Incite -- (v) 1: give an incentive; 2: provoke or stir up; "incite a riot"; 3: urge on; cause to act |
Tuesday, March 16, 2004
Written by: AnonymousRecent debates over steel tariffs and outsourcing certain IT jobs to India, as well as Democratic Senators Kerry's and Edwards' craven willingness to ride the populist, protectionist bandwagon when they see a political advantage in doing so, have called into question the theory of "free trade" that had come to dominate thinking in respectable economic circles by the 1990s. Because I have always believed in that theory, and yet always have an instinctive distrust for any theory that dominates thinking in "respectable circles" of any sort, I would like to take this opportunity to begin to rethink the whole issue. I want to confine my rethinking largely to the economic realm. In my view, it goes without saying that despite the economic merits of free trade, the cultural and foreign policy tradeoffs of such a policy can be and have been devastating. Witness the demise of rural America and the economic stagnation of several states and communities throughout this country during the past several decades, as so many people have crowded into a handful of cities that sustain our orgiastic "New Economy." Witness the blow to American national interests that was the Congressional grant of Most-Favored-Nation status to Communist China. But what about the economic theory itself? Is it still valid? Does it require revision in light of 200 years of history and, necessarily, contextual change? After all, we live in a very different world, based on very different assumptions, than did Adam Smith. Free trade has always been based on the principle of comparative advantage. Comparative advantage requires two conditions to operate: (1) a country's factors of production must seek comparative advantage within the country and not move to absolute advantage abroad; and (2) countries must have different relative costs of producing different goods (Credit: Paul Craig Roberts). It strikes me right off the bat that the second condition may no longer obtain in the modern world economy. Climate and natural resources are not the important components of GDP that they were in Adam Smith's day; today, institutionally-acquired knowledge seems a much more important component. And institutionally-acquired knowledge is not limited by geography. As a result, modern production operates more or less the same regardless of location. Given this state of affairs, it seems to me that there is no necessary reason for relative production costs to vary from one country to another. If relative production costs must not vary, then it follows that only absolute costs vary, according to what I will call "artificial" variables such as labor costs. If this is true, then countries with some form of an industrial policy can manipulate such variables (as it seems they do; witness China) to wrest control of whole industries from countries that cling blindly to their faith in free trade. These countries gain an ever-increasing share of the world's production, resulting in an ever-increasing share of the world's income. But the free trader's response is, "Sure, such countries increase their share of the current pie. But the pie doesn't remain constant, and in fact free trade causes the pie that is the world's income to increase exponentially, drowning out any relative losses for the free trading country associated with other countries' increasing shares of the current pie." This response raises two points in my mind. First, can we see some empirical proof? It seems that the question is easily answered based on empirical study, and I can't say that I know the answer. Second, if shares of even the increased pie go disporportionately to countries with an industrial policy, then the free trading country is likely worse off depsite the increase in the overall pie. I guess what it comes down to in my mind is: How can we say that America exporting jobs, capital, and technology abroad is an unqualified good thing? What do we get in return? And is what we get in return such an advantage, and such an immediate and necessary consequence of 100% adherence to free trade dogma that these types of questions aren't even legitimate in the first place? I don't know the answers to all these questions, but I'm fairly certain that the answer to the last one is a clear "No." That's why this is an important subject of debate this election year. Too bad John Kerry is the crappy vehicle through which it's going to have to be raised.
|
Contact The Author:
John Beck Feedback Welcomed
Greatest Hits
The Complete United Nations Posts Immoderate Moderates Marketing Myopia In defense of the Republic UKIP in America Playing Connect the Dots A Point So Often Missed: The Presence of an Administered Rate Reagan Remembrance Dr. Wolfowitz, or How I Supported the Right War Waged in the Wrong Way for the Wrong Reasons Divine Right of Kings and UN Mandates A Fantastic Idea, If I Do Say So Myself Why We Were Right to Liberate Iraq The Crisis of Conservatism
Blogs Worth Bookmarking
Steal The Blinds Poor Dudley's Almanac Mansizedtarget Protein Wisdom Anti-Idiotarian Rottweiler New Sisyphus Iowahawk Jim Treacher Ace of Spades Captain's Quarters Rambling's Journal Neolibertarian Blog LLP Group Blog The Llama Butchers The Castle Argghhh The Politburo Diktat The Dissident Frogman In Search of Utopia Aaron's cc: TacJammer Wizbang Q&O IMAO INDC You Know You Wanna Classical Values Clowning Glory Vice Squad Samizdata Hit & Run Link Mecca The Corner Power Line Instapundit Michelle Malkin Mises Institute marchand chronicles Enlighten - New Jersey
More Top Reads
Ego SlagleRock's Slaughterhouse a_sdf This Blog is Full of Crap Redstate Who Tends the Fires The Bleat Outside the Beltway gapingvoid Small Dead Animals Kim du Toit Tman in Tennessee mypetjawa mASS BACKWARDS Hog On Ice Pardon My English Mr. Minority Speed Of Thought Bloodletting La Shawn Barber Vodkapundit Right Wing News USS Clueless LeatherPenguin Belmont Club Shades of Gray Seldom Sober Roger L. Simon Tacoma Blaze A Small Victory Murdoc Online Iraq Elections Diatribe Winds of Change Wuzzadem Enlighten - New Jersey Random Fate Riding Sun My VRWC The Daily File Matt "The Man" Margolis Bastard Sword Roller Coaster of Hate
News Links
Blogger News Network National Review Online Tech Central Station The Drudge Report Reason Online Mises Institute The Weekly Standard Front Page Magazine Town Hall VDARE
Affiliations, Accolades, & Acknowledgements
NEOLIBERTARIAN NETWORK LIFE, LIBERTY, PROPERTY ALLIANCE OF FREE BLOGS "More tallent than a million monkeys with typewriters." --Glenn Reynolds BEST CONSERVATIVE BLOG NOMINEE EMPIRE OF THE BLOGS BLOGS FOR BUSH
Life, Liberty, Property Community
Reciprocal Blogrolling
Yippee-Ki-Yay! Accidental Verbosity Conservative Eyes The Moderate Voice Perpetual Three-Dot Column Chapomatic Sudan Watch Mystery Achievement Le Sabot Post-Moderne Comment Me No Comments New Spew
Links That Amuse the Writers
Huffington's Toast The IFOC News Dave Barry's Blog Drum Machine Something Awful Fight! Cox & Forkum Fark Exploding Dog
Archives
March 2004 April 2004 May 2004 June 2004 July 2004 August 2004 September 2004 October 2004 November 2004 December 2004 January 2005 February 2005 March 2005 April 2005 May 2005 June 2005 July 2005 August 2005 September 2005 October 2005 November 2005 December 2005 January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 August 2006 March 2007 May 2007 June 2007 August 2007 September 2007 October 2007 January 2008 February 2008 March 2008 April 2008 May 2008 September 2008 November 2008 December 2008 March 2009 April 2009 June 2009 July 2009 August 2009 September 2009 October 2009 November 2009
The Elephant Graveyard
We Are Full of Shit The Sicilian The Diplomad Undercaffeinated Insults Unpunished Fear & Loathing in Iraq Right Wingin-It DGCI Serenity's Journal Son of Nixon Rachel Lucas
Credits
Popdex Email Questions and Comments This work is licensed under a Creative Commons License. |