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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
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