I think you're misunderestimating the degree of indoctrination.

Economics reduces to simple concepts like Free Trade, Inflation and Unemployment which are colouring book caricatures of the economic forces that really shape people's lives.

If I grow bananas in South America, the concept of free trade vs protectionism is irrelevant when I can't get a fair price for my product because the supposedly level playing field is skewed - sometimes by force - to give the big corporates all of the leverage.

Anomalies like this mean that economics is wrong in so many ways that if you stripped it down to essentials and left the elements that have some connection with reality - meaning everyday reality, not the reality of the super-rich - there would be very little left.

Worst of all is the way that economics promotes an implicit moral code of mindless speculation and accumulation. Shared prosperity isn't a bad thing, but whatever the PR says, the real goal of economics today seems to be personal wealth accumulated with total disdain for the greater good, and the limited selection of social metrics that are used in economics - inflation, unemployment and GDP - are so crude that they exclude all social responsibility.

It's surely possible to create economic metrics that live in the real world, and not in some superficial 19th century abstraction of it. But for now these fake abstractions are treated as if they're the most important thing on the planet - which is literally an insane state of affairs.

Free Trade in the long run will benefit more people than tariff walls.

Not necessarily. That's the whole point of this debate. And since there's no such thing as free trade we don't actually know anything much about what it will do, only what it might.

With hindsight, I think my diary on comparative advantage addressed the effects of "[im]perfect mobility of factors of production within countries".

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

The fun part about the assumptions as they are presented there is that capital plays no part in the set up whatsoever.

This is terribly important as I think it clarifies my main problem with the issue (and which prompted my comment.)

The success of teaching Comparative Advantage rests on a beautifully simple model, a little bit of game theory, nothing more. From that (if you read the mises link I put in my other comment) they are happy to build a whole assertion of "good things."

The problem with free mobility of capital is that it doesn't disrupt the generic assumption that free trade makes for a larger "total sum of wealth" but that it has the potential to massively destabilize the utilisation of that wealth, leaving whole countries effectively unemployed.

This doesn't bother the rich, but it should bother the rest of us.

Seeing the power of a simple model, badly applied in all these economics classes and textbooks, I wondered, what if we can build a simple little model that demonstrates (or not) my fears about what the movement of capital means for the stability of the system. It could be a powerful tool for helping people think carefully about trade.

Refute might not be the right word. Understand what is going on and how reliable it is: present a subject as mathematical and we're going to do that.

However, both Drew and you seem to have decided it's better to abandon the mathematics and rely on common sense.

Sure, it's easy to theoretically show in a simple two-country model that moving from a world of no trade to one where countries trade, you can potentially make everyone better off. And you can extend that to many countries, tariff cuts, etc, and all you really need is the different productivities for producing different goods and services. There is math underpinning that, but it's all abstract and necessarily leaves out important features of the real world.

Like the "infant industry" story - what if that tariff allows a temporarily inefficient industry to achieve scale economies and efficiency gains that allows it to compete on global markets? If you remove the tariff too soon, you may lose the industry and good-paying jobs. But as long as you have the tariff, consumers pay more for the good in question. The devil is in the details here.

Or like the other stuff people have mentioned here - the global labor arbitrage for example. Again, it's a question of balancing potential gains from specialization against other costs, which I admit economists are not always clear about.

Also, one of the problems with economic policy analysis is that distributional considerations are usually ignored. As long as a given policy change (net) results in enough increased output to potentially compensate those who lose from the policy change, economists will usually say that the policy change should happen, even if all the benefits went to Bill Gates and all the costs were imposed on everyone else.

So, no, "free trade" (and of course there is the problem that "free trade" has become such a politically loaded term that it doesn't mean the same thing to different people) in the sense of moving in the general direction of more openness by reducing tariffs and other trade barriers (my definition of "free trade") doesn't always make things better for everyone, but that's different than saying comparative advantage doesn't permit overall increases in output and income (which could and should then be used to compensate those who bear the costs through jobs programs, investments in education and training, and a generous welfare state).

Free trade isn't necessarily the best way to handle trade.  It's simply a matter of free trade being better than the other ideas we have so far.  Krugman once pointed out, in one of his books, that even if we were capable of developing a system that would work better, it would be a pointless exercise, because it would be too difficult to build in the real world.  A great deal changes, obviously, when politicians get involved.

Where's your motherf*%&ing flag pin?

I didn't see that comment, honestly.  My initial look at the thread was only a quick one.  Part of my response will be in a reply to Migeru below, because I think he brought up an important point that requires a much longer discussion.  Perhaps a diary.  Inevitably the real world will be too complex for the basic point I made.

I think the author you quote made a decent overall point.  His last sentence is wrong, in my opinion.  When China opened its doors to trade, for example, the result was reasonably predictable.  Jobs that didn't require a highly-skilled worker went to a country with a large pool of unskilled labor -- that large pool translating to lower costs.  Ricardo was simply taking Smith's division of labor a step forward to build a trade theory at a time when economists were at war against mercantilism.

Where's your motherf*%&ing flag pin?

I am generally in agreement with what he said.

The point about "full employment of resources" is also key. In a world of global industrial overcapacity, industry location can have huge impacts on employment and wage structures, as people living in the US "rustbelt" well know.

Ceteris paribus, you are probably right.

 Nicely parried.

  I see I have two "dogs" in this fight; so I have to plug for both and hope neither is injured in the process.

 

"In the interest of democracy, repressive actions were taken; In order to preserve democracy, repressive actions were taken"

That's fine so long as that's how it is presented. "Comparative advantage and thus free trade makes everyone better off" is presented as a law of nature, not as a rule of thumb.

Without relying on the assumptions above?

Producing non tradeable goods and services make a very large majority of jobs, even today.

Even today, or especially today? Is that what the service economy is about, to avoid trade once it has been made free?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

Some of the nontradeable services you mention are outsourceable.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

In the long run the last capitalist is strangled with the guts of the last economist. </snark>

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

Well, you dont get a worse optimum.

The collection of problems for which the optimum combined solution is the juxtaposition of the optima for the parts is nowhere dense, of measure zero, a variety of lower dimension, or any of a number of colourful phrases depending on which favourite branch of math you use to pose the question.

And I'm a physicist at heart. To me > and ≥ are the same, within experimental accuracy.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

There would, in that case, be very little income left for Americans to buy anything.  There would also be little by way of a market for China and India to sell their goods in America.  In the end, you can only sell what your customers can buy.  However, today, China needs to sell a couple million t-shirts in order to buy an American airplane.

Well, at the moment Americans are buying these gadgets on borrowed money, not on their incomes, and have been for the past 5 years.

Can you find the labour statistics by sector during Bush's presidency? It seems the jobs created during the dot-com bubble are being outsourced. US computer manufacturers are even outsourcing their R&D so that all they add to what their Taiwanese provides produce is a brand name. How's that for value added? Why should I buy a Dell when I can buy an ASUS or an Acer?

It is not so reasonable to consider countries as single economic agents.

I partly agree.  But keep in mind that countries also, to some extent, turn themselves into economic agents through their legal arrangements.

Except that, for the past, say, 25 years (to use Jerome's convention which ties it to the start of the Reagan/Thatcher era) countries have been eliminating the lagal arrangements that made them single economic agents.

From this

I wasn't aware that I ignored these.  Perhaps you might get into some specifics.

on, you are replying not to objections to you specifically, but to a criticism of the general discourse: Cui bono, who benefits from the flaws in the discourse that some of us perceive?

In the aggregate, comparative advantage suggests that free trade will leave us in better shape, economically

That seems less compelling than the "free trade is the be-all and end-all and the panacea for all our economic problems" which seems to be the order of the day in economic policy making around the world. And, like I said before, free trade is not the same thing as free movement of capital or free movement of labour. It is very different to have several distinct economies which trade among them, than to have what amounts to one big economy.

The original comparative advantage example was assuming that Portugal had an absolute advantage over England in wine and wheat, but to have comparative advantage in wine, and England in wheat. Then it made sense for the UK capital to be dedicated to producing wheat and buying portuguese wine with the wheat, because capital (and labour) had nowhere else to go. 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.

Within single economic units you have sometimes massive rearrangements of capital and labour and extreme hardship results for many, and that's why there are wealth redistribution schemes on a national level. If you're going to have a single integrated world economy (which, I repeat, is not the same thing as several economies with trade) you're going to have to have global wealth redistribution. Otherwise you'll have massive rearrangements of capital and labour and it will hurt.

If you do nothing it will happen all the same. Sure, but then do something. Recognize what is at play and what will happen and steer it.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes