My comment suggests no such thing. What my comment suggests is that we, first, have to decide whether or not comparative advantage exists and whether it is likely to raise living standards in the aggregate. I submit that the evidence strongly suggests that it does exist, and that it will raise aggregate purchasing power (real income). If we come to the conclusion that both of these hold, we can, then, decide whether free trade is desirable -- a discussion during which we can remark upon potential issues of distribution.
Economic policy cannot be detached from the political world. You're right, although I'm not sure at what point I disagreed with this observation. You're confusing economic policy with economic theory. There is nothing political about evaluating two businesses and saying, "Hmm, Juan produces the same quantity at a lower cost than Jeff. Maybe it's because the climate in his country lends itself more to sugar production. Consumers in Jeff's country would probably be better off with free trade, because Juan will cut down their grocery bills."
Once we agree on that, if we do, then we get into policy and politics, at which point I say, "Sorry, Jeff. Here's some money to live on for a while, and to receive retraining in another field, but it's not fair for you to expect the rest of us to support your inefficient sugar production." And that is to say nothing of the fact that, in a system without free trade, we're probably doing the most damage to Juan, just as we damage companies like JetBlue and Southwest when we prop up the idiots at Delta and United.
Politically, I'm with Migeru all the way on helping those who are hurt by free trade to move into another industry. No argument from me on that. I am, however, not a believer in the idea of trade barriers being, somehow, an exercise in "fairness". That's simply bullshit, in my opinion, because barriers are certainly not fair to domestic consumers, foreign producers, and efficient domestic producers.
If you accept that tariffs and subsidies are fair, you should also accept that China's policy of currency manipulation is fair. Same game; just different strategy.
Trade may enrich China, may eventually aid its democratization in the long run, but what does that get us in the meantime if China continues to be the last great dictatorship on Earth? How well does the cheaper consumer goods Walmart provides compensate those communities that is devastates?
What it should bring us are cheaper products (higher real income) and a new, enormous market. But, again, no one, as far as I know, has answered the question of why some workers should be given an advantager over others. Why is the farmer in Iowa, who is receiving subsidies to prop up his inefficient production, more important than the construction worker in Boston, who has to pay twice the market rate for corn?
You're focusing on those who are hurt by free trade while ignoring those of us who are hurt by trade with barriers. Why should my living standard be dragged down simply because an ethanol producer outside of Des Moines can't produce corn well enough to compete with a farmer elsewhere?
Should countries that that shoot you for speaking out or for forming a union be allowed to trade freely with those that do not?
Look, you're preaching to the choir. I've said several times in the past that we should cut trade with all countries that do not allow for basic freedoms and democracy. You're not going to pry a defense of China out of me. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
How about analyzing a two-country, two-product Ricardian model with a transnational intermediary? How much of the benefits of free trade accrue to each of the three players? guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
What my comment suggests is that we, first, have to decide whether or not comparative advantage exists and whether it is likely to raise living standards in the aggregate. I submit that the evidence strongly suggests that it does exist, and that it will raise aggregate purchasing power (real income). If we come to the conclusion that both of these hold, we can, then, decide whether free trade is desirable -- a discussion during which we can remark upon potential issues of distribution.
My point above is that most people buy into the argument that free trade increases overall wealth (i.e. `no man is an island'). Ricardo is just, as someone pointed out above, Smith's specialization of labor argument writ large and applied to states. I don't think anyone really disputes this, the real issues come with the relevant problems associated with distribution of those gains from trade and the accompanying shifts in political power that come with it. Dismissing these issues as `just politics' is meant to distract attention by focusing on the absolute gains that accrue rather than the relative distribution of those gains that are really at issue.
Yes and no. There is nothing political about evaluating two businesses and seeing which has lower financial costs. Decisions made via this calculus, however, have very important repercussions that inevitably affect the political system. A recent study in Social Science Quarterly, for instance, established a link between the entry of a Walmart into a given local market and subsequent increase in poverty in that very same community. Walmart not only undermines wages in manufacturing industries in the US, but by offering lower prices than local competitors it destroys both them AND the local business-services firms that usually provide local political leadership. Now, in aggregate, Walmart may increase overall societal wealth, but clearly there are important distributional issue that suggests the particular equilibrium that results after Walmart's entry may not be socially optimal. There are, in other words, externalities to having many higher-price local competitors rather than one low-price monopolist not fully captured by a simple Ricardian analysis.
My point is that this is a result in the real world, the world people live in, not the abstract world of mathematical economics. Where is the gain here? Is there a pure body of economic theory that tells us what clearly should be done? Or must our decision necessarily be based on the context of given situations? If it is the latter then concentrating on whether or not there is an in general `aggregate gain' is at best a pointless exercise.
But what if there are significant positive externalities associated with financially inefficient production? Under what conditions are these positive externalities likely to exist? In what form will they come? Unless we know this how will we be able to determine if trade leads to more efficient outcomes? Your model is too simplistic.
Furthermore, you are also disregarding the affects trade may have on the distribution of power in the political system itself. Here Rogowski' work Commerce and Coalitions is important to consider. Trade changes the prices factors of production in a given country receive which, in turn, changes the relative amount of political resources each factor is able to muster in the political system. If these changes caused by trade result in an upsetting of the political system and a reinforcing and entrenching of interests opposed to redistribution and or democratization then what has trade achieved? Who has gained? Is the simple Ricardo model really applicable in this case? Again, is our policy decision best informed by an abstract principle derived from a simple two-good model of world trade, or is it informed by a more context dependent examination of the repercussions of a given policy? If it is the latter then using Ricardo to make policy decisions is like using only the germ theory of disease to fight HIV. The theory's claims are interesting and a building-block of knowledge, but are ultimately trivial to the issue at hand.
Politically, I'm with Migeru all the way on helping those who are hurt by free trade to move into another industry. No argument from me on that. I am, however, not a believer in the idea of trade barriers being, somehow, an exercise in "fairness". That's simply bullshit, in my opinion, because barriers are certainly not fair to domestic consumers, foreign producers, and efficient domestic producers. If you accept that tariffs and subsidies are fair, you should also accept that China's policy of currency manipulation is fair. Same game; just different strategy.
But that's my point. Determining what is optimal is complex and context specific. You've resolved the need to dig into the specifics of policy by simply stating that all barriers are inherently bad and all trade is inherently good. Would you take treatment from a doctor that said all classes of drugs are inherently good for you and all types of non-drug treatment are inherently bad? How about a doctor that said all surgeries are good and required or a doctor that said no surgery is good and should be forbidden?
Trade may enrich China, may eventually aid its democratization in the long run, but what does that get us in the meantime if China continues to be the last great dictatorship on Earth? How well does the cheaper consumer goods Walmart provides compensate those communities that is devastates? What it should bring us are cheaper products (higher real income) and a new, enormous market.
The key word in your statement above is should. In reality your simple model tells you very little about what outcomes on the ground will look like. Would you believe in a medical science or physics that had such indeterminate answers?
But, again, no one, as far as I know, has answered the question of why some workers should be given an advantager over others. Why is the farmer in Iowa, who is receiving subsidies to prop up his inefficient production, more important than the construction worker in Boston, who has to pay twice the market rate for corn?
The why is context specific and will vary according to case. Perhaps the overall increase in the Boston construction worker's real income is so miniscule that he does not even notice it. Can you for certain tell me that you notice a .0002 increase in real income that a 2% decrease in the cost of cornflakes brings? That's assuming, of course, that competitive markets exist and consumers see decreased costs at all. Condemning all trade barriers is just as nonsensical and ignorant of the real world as supporting them all.
Not at all. I'm saying that knowing who is hurt and by how much is something that cannot be determined at all using such a simple model like Ricardo's. It's like trying to use, again, the germ theory of disease as a basis to diagnose what is wrong with you medically. It's a stepping stone to knowledge, a piece of the puzzle, but I would want my doctor to know a hell of a lot more than just that, wouldn't you? Comparative Advantage is a best a rule of thumb until we know more about the issues at hand. Would you trust your health to rules of thumb?
Should countries that that shoot you for speaking out or for forming a union be allowed to trade freely with those that do not? Look, you're preaching to the choir. I've said several times in the past that we should cut trade with all countries that do not allow for basic freedoms and democracy. You're not going to pry a defense of China out of me.
Look, you're preaching to the choir. I've said several times in the past that we should cut trade with all countries that do not allow for basic freedoms and democracy. You're not going to pry a defense of China out of me.
You just did. Did you not just say this:
But, again, no one, as far as I know, has answered the question of why some workers should be given an advantager over others.
and this:
How is putting restriction on Chinese goods due to their human-rights policies not a restriction on trade? Trading with China should, after all, bring us huge new markets and lower prices. What are a few (tens of thousands) political prisoners in the face of that? Some lose (their lives, freedom), but many more win (.02% decrease in the cost of my Tennis Shoes). Why should I support inefficient industries (and local democratic institutions) when more efficient producers (police-state work camps) are being unfairly denied my dollar?
In your heart you know Ricardo's model is too simple for real-world decision-making, else you would have no problem trading with China or any other despotic regime. No raindrop believes itself responsible for the flood that follows.
