7 ms·

> "What Ricardo proved mathematically, is that if one country has simply a comparative advantage (not even an absolute one), it still is in everyone’s best inte

by deogeo 8y ago

> "What Ricardo proved mathematically, is that if one country has simply a comparative advantage (not even an absolute one), it still is in everyone’s best interest to embrace specialization and free trade. [...] It is quite bizarre to see modern day politicians throw caution to the wind and ignore these fundamental tenants of economic science." Good old mathematical proof with spherical cows in a frictionless vacuum. Should be complemented with some empiricism. From https://en.wikipedia.org/wiki/Comparative_advantage#Criticism https://en.wikipedia.org/wiki/Comparative_advantage#Criticis...: "none of the world's most successful trading regions, including Japan, Korea, Taiwan, and now mainland China, reached their current status by adopting neoliberal trading rules."

asnrk 8y ago
I don't get why people name-drop Ricardo as the final authority on why free trade, in practice, is definitely in everyone's best interest. Ricardo's work was very narrow and didn't have much to say about the distribution of gains from free trade even under the conditions in which his work held.
- barbecue_sauce 8y ago
  My best friend is an economics PhD. He often laments on the fact that the average college-educated person has enough Economics exposure to make glib, dismissive comments like "That's Economics 101" or reference early economic thinkers, when Economics is really a broad, constantly-evolving field that is much more complex and nuanced than the GER courses would lead you to believe.
  - sharemywin 8y ago
    But, that's partially because that's the way its taught.
  - jgeada 8y ago
    It isn't particularly helpful that economics as a discipline seems to have the same predictive value as soothsayers and court jesters(). Mostly economic theory in the western world is used as a cudgel to justify particular policies that benefit a few at the expense of many. () eg: all the following were justified by "economists": trickle down economics were promised to increase middle class (nope), prediction of inflation caused by quantitative easement (hasn't happened yet), devaluation of dollar due to trade deficit (hasn't happened yet), gains in tax revenues by unlocking growth through tax cuts (nope), etc ...
    - RHSeeger 8y ago
      > It isn't particularly helpful that economics as a discipline seems to have the same predictive value as soothsayers and court jesters That's a wonderful quote. Thank you for that.
    - rhizome 8y ago
      Everything with an -ism suffix is ideological.
      - azangru 8y ago
        Botulism?
        dredmorbius 8y ago
        Etymooicaly, yes, actually: https://www.etymonline.com/word/botulism https://www.etymonline.com/word/botulism
    - barbecue_sauce 8y ago
      You're right, and, as a self-hating economist, I think he would agree with most of what you said. Here are his thoughts on supply-side "trickle-down" economics: "It's basically what happens when a college sophomore attends the first 8 weeks of an intro macro course and is like, 'ok, I've heard enough. I'm going to go write policy now'." It makes sense in the context of basic economic theory devoid of complication introduced later, but no legitimate economists still believe in supply-side economics and very few did to begin with. The powers that be reached for, and continue to reach for, economic theory that supports their agenda; they don't look for consensus in the academic community.
    - barry-cotter 8y ago
      > It isn't particularly helpful that economics as a discipline seems to have the same predictive value as soothsayers and court jesters(). Much as I like to point out that microeconomics has a way better record than macroeconomics, it’s akso easier because we have much, much more data. You’re still wrong about macroeconomics though. If you increase the money supply you’ll get inflation. If you increase it a lot you’ll get hyperinflation. If you surprise people with unexpectedly higher inflation you’ll get a boom. As people realise inflation is higher than expected you’ll get a recession. If you raise taxes unexpectedly people will spend less, not just because they have less money, but because they realise they’ll have less money than they expected over the course of their whole lives, they’re poorer. Saying macroeconomists don’t know anything because politicians do what they want and find a convenient economist to justify it later is like saying no one knows anything in computer science because JavaScript frameworks change every two years.
  - Mirioron 8y ago
    The problem with economics is that you can't tell which parts you can take seriously and which parts you can't. Both sides of the argument tend to offer a lot of criticism to the other side and it's not obvious which side is politically motivated or stands to gain from a specific policy and which side is doing it because it would be a net positive to society. There are many people who think socialism will be better than our current economic system and many of these people even have political power.
harimau777 8y ago
It seems like what's missing is that being in "everyone's" best interest isn't the same as being in "every individual's" best interest. I don't know enough to say about this situation specifically, but something that helps society as a whole could still hurt a large segment of society.
- jpollock 8y ago
  Nothing a society does is in every individual's best interest. The question tends to end up - are the costs and benefits diffuse or focused. Focused costs tend to be negatives (loud complaints from small groups), and diffuse benefits aren't perceived. Free trade (at the start) is a diffuse benefit, and a focused injury. It's like arguing for action on climate change.
- blotter_paper 8y ago
  I think it's actually the other way around. Ricardo's models show that individuals stand to gain from trading with individuals who have different opportunity costs, and at least in simplified scenarios it seems to check out. It's when you look at the bigger picture that things get tricky. Does country A want to rely on country B for oil/food/weapons/whatever-else-they-need-to-survive? That could cause issues. Are imports causing competition with a fledgling segment of your economy that you want to become competitive on the global stage, but which isn't yet? Maybe importing massive amounts of cheap electronics today will prevent you from becoming a major exporter of electronics in the future, because local investment of time and money will be directed elsewhere; maybe this is fine, and maybe it isn't, depending on your goals. There are reasons to block trade that don't have to do with immediate efficiency. Absent of these reasons, Ricardo (sadly) seems to be mostly correct. Edit: "the other way around" isn't quite right, I thought you were making a point besides the one you were actually making. Hurpadurpa.
  - devoply 8y ago
    If you want to ever have a chance to progress and develop your economy then these criticisms are everything. On the other hand if you have a developed economy and already lead in many sectors then you can follow these sorts of rules and still be fine. The point of this as ideology is simply to try to cement the "natural" order of things. It's failed mostly because of work of heterodox economists from the countries effected negatively by such ideology like South Korea.
scottlocklin 8y ago
The Wiki page is pretty good, but there are simply vast lacunae in this idea. For example: https://www.nber.org/papers/w5625 https://www.nber.org/papers/w5625 Economists treat it like it was a proof, but it wasn't; it's a sort of shaggy dog story in service of an ideology.
- devoply 8y ago
  Well you want people you have making clothes for $2/hr to believe economic nonsense like that.
  - barry-cotter 8y ago
    Those people don’t know anything about comparitive advantage. They just know that working in a sweatshop pays better than working on a subsistence farm, which is their other option.
    - Mirioron 8y ago
      They also know that working indoors on manufacturing is an easier job than farming. Farming is one of the more dangerous professions even.
lazyjones 8y ago
Don’t be so dismissive, we all know everyone buys Wine only from the one country where it’s cheapest to make. /s
barry-cotter 8y ago
Hong Kong did. It went from being a bombed out port with no natural resources and 3m people to a first world country in less than 50 years while taking in millions of refugees with unilateral free trade. If you want to learn more read Architect of Prosperity. http://sir-john-cowperthwaite.com/ http://sir-john-cowperthwaite.com/
- ABCLAW 8y ago
  I think it might have had to do more with being the logistics hub of the largest empire in the world, with an influx of that empire's capital for a century. Capital favouring policies seem to work great for capital - if you have capital.
  - barry-cotter 8y ago
    Hong Kong was always an afterthought in the British Enpire. It was never important when they had India, which they actually cared about and which was gone in 1947. Hong Kong was also less important in terms of trade than Shanghai was, that’s why HSBC, the Hong Kong and Shanghai Banking Corporation, was headquartered in Shanghai until shortly before the communist takeover. Hong Kong was not the logistics hub of an empire after WWII. It was the remnant of one, a place that had never been important before and wasn’t a priority to anyone in the metropole. Capital favouring policy work great for people who live anywhere with rule of law and security of contract. If you do that you can go from bombed out war zone poverty to the first world in one lifetime, as South Korea, Japan, Singapore and Hong Kong all did. Hong Kong’s importance is on showing that industrial policy and tariffs are completely unnecessary to that process.
    - boomboomsubban 8y ago
      >Hong Kong was not the logistics hub of an empire after WWII. It was the remnant of one, a place that had never been important before and wasn’t a priority to anyone in the metropole. Hong Kong is situated at the mouth of the Pearl River Valley, one of the most densely populated areas in the world. Important enough that the UK fought two wars to maintain the territory, and it benefited tremendously from being a border city during the Cold War.
Ozzie_osman 8y ago
This! Ricardo's model assumes that every country stays at the same level of productivity. In reality sometimes it makes sense to protect industries a little so they can develop. That said, free trade works better 90% of the time (even outside the simplistic in-a-vacuum model).
antidesitter 8y ago
Key paragraph in your link: However, the overwhelming consensus of the economics profession remains that while these arguments are theoretically valid under certain assumptions, these assumptions do not usually hold and should not be used to guide trade policy. Gregory Mankiw, chairman of the Harvard Economics Department, has said: ″Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards.″ It's sad to have to rehash this every time people on HN who've never studied economics figure they're experts on the subject, much like happens with climate change denialists, so I'll have to repeat it again. There is an overwhelming consensus among people who study the subject that protectionism has a negative effect on economic growth and economic welfare [1][2][3][4][5][6]. Even economists who lean interventionist like Paul Krugman strongly agree, and have tried time and time again to explain why free trade is a good thing to an ignorant public. It is shameful that so many people feel obligated to opine strongly on a subject which they don't understand, causing bad policies to be enacted. Protectionism makes society worse off. It makes the world poorer. [1] https://www.nytimes.com/2015/04/26/upshot/economists-actually-agree-on-this-point-the-wisdom-of-free-trade.html https://www.nytimes.com/2015/04/26/upshot/economists-actuall... [2] https://research.stlouisfed.org/publications/review/2004/09/01/free-trade-why-are-economists-and-noneconomists-so-far-apart https://research.stlouisfed.org/publications/review/2004/09/... [3] https://www.jstor.org/stable/2117691 https://www.jstor.org/stable/2117691 [4] http://www.igmchicago.org/surveys/free-trade http://www.igmchicago.org/surveys/free-trade [5] http://www.igmchicago.org/surveys/import-duties http://www.igmchicago.org/surveys/import-duties [6] http://www.igmchicago.org/surveys/trade-within-europe http://www.igmchicago.org/surveys/trade-within-europe
- deogeo 8y ago
  So we can go with a mix of trade and protectionism, which has been proven to build a nations economy multiple times, or we can risk it and go with what economists assure us works even better? And do their assurances only work if everyone adopts unbiased free trade, and break down when a group favors its own, such as shown in http://jasss.soc.surrey.ac.uk/16/3/7.html http://jasss.soc.surrey.ac.uk/16/3/7.html ?
tha_nose 8y ago
That's because all of those countries adopted US economic model of development ( aka protectionism ). We used protectionism to protect our industries and helped them grow. https://en.wikipedia.org/wiki/Protectionism_in_the_United_States https://en.wikipedia.org/wiki/Protectionism_in_the_United_St...

by deogeo 8y ago

asnrk 8y ago

I don't get why people name-drop Ricardo as the final authority on why free trade, in practice, is definitely in everyone's best interest. Ricardo's work was very narrow and didn't have much to say about the distribution of gains from free trade even under the conditions in which his work held.

barbecue_sauce 8y ago
My best friend is an economics PhD. He often laments on the fact that the average college-educated person has enough Economics exposure to make glib, dismissive comments like "That's Economics 101" or reference early economic thinkers, when Economics is really a broad, constantly-evolving field that is much more complex and nuanced than the GER courses would lead you to believe.
- sharemywin 8y ago
  But, that's partially because that's the way its taught.
- jgeada 8y ago
  It isn't particularly helpful that economics as a discipline seems to have the same predictive value as soothsayers and court jesters(). Mostly economic theory in the western world is used as a cudgel to justify particular policies that benefit a few at the expense of many. () eg: all the following were justified by "economists": trickle down economics were promised to increase middle class (nope), prediction of inflation caused by quantitative easement (hasn't happened yet), devaluation of dollar due to trade deficit (hasn't happened yet), gains in tax revenues by unlocking growth through tax cuts (nope), etc ...
  - RHSeeger 8y ago
    > It isn't particularly helpful that economics as a discipline seems to have the same predictive value as soothsayers and court jesters That's a wonderful quote. Thank you for that.
  - rhizome 8y ago
    Everything with an -ism suffix is ideological.
    - azangru 8y ago
      Botulism?
      - dredmorbius 8y ago
        Etymooicaly, yes, actually: https://www.etymonline.com/word/botulism https://www.etymonline.com/word/botulism
  - barbecue_sauce 8y ago
    You're right, and, as a self-hating economist, I think he would agree with most of what you said. Here are his thoughts on supply-side "trickle-down" economics: "It's basically what happens when a college sophomore attends the first 8 weeks of an intro macro course and is like, 'ok, I've heard enough. I'm going to go write policy now'." It makes sense in the context of basic economic theory devoid of complication introduced later, but no legitimate economists still believe in supply-side economics and very few did to begin with. The powers that be reached for, and continue to reach for, economic theory that supports their agenda; they don't look for consensus in the academic community.
  - barry-cotter 8y ago
    > It isn't particularly helpful that economics as a discipline seems to have the same predictive value as soothsayers and court jesters(). Much as I like to point out that microeconomics has a way better record than macroeconomics, it’s akso easier because we have much, much more data. You’re still wrong about macroeconomics though. If you increase the money supply you’ll get inflation. If you increase it a lot you’ll get hyperinflation. If you surprise people with unexpectedly higher inflation you’ll get a boom. As people realise inflation is higher than expected you’ll get a recession. If you raise taxes unexpectedly people will spend less, not just because they have less money, but because they realise they’ll have less money than they expected over the course of their whole lives, they’re poorer. Saying macroeconomists don’t know anything because politicians do what they want and find a convenient economist to justify it later is like saying no one knows anything in computer science because JavaScript frameworks change every two years.
- Mirioron 8y ago
  The problem with economics is that you can't tell which parts you can take seriously and which parts you can't. Both sides of the argument tend to offer a lot of criticism to the other side and it's not obvious which side is politically motivated or stands to gain from a specific policy and which side is doing it because it would be a net positive to society. There are many people who think socialism will be better than our current economic system and many of these people even have political power.

harimau777 8y ago

It seems like what's missing is that being in "everyone's" best interest isn't the same as being in "every individual's" best interest. I don't know enough to say about this situation specifically, but something that helps society as a whole could still hurt a large segment of society.

jpollock 8y ago
Nothing a society does is in every individual's best interest. The question tends to end up - are the costs and benefits diffuse or focused. Focused costs tend to be negatives (loud complaints from small groups), and diffuse benefits aren't perceived. Free trade (at the start) is a diffuse benefit, and a focused injury. It's like arguing for action on climate change.
blotter_paper 8y ago
I think it's actually the other way around. Ricardo's models show that individuals stand to gain from trading with individuals who have different opportunity costs, and at least in simplified scenarios it seems to check out. It's when you look at the bigger picture that things get tricky. Does country A want to rely on country B for oil/food/weapons/whatever-else-they-need-to-survive? That could cause issues. Are imports causing competition with a fledgling segment of your economy that you want to become competitive on the global stage, but which isn't yet? Maybe importing massive amounts of cheap electronics today will prevent you from becoming a major exporter of electronics in the future, because local investment of time and money will be directed elsewhere; maybe this is fine, and maybe it isn't, depending on your goals. There are reasons to block trade that don't have to do with immediate efficiency. Absent of these reasons, Ricardo (sadly) seems to be mostly correct. Edit: "the other way around" isn't quite right, I thought you were making a point besides the one you were actually making. Hurpadurpa.
- devoply 8y ago
  If you want to ever have a chance to progress and develop your economy then these criticisms are everything. On the other hand if you have a developed economy and already lead in many sectors then you can follow these sorts of rules and still be fine. The point of this as ideology is simply to try to cement the "natural" order of things. It's failed mostly because of work of heterodox economists from the countries effected negatively by such ideology like South Korea.

scottlocklin 8y ago

The Wiki page is pretty good, but there are simply vast lacunae in this idea. For example: https://www.nber.org/papers/w5625 https://www.nber.org/papers/w5625 Economists treat it like it was a proof, but it wasn't; it's a sort of shaggy dog story in service of an ideology.

devoply 8y ago
Well you want people you have making clothes for $2/hr to believe economic nonsense like that.
- barry-cotter 8y ago
  Those people don’t know anything about comparitive advantage. They just know that working in a sweatshop pays better than working on a subsistence farm, which is their other option.
  - Mirioron 8y ago
    They also know that working indoors on manufacturing is an easier job than farming. Farming is one of the more dangerous professions even.

lazyjones 8y ago

Don’t be so dismissive, we all know everyone buys Wine only from the one country where it’s cheapest to make. /s

barry-cotter 8y ago

Hong Kong did. It went from being a bombed out port with no natural resources and 3m people to a first world country in less than 50 years while taking in millions of refugees with unilateral free trade. If you want to learn more read Architect of Prosperity. http://sir-john-cowperthwaite.com/ http://sir-john-cowperthwaite.com/

ABCLAW 8y ago
I think it might have had to do more with being the logistics hub of the largest empire in the world, with an influx of that empire's capital for a century. Capital favouring policies seem to work great for capital - if you have capital.
- barry-cotter 8y ago
  Hong Kong was always an afterthought in the British Enpire. It was never important when they had India, which they actually cared about and which was gone in 1947. Hong Kong was also less important in terms of trade than Shanghai was, that’s why HSBC, the Hong Kong and Shanghai Banking Corporation, was headquartered in Shanghai until shortly before the communist takeover. Hong Kong was not the logistics hub of an empire after WWII. It was the remnant of one, a place that had never been important before and wasn’t a priority to anyone in the metropole. Capital favouring policy work great for people who live anywhere with rule of law and security of contract. If you do that you can go from bombed out war zone poverty to the first world in one lifetime, as South Korea, Japan, Singapore and Hong Kong all did. Hong Kong’s importance is on showing that industrial policy and tariffs are completely unnecessary to that process.
  - boomboomsubban 8y ago
    >Hong Kong was not the logistics hub of an empire after WWII. It was the remnant of one, a place that had never been important before and wasn’t a priority to anyone in the metropole. Hong Kong is situated at the mouth of the Pearl River Valley, one of the most densely populated areas in the world. Important enough that the UK fought two wars to maintain the territory, and it benefited tremendously from being a border city during the Cold War.

Ozzie_osman 8y ago

This! Ricardo's model assumes that every country stays at the same level of productivity. In reality sometimes it makes sense to protect industries a little so they can develop. That said, free trade works better 90% of the time (even outside the simplistic in-a-vacuum model).

antidesitter 8y ago

Key paragraph in your link: However, the overwhelming consensus of the economics profession remains that while these arguments are theoretically valid under certain assumptions, these assumptions do not usually hold and should not be used to guide trade policy. Gregory Mankiw, chairman of the Harvard Economics Department, has said: ″Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards.″ It's sad to have to rehash this every time people on HN who've never studied economics figure they're experts on the subject, much like happens with climate change denialists, so I'll have to repeat it again. There is an overwhelming consensus among people who study the subject that protectionism has a negative effect on economic growth and economic welfare [1][2][3][4][5][6]. Even economists who lean interventionist like Paul Krugman strongly agree, and have tried time and time again to explain why free trade is a good thing to an ignorant public. It is shameful that so many people feel obligated to opine strongly on a subject which they don't understand, causing bad policies to be enacted. Protectionism makes society worse off. It makes the world poorer. [1] https://www.nytimes.com/2015/04/26/upshot/economists-actually-agree-on-this-point-the-wisdom-of-free-trade.html https://www.nytimes.com/2015/04/26/upshot/economists-actuall... [2] https://research.stlouisfed.org/publications/review/2004/09/01/free-trade-why-are-economists-and-noneconomists-so-far-apart https://research.stlouisfed.org/publications/review/2004/09/... [3] https://www.jstor.org/stable/2117691 https://www.jstor.org/stable/2117691 [4] http://www.igmchicago.org/surveys/free-trade http://www.igmchicago.org/surveys/free-trade [5] http://www.igmchicago.org/surveys/import-duties http://www.igmchicago.org/surveys/import-duties [6] http://www.igmchicago.org/surveys/trade-within-europe http://www.igmchicago.org/surveys/trade-within-europe

deogeo 8y ago
So we can go with a mix of trade and protectionism, which has been proven to build a nations economy multiple times, or we can risk it and go with what economists assure us works even better? And do their assurances only work if everyone adopts unbiased free trade, and break down when a group favors its own, such as shown in http://jasss.soc.surrey.ac.uk/16/3/7.html http://jasss.soc.surrey.ac.uk/16/3/7.html ?

tha_nose 8y ago

That's because all of those countries adopted US economic model of development ( aka protectionism ). We used protectionism to protect our industries and helped them grow. https://en.wikipedia.org/wiki/Protectionism_in_the_United_States https://en.wikipedia.org/wiki/Protectionism_in_the_United_St...