

Not only is the Chinese worker paid less, he consumes less and his productivity is less. At the same time a UAW employee at a Ford plant is paid significantly more to work somewhat less while producing more, despite the fact that the US has an over abundance of labor (see shadowstats.com and the real unemployment rate).

The argument that there is some kind of "real cost of labor" based on hours or personal exertion is fanciful.

Further the real cost of labor in this discussion is driven down by capital investment in automation (robots and advanced machinery). If the Chinese find automation to be cheaper than labor, they will take measures to reduce labor, so long as their real cost of labor is lower than the cost of automation, they will continue to use labor. So this argument that Chinese labor is in some real way more expensive than US labor is wrong.

Anonymous rt August 23, 2014 8:57 AM  

" I notice that most of the open borders/free market libertarians have become honest about this and admitted that they want to help the poorest people, i.e. not Americans."

They might as well admit they're globalists instead of masquerading as libertarians.

Anonymous PhillipGeorge(c)2014 August 23, 2014 9:05 AM  

rather thenr, get rid of borders and you get 7 billion nations,

you get vapor trail corporations.

much harder to bomb. so very much harder to target. And I think that was the strategy..... shelf company behind shelf company behind shelf company

Anonymous DJF August 23, 2014 9:14 AM  

RT writes “””They might as well admit they're globalists instead of masquerading as libertarians.”””


Not all of them but many of them are particularly if they are part of the Reason/CATO/etc libertarians

Now according to their own theories, there is no difference between domestic trade and international trade, but they are constantly talking about reducing barriers to international trade and not so often talking about domestic trade.

Even bringing up the subject of tariffs causes one of these globalist libertarians act like they are vampires confronted by a cross. Yet a tariff is nothing but a tax, no different then a dozen other domestic taxes. Say we got rid of all domestic taxes and just had tariffs, this would be a massive tax cut and would boost the domestic economy yet the globalist libertarians would be against it since the very idea of a tariff is heresy to them

Blogger Bogey August 23, 2014 9:26 AM  

This comment has been removed by the author.

Anonymous Mr. Rational August 23, 2014 9:43 AM  

Sure, we're close to being a net exporter of petroleum for the first time in about 5 decades.

I'm not sure which depresses me more:  that someone made this ridiculous claim in all apparent seriousness, or that nobody has seen fit to challenge it, which suggests that everyone here actually believes it.

Here is the truth:  more than half of the crude oil used in the USA in 2013 was imported.

Now take this back to your source for the ridiculous "we're about to be a net exporter" claim and call them out on it.

Anonymous Stilicho August 23, 2014 9:48 AM  

Trade /= "free trade". Whenever challenged, free traders claim that the obvious benefits of trade are only benefits of "free trade".

Anonymous A Plate of Shrimp August 23, 2014 9:57 AM  

"the movement of labor was harmful, it took 15-20 years for the neocons to convince us otherwise"

They didn't convince any of the non-elites. They just went ahead and imported 50 million foreign paupers by fiat. A bloodless coup d'etat.

Imagine how the Russians must be kicking themselves. They spent all that Cold War treasure on a massive army to conquer us, when all they needed to really do was sneak over here and mow the lawns and wash the dishes. Incredible.

Blogger Rantor August 23, 2014 10:23 AM  

And while thinking about international labor... Chinese companies have been building factories outside of china for a while now, because cheaper labor. So the above argument about real cost of labor gets even stranger when looking at a North Korean worker making less than 20% of what a Chinese worker makes and getting upset when his choco pie bonus (Korean moon pie, a prized luxury in the North) is cut.

Anonymous stilicho August 23, 2014 10:49 AM  

I look forward to your post re: capital controls. I understand how it fits within this framework, but I hate the effect on liberty. It comes back to preserving liberty in your nation. Always. You cannot expect to run and remain free for long.

Anonymous praetorian August 23, 2014 11:05 AM  

Thank you for clearly outlining this. It is a very plausible and interesting explanation for what my lyin' eyes have been telling me for two decades, despite how theoretically compelling the Misean (and especially Rothbard's) arguments are.

A national libertarian analysis of free trade would be an excellent book. You'd sell at least four of them.

Anonymous Rhys August 23, 2014 11:13 AM  

Vox you really need to give us a treatise on National Libertarianism

Blogger Miles Gloriosus August 23, 2014 11:22 AM  

Within the economics profession, the harmful effects of so-called "free trade" are becoming well known. Nobel laureate economist Paul Samuelson wrote about them in an article for the Journal of Economic Perspectives. Ravi Batra and Ha-Joon Chang have written excellent books on the subject.

Doctrinaire libertarians, Wall Street shills, and diversity worshippers will never be convinced because they have other priorities. But fair-minded people reach the same conclusions as you did.

http://www.nytimes.com/2004/09/09/business/worldbusiness/09outsource.html

Anonymous roversaurus August 23, 2014 11:28 AM  

Your points, 1 through 4, are political or social reasons to oppose free trade. Those are not economic reasons.

You say "heterogeneous populations are economically detrimental and a material barrier to the growth of capital and national wealth"

That doesn't make sense. What kind of trade is left? There is no point to trade between homogeneous populations (why trade with someone who is *exactly* the same as you are? There is no value gained when exchanging the exact same thing.)

If trade between homogeneous groups is pointless and trade between heterogeneous groups is detrimental, trade itself is worthless or bad.

Anonymous Anonymous August 23, 2014 11:37 AM  

If trade between homogeneous groups is pointless and trade between heterogeneous groups is detrimental, trade itself is worthless or bad.

He made no such definitions; your redefinition of 'homogeneous populations' is apparent to a non-economist.

Just looking at the form of your argument, I see the same thing I see when Keynesian' try to convince us the problem is not their model--they double down and point to their model. Hint--their model is wrong.


cheers.



Anonymous praetorian August 23, 2014 11:39 AM  

There is no value gained when exchanging the exact same thing

Dude, c'mon. Even in a world of clones, specialization would be a net economic benefit. What, are we all gonna cast our own transmission cases?

Your argument is invalid.

Vox's point is, if I may be so bold, is that once you start crossing cultural/political boundaries with trade, the prisoners dilemma inherent in free trade (allowing yourself to become dependent on others for goods) becomes much more likely to fall into the 'defect' state.

Anonymous Stephen J. August 23, 2014 11:42 AM  

Your thesis suggests that the more two nations have in common as a cultural and ethnic heritage, the freer the trade can be between them, which explains the comparative success of free trade between Canada and the USA versus the internal stress of Northern vs. Southern Eurozone countries. Is there a name for maximizing freedom of trade of goods while restricting unassimilative movement of labour?

Anonymous bw August 23, 2014 11:44 AM  

But it's not going wrong. It's going the only way it could possibly have gone.

The System IS What it Does.

Anonymous Anonymous August 23, 2014 11:48 AM  

Your points, .... are political or social reasons to oppose free trade. Those are not economic reasons.

Just another non-economist view on this point. Replace the term 'economic' with 'legal' and you will see the gist of my point.
Because you have a robust social system in place (law or economics) that works well and is widely accepted does not make it an law of nature.

Again, you are mistaking your intellectual model for reality. There is not 'economic reason' why a subway sandwich shop in Camden must be encased in plexi-glass. Economic efficiency dictates that that real barrier to trade separating the customer willing to buy from the cashier should be removed. The problem is that cashier will soon be dead and the business robbed.

If this is true at the micro level, where does it disappear at the macro level? Your economic model says tear down the barrier to trade, reality says you are dead if you do so.



Blogger Doom August 23, 2014 12:05 PM  

Vox,

Now, forgive me for a moment while I think out loud. Oh, and to whoever, cry and whine as you like, but allow me a bit of space to think.

First, I still believe in the free-market, if not so much globalization. Contrary? Perhaps, but I explain this with scale. Not everything can be jumped to the next level seamlessly. And that is what globalization has, in my estimation, attempted to do. It's much the same notion that while one engine propels an automobile just fine, three engines would not necessarily help a larger, but otherwise similar, vehicle go faster, further, or pull better. Is there a mechanism that will make that work, or systems that could help? Not my area, and perhaps it is possible. I simply think the way it is being tried isn't working as even I had hoped, if, in truth, I don't understand the ins and outs. And I am beginning to doubt globalization, save as a custom implementation for very specific purposes. Okay, that is that part.

The only reason I am starting to agree with you regarding free markets, on a global scale, is not (just) because of your proofs, charts, chatter, and such. While those do carry some weight, and I do read and look, I also think there are missing, and overlooked aspects. And, again, not my area, just a... sense... that they aren't absolute but aren't mostly wrong. However, on the ground, what you are saying, does seem to be closer to the truth by action and reaction of those who do have the power to make decisions.

In other words, while I don't always understand or completely agree, with you, I see the people who have the power to make the choices, who also vociferously disagree with you, lending their power dealing with what you are suggesting in ways you are suggesting it. At least the smart money is doing that. Honestly? It's irritating. But I like being irritated. It's how I, eventually, figure shit out. I probably won't ever know these areas well. But I can grasp some of the basics and their applications, perhaps. I just don't like changing my mind. And yet I can't not do so when I am wrong.

Blogger David August 23, 2014 12:25 PM  

Hilarious.
So my neighbor works at the Janesville GM plant and objects to me buying a (far superior, in my opinion) Jap car. He could cut out the middle man and threaten me with a gun to stop me from buying the Jap car, or he could go the usual route, vote for the crime syndicate whose leaders promise to do it for him.

Result: GM cars that are = to Trabants.

VD, if you're going to argue on theory, explain how a political system with the power to enforce movement toward autarchy does not axiomatically move toward the Total Control State. How does restricting trade across subjectively established "borders" not degenerate in very predictable ways? How does the power to forcibly prevent Peter from buying from Xioyuan and forcing him to buy from Paul not degenerate into a full system of political rent-seeking Pauls using political entrepreneurship instead of actually offering innovation?

Anonymous roversaurus August 23, 2014 12:33 PM  

praetorian August 23, 2014 11:39 AM

There is no value gained when exchanging the exact same thing

Dude, c'mon. Even in a world of clones, specialization would be a net economic benefit. What, are we all gonna cast our own transmission cases?


Then these clones are no longer homogeneous, are they? Only if their specialization improves on what you could do on your own is trade made worth while. And if the specialization *improves* on what you could do on your own, you are not homogeneous.


Vox's point is, if I may be so bold, is that once you start crossing cultural/political boundaries with trade, the prisoners dilemma inherent in free trade (allowing yourself to become dependent on others for goods) becomes much more likely to fall into the 'defect' state.


Living in a world where you are NOT dependent on others will leave you very, very poor. What would happen if you ceased being dependent on farmers and truckers and grocery stores producing and transporting your daily food? You are already highly dependent on millions of other people. Now, you can make a case that for reasons X, Y or Z you shouldn't be dependent on certain sorts of people, but in general the wealth or skill level of those people is not a good reason.

Blogger Brad Andrews August 23, 2014 12:33 PM  

Vox, you repeat your "free trade is bad" argument frequently, but you never address the other side of the coin, who will manage the trade.

I have been listening to some of DiLorenzo's speeches lately and he talks about the huge errors in many of the tarrifs (and their basis in causing the US Civil War (misnamed) because on party was favored for political reasons.

How can any controlled trade system avoid becoming a form of mercantilism? Are you a fan of that instead?

I realize you don't have to say more than "free trade is bad," but it leaves a very incomplete picture to not do so.

I fail to see how controlled trade would not be just as bad. Some comparison of how things could or do work in that area would be very informative, especially if you ever wrote a book on the topic.

It also doesn't seem you have completely made the case that "free trade in goods means free trade in people." Perhaps I am just missing that and I will review it more later, but it seems like assertion rather than a proven point.

Blogger David August 23, 2014 12:34 PM  

Ha ha ha ha.....

"National(ist) libertarianism." What a fine addition to the oxymoron guide.

Slavery IS freedom to some people.

Orwell's Nineteen Eighty-four is Poli Sci 101-499, isn't it?

So we're back to Lenin's famous dictum, "Who, whom? Who is doing what to whom?"

I finally understand this blog now.

Anonymous praetorian August 23, 2014 12:41 PM  

movement toward autarchy does not axiomatically move toward the Total Control State

Simple: culture matters. Markets do not exist in a vacuum and there is are inherent prisioner's dilemmas embedded in trade (hence the persistent attraction to autarky by human cultures despite the obvious advantages of specialization.)

Let us put the question back on you and look at the real world, rather than theory: would you say that our post-WW2 experiment with liberalized international free trade and labor mobility has moved the United States towards or away from a Total Control State?

Them lyin' eyes...

Anonymous DJF August 23, 2014 12:46 PM  

David writes“””””So my neighbor works at the Janesville GM plant and objects to me buying a (far superior, in my opinion) Jap car. He could cut out the middle man and threaten me with a gun to stop me from buying the Jap car, or he could go the usual route, vote for the crime syndicate whose leaders promise to do it for him.”””””

But that crime syndicate that you don’t like is the one who created the trade routes from Japan to the US using massive military force. It forced open the doors to Japan, it forced the Japanese to give up their empire. It created the sea lanes and ports and roads which deliver the car to your door. It subsidized Japanese defense for the last 60 plus years which allowed Japan to concentrate on building automobiles while making US business and labor pay for that subsidy.

Getting rid of the crime syndicate does not get rid of borders, thousand or tens of thousands of new borders owned by individuals and groups spring up as soon as the crime syndicate is ended. Its the crime syndicate which has created “free trade”. A market economy would not have any right to trade, or movement or immigration since every owner of land/sea/air would have to be negotiated with and they would not give away for free what they could instead charge you for or restrict you in some way. Once you give away your rights to control, you have given away your rights of ownership

Many Free Traders and Libertarians think that getting rid of government gives them freedom to go where ever they want , no it gives freedom to individual and group owners and they will decide your freedom to operate on their property. Getting rid of central government just opens the door to up to 7 billion mini governments. Getting rid of government does not create todays world without government, it makes massive changes everywhere and how they shake out nobody knows but its doubtful that you will have the ability to get a car from Japan without all the property owners in between making demands on you.

It takes a huge amount of government to force others to accept your “free trade’ rules.

Anonymous VD August 23, 2014 12:48 PM  

Your points, 1 through 4, are political or social reasons to oppose free trade. Those are not economic reasons.

You haven't understood the concept of a logical argument if you think point 1 is a reason to oppose free trade at all.

I didn't say anything about the reasons being economic. That is a different argument, and one to which I have already alluded concerning the free movement of capital.

Anonymous VD August 23, 2014 12:50 PM  

"National(ist) libertarianism." What a fine addition to the oxymoron guide.

See: Vox's First Law. It's not an oxymoron, it's merely over your head.

Vox, you repeat your "free trade is bad" argument frequently, but you never address the other side of the coin, who will manage the trade.

That's a separate question and not one that interests me much since so many people still subscribe to the "free trade is inherently beneficial to everyone" mythology.

I fail to see how controlled trade would not be just as bad

Seriously? You can't figure out how a total loss of national sovereignty and the forced emigration of about half the under-35 population would not be worse than controlled trade?

Anonymous VD August 23, 2014 12:52 PM  

Then these clones are no longer homogeneous, are they?

You're acting like a moronic aspie concerning the term "homogeneous population", which has a perfectly clear meaning you are ignoring. I do hope you are doing so intentionally.

Anonymous praetorian August 23, 2014 1:08 PM  

Then these clones are no longer homogeneous, are they

Serious.

But, wait a sec, even if they were all making their own tranny case at the exact same time, sometimes they might not breath in sync... I hadn't considered that... NOT. HOMOG.

Aspies gonna aspie...

Anonymous roversaurus August 23, 2014 1:12 PM  


Your points, 1 through 4, are political or social reasons to oppose free trade. Those are not economic reasons.



You haven't understood the concept of a logical argument if you think point 1 is a reason to oppose free trade at all.


You originally said: "free trade must be opposed by every sovereign, democratic, or self-determined people"

That is more than one reason, therefore the plural "reasons" is valid. I didn't think saying "your reason" was appropriate. I also didn't think referring to just point 4 was appropriate because items 1 through 3 were important supporting evidence for item 4. I included the range 1 to 4 because I wanted to make clear that I found nothing in there an *economic* argument (unless you want to say that pretty much all human action is economic)

So since I didn't think "point 1 is a reason to oppose free trade at all" whether or not I "understood the concept of a logical argument" is still up in the air.

Anonymous roversaurus August 23, 2014 1:21 PM  

VD said:

I didn't say anything about the reasons being economic. That is a different argument, and one to which I have already alluded concerning the free movement of capital.


I'd like others to read his sentence carefully. I agree completely with VD here. My point in posting was to prevent people from conflating his powerful case with an *economic* point. This doesn't mean I won any argument. Up to this point there has been no argument.

Now I'm not going to conceded the case VD is making. I'm going to ignore it. I just wanted to emphasize that it is not an economic argument. My next post is what I real want others to think about.

Blogger David August 23, 2014 1:23 PM  

Vox' First Law is simply "my IQ is so high that if you don't get my point, it's simply because you're too stupid."

I never ceased to be amused by those who believe themselves the smartest persons in every room they enter, and rely on that belief to imagine themselves infallible.

I'll file your notion of the non-existence of oxymorons along side the related notions that neither doublethink nor cognitive dissonance exist.

High functioning people often seem to be extraordinarily skilled at self-delusion.

Blogger David August 23, 2014 1:31 PM  

Vox, I now see that this blog simply represents one faction that desires to be the "Who" in Lenin's dictum.

As detailed in Orwell's Theory and Practice of Oligarchical Collectivism, this faction is a "middle," whose leaders simply want to replace the current "high" and then enforce stasis.

Such thought is just one of the many urges to rule, to subjugate others.

Interesting...

Anonymous roversaurus August 23, 2014 1:42 PM  


Me:
Then these clones are no longer homogeneous, are they?



VD August 23, 2014 12:52 PM
You're acting like a moronic aspie concerning the term "homogeneous population", which has a perfectly clear meaning you are ignoring. I do hope you are doing so intentionally.


Perhaps. I've lost a considerable amount of brain function over the years.
"homogeneous" means something different than "heterogeneous". In the realm of *trade* the more homogeneous the participants the *less* opportunity there is for valuable exchange to occur.

Going to the extreme ... well the definition of homogeneous (of the same kind; alike, consisting of parts all of the same kind) Means everyone is the same. The most interesting thing I learned from the concept of "Comparative Advantage" is that if two trading partners are *exactly* the same no value can be gained from trade. In fact it is our *differences* our *heterogeneousness" that makes trade worth while at all.

I interpreted your post as disparaging trade between heterogeneous people for economic reasons. I object to that. You can try to make a case that it is culturally problematic or has a detrimental impact on sovereignty but for dollars and cents and economic wealth, trade between heterogeneous partners is the only worthwhile trade.

Anonymous VD August 23, 2014 1:44 PM  

I included the range 1 to 4 because I wanted to make clear that I found nothing in there an *economic* argument (unless you want to say that pretty much all human action is economic)

Again, you clearly haven't understood the concept of a logical syllogism. I have not said that my core argument against free trade is economic in nature. Nor have I said that it is the sum total of my arguments against free trade, some of which are economic and some of which are not.

Why are you babbling about my argument not being economic in nature when I have not claimed that it is? What does that have to do with anything? It is also not blue, or written in Chinese.

I never ceased to be amused by those who believe themselves the smartest persons in every room they enter, and rely on that belief to imagine themselves infallible.

I'm not the smartest person in every room I enter. It's just that I'm observably a lot smarter than you. There is nothing oxymoronic about being a nationalist libertarian, and in fact, if you are correct in implying that the death of nations is a core libertarian concept, you will have sentenced it to complete political irrelevance for all time.

I, and most of the libertarians I know, would abandon libertarianism completely if we were to believe it is intrinsically anti-American, anti-Constitutional, and anti-national sovereignty.

Anonymous VD August 23, 2014 1:48 PM  

In the realm of *trade* the more homogeneous the participants the *less* opportunity there is for valuable exchange to occur.

Why do you aspie morons insist on trying to get pedantic with me? I'm only going to humiliate you like all the rest before you.

Going to the extreme ... well the definition of homogeneous (of the same kind; alike, consisting of parts all of the same kind) Means everyone is the same.

Very well, let's go to your pedantic extreme. Two perfectly heterogeneous groups, meaning everyone is different in every way, will never engage in any trade whatsoever. How much trade is there between oxygen-based lifeforms and nitrogen-based lifeforms that don't communicate on the same wavelengths or share any values whatsoever? None.

You idiots never seem to grasp that two can play that game, and I can play it considerably better than you can. The reason that I don't is that it is totally pointless. Now, do you understand that your objection is a) stupid and b) irrelevant?

Anonymous roversaurus August 23, 2014 1:58 PM  

me

There is no value gained when exchanging the exact same thing

praetorian

Dude, c'mon. Even in a world of clones, specialization would be a net economic benefit.

me

Then these clones are no longer homogeneous, are they?


Serious.

But, wait a sec, even if they were all making their own tranny case at the exact same time, sometimes they might not breath in sync... I hadn't considered that... NOT. HOMOG.

Aspies gonna aspie...


Trade between homogeneous people is not very valuable. In fact, when you gave an extreme case of homogeneous people you had to make those people somewhat heterogeneous in order to show where they could gain from trade.

Is there an optimum point where some heterogeneity is good but a little bit more is detrimental?
Can you agree that exactly homogeneous means zero benefit from trade? You seem to have conceded that.

Anonymous roversaurus August 23, 2014 2:08 PM  

VD:
"Very well, let's go to your pedantic extreme. Two perfectly heterogeneous groups, meaning everyone is different in every way, will never engage in any trade whatsoever. "

Yes, I do concede. People who are unable to engage in trade will not benefit from trade.

I apologize for not responding further. I must proceed with the rest of my day. Perhaps late tonight I can respond again.

Anonymous VD August 23, 2014 2:15 PM  

Yes, I do concede. People who are unable to engage in trade will not benefit from trade.

Gracefully put. I will likewise concede that perfectly homogenous people who all have exactly the same possessions and share exactly the same subjective valuations of those possessions have no reason to engage in trade and will not benefit from it.

I expect we can put the extreme pedantry to bed now.

Blogger automatthew August 23, 2014 2:15 PM  

David, which of the recurring trolls are you, again?

Blogger Northern Hamlet August 23, 2014 2:54 PM  

VD,

- Are the likely power differentials what make these "social" factors detrimental? Why can't your argument be extend: Deltas should only economically trade with Deltas; Alphas with Alphas. Significant differences in genetics, cultural manifestations, and traditions.

- You'll have to help me with this one if it makes any sense (or let me know if it doesn't). Legal differences in 2 is only... I don't know... only exists because of Democracies in 3... With incompatibility snuck in.

Democracies are a legal difference.

There's something wrong there but I don't have either the rhetorical or logical skill to explain what. Or I should shut up now.

Anonymous Mike M. August 23, 2014 2:58 PM  

I take a middle ground on this subject.

Free trade of goods among peer states is a good thing. It enlarges the market, and enables small businesses to prosper by offering goods tailored to a small percentage of consumers.

Free trade of goods with non-peer states should only be indulged in sparingly. Peer states have comparable tax and regulatory overhead. Non-peer states don't...which makes it very tempting to push manufacture of goods to low-tech, low-overhead countries.

As a result, the people who were doing that manufacturing in high-overhead countries wind up either on welfare, or doing a service job that pays less than the manufacturing job they lost. And the high-tech businesses in the low-tech countries that could have grown are wiped out by imports from high-tech countries. It's a lose-lose situation.

As for fungibility of labor, Vox is right on the money. As the saying goes, "good fences make good neighbors".

But it's not National Libertarianism, it's Libertarian Nationalism. We don't want to be mistaken for the NSDAP.

Anonymous Boetain August 23, 2014 3:10 PM  

Sorry for the off-topic comment here, but when I look around the world, I see certain countries that have freer trade policies than other countries. It appears that the freer trade countries are doing much better than the others on average.

Don't believe me? Here are the top 5 most free and least free according to Heritage rankings of trade freedom (I left out those with n/a ranking). Let me know which countries you would rather live in:
Most Free:
Hong Kong
Macau
Singapore
New Zealand
Switzerland

Least Free:
N. Korea
Seychelles
Maldives
Iran
Bahamas

Sorry again for the off-topic. Please continue the theoretical banter about the ill-effects of non-existent true, absolute free trade.

Anonymous praetorian August 23, 2014 3:10 PM  

Trade between homogeneous people is not very valuable.

Roversaurus, you ignorant slut.

Let's see if we can get this simple enough for you to understand: consider twin brothers, genetically identical, living in the wild, eating berries and buffalo. These guys, trust me, they are a homogeneous group. Just trust me on this one: non-aspie humans would classify them as such.

So these two brothers, assuming some reasonable subjective demand schedules, would be better off if one of them went out and collected berries all day and the other went out and hunted buffalo while the other went out and collected berries and then they, and here is the hard part, so I want you to follow very closely: *they traded with one another.* This is because by focusing on one activity they are able to achieve higher proficiencies and amortize startup costs over larger periods, etc.

Now, if you say, at this point "Well, now they are not homogeneous" then, seriously: lolz, well trolled my friend.

If, like a reasonable person, you admit that homogeneous people can indeed benefit from in-group trade, then congratulations! We are making progress.

Now, do a bit of thinking about the utility of high-trust societies and/or well-enforced borders when it comes to allowing specialization in economies...

Anonymous Stephen J. August 23, 2014 3:33 PM  

There seems to be an interesting intersection of curves here. If we stipulate that differences in resources and capabilities between nations will yield greater economic benefit of trade as they increase, but also lead to greater cultural disparities and thus cause greater cultural damage via trade as they increase, what is the optimum balance point where nations are alike enough to trade safely but different enough to trade profitably?

Blogger CM August 23, 2014 8:16 PM  

Living in a world where you are NOT dependent on others will leave you very, very poor.

I find this to be a very odd statement given Monastic living. In fact, this very standard of living, I would LOVE to accomplish. Move out to the middle of nowhere and be subsistent... no need for trade. There are some areas we would be weak in - like medical things - but this is my ideal.

Also, one of the most prosperous times in Israel's history was when King Hezekiah completely cut off Israel's dependence on foreign nations in providing foreign goods.

So... while we might not be rich in "gold" - the currency of people with nothing useful to offer - we would be rich in terms of care and provision. Gold is worth nothing if everyone is dying of small pox and starving from famine.

Anonymous 11B August 23, 2014 11:45 PM  

Most Free:
Hong Kong
Macau
Singapore
New Zealand
Switzerland


Keep in mind those nations that support free trade the most generally tend to be smaller nations who don't have the population to have a large market, and don't have a geographically diverse country that can grow a wide range of crops, or has a varied amount of natural resources. It is no surprise that the Dutch were big pioneers in free trade due to their tiny domestic market. The same went for most of Europe which was broken up into individual states.

Conversely, nations like the USA and China have large, geographically diverse nations that can grow a wide range of crops and contain varied natural resources. They also have the populations necessary to have a large domestic market.

The amazing thing about the USA over the past thirty years is that we have thrown away this advantage. China is taking advantage of its position while the USA is not.

The USA became the most independent nation in history through protectionism, not free trade. And we could afford to do so because of our dominant size. China appears to be doing the same today.

Anonymous roversaurus August 23, 2014 11:45 PM  

praetorian

So these two brothers, assuming some reasonable subjective demand schedules, would be better off if one of them went out and collected berries all day and the other went out and hunted buffalo while the other went out and collected berries

This is called specialization. Specialization is one of the ways that wealth is increased. As specialization increases homogeneity decreases.

If, like a reasonable person, you admit that homogeneous people can indeed benefit from in-group trade, then congratulations!

Only when there are differences can value be achieved via trade. Every example you give explicitly points out the difference. The more the differences the greater the opportunity for trade. There is no point in trading if the person you are trading with doesn't have something different from you. Given this self evident fact I think rejecting trade with heterogeneous groups for economic reasons is wrong.

Blogger Danby August 23, 2014 11:48 PM  

@Boetain,
"Don't believe me? Here are the top 5 most free and least free according to Heritage rankings of trade freedom (I left out those with n/a ranking). Let me know which countries you would rather live in:
Most Free:
Hong Kong
Macau
Singapore
New Zealand
Switzerland"

You keep using that word "Freedom" I don't think it means what you think it means. Singapore is a totalitarian dictatorship. Macau and Hong Kong are administrative regions of the Peoples Republic of China. New Zealand is a Socialist paradise,

These countries are not really free in the way the US used to be. My guess would be that by "freedom", Heritage means free to invest money and earn a profit, wiht the permission of the local thugs and bosses.
There are many areas of freedom, and that particular one is not supremely improtant to most people, and not at all important to quite a few, like people who have no capital or desire to invest (i.e. most people)

Anonymous roversaurus August 23, 2014 11:55 PM  

me:

Living in a world where you are NOT dependent on others will leave you very, very poor.

CM

I find this to be a very odd statement given Monastic living. In fact, this very standard of living, I would LOVE to accomplish.

While you might enjoy that living and the lifestyle might be spiritually far better. It does seem to have a lot less wealth. And even a monastic lifestyle is one which depends on others. My image of a monastic lifestyle includes more than one monk living in old buildings created by others. Probably trading with external groups for some food and tools and in the modern world health care. At least a pair of glasses.

No, living without being dependent on *anyone* is exceptionally primitive *at best*.

Anonymous Boetain August 24, 2014 12:35 AM  

Danby:

It is Heritage's TRADE freedom ranking criteria - you can see exactly what it means by googling. And you are off base on Singapore - also can be googled.

Anonymous map August 24, 2014 12:43 AM  

Vox, VD, Roversaurus and others,

I have not seen the content of Ricardo's theories actually discussed here. Please understand what is meant by comparative advantage and what is not. Comparative advantage is not about specialization in something that you are good at and then exchanging that for other goods. It's not about me focusing on, say, baking while you focus on, say, tailoring and then we exchange our surplus output.

That would be competitive advantage.

Comparative advantage asks a much more interesting question: What if I am the best at everything? Does it still make sense for me to trade. The answer, according to the theory, is yes, if I focus on producing only the goods that have the highest rate of return. So, I may be the best lawyer and the best paralegal, but it makes no sense to split my time between the two. Why not focus all my energy on practicing law and just higher a paralegal?

That is the basis of Ricardo's Comparative Advantage theory.

The problem is that Ricardo's theory was created in a largely agricultural world, where national endowments were limited by climate and geography. Modern manufacturing has no such limitation because factories can be built anywhere. These are...absolute advantages. That is why you are seeing industry after industry outsourcing to China and the economic shortfalls showing up as debt and welfare states.

But there is another angle that people are not examining. China succeeded through using mercantilist policies. In fact, most of the world that re-industrialized after WWII did so by restricting imports and focusing on exports. This limits the number of export markets and allows the US to raise import taxes without much worry. The demand for US markets are largely inelastic.

Anonymous Luke August 24, 2014 1:32 AM  

Mr. Rational August 23, 2014 9:43 AM
"Sure, we're close to being a net exporter of petroleum for the first time in about 5 decades."

"I'm not sure which depresses me more: that someone made this ridiculous claim in all apparent seriousness, or that nobody has seen fit to challenge it, which suggests that everyone here actually believes it.

Here is the truth: more than half of the crude oil used in the USA in 2013 was imported.

Now take this back to your source for the ridiculous "we're about to be a net exporter" claim and call them out on it."


Source showing U.S. oil consumption and production crossing in about 13 years:

http://gailtheactuary.files.wordpress.com/2012/04/us-oil-forecast-based-on-recent-trends.png

Note that U.S. oil and gas production is being held back significantly short of its potential by two major forces:

1) The Fedgov is discouraging production on Federal lands compared to previously (pre-Obama);

and

2) the price of natgas is low enough that it discourages production. (I work in the industry, and hear this regularly.)

Remove either or both of these, and watch that 13 years shorten.

Blogger Brad Andrews August 24, 2014 1:52 AM  

> Why do you aspie morons insist on trying to get pedantic with me? I'm only going to humiliate you like all the rest before you.


You have your own challenges in that are Vox, though you don't see them it seems.

Note you did admit (or was that a joke I missed?) in another thread that you didn't always have sufficient details in arguments. Some things were obvious to you and you didn't always go into sufficient details on the background.

You remain a human. You have some good ideas, but you may need your own court jester to mix in the humility and remind you that you are not always as perfect at your message as you think.

It can be the audience, but it can also be the speaker.

Blogger Jorge Morales Meoqui August 24, 2014 2:11 AM  

Hi Rantor,

I'm just drawing attention to the fact that what Ricardo actually wrote is quite different to what is currently understood under the so-called "law of comparative advantage".

By higher real labor costs I mean that in countries like China the amount of labor time required to produce any commodity is usually higher than in the developed countries. Within a country if a company has higher real labor costs than another, it would also have higher nominal costs. The same is not valid for companies in different countries. This is the proposition which Ricardo proved in his famous numerical example.

Anonymous map August 24, 2014 3:40 AM  

Jorge Morales Meoqui,

That can't be correct. Otherwise, Chinese products would never sell in the US.

Anonymous scoobius dubious August 24, 2014 4:37 AM  

"That can't be correct. Otherwise, Chinese products would never sell in the US."

No, you've misunderstood. Look at it like this: US worker paid $25/hr to produce a coffee maker, takes 1 hour to produce it. Labor cost: $25. Chinese worker takes 4 hours to produce a coffee maker, but is paid only $2/hour. Total cost: $8. US worker is more time/labor efficient, but the Chinese worker is still more cost-efficient. In a market run by traitors, that is.

This is one of the many reasons why I hate economists so much.

Anonymous Luke August 24, 2014 5:25 AM  

Semi-OT: Nobel Laureate says deflation unavoidable now, no matter what gov't does:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100027956/nobel-guru-fears-it-may-be-nigh-impossible-to-stop-deflation/

Anonymous trev006 August 24, 2014 11:11 AM  

If it's claimed that the only intellectually coherent form of free trade demands completely open borders, it's little wonder that you'd want to oppose it. It's also a straw man, though: out of most free trade deals, only the EU has a full customs union, and even then the language barrier often serves to limit labor mobility. Just look at how most Eurozone migrants are coming from poorer countries that were recently brought into the EU (which is a blundering policy itself, I admit)! Of course, the welfare mobility is a different matter, but that's down to insane welfare policies adopted by the UK.

http://www.oecd.org/migration/mig/Adjustment-mechanism.pdf

Even in Canada and the US, the customs union is mainly for certain specialists- and the union does not exist officially for Mexico. Again, there is a huge immigration disaster, but the extralegal nature of it means the blame goes to the government and not to NAFTA. You can say that you're opposed to full free trade for the nationalistic implications, but when your opposition is to a form of customs union that doesn't exist outside the EU, the argument is attacking a theory that only exists for the the most hardcore globalization advocates.

I can't overstress that this has practical implications: half the reason for Britain's populace and elite being relatively anti-UKIP is because of the lie that UKIP wants to end the free trade union with the EU. Nigel Farage goes out of his way to promote a free exchange of goods, not people, while winding down the EU bureaucracy. That free exchange is politically popular BECAUSE most Britons see it as beneficial. If nationalists insist on ignoring that- which would imply ignoring the national self-determination and democracy you raise in your own thesis- their broader agenda will never be applied politically. Which means that either nationalists will affect the broader results of the euroskeptic movement less than they could, or that nationalists will have to make their gains through civil war. And that's hardly guaranteed to work: the Confederacy could tell you about the risks of gambling your fate on war, the aggression of Union forces aside. My bottom line is that free trade can be beneficial if its political implications are understood, with a free trade ideal being conducted between nations with like goals (eg. Greece and Germany as part of a free goods area).

That's my thought on the nationalistic argument against free trade. If you think free trade is an economic negative that should be fought against, we can discuss that too, and I've read the blog's free trade posts. So ask a question about free trade, and I'll try to answer it.

Anonymous Bubba August 24, 2014 2:27 PM  

Brad: "How can any controlled trade system avoid becoming a form of mercantilism? Are you a fan of that instead? I fail to see how controlled trade would not be just as bad. Some comparison of how things could or do work in that area would be very informative, especially if you ever wrote a book on the topic."

We have always had a controlled trade system. There is no free trade. Go read GATT, GATS, NAFTA and their protocols. China is mercantilist to the core. Rather than charge tariffs on imported goods, they award subsidies for local goods.

My company cannot sell any US-made large equipment in China. The Chinese require that we set up a factory there, hire Chinese engineers, give them our trade secrets and engineering, purchase major subassemblies from other Chinese manufacturers, and only them will our large equipment be eligible for a 20+% subsidy that all other Chinese manufacturers get.

And every time we even get close to making a profit, the Chinese government moves the goalposts, requiring a little more disclosure, a little more ownership, a little more cost.

There is no economic difference between tariffs on foreign goods and subsidies for domestic goods. The system we have is not "free" trade. It is ruthlessly controlled trade. And by waving the Gospel According to St. Ricardo in our faces, we are endlessly turning the other cheek and are being "controlled" out of existence by our "free" trade system.

Case in point: Sweater City and Sock City. We were told that free trade would give the poor Chinese worker more money and eventually his wages would rise to Western levels. Picture the poor knitters of China, finally able to buy an electric fan! Instead, China has subsidized and built the most incredible automated knitting factories in towns called Sock City and Sweater City. They are so efficient that Sock City (pop. 60,000) produces over 1/3 of all socks in the freaking world. What do your socks cost? How much of that money is going to the dumb Chinese workers? Bupkis.

Two hundred and fifty years ago, the American response when faced with the same technological disadvantage was to go to Europe, beg, borrow or steal the loom designs, come back home and make textiles here, thereby hiring engineers, factory workers, masons, and supporting America, American education, American technology, American communities and fellow American manufacturers.

But with "free" trade there is no need to make America better and richer all around. Instead, the LA/NYC/Chicago "brand manager" girls and "buyer" girls and "fashion magazine" girls get to make their fancy PowerPoint slides and travel to London, Paris, and China buying socks by the billion.

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