Cato's Trade Report: Blinded by Ideology

CREATORS SYNDICATE ^ | October 10, 2007 | Paul Craig Roberts

[Bishop_Malachi]

Point to me where Roberts used “obscene” profits in his essay. I must have overlooked it.

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Ok, how about this statement? “But offshoring, or the pursuit of absolute advantage, breaks the connection between the profit motive and the general welfare.” Now, besides being a load of mule-muffins, this statement implies that profits obtained from “Offshoring” are immoral as they supposedly “break the connection” with the “welfare” of the American public. Americans still benefit through investments in mutual funds, stock, and even bonded-debt from these companies. We profit when that company profits if we have partial ownership in it; it doesn’t matter how it profits. Now he may not have used the exact word “obscene” , but he obviously implied it.

[Pelham]

Ikenson slaps Roberts down pretty hard, here:

It appears that Ikenson's 'hard slap' includes an admission by Ikenson that he was making the very error that Roberts claimed he was doing:

"Third, my failure to distinguish between offshored U.S. production and foreign production in the import data is insignificant "

It might be a more convincing rejoinder if it didn't need to acknowledge the error that Roberts was pointing to. It becomes a dispute over the significance of the accounting failure, not whether there was one.

[Pelham]

“But offshoring, or the pursuit of absolute advantage, breaks the connection between the profit motive and the general welfare.” Now, besides being a load of mule-muffins, this statement implies that profits obtained from “Offshoring” are immoral as they supposedly “break the connection” with the “welfare” of the American public.

The idea that the pursuit of profit benefits the general welfare comes out of Adam Smith's Wealth of Nations. David Ricardo expanded this to trade theory employing the theory of comparative advantage.

Roberts argues that trade and comparative advantage don't describe what is currently occurring, that it is instead pure labor arbitrage. Roberts argues that labor arbitrage is outside the assumptions of Smith and Ricardo, and breaks the link between profit seeking and the general welfare. If it's the phrase 'general welfare' that you find strange it's as old in economics as Adam Smith.

[Pelham]

I don’t know, I’m not aware of all that he writes. Email him, he’s not shy about telling you what he thinks.

[1rudeboy]

So when Ikenson writes, “First of all, nowhere in my paper do I attribute the health of U.S. manufacturing to import competition,” he is admitting that somewhere in his paper he attributes the health of U.S. manufacturing to import competition?

[1rudeboy]

One more thing (just a pet peeve of mine): when you quote a portion of a sentence, you should use ellipsis points to signal the reader that you are doing so. Or, just quote the entire sentence.

[Bishop_Malachi]

I guess I’m failing to see how labor arbitrage and comparative advantage are mutually exclusive. If the company can make higher profits abroad and lower the cost of its product, then it can make higher earnings/dividends for its shareholders AND provide a cheaper product for all American consumers.

If labor arbitrage coincided with massive unemployment, then I could see the disconnect, but unemployment is low (and has been). We have to face the facts that many parts of America are expensive places to manufacture goods. In most cases politics (and labor unions) has made it so.