Thu Jul 31st, 2008 at 03:20:56 AM EST
The myth of Ricardo is that each country does what it is best at and then trades with its neighbors. Each produces at the lowest cost, since it is an expert, and everyone benefits. This may have been true in some limited areas when countries were at similar levels of development so that labor cost difference were due to specialization and not to the general standard of living.
Factor in natural resource and climate benefits and it makes for a good theory. Recent developments have led to questioning the model. So the question is not should a society be self-sufficient, but can it?
Diary rescue from July 18 by afew
By this I mean that it can produce everything it needs to survive using only its own resources. If you can't grow bananas then eat pears instead. What I'm really asking is are the advanced countries maintaining their standard of living by extracting more from trading partners than they are returning in trade? If they are then they are international brigands and trade is just a cover for this.
If they could, in principle, be self-sufficient than trade is just a detail. You grow bananas and sell them to me I grow pears and sell them to you. More variety in our fruit salad, but no real advantage to one party over the other.
It is clear that the US and EU are consuming more than they are providing back to trading partners and that this is not just an artifact of current trade imbalances. In fact this has been the cornerstone of the rise of western civilization since Columbus. The current criticism includes the idea that "externalities" are not being priced into the cost. So when a country sells non-renewable resources it gets no compensation for the fact that they can never be sold again. Neither is there any accounting for the cost of the pollution or environmental damage being done. In addition the idea that it makes perfect sense for the cost of labor to differ from one place to another is never examined. Why should one person's labor be worth less than another's just because of where they live. The cheaper worker is subsiding the cost of the trade. This is never considered.
So let's play a mind game and see what would happen if we closed the borders to trade and had to go it alone. I'll assume that the transition period is instantaneous, I'm not talking about implementation (a complicated issue) but the final outcome.
The first area to be investigated is food production. It seems clear that the US and EU can be self sufficient in food, but only if we assume that the current production techniques remain. This leads us to the issue underlying everything else: energy.
Al Gore has proposed getting all US electricity from wind, solar and nuclear. I assume he has done his homework and there are ample resources, but he skipped transportation. It also isn't clear if he is proposing that fuel used for heating and cooling would be replaced by electricity as well. The majority of homes in the US are heated by gas or oil and switching to electricity would require extra generating capacity.
Someone with expertise on the EU situation will have to comment on whether a similar electric balance can work in Europe. The lack of the vast desert areas present in the US seems to make the situation a bit more difficult for Europe as well.
However, let's assume this all is feasible, then what about liquid fuel for transport and hydrocarbons for fertilizer, plastics and other secondary uses? Neither the US nor EU has fuel reserves adequate for this purpose. I don't see any substitutes being viable either. Projections using bio-fuels seem not to be based upon existing technology. Perhaps the US might be able to get by with coal to liquid and with the use of Canadian tar sands (I'll treat the US and Canada as the North American version of the EU), but once again this production would have to be fueled somehow.
So if my guess is correct and neither area can be self sufficient at the present level of consumption than what is all the talk about? Either we need to cut our levels of consumption, get much more efficient, or we need to continue unequal trade policies.
If we can't pass the thought experiment for self-sufficiency then we are lying either to ourselves or to the rest of the world. The public in the US and EU is happy deceiving itself, the greedy never see this flaw in themselves, but our ability to fool the rest of the world has worn off.
This is why the international trade talks have stalled. It is why the US continues its military build up. It is why the EU acquiesces in this and allows the US to run NATO, bases in Europe and other cooperative ventures. It is why the US continues to fight resource wars.
So how about an honest accounting and some realistic talk about a sustainable level of consumption?