In the European Union, it makes more sense for the English capital to be invested in Portugal instead: the English economy gets decapitalized and the English capitalists move to Portuguese villas. If that were the case, wouldn't England look quite different today? What does the English worker possess that the Portuguese worker lacks?
If that were the case, wouldn't England look quite different today? What does the English worker possess that the Portuguese worker lacks?
But right now, everyone is moving their factories from Western Europe to the new member states, not because they are not profitable or competitive where they are, but because they can lower labour costs by moving. So the west gets decapitalized in the process and lots of people become unemployed, and the state is supposed to pick the tab of retraining them.
Not quite the same thing ascomparative advantage from the trade of goods with Eastern Europe forcing the capital of the West to be reinvested in some other sector but in the same country where it is now invested. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
The theory of comparative advantage suggests they're not. Drew seems to be saying that as long as the new business owners and the workers are richer, their extra wealth cancels out the losses in the areas that are being decapitalised.
What evidence is there that this is really true? Quoting US growth figures seems suspect when that growth has apparently been fuelled by credit and a housing bubble.
We've already gone from 'Everyone is better off!' to and admission that 'Everyone is better off on aggregate, but there will be some losers.'
How can you assess whether or not it's a zero sum game without being able to quantify the changes?
The basic question here is - are these movements a zero sum game? The theory of comparative advantage suggests they're not. Drew seems to be saying that as long as the new business owners and the workers are richer, their extra wealth cancels out the losses in the areas that are being decapitalised.
Given a set of alternative allocations and a set of individuals, a movement from one allocation to another that can make at least one individual better off, without making any other individual worse off, is called a Pareto improvement or Pareto optimization. An allocation of resources is Pareto efficient or Pareto optimal when no further Pareto improvements can be made.
Under Pareto efficiency, an outcome is more efficient if at least one person is made better off and nobody is made worse off. This seems a reasonable way to determine whether an outcome is efficient or not. However, in practice it is almost impossible to make any change without making at least one person worse off. Using Kaldor-Hicks efficiency, an outcome is more efficient if those that are made better off could in theory compensate those that are made worse off and lead to a Pareto optimal outcome. Thus, a more efficient outcome can in fact leave some people worse off.
Using Kaldor-Hicks efficiency, an outcome is more efficient if those that are made better off could in theory compensate those that are made worse off and lead to a Pareto optimal outcome. Thus, a more efficient outcome can in fact leave some people worse off.
Just on decision-theoretic considerations, Kaldor-Hicks efficiency makes my blood boil. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
One challenge seems to be persuading everyone to start thinking economic implications through in these deeper terms, so that it's no longer possible to play the shell game successfully.
Drew is basically using an apparently very popular sleight-of-hand called Kaldor-Hicks optimality" which is used by economists to escape 1) the fact that multiple competing criteria of goodness prevent you from totally ranking all possible outcomes; 2) the need to worry about the (re)distribution of wealth.
First of all, (2), which I agree with depending on what form redistribution takes, is irrelevant to the current discussion. That's politics, and the questions surrounding it cannot be answered until we come to a conclusion on comparative advantage and free trade.
Calling it a sleight-of-hand implies that I'm hiding something in my argument, which I am, to my knowledge, not.
I only know of Kaldor-Hicks through my own reading. It is not taught at the undergraduate level, as far as I know. So I can't tell you how popular it is, having never come across it in classes or journals,. I'm also not exactly a know-it-all on Kaldor-Hicks, having read about it roughly a year ago and forgotten much of it. But, from what I understand, the sleight-of-hand you're angry about is the decision to look away from the individual case so that the aggregate can become the primary focus. I don't see the problem with that.
Your example of the King under Kaldor-Hicks is not fair. The King is able to do whatever he wants, much like the politician. (I'm sure we could think of examples involving Dubya.) Economics will tell you that the King, in your example, is going to bring economic activity to a halt, because the people will have no incentive to produce if the King is simply going to take it all away. (Technically, I think models would show people producing very little, but that's the consequence of using those models.) The King, in stage two of the game, ends his move with nothing taxed.
That's what modern economics has come to.
ThatBritGuy actually states my point quite well, although there is much more to it:
Drew seems to be saying that as long as the new business owners and the workers are richer, their extra wealth cancels out the losses in the areas that are being decapitalised.
I would actually say that the new gains produced via trade will exceed the loss (decapitalisation, jobs, etc.) suffered in the company's initial location. In other words, the end result is a net gain in wealth. I think that this is what he was getting at, though.
Now, if you want to talk about Pareto optimality, let's also talk about the violation that occurs when tariffs and subsidies are produced by the government. Again, you're making an argument about one group of workers being hurt -- an argument I don't dispute -- but not acknowledging the other group of workers who are hurt by the status quo. There are always winners and losers.
Should I have to pay a great deal more for my sugar simply because Florida's sugar growers don't want to compete with their Brazilian counterparts? If we allow free trade in that area, I'll certainly see a benefit. Florida Crystals might go down the tubes, but is that company somehow worth more than the Brazilian one? If we dropped the subsidies and import restrictions, Florida Crystals would most likely be made worse off, but sugar users would be better off.
Pareto optimality is, obviously, an important understanding, but it is not the be-all, end-all ("end-all, be-all"?) of optimization. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
So, let's do this. We'll put all kinds of taxes and tariffs on trade, and that will be just as good as free trade because we could in principle reimburse those tariffs.
That an economic outcome is good because of what in principle could be done but isn't boggles my mind. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
These questions need to be answered: Why should I have to pay a great deal more money for a Honda simply because GM and Ford make shitty cars? Is it fair to place restrictions on imported food simply because agricultural corporations here cannot compete? The point is, again, that other people are hurt when trade is not free. Are those who benefit from a lack of free trade somehow worth more?
An advantage was granted to some people under the tariff and subsidy regime that should not have been granted. Others -- wealthy, poor and middle-class -- were handed the cost in the form of higher prices and decreased living standards. It's all well and good to discuss Pareto optimality, but Pareto optimality was flushed down the toilet the moment governments decided that certain businesses and industries deserved shelter from competition. If you want to live in a world of original Pareto optimality, we're going to have to ban most, if not all, government functions. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
Again, there are people losing right now in the name of "protecting" others.
If you want to live in a world of original Pareto optimality, we're going to have to ban most, if not all, government functions.
Absolutely. Attempting to apply theoretical economics with its silly assumptions that don't match anything in the real world isn't a good idea.
I'm coming to the view that the best that theoretical economics can do at the moment is give us an idea of what might be possible, not what is. That's true of most system sciences really.
Perhaps these conditions exist in a parallel world described by theoretical physics inhabited by sentient, sociopathic supercomputers. It is not, however, the world you or I live in. No raindrop believes itself responsible for the flood that follows.
A cost-benefit analysis along the lines of "I will benefit more than you will be hurt therefore let's do it", justified on "I could compensate you for your loss and still come ahead, but I don't have to", seems wrong-headed. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
I'm not disagreeing with that. But you still have not answered my charge about people who are hurt by the lack of free trade -- the people who lose a chunk of their living standards because of the government providing an unfair advantage to others. Set Pareto, Kaldor and Hicks aside for a moment. The real question here is of whether or not it is far to give some workers an artificial advantage over others.
By placing tariffs on imports, or giving subsidies to exporters, governments redistribute wealth -- yes, eliminating Pareto optimality -- from those who would be better off under free trade to those who would not. Why should those people be valued more by the government than other citizens? Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
What if one rich guy would be better off and everyone else would be reduced to penury. Would redistributive tariffs be ok then?
<stamps feet>
You almost made me spit my coffee out with that. From this point, onward, assume that I'm using "mights" and "maybes" where needed.
To answer your question, I would obviously support redistribution in large quantities under that example. But, needless to say, this is not what seems likely to happen, unless we look only at a few pieces of the picture -- namely, the businessman who outsourced and the workers who lost their jobs. (In fact, on this one occasion, I'll guarantee that this would not happen.) But, again, that ignores the Chinese who, at this point in time, seem likely to gain those jobs, as well as ignoring the other (Americans, Europeans, Guatemalans, Japanese, Aussies, whatever) who will likely see the cost of food, cars, clothing, computers, etc., fall, thereby raising their living standards. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
my coffee
Excuse me. That should read "my colored water that Americans call coffee," according to Migeru. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
But you only have 4 or 5 espressos a day, which I suppose is ok. One in your capuccino for breakfast, a mid-morning coffee, one after lunch, one after your (early) dinner. Matches the Spanish pattern (the last one happens at tea-time way before our (late) dinner. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
Several cups of Italian coffee in the morning would kill you.
Being of British and Irish ancestry, I have little doubt that you're right. But my ancestors' side of Europe has better beer. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
Warm bear, ugh! guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
Coming back to this a little late - I suspect this one fact on its own explains a huge amount of US politics and culture.
What would be your reaction? No raindrop believes itself responsible for the flood that follows.
Both are experimental questions. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
Social Science, especially economics, is collectively at the point where physics was while Newton lived, or where Biology was when Darwin made his first trip on the Beagle. We've found some empirical correlations. We have a few theories that seem internally consistent. Do we have great working models of real economies or real social systems? No. We know more about the weather. No raindrop believes itself responsible for the flood that follows.
If people wanted to institute new trade barriers I'd probably oppose it on the grounds that not only you hurt some people but the likely aggregate loss (from comparative advantage) would prevent you from compensating the losers.
So let's just wrap up my position with this:
Now if I could only get off my lazy ass long enough to read some of those textbooks.... Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
And, yes, there is big money in textbooks, if the author is well known and can, therefore, convince other professors to assign it to students. I'm sure Krugman, Mankiw and Romer have earned plenty on textbooks, alone. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
Write it then: I'll complain if I think you missed anything!
Fair enough. Will do. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
The amendment should state that private property cannot be taken without the owner's agreement. Period. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
Drew is basically using an apparently very popular sleight-of-hand called Kaldor-Hicks optimality" which is used by economists to escape 1) the fact that multiple competing criteria of goodness prevent you from totally ranking all possible outcomes; 2) the need to worry about the (re)distribution of wealth. Drew's Response: First of all, (2), which I agree with depending on what form redistribution takes, is irrelevant to the current discussion. That's politics, and the questions surrounding it cannot be answered until we come to a conclusion on comparative advantage and free trade. Calling it a sleight-of-hand implies that I'm hiding something in my argument, which I am, to my knowledge, not.
Drew's Response: First of all, (2), which I agree with depending on what form redistribution takes, is irrelevant to the current discussion. That's politics, and the questions surrounding it cannot be answered until we come to a conclusion on comparative advantage and free trade.
This is my first post on EuroTrib...this debate, and this comment in particular made me sign up...
Drew, your response in the comment above suggests that a pure world of objective, disinterested, scientifically-informed world of economics exists out there, that there is an 'economic world' that is separate from and independent of the world of 'politics'.
That simply is not now nor ever has been the case. It simply is not true, and depending on that argument to get around critiques of free-trade policy is like waving your hands and wishing they would go away. The two are simply inseparable.
Questions revolving around the appropriateness of free trade ultimately are political ones. In the end, I think almost everyone buys into the simple, common-sense model you mentioned upthread wherein individual differences in productivity lead to gains from trade. No man is an island.
But trade involves more than the simple model of bread and wine presented in Ricardo's models. It's about wealth. Who gets it, who doesn't. Because it's about wealth, it's ultimately about power. Again, who gets it, who doesn't. And, because it's about power, ultimately its about who determines what values we live by and who matters in society.
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? Should countries that that shoot you for speaking out or for forming a union be allowed to trade freely with those that do not? If so, why should the workers in liberal-democratic states feel any loyalty to governments that helped sell them out?
Economic policy simply cannot be detached from the political world that surrounds and, indeed, is part of it. Declaring that's 'just politics' is irresponsible and intellectually lazy. Politics is deadly, deadly serious.
No raindrop believes itself responsible for the flood that follows.
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.
The combined Kaldor-Hicks criterion ... can be non-transitive (A may be an improvement over B, and B over C, but A may not be an improvement over C).
Nothing to add. I thought it was worthy of being thrown into the mix.
We should introduce that reasoning into the legal profession. That would teach all those ambulance-chasing damage lawwers: as long as your clients could in principle be compensated for the damage done to them, there's no need for the court to impose any penalties. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
A is the FATHER of B B is the FATHER of C C IsNot the FATHER of A
