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I know economists still have soft spots in their hearts for Smith and Ricardo, but how, in 2010, could anyone honestly cite comparative advantage in support of
by dfa 16y ago
I know economists still have soft spots in their hearts for Smith and Ricardo, but how, in 2010, could anyone honestly cite comparative advantage in support of free trade when the markets for land, labor, and capital have gone global? No nation has an inherent advantage over any other in producing a particular good or service. The idea that we should specialize in producing what we're best at producing and trade for everything else makes less sense in a world where raw materials can be mined in Africa, refined in India, and assembled into a finished product by workers in China to be sold abroad at a 98% markup by a multinational corporation. All too often the primary "comparative advantage" other nations have over us is their lax labor and environmental regulation. And even if we were to follow the tenets of free trade and specialize in what we're best at, what, again, would that be? Economists told us that high-tech jobs would replace the outgoing manufacturing ones. What will replace the high-tech jobs?
I also thought it was amusing to see Tyler suggest that we could learn something from those countries
in East Asia eating our lunch. Apparently he is unaware that those countries all have neomercantilist systems that favor exports over imports, encourage personal saving, and discourage consumption.
As for the original article, the claim that no nation ever got rich by engaging in protectionism is ridiculous. The US pursued a protectionist trade policy from its inception (The American System) up until Smoot-Hawley and even then continued to and still continues to in certain sectors (see the US Sugar Program as a prime example). Great Britain became the most powerful empire on Earth while engaging in protectionism, starting with the infamous Navigation Acts. This is not to say that America and Britain became prosperous because of protectionism, only that it is not as absolutely fatal to an economy as some suggest. Thriving European countries today engage in protectionism against us by putting a VAT on American exports.
Lastly, though this post may have seemed like a defense of protectionism, it isn't. The problem with protectionism is that its antonym is not "free trade" but "free markets." Doctors, lawyers, dentists, and many other white collar professionals enjoy immense economic protection in our system. Rather than adding even more, on behalf of engineers, why not reduce the protection of other professions? If people stopped seeing society throw engineers to the wolves of the market while guaranteeing doctors, lawyers and others comfortable, upper-middle class lifestyles, more people might go into engineering.
- davidw 16y agoYou make some good points. However: > No nation has an inherent advantage over any other in producing a particular good or service. Which is why we drink so much Norwegian wine here in Italy lately. I think your claim is overly broad.
- korch 16y agoBingo! You're completely right. I cringe whenever I see someone drag out Ricardo's comparative advantage BS, dating from the 1800's. Economics, as it is taught in the schools, opposed to the real world of business, is mostly fiction. Sure, you can demonstrate the validity of comparative advantage on paper using a simple matrix of Guns & Butter, and because it's so simple we get all these Randroids who believe they understand how the world truly works through the lens of basic freshman level math. But these Macroecon textbooks are also wearing the kid gloves for the benefit of innumerate undergrads in order to pass off an illusion as scientific fact. (Econ is the dismal science after all). Instead, let's scale the Guns & Butter matrix up to 1,000,000 variables, which is still embarassingly low compared to the complexity of real life, and let's add a time dimension too. Now just try to find the fucking comparative advantage! Good luck even finding the eigenvalues of that matrix before the heat death of the Universe. And if you happen to get lucky and find some minimum, you won't be able to know if it's global or if you're going to be wandering around in a false local minimum for eternity. Faced with this kind of uncertainty, your smartest evolutionary move is to grab whatever you can buy or sell and defend it within your territory. Period. Ricardo's theorem is to economics as play-dough is to architecture. I often amuse myself by wondering this: what if our entire idea that our post-modern global society has transitioned to free trade and free markets is a delusion, a folie a deux, a cynical ploy by the rich & powerful to control everyone, and in fact historical mercantilism is still the basis of global political economy? Just look at the balance sheet of the Federal Reserve sometime and ask yourself if hoarding currency is still the primary determinant of a nation's wealth? Sure, we've changed the language we use to describe it, we've changed the playing field itself, added incomparable technology, and re-shuffled the boundaries and identities of nations through a few world wars, all underneath an expanding teleological architectonic of democracy and freedom around the world, but ultimately everything is still the same basic pattern being played out across the nations. Hoard currency! Perhaps mercantilism & protectionism is the only Game theoretic dominant economic strategy for any nation or collective group?