The Real Issue
Posted from Paul Craig Roberts:
Many libertarians have misinterpreted what Senator Charles Schumer and I are saying about free trade, and they are misinterpreting or misapplying trade theory. I do not know why this is the case. Perhaps libertarians perceive a threat to one of their vital commitments and rush to its defense before they get their minds around the problem. Please accept my assurances that it is not I who threatens free trade. Free trade is threatened by new developments delivering results different from the promise of shared gains. Libertarians need to understand these new developments in order to have input into the resolution of the difficulty. Toward this end, I will again attempt to explain the new problem.
Begin with the realization that free trade is a policy, not a theory. The case for the policy is that it brings shared gains to the populations of the free trading countries. There will be winners and losers within each country, but on average the wins within each country outweigh the losses.
For there to be shared gains from free trade, countries must specialize and trade in goods in which they have comparative advantage. Comparative advantage comes from countries having different opportunity costs of producing traded goods. Those opportunity costs depend on factor endowments. Internationally mobile factors of production alter or obliterate the internal cost ratios that determine comparative advantage. Indeed, comparative advantage is irrelevant to the capitalists’ investment decision once capital is mobile between nations, because profit would be maximized by following absolute advantage.
Consider, for example, a trading country specializing according to comparative advantage. Now introduce new developments that create opportunity for capitalists to reallocate productive factors from comparative advantage at home to absolute advantage abroad. The result is a collapse in the conditions under which free trade produces mutual gains to trading countries.
It is possible to have a free trade policy based on absolute advantage. This free trade policy rests on the argument that world welfare is maximized at the expense of some countries. This is the free trade model that changed conditions have brought into operation. Changes in political and technological conditions have made it possible for first world capitalists producing for first world markets to substitute cheap foreign labor for expensive first world labor in their production functions. As daily announcements from US multinational corporations make clear, this dumping of first world labor is occurring across the entire range of tradable goods and services.
Offshoring platforms, both for manufacturing and for knowledge jobs, are now well developed in China and India. Because of the huge excess supplies of labor overhanging those labor markets, equally productive Asian labor can be hired for much less than first world labor. The high wage of first world labor is no longer protected by the confinement of first world capital and technology to the first world.
The displacements of first world labor are not occurring because of traditional import competition under conditions of comparative advantage. They are occurring because first world capital and technology are flowing abroad to the absolute advantage of equally productive but much cheaper labor.
We cannot dismiss this new development by arguing that factor-price equalization will restore equilibrium. Factor-price equalization is a result of a static model with many assumptions. Its point is to illustrate the insight that trade in goods is ultimately trade in the factors that produce the goods. Given the excess supply of Asian labor, it will be many years, decades, perhaps a half century, before the excess supply of labor is drawn down. In the meantime, US wages will rapidly fall to Asian levels. Business Week has already reported a case of top flight American software engineers being hired in the US at only a slight premium over Indian wages.
Another mechanism for bringing about adjustment is exchange rates. However, China pegs its currency to the dollar and resists pressures to appreciate its currency or allow a float. With the exchange rate unable to bring about an adjustment in the cost of Asian labor and in the prices in US currency of goods produced by US multinationals offshore for US markets, the US can lose in the meantime many millions of high value-added jobs as well as entire industries and occupations.
The economic and social dislocations and political instability can be severe. For example, the software engineers’ mortgages and debts will not be cut in half just because their salaries were. American voters will not be content that their sufferings are offset by gains in India and China.
One of my professors, Ronald Coase, advised that economists should occasionally emerge from their abstract models and look out the window. They might be surprised at what they see. This was Coase’s way of admonishing us to remember that theories and theorems are tools for understanding reality. We should always regard them as tools and not let them do our thinking for us. I have always tried to follow Coase’s advice.
When economists reply to me that offshore production in China makes Chinese more wealthy with the result that they buy more of our goods and cause more employment in our export industries, they overlook that Chinese wages are too low to replace via imports the domestic purchasing power lost in the US due to offshoring. These economists are not looking out the window. The US economy is 25 months into a recovery. By previous experience the economy would have created millions of new jobs by now. Charles McMillion, president of MBG Information Services in Washington, DC, says that his analyses show that 25 months after the trough in the average business cycle, the economy normally adds about 6% to its jobs total. Since November 2001, 7.85 million new jobs should have been created. Instead, the economy has lost almost another million private sector jobs during two years of recovery.
This is unprecedented, doubly so considering the extraordinary ease of monetary and fiscal policy. We are pumping $500 billion annually into other country’s markets for goods and services, and there is no sign of it coming back to us in employment growth in tradable goods and services. The only jobs that the economy has been able to create during two years of recovery are in low pay non-tradable services.
Economists have offered a running apology, but no explanation. I offered an explanation. The US economy is creating jobs for foreigners. The US is creating jobs for foreigners by running up debt, which foreigners are converting into ownership of our assets and the future income streams that they produce. This is not a picture of shared gains from trade based on comparative advantage.
Stephen Roach at Morgan Stanley and others, who pay closer attention to the matter than I do, have reported that upwards of 65% of our “imports” from China represent offshore production. The dislocations caused by these “imports” are a product of US labor being substituted out of US production functions. They are not a product of competitive trade. Economists need to address precisely what is being traded when a US multinational discharges its US employees and hires foreign ones.
Many have informed me that there is nothing new about capital mobility, that foreign investment has been taking place for a long time. They overlook the fundamental difference between traditional foreign investment and offshoring. Historically, the world has experienced protection, not free trade. Foreign investment was motivated by desire to enter foreign markets in the face of prohibitive tariffs. It was not, as in the case of offshoring, motivated by seeking absolute advantage in low cost labor abroad. Moreover, foreign investment was confined to the first world, except for some investments in extractive industries. Many of these investments, such as Chilean copper, were confiscated, reminding capitalists of Adam Smith’s and David Ricardo’s admonitions to keep their capital at home.
When factors of production flow from comparative advantage at home to absolute advantage abroad, the shared gains case for free trade breaks down. That is what Senator Schumer and I pointed out The challenge is to restore conditions under which free trade produces shared gains.
Some libertarians believe that globalism is a new force that is smashing states and establishing a stateless world of free markets. This is a nice dream, but nevertheless a dream. The more likely effect of US decline, absolute or relative, and rising success and confidence in Asia will be challenges and conflicts. Libertarian nirvana will never be. Libertarians should understand that they can affect things only on the margin. The issue is a little more freedom or a little less. Libertarians deprive themselves of policy input when they refuse to settle for anything but the perfection of abstract models. They deprive themselves of an audience when they declare themselves for free trade regardless of what it may do to their country.
Two final points. Yes, my mother told me that you are judged by the company that you keep. No doubt, Charles Schumer’s mother told him the same thing. My company looks as damning to his side as his looks to mine. We both ignored our mothers’ strictures in order to focus thought on an issue prior to the time that panic sets in. What will be the response if the economy continues to lose jobs after three years of recovery? At what point will job loss from offshoring cause GDP growth to stop? To decline? What happens to people with stagnant or falling wages when China is forced off the dollar peg and Wal-Mart’s prices rise?
Critics may say that this will never happen. But two years ago the same people would have denied that two years of economic recovery would produce a net loss of almost one million jobs.
In conclusion, people who resort to ad hominen attacks have weak arguments. Unable to deal intellectually with an argument, they fall back on name-calling. They try to discredit an argument they cannot answer by discrediting the person.
Although I had a graduate education with the finest economists extant at the University of Virginia, University of California at Berkeley, and at Oxford University, I can make mistakes just like the next man. If I turn out to be mistaken in my diagnosis of the job-loss recovery and the rise of free trade based on absolute instead of comparative advantage, so be it. I did my duty and offered an explanation in place of excuses. I am a person of good will. I will listen to a better explanation.
Comments (25)
Sir,
It's doubtful that leftists disdain your collaboration with Senator Schumer with near the intensity of conservatives and libertarians, as you fancy. After all, it is the protectionist Schumer who has cajoled a free-market economist to argue in favor of capital controls and state intervention, while himself conceding nothing. The reaction on the Left is probably more akin to snickering and hi-fives than shock and outrage.
Published: January 26, 2004 2:00 PM
The case for the policy is that it brings shared gains to the populations of the free trading countries.
Wrong. The case for the policy is that no one has any right to tell anyone else with whom he may or may not trade.
- Josh
Published: January 26, 2004 2:26 PM
As I said earlier, the ultimate case for free trade -- in all aspects of life -- is that it is justified simply because it is the voluntary interaction of two individuals, neither of whom initiates aggression against anyone else. Whether or not it benefits most people in the US is completely irrelevant. No-one has the right to interfere with a voluntary transaction between two other individuals which does not involve the initiation of violence against a 3rd party.
Libertarians, for the most part, I think, have followed Rothbard's advice regarding gradualism vs. extremism: If you push for immediate and extreme results, change will gradually come (see slavery). If you push for gradual change, change will never really come, and you will be fighting a losing battle. I will welcome any improvement over our current status, but I will not say that an intermediate between slavery (our current condition) and freedom (the desired condition) is acceptable.
I'd also argue that when we look out at the window, we are applying economic theory -- not modifying it. Mises made some particularly convincing critiques of the idea that we can derive correct economic theory by abstracting from historical events.
Published: January 26, 2004 2:38 PM
As an addenum, I completely disagree that things can only be affected "on the margin". That's been disproven by history. If communists in Russia can get a completely backward and unworkable system in place in a relatively short time, then certainly a system that actually works -- namely, the completely free market -- should be possible to implement.
The message you deliver is uninspiring: to simply give up. If your idea that "libertarians can only affect things on the margin" was widely adopted by libertarians and dictated strategic decisions, then it would become a self-fulfilling prophecy. The movement would limit itself to easily accomplishable and frivolous goals, and would quickly evaporate. No-one is going to fight for "a little more freedom" or "a relatively free society"; no-one's going to go into the barracks to defend lowered transaction costs, either. People are, however, willing to fight for real freedom, something that has conceptual clarity and self-consistency.
Published: January 26, 2004 2:55 PM
The issue becomes very relevant: India Attacks US on Plan to Ban Outsourcing (FinTimes)
Published: January 26, 2004 3:17 PM
Ref Fin Times India:
Interesting, India taxes internationals that provide jobs and U.S. responds by further limiting outsourcing. The U.S. is only adding to the difficulty of the taxes imposed by India. Sounds like since its a given that the government is going to take their slice the fight is over which government. In the end everyone loses.
Published: January 26, 2004 3:34 PM
Let's further address their argument as it stands against a policy of free trade--at least in the words of PCR. It's a tough argument and deserves attempts to resolve it. If not, we all would have given up earlier.
In paragraph eight PCR asserts that "US wages will rapidly fall to Asian levels". What support does he provide for this conclusion? He argues that U.S. capital and technology are flowing abroad "to the absolute advantage of equally productive but much cheaper labor" and there is so much of it that it will take decades to "draw it down."
1. This can only be true industry by industry. Thus, the wages falling will be those in the U.S. import-competing industries at issue, not wages in general. U.S. labor will flow to other industries with comparative advantage as impacted industries wages fall. Output (and wages) in those other industries will rise as they expand and their exports rise. The structure of the U.S. economy will change. Less software engineers and more of other specializations. Only if all industries in the U.S. have an absolute disadvantage would it be conclusive that U.S. wages in general would fall.
2. But, if all industries had an absolute disadvantage, then no industries in other countries would export to the U.S., because there would be nothing to receive in return. The U.S. would either become autarchic (Buchananites Rejoice!) or depopulated.
3. Meanwhile, what is happening in the other countries, such as China, to which capital and technology are being exported? Obviously, some industries are expanding and the capital and technology imports are aiding in the expansion. As they and their exports expand, wages rise and labor flows into them from the industries with comparative disadvantage--which shrink. Workers in the expanding industries buy more imports from countries with comparative advantages in producing those goods, which aids expansion in those other countries (including the U.S.).
In paragraph 12, PCR makes a number of assertions. He claims that Chinese wages are so low that they cannot "replace via imports the domestic purchasing power lost in the US due to offshoring." What is his support for this claim? Nothing but some generalities about what should be happening in the U.S. economy in the present so-called recovery. He terms this an "explanation". I submit that it is merely a tenuously-related context that requires a lot more rigour to convince anyone who doesn't already believe PCR's argument is correct.
Published: January 26, 2004 4:22 PM
I think that the words "free trade" are still being abused here. In my opinion, "free trade" does not exist between China and the USA. China is pegging their currency, and both the USA and China are engaging in other various forms of protectionism. How can this situation be referred to as "free trade" in its truest sense?
Secondly, I'm skeptical that it is even possible for a country to have "absolute advantage" (another pairing of words I would like to have clearly defined) over many factors of production over a long enough period of time to produce the results that Mr. Roberts is claiming that it will within a true free market setting.
Published: January 26, 2004 4:36 PM
protectionist Schumer: Don't like his politics, but he is within Constitutional authority to participate in making international trade policy.
no one has any right to tell anyone else with whom he may or may not trade.
It is not about "trade". It is about jobs and more to the point, politcial/civil stability, really.
neither of whom initiates aggression against anyone else.
Correct theory and that's all. There is rampant aggression against labor in many countries. As a factor of production that is not free to trade, then free trade is a misnomer.
then certainly a system that actually works -- namely, the completely free market -- should be possible to implement...
A historical fallacy. There will always be thuggery in one form or another to muck up your theory.
n paragraph eight PCR asserts that "US wages will rapidly fall to Asian levels". What support does he provide for this conclusion? He argues that U.S. capital and technology are flowing abroad "to the absolute advantage of equally productive but much cheaper labor" and there is so much of it that it will take decades to "draw it down."
Most people know there are more of them than of us??? Ever hear of supply and demand and how it works on labor supply and wages???
This can only be true industry by industry. Thus, the wages falling will be those in the U.S. import-competing industries at issue, not wages in general.
Only if the laid off do not seek employement outside of the induustry from which they lost their jobs, otherwise competition is universal and wages will drop universally.
Less software engineers and more of other specializations.
I love these kind of statements. Specificity about the jobs lost, generalities about the location of the new job opportunities. Mostly because they don't know of any.
n paragraph 12, PCR makes a number of assertions. He claims that Chinese wages are so low that they cannot "replace via imports the domestic purchasing power lost in the US due to offshoring." What is his support for this claim?
Isn't the wage differential between China and the U.S. generally known and if even only in a general sense? They make a small fraction of a U.S. workers' wage, no?? Is this information "news"?
I'm skeptical that it is even possible for a country to have "absolute advantage" (another pairing of words I would like to have clearly defined) over many factors of production...
Only 1 factor of production needs to inform capital of absolute advantage. In the "free trade" world we have vs. the model we argue about, all factors of procution are free to seek the best deal, with the exception of labor. And this is the factor that informs capital that there is an absolute advantage to be had...exploited if you like.
Published: January 26, 2004 7:04 PM
The trade between China and the US is anything but free.
Both governments are artificially manipulating their fiat money. The only reason there's a perceived "NEED" for tariffs is because of this manipulation.
Also our own government subsidizes business projects in China via the import/export bank. When the US steals wealth, and then goes and uses that wealth to insure and subsidize businesses in China, of course it's going to look like China has an unfair advantage that needs to be corrected.
But that "Unfair advantage" is cause by the US government in the first place.
Advocating protectionism then, is nothing more then another example of how government interference encourages more government interference.
Also, "labor" is just as much a good as anything else. There's nothing wrong with a company or individual purchasing labor from another country if its cheeper anymore then there's anything wrong with purchasing bread, or anything else.
China, India, etc. Have a comparative advantage in the price of labor, if you want to use that terminology. We then, have a comparative advantage in the supply of other types of capital. It increases their wealth (In terms of money) AND our wealth (In terms of buying power.)
Published: January 26, 2004 7:08 PM
Wrong. The case for the policy is that no one has any right to tell anyone else with whom he may or may not trade.
I agree with you, and it is always good to remind everyone of this fact.
However, there are people in the world who are convinced that allowing people do what they want with whom they want will result in 'bad' consequences, broadly defined. Some think that a voluntary society will lead to massive accumulations of wealth by a few at the expense of the majority. When you point out that labor is a voluntary exchange, they say, "But it's exploitive." When you tell them taxation is theft, they say, "But how else do we keep the rich getting all the money?" The are willing to knowingly point a gun to your head to get you to do what they want, simply because for them, the alternative is mass hysteria.
I don't think PCR thinks there will be "mass hysteria" from what he calls "trade policy", although he does think Americans will suffer at the expense of others. And in today's NY Times, Bob Herbert called free trade a "fire in the basement of the national economy [that will rage] out of our control" unless we create a solution.
You are absolutely correct; they need to be reminded that it's none of their business who you trade with, but unfortunately, a consequential case also has to be made to convince them of their erroneous ways. If the right is inherently connected to the good, as I believe it is, then the consequential argument should follow naturally from the moral argument:
"First, my life is my own and you don't have a higher claim to it than I do, but even so, you're absolutely wrong in what will happen if I do what I want with similar others. Here's how."
Published: January 26, 2004 7:43 PM
After watching these endless technical debates and reading many of Roberts' columns on the subject, I still have no idea what he is actually proposing, although his teaming up with a prominent Democratic Senator gives me some clues.
Assuming everything Roberts is arguing is correct (I don't think it is), then what should be done about it? If the answer is reduce taxes, eliminate nonsensical, duplicative and often contradictory regulation, and fix our broken liability and tort system, then I agree. This is what I keep expecting to hear from Roberts, knowing his past history.
But I keep getting the impression that what he is proposing is tariffs (raising taxes), quotas (increased regulation), and trade law enforcement (sue everybody). If this is what Paul Craig Roberts is proposing then I have to assume that he has left his post as defender of supply-side economics for....I don't know what.
The big question I have is: If you buy the arguement that the United States' manufacturing industries are smaller than they have been in the past, then what is the correct amount of manufacturing? How do you compute this mythical optimum? Is the cost of maintaining this mythical percentage worth what it will cost the taxpayers to achieve?
You can't be for free-market capiltalism, but..... You can't be a little bit pregnant.
Directly to PCR: More than a decade ago you were one the many people who fundamentally shaped my view of the economic world by reading your columns in Businessweek (the only sane person at that magazine at the time). I still believe that the supply-side view of economics is the correct one. As Ronald Reagan said (you know him, I don't, so you can correct me if I'm wrong) "Government is the problem, not the answer." Free-market capitalism will set the world free.
You used to deride and scoff at the Clinton adminstration for it's misguided ideas of following the Japanese into the mistaken world of "industrial policy" look where Japan is now), retaliatory tariffs and misguided notions of "fair" trade. Now you seem to be advocating the same policies that you scoffed at a decade ago.
Back then, when we were slowly coming out of a recession and the economy wasn't producing jobs at the rate that people believed it should have (there were extenuating circumstances then as now which made that recovery different)you were the voice of reason arguing against the protectionist/industrial policy model. In retrospect we were foolish then to think that the Japanese were going to buy Ameerica and that we were all going to become second class citizens in a 2nd rate country. We are foolish now to think the same thing about China.
What happened?
Published: January 26, 2004 8:39 PM
It seems that roberts, and the libertarians as well, have missed the key point that destroys Roberts' thesis. In this debate, I've only seen it mentioned passingly in one of Lew rockwell's articles:
"People who have noted these trends say that we should panic that there won't be any jobs left for Americans to do. What this forgets is the reality of scarcity in the world, which implies that they are always and everywhere jobs to do because there are always and everywhere unmet needs. Specialization and the division of labor permits Americans to produce most efficiently in a way that is integral to world demand and not waste time and resources in jobs that can be done more cheaply elsewhere."
We may concede that the case for free trade rests solely on the law of comparative advantage (although PCR's refutations of other concepts used in favor of free trade, such as the equalization of wage rates, are unconvincing.) and concede that it depends on factor immobility. However, this doesn't even begin to hurt the case for free trade.
The problem here is that people have accepted Roberts' illusory justification of the claim that factors are internationally mobile.
Factor mobility, at least in any relative sense, doesn't refer to whether or not it is physically possible to transport factors across borders in a practical manner. Factor mobility, and you can see this in Ricardo's example using wine and cloth, seems to refer to whether or not it's possible to produce all desired goods in other coutries (in the example, wine and cloth represented 100% of all goods produced).
Since we don't live in Eden, the amount of goods that humans desire far exceeds our ability to produce them. This of course, goes hand in hand with the ever present scarcity of labor. Since all the laborers in the world can't produce all the goods we want, the laborers in a less sizeable group ( China, for example) can't produce them ever.
Since all the factors of production needed to produce what humans desire will never be mobile enough to exist simultaneously in one country, the world, or all the world sans America, we have nothing to worry about. The ever present scarcity facing us will prevent all factors from flowing to the area with the highest absolute advantage.
Published: January 26, 2004 8:39 PM
We are starting to get into the philosophy of debate here (namely, good strategies to bring people around to your point of view). This is an area upon which there is very wide disagreement among libertarians.
Personally, I think that something is lost in the argument when you -- even hypothetically -- concede that they have the right to interfere with voluntary transactions between consenting parties, which do not involve initiating aggression against non-consenting parties. From this point on, you are arguing on a potentially uphill battle. Either the burden of proof is on you to show that allowing voluntary transactions results in the best Utilitarian outcome, or it is neither on you nor your opponent. However, if you hold to and justify the non-aggression axiom, then they face an insurmountable burden in justifying intervention.
I will assert that no-one has the right to interfere in such transactions. I will also point out that even if politicians illegally intervene in such transactions (by natural law), their intervention will not result in the desired effect. Robert Murphy explains how trade-restrictions cannot, in fact, make your country richer.
Paul Craig Roberts claims to have shown why free trade may not necessarily make the US richer. He has not, however, nor could he, show that any course of action implemented by the government to interfere with free trade could in fact make the US richer than it otherwise would be.
Published: January 26, 2004 8:45 PM
A little less doom and gloom to contemplate:
http://iie.com/publications/pb/pb03-11.pdf
It wasn't very long ago that many people were worried that we would have severe labor shortages in IT, computers and engineering. The long term projections still point that way. Now we are worried there won't be any of these jobs left?
Published: January 26, 2004 9:02 PM
As DSpears already said, notice that Roberts does not provide his solutions, only saying, "The challenge is to restore conditions under which free trade produces shared gains."
Are we expected to believe that he really doesn't have any ideas of how to do this? Are you or are you not prepared to call for government intervention in what consenting adults should be allowed to purchase or invest in?
You can call us libertarians "utopians" if you wish, but we have a major problem with that, regardless of how the utility curves for the U.S. end up.
Published: January 26, 2004 10:43 PM
The economic case for free trade rests squarely (although not exclusively) on the principle of comparative advantage. The principle of comparative advantage is in no way, shape, or form upended, modified, altered, weakened, or rendered inapplicable by factor mobility.
Individuals have comparative advantage, not countries. When we speak of a country having a comparative advantage in widgets, such talk is merely a shorthand way of saying that several members of the group of individuals currently residing in a particular country are able to use their productive talents most profitably by producing widgets. Let access to factors of production change -- perhaps because of increased factor mobility -- and comparative advantages often change. But it doesn't disappear; it practice it CANNOT disappear; it will never disappear.
To understand the principle of comparative advantage is to understand that everyone of us will always have a comparative advantage at producing something (and a comparative disadvantage at producing lots of things). It is also to understand that opportunities for mutually advantageous specialization and trade will forever exist.
Published: January 27, 2004 5:00 AM
From my readings on America's current economic status, I feel that we are living beyond our means with regards to government and private debt due to actions of Congress and the Fed. In addition, the economy is being choked by regulations, taxes, various "rights" legislation, and a tort system populated by jealous and envious juries bent on punishing companies beyond the call of justice. I get the impression Mr. Roberts would agree with this. Mr. Roberts, perhaps you could make a serious start on repairing our economy by addressing these problems, many of which are due to Federal action. Greenspan's low interest rates have only made the eventual recession worse. Private debt based consumption is growing the Chinese economy. Perhaps the answer is providing the conditions for increased American savings and economic retrenchment instead of punishing the Chinese for giving us what we want, good and hard.
The poster above who mentioned currency controls are also correct: trade is rarely free and it is government manipulation that is causing many of these problems. Decades of fiat currency and the global dollar standard have allowed this nation to live beyond its means for decades. This is a problem more fundemental than trade, it is generations of policy guided by faulty theories and there is no escaping the correction that must surely come. Mr. Roberts, please convince Mr. Schumer that his comrades in Congress are a large portion of the problem here and a good, solid start would be to increase American productivity and competitiveness by loosening the shackles that are binding this economy. Cut the corporate tax rate, triple the legal size of a "small business", relax labor, union, and non-sensical environmental laws and processes. Convince the Fed that they are partially to blame for the jobless recovery and the preceeding bubble. Convince state governors that tort reform and state laws must also be reformed to make this nation as a whole more competitive. And finally, exalt the entrepeneur as the engine of American growth and stop seeing business as a criminal activity run by society's worst.
Published: January 27, 2004 11:34 AM
The vociferousness of the argument against free trade
is due to the fact that the kind of jobs lost belong
to those who mainly benefit from the current system.
If a programmer can buy manufactured goods made in China,
why should the factory worker buy software made in the US?
And nominal wages doesn't mean anything - it doesn't
matter if nominal wages fall as long as purchasing power
doesn't fall. All those "low wage" IT workers in China/India
- you'll be surprised at their standard of living.
The real fall in standard of living is going to
occur not because of low wage offshore workers taking
our jobs. It's going to happen because the current
standard of living is maintained by massive credit
infusion, not by any growth in productivity.
That's going to be a hard disillusioning.
Published: January 27, 2004 12:54 PM
Paul Craig Roberts claims he has no idea what can or should be done about the alleged problem of "factor mobility". Unfortunately, elected officials have no such lack of creativity. Since the Constitution no longer appears to limit anything, right now the brilliant minds in Washington are likely conjuring something like:
1. Alarm the public with dire economic predictions based on plausible sounding theory (already happening).
2. Ratchet up the rhetoric, labeling businesses that hire workers in other countries as "economic terrorists" (TV news media will be more than a willing accomplice here).
3. Declare war on economic terror (a la war on poverty, war on drugs, Jimmy Carter's moral equivalent of war, etc.)
4. Create a new Federal Department of Economic Security, complete with legislative, judicial and executive power (a la the SEC, among others).
5. Congress passes the "Economic Security Act" with the stated goal of prosperity for all Americans, and vague language authorizing the new DES to do whatever it wants.
6. Government engineers invent the "I chip", mandatory on all new computers. DES begins intercepting all communications it can. Business owners are jailed for the crime of outsourcing labor beyond "reasonable levels". Next economic downturn is blamed on "excessive corporate greed" and new cries are heard demanding strengthening the DES and "closing loopholes".
7. Etc.
Published: January 27, 2004 2:06 PM
I just noticed that in my comment above under point 1: I am implicitly assuming the point that Gene Callahan made about the absolute advantage of other countries having to be the exact same ratio for all goods, although I would express it as other countries having an absolute advantage in all goods and the same opportunity costs in the production of them as the U.S. My apologies for any confusion.
Published: January 28, 2004 9:37 AM
Picked up from A&LDaily, this wonderful Wired piece on "The New Face of the Silicon Age: How India became the capital of the computing revolution.
Published: January 28, 2004 11:02 AM
A student's question:
It seems to me that a large part of the free trade problem is that currencies are fiat and therefore manipulated.
What would be the effect to free trade if all currencies were based on a single point of value like say ....gold?
Published: January 29, 2004 2:32 PM
Sorry, I am not a native English speaker. Could someone give me a clue what an "absolute advantage" is and what is the difference between comparative advantage and "absolute advantage"?
Thanks,
Bev
Published: January 30, 2004 7:29 AM
On this thread, see JG Hulsmann's important contribution today.
Published: January 30, 2004 7:36 AM