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While I don't agree at all with your opinions or ypur analysis on this issue - the more and the freer trade the better in my opinion - we should look very closely at comparative advantage. Even question if it is relevant or even exists in a world of free capital flows.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jul 24th, 2008 at 09:49:39 AM EST
I was going to say, wait until the "B" sample results come back before passing judgement on the morality of his actions ...

... but if its Ricardo, the answers are, yes, the argument has massive relevance, and, no, it does not exist in a world of free flows of financial wealth ... or, in other words, in a world of unfettered accumulation of financial obligations across international boundaries.

The difference between Ricardo's argument and the neoclassical revision of Ricardo's argument that the traditional marginalism now relies on is that the neoclassical revision of the argument is only very loosely anchored to reality. Not only are the core assumptions of the argument not observed in the real world ... we are still waiting for a credible case that they could be established in the real world.

Ricardo's argument is, on the other hand, far more robust.

Obviously anyone who applies the theory of comparative advantage to the policy of unfettered financial flows currently pursued by transnational corporations and their bought and paid for political henchmen is a bullshit artist. Ricardo's argument is restricted to balanced trade in finished goods between two nations capable of self-sufficiency. Thus the kind of "trade" deals being pursued under Doha, or in the US under the NAFTA-model of corporate wealth agreement, have no right to appeal to the model of comparative advantage. They are simply efforts to increase the economic leverage of transnational corporations by eliminating regulation of their exercise of economic power.

However, if Ricardo's argument is taken seriously, it provides a set of goals for the operation of the establishment of new trade institutions that could offer mutually beneficial trade, in particular between low-income and high-income nations, that is not available under current trade institutions.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Jul 25th, 2008 at 12:13:24 PM EST
[ Parent ]
Migeru earlier commented that he knew of no "real" econonists who had written about comparative advantage being irrelevant to the current trade realities.

Apparently, there is one.

The economist Paul Craig Roberts notes that the comparative advantage principles developed by David Ricardo do not hold where the factors of production are internationally mobile.
He is ironically known as the "father of Reaganomics" and is a 9/11-crank.

He wrote this on Thursday, Aug. 7, 2003

[...] Economists assume that the substitution of foreign labor for U.S. labor is the benevolent workings of free trade. But what is being traded when U.S. employers move jobs out of the country? Many of our imports are products made for American markets by U.S. firms.

Economists mistake the free movement of factors of production for free trade. Raised on the theory of comparative advantage, economists know that free trade is mutually beneficial. They dismiss without thought any concerns that seem to call free trade into question. The case for free trade has been unassailable for so long that economists have overlooked that today's circumstances do not comply with the assumptions of the theory.

The gains from trade flow from each country focusing on what it can do best and trading for other goods. The idea that there are comparative advantages in production is based on countries having different endowments of immobile factors of production. When the theory was developed, agricultural output was an important component of Gross Domestic Product, and a country's advantages resided in its climate and geography.

David Ricardo discovered the principle of comparative advantage in the early 19th century. Ricardo recognized that the principle did not hold if all factors of production are internationally mobile. Mobile factors of production would migrate to countries that had the greatest absolute advantages. Those countries would gain, and all others would lose.

Climate and geography cannot migrate, but capital and technology can. Today, absolute advantage resides in an abundant supply of cheap and willing labor. Now that Asia is safe for capitalism, capital and technology flow to countries where labor costs are lowest.

The global mobility of factors of production is a new development. Until recent years, it was not safe for capital and technology to migrate outside North America, Western Europe and Japan. No first-world country had an absolute advantage in labor cost.

The collapse of world socialism changed circumstances overnight. U.S. labor now faces direct competition in global labor markets. The excess supply of labor in these markets will drive down wages, salaries and employment in the United States. As the dollar is likely to lose value under pressure from our growing trade deficit, the decline in wages will not be compensated by a decline in prices, and U.S. living standards will fall.[...]

Although his criticisms of Bush often seem to align him with the political left, Roberts continues to praise Ronald Reagan and to endorse many of Reagan's policies, arguing that "true conservatives" were the "first victims" of the neoconized Bush administration.[2] He has said that many supporters of George W. Bush "are brownshirts with the same low intelligence and morals as Hitler's enthusiastic supporters."


Roberts is seriously dismayed by what he considers the disregard of the Republican party for the US constitution. He has even voiced his regret that he ever worked for it, avowing that, had he known what it would become, he would never have contributed to the Reagan Revolution

Weird guy.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Jul 25th, 2008 at 12:55:08 PM EST
[ Parent ]
Opponents of free trade often point out that the comparative advantage argument for free trade has lost its legitimacy in a globally integrated world--in which capital is free to move internationally. Herman Daly, a leading voice in the discipline of ecological economics, emphasizes that although Ricardo's theory of comparative advantage is one of the most elegant theories in economics, its application to the present day is illogical: "Free capital mobility totally undercuts Ricardo's comparative advantage argument for free trade in goods, because that argument is explicitly and essentially premised on capital (and other factors) being immobile between nations. Under the new globalization regime, capital tends simply to flow to wherever costs are lowest--that is, to pursue absolute advantage."

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Jul 25th, 2008 at 01:03:48 PM EST
[ Parent ]
"If you've eaten poison, you must get rid of the substances that are making you ill. Let us then, apply the stomach pump to the doctrines of economic growth that we have been force-fed for decades." [1]

"We cannot have too many people alive simultaneously lest we destroy carrying capacity and thereby reduce the number of lives possible in all subsequent time periods."[citation needed]

"Environmental degradation is an iatrogenic disease induced by economic physicians who treat the basic malady of unlimited wants by prescribing unlimited growth.... Yet one certainly does not cure a treatment-induced disease by increasing the treatment dosage." Daly, H. (2004). The Steady-State Economy. In Eds. S.M. Wheeler and T. Beatley pp.47-52. "The Sustainable Urban Development Reader". Routledge Urban Reader Series. isbn 041531187X

"Current economic growth has uncoupled itself from the world and has become irrelevant. Worse, it has become a blind guide."

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Jul 25th, 2008 at 01:05:34 PM EST
[ Parent ]
Actually, he's not that different from a lot of the libertarian right, which you can read on sites like Antiwar and American Conservative. I actually find myself agreeing with them more than with the mainstream press, until you get to a passage that makes you wonder whether they live on the same planet as you...
by gk (gk (gk quattro due due sette @gmail.com)) on Fri Jul 25th, 2008 at 04:50:32 PM EST
[ Parent ]


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