tag:blogger.com,1999:blog-648480292622180743.post6759451375300827356..comments2023-06-25T01:20:35.889-07:00Comments on Very Rarely Stable: Cut the crap and give me my country backDaniel Copelandhttp://www.blogger.com/profile/05944461326199566111noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-648480292622180743.post-66295988870023372262015-10-15T09:34:05.917-07:002015-10-15T09:34:05.917-07:00I think you're actually conceding too much in ...I think you're actually conceding too much in your bit on the economics of trade. The math behind free trade being good (David Ricardo' "Comparative Advantage" schtick), like the general math of classical and neoclassical economics, as you say depends on certain assumptions. And it so happens that those assumptions do not actually hold. <br />One important assumption was largely true in Ricardo's day, but clearly isn't now: Ricardo assumed that capital stayed in a country, that trade was just in goods. So, trade would be good for a country because, basically, the local money had to invest locally and result in the production of <b>something</b> locally, so the only question was whether to generalize inefficiently or to specialize in what one did best and trade to get the other stuff. In modern times, that assumption is so thoroughly false that even the "free trade" deals are more about international investment than trade. As a result, it's perfectly possible for free trade to allow nothing much to get produced locally, and the local money to be invested elsewhere, where for instance wages are lower. Under these circumstances trade can quite readily ruin a country and need not be win-win at all.<br />The second important assumption is very common in economics and never holds at all in the real world: Time does not exist. Ricardian comparative advantage free trade theory rules out changes over time and, more specifically, strategic decision-making to bring about desired states of affairs. This theory was invoked regularly in England to inveigh against the idea of the United States ever trying to promote local manufactures rather than selling grain and cotton and wood and stuff; it was clearly an insane idea which would turn them into beggars because obviously England had the comparative advantage in manufacturing. The early United States went protectionist anyway, built up local manufacture behind trade barriers, and <b>got better at it</b>. The same is true for nearly any country with a diversified economy.<br />Contrariwise, with the existence of capital mobility, the existence of time allows free trade and investment to gradually change the regulatory environment, putting pressure on individual countries to reduce business' production costs (such as wages and regulations) lest they move production elsewhere. I might claim one of the major reasons a government like New Zealand's felt they needed to sign a bad deal like this one is that trade and investment are already so free that if they don't sign it, corporations could still just relocate elsewhere and sell into New Zealand. Thus, arguably the current bad free trade deal is made possible by the leverage given to business by the <b>previous</b> bad free trade deals. This "race to the bottom" thesis has been widely rubbished among those who benefit from it, but the fact remains that the freer the trade, the lower median wages seem to get, the weaker the unions, and so on.<br /><br />In short, comparative advantage was always mostly a chimera, but with free capital mobility it's simply wrong on its own terms--and Ricardo himself would very likely have pointed out that his thesis did not apply to our current circumstances.Purple library guyhttps://www.blogger.com/profile/01930984683714519212noreply@blogger.comtag:blogger.com,1999:blog-648480292622180743.post-23337835452480485212015-10-13T21:12:00.655-07:002015-10-13T21:12:00.655-07:00Sorry your comment got spambinned at first, Allan....Sorry your comment got spambinned at first, Allan. I'm guessing Blogspot red-flags the phrase "stock market".Daniel Copelandhttps://www.blogger.com/profile/05944461326199566111noreply@blogger.comtag:blogger.com,1999:blog-648480292622180743.post-85319465181812217512015-10-13T06:25:28.408-07:002015-10-13T06:25:28.408-07:00Excellent article. These fools that think lower p...Excellent article. These fools that think lower price is the goal... wonder if they ever celebrated when the prices crumbled on the stock market.Allan Manchesterhttp://www.lulu.com/shop/allan-manchester/how-to-stop-a-hurricane-and-some-other-things-you-might-like-to-know/paperback/product-21260951.htmlnoreply@blogger.com