Nothing but net!!!!!
Posted on 04/07/2007 12:37:39 PM PDT by A. Pole
The doctrine of comparative advantage is perhaps the only settled doctrine in the discipline of Economics. It makes sense - if a country can produce something with less inputs relative to another country (note that comaparative advantage is relative, you can be better at producing everything, and it still works), if it specializes in producing that good or service, and other countries specialize in producing their goods or services, then they trade them back and forth, everyone's better off.
But economists seem incapable of reading Ricardo's actual essay. Ricardo notes that because capital was relatively immobile in his time, relative advantages mattered - you can't just take the capital and send it to the other country. This is why relative advantage matters in the theory, not absolute. If Britain has a 2/1 advantage in machine parts; and a 3/2 advantage in brewing lager over Norway, then it makes sense for Norway to brew the lager, and Britain to make the machine parts, even though Britain is better than both, because the capital needs to be doing something.
But if capital is mobile, then why not do it all in Britain? Oh sure, that means that Norway will start running down its stores of value (ie. selling assets and borrowing in order to pay for machine parts and lager), but in the short to medium run, there's no reason why capital shouldn't go to the location with the highest absolute (not relative) advantage.
The doctrine of comparative advantage, to work, requires that capital and labor be relatively immobile. Or rather, that capital and labor be equally mobile. If people could just move wherever they wanted it might also work. Note that the last "free trade and capital flow" era - the late nineteenth and early twentieth century, also had massive immigration flows.
Now all of this assumes you have free trade anyway. People act as if the only things that matter are tariffs and subsidies, and that if you have neither, you have free trade. It is to laugh.
Manipulating your currency is the modern form of trade subsidization. China spends hundreds of billions of dollars a year keeping their currency lower comapared to the dollar than it would be normally. Japan likewise engages in massive intervention (through interest rates, primarily). The US, meantime, used monetary policy to try and push the dollar down - which worked against countries who weren't willing to massively intervene.
After NAFTA went into force, the Canadian government effectively stealth devaluated the Canadian dollar by about 25%. You didn't think that dollar crash happened because the Bank of Canada didn't want it to happen, did you? Funnily enough, that made trade between the US and Canada increase a great deal. Imagine that. Funny how a deal like NAFTA works when you make it work.
Now I support free trade. One day, during my life, I hope to see some of it.
But I don't confuse what we have right now with free trade; nor am I incapable of reading Ricardo and understanding that the conditions under which he considered free trade to work do not exist right now; nor do I think that free capital flows for speculation have anything to do with TRADE.
The economics profession has a very bad track record of giving advice in the real world. You can ask, say, Russia about that or you can compare and contrast Spain and New Zealand.
Trade isn't a panacea and "everyone believes it" isn't an argument and the fact that the vast majority of economists believe in comparative advantage means nothing - heck, I believe in the theory of comparative advantage, just like I believe in the laws of geometry. But I don't believe that comparative advantage works when you have massive free capital flows and massive currency manipulation and that's the regime "free trade" is used to justify.
Free trade has been hijacked by people who want free movement of money so that they can speculate wildly. Trading currencies is not "trade", it's speculation - gambling, and it undermines the utility of currencies as feedback mechanisms and has lead to financial panics, contagion, and increased income inequality in the core economies.
Bump
There is no such thing, nor will there ever be “free trade”.
In light of the season, there is no such thing, nor will there ever be an Easter Bunny.
I guess we are both right. Unless you would like to present me with an example of free trade.
Period. Dot. Bingo!
In the United States, Free Trade is not free, but comes at a high price for the average American.
Before you go galloping-off in search of strawmen to knock down, I am simply observing that "free trade" exists, and that you are unaware of it.
The price has been terrible: low unemployment, record wealth, high standard-of-living . . . .
I have yet to have any dentist or orthodontist accept anything other than money. Your argument is idiotic(I know longer words but they don’t convey the meaning as well)in regards to free trade which is not define as bartering, which is what you are suggesting. The idea that NAFTA is really a free trade agreement is simply that: Idiotic.
Care to take a guess at how many billions of dollars (est.) change hands yearly in the U.S. in transactions that are not regulated by any legal authority? And I'm not talking contraband, either.
Who should decide what you can buy when you can go to the store?
A) You?
B) Some unaccountable government bureaucrat who has just received NFL luxury box tickets from a corporation competing against lower priced products?
LOL
Does the orthodontist pay income tax? Do I pay property tax on the "ranch". Is the orthodontist governed by the regulations of the local health official? Does he pay taxes on his office? Is he buying electricity from a provider controlled by regulations? Assuming the puppy has seen a vet and I paid the vet money the same questions apply to the vet.
There is no such thing as free trade. This author has it right. The term free trade applies to paper transactions, which are completely controlled by the various governments involved and always will be. It's the lobbyist who get the laws bent to his favor that benefit not people like me, or, even you.
Before you go galloping-off in search of strawmen to knock down, I am simply observing that "free trade" exists, and that you are unaware of it.
If I trade a tomato that I grew on my land for an onion that you grew on your land it would still not be free trade. Property taxes obviate that claim.
The assertion, oh dim one, was that “free trade” does not exist. I proved that it does. I wasn’t making a value judgement, nor should you . . . as far as your rhetorical point . . . worthless as usual.
Check this thread out. All one has to do is find a blog, title the result “Free Trade,” and people flock to it in order to trumpet their economic ignorance, and engage in parlor-room sophistry.
Actually free trade includes trading in goods and services as well as in paper. In fact, when the so-called "trade deficit" is condemned, it's because the deficit is in goods and services, not in total. In total by definition there cannot be a deficit, since in any trade there is an exchange.
Even that after reaching significant size becomes regulated, by the organized crime. Human beings are social by nature and always get organized, one way or another.
Free Marketeers dream about seizing the highest form of social organization - the state to serve their group interests. In the theory by limiting state to protect wealth from domestic threats (courts, police and jails) and from foreign ones (the army). In practice they try to use state to suppress competition and to keep workers down.
So maybe we should rename your baby to criminal trade, as opposed to the false name “free trade”. LOLOL
Nothing but net!!!!!
That’s really not the thrust of the argument (I’ve seen it countless times). The implication is that, because there is no such thing as perfect “free trade,” we shouldn’t even bother trying to minimize the government’s regulation of the trade that does exist. Much like arguing that we should not use automobiles to travel because no one has developed a viable vehicle that gets 100mpg.
Somehow the term “ignorance” seems insufficient.
In fact our country is becoming more and more hostile for business and finance, while countries such as Britain have aggressively deregulated and seen remarkable growth over the past twenty years.
For that matter, Red China is less anti-capitalist than our country these days.
Strawman, strawhead. So predictable.
It’s fascinating. Most ignorant people have an inkling that they are over their heads, and remain silent. Others become paleos, I guess.
Margaret Thatcher’s deregulation of the London Financial Markets is a clear example that refutes your nonsensical argument. “Keep the workers down” — LOL, Uncle Karl would be very proud of you, comrade.
The second thing to remember is that what a country produces and has in quantity has a big impact on how that country can relate to other countries. If one country produces large amounts of guns and ammunition while its neighbor produces ice cream, the country that produces the guns and ammunition will eventually decide to take as much ice cream as it wants. People whose main product is words sometimes forget this fact, but those who care about their country shouldn't. The winner of every major war for about 160 years has been the side with the greater ability to produce those things that a military needs. A country that wants to remain strong militarily needs to maintain production capacity for these goods regardless of whether doing so requires its economists to pay more for a car.
What I said about economists producing nothing but words goes double for lawyers. The whole legal industry produces nothing that is vital for a country's existence. Lawyers simply take one person's productivity and give it to another person. Along the way, they take part of that productivity for themselves. Sometimes, their actions result in an overall good, and sometimes, their actions result in overall harm. In all cases, they are bleeding the nation's productivity. Every hour of productivity that goes into the legal industry is an hour less productivity spent on making our nation prosperous.
Bill
I agree. I have never called for more regulation. I have always noted though, that free trade agreements tend to lean toward countries other than the U.S. getting the better end of the deal. Until we can deregulate industries and economic constraints on domestic companies foreign companies will always have a "comparative advantage" over us.
Didn’t I hear a fine Irishman named REAGAN strongly support free trade? I guess ol’ Ronnie is a “free traitor” now.
Fact is that those against free trade want to tax it, reduce it or stop it via Federal Government coercion. More tariffs mean more taxes. These people are on the wrong side of the aisle — statism is over on the Left.
I don't see it that way at all. Hedgetrimmer is merely pointing out the fallacy of your claim.
And you said “nothing but net.” So perhaps you can elaborate on her point, when she cannot?
The free trade agreements generally improve our access, but not to the point where it is equal. That hurts citizens of the other countries BTW.
A trade happens because BOTH parties are better off. Coca-Cola would import sugar at the world price tomorrow if they could -- but the sugar lobby has restricted imports so that the US sugar price is far above world levels. Same with ethanol from Brazil. That means you and I are hurt, because we have to pay more that people outside the country to line the pockets of domestic companies with political influence.
We need less regulation & tax, not more. Any reduction is an improvement.
raybbr: unregulated markets do not exist
1rudeboy: yes, they do
hedgetrimmer: 1rudeboy is in favor of criminality!
raybbr: "nothing but net," hedgetrimmer
I also took to be sarcasm as well as humorous. I know that humor is not your strong suit. I was just joining in the fun. You do know what fun is, don't you?
If a Constitution, Trial by Jury, Statutes, Legislature and the Rule of Law in general weren't the most basic requirement for a country than Russia wouldn't be such a hellhole.
No. They don't. You haven't shown me that they do.
Who regulates the FX markets?
I guess that's why many free traders would like to get rid of borders and let people wander wherever they feel like.
Bonus Question: Why is the yield always higher on eurodollars than on domestic deposits?
Another Bonus Question: Who regulates the international movement of crude oil?
I would require passports and visas, but what's wrong with travel? Do you have a problem with tourism or international business or immigration in general?
When you come across an “open border” free-trader here on FR, please let me know. Personally, I (and other free-market conservatives I’m sure) would love to have a conversation about the rule of law and its importance in a capitalist system.
As I mentioned above, without the Rule of Law you end up like Russia.
As far as open borders are concerned, there is a general shortage of skilled workers in the world. India had a billion people, but not a billion that are highly educated.
Then again, I am a Corporate Finance Exec who hired a brilliant young and highly educated European lady from the top of her graduating class here in the USA and got her an H1-B visa years ago, so I’m a traitor who deserves to be executed anyway. (She’s about to get her green card after getting her advanced degree).
What makes you think I haven't experienced so called "free trade" myself? Of course you have traded with Dentist all over the USA, right? Besides your idiotic statement about barter, which is not free trade, was given simply to throw the conversation onto another tract. Free trade, as thought of by the average american, is the trade between countries. Nafta is not free trade, it has cost the US manufacturing jobs that have gone over seas or simply to the south.
If you think jobs in the service industry equal jobs in manufacturing you are not to sharp or own a company yourself and want cheap labor.
The jobs increase are all jobs that pay less than production jobs. I am a victim of "free trade", or at least I used to be, I am now retired, not due to free trade practices however, but to my own resources. Free trade has killed American manufacturing.
Think what you like but I notice you gave no cogent arguments in your comment to me, just ridicule.
We are not talking about barter, I can't emphasize that enough, you seem to think barter within the US is free trade. Think again.
It doesn't take as many manufacturing workers to build things as in the past, that is a simple fact. Also, the number of manufacturing jobs has been on a downward slope for decades. Moreover, we manufacture more now than we ever have in our history, and our manufacturing sector is coming-off an expansion over a string of months that approached five years in length.
Finally, what is inherently more valuable about a job turning a screw on an assembly line over that of consultant who observes that the job can be done by a robot?
Rousing Free Market Fundies crew? :)
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