tag:blogger.com,1999:blog-16553201.post726594226198044679..comments2023-12-28T17:00:04.603-05:00Comments on HUMAN RIGHTS FOR WORKERS: The Dishonesty of Economists about TradeUnknownnoreply@blogger.comBlogger2125tag:blogger.com,1999:blog-16553201.post-64787234140634498472008-03-19T08:37:00.000-04:002008-03-19T08:37:00.000-04:00David, I have to disagree. While textbooks may te...David, I have to disagree. While textbooks may teach that "trade raises real incomes in the aggregate," the real-world experience by the U.S. proves otherwise. Median income in the U.S. has been in decline for decades. This is happening because the whole premise of free trade - Ricardo's principle of comparative advantage - is flawed. It is flawed because it does not take into consideration the effect of population density and what happens when two nations with grossly disparate population densities attempt to trade freely. <BR/><BR/>As population density rises beyond some optimum level, per capita consumption begins to decline. This happens because when people are forced to crowd together and conserve space it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (which always rises), inevitably yields rising unemployment and poverty.<BR/><BR/>When a less densely populated nation like the U.S. attempts to trade freely with one that is much more densely populated, the economies and labor forces of the two nations combine. The work of manufacturing is spread evenly across this combined work force. But while the more densely populated nation gets free access to our healthy market we, in return, receive access to a market that is emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs for the less densely populated nation. <BR/><BR/>The results of free trade bear this out. Since 1976, the U.S.'s cumulative trade deficit now totals $8.6 trillion. In 2006, of the top twenty per capita trade deficits in manufactured goods, eighteen were with nations much more densely populated than the U.S. Even more revealing, when our trade partners are divided equally around the median population density, in 2006 we had a $17 billion trade surplus in manufactured goods with the half of nations below the median population density. With the half above the median we had a $480 billion deficit. <BR/><BR/>While free trade in natural resources and free trade among nations of approximately equal population densities is indeed beneficial, just as the textbooks predict, it is a sure-fire loser when attempting to trade freely with a nation much more densely populated. <BR/><BR/>Your suggestion about "compensating the losers" in free trade by taxing the winnners, by your own admission, would "lead to efficiency losses in the economy." Carrying this a step further, one realizes that efficiency losses will only exacerbate the trade imbalance. That solution would result in a downward spiral. <BR/><BR/>In every other field, the collective effort of experts yields positive results. The medical field yields new breakthroughs in the fight against disease almost daily, and the growth in life expectancy is proof. The collective effort of engineers and scientists produces incredible advances in computer and communication technology and, in fact, in every product imaginable. Economics is the one field that doesn't measure up. The collective effort of economists over the last several decades has virtually destroyed America's balance sheet. Our combined trade deficit and cumulative federal budget deficit (much of it money spent to counter-act the negative effects of the trade deficit) now total nearly $20 trillion. The U.S. has been transformed from the world's preeminent industrial power to the skid row bum of the world, literally begging other countries for cash to keep it afloat. The time has come for economists to recognize that they're missing something - that their beloved principle of comparative advantage is fatally flawed. <BR/><BR/>Pete Murphy<BR/>Author, Five Short BlastsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-16553201.post-22594912050565054182008-03-17T13:00:00.000-04:002008-03-17T13:00:00.000-04:00I'm one of those dishonest economists.I was with y...I'm one of those dishonest economists.<BR/><BR/>I was with you on this post until the very last line, which is totally wrong. Textbook models of trade -- almost by definition what we teach in the nation's colleges and universities -- have this to say. Trade leads to winners and losers, but the dollar gains exceed the dollar losses. In other words, trade raises real incomes in the aggregate. However, a particular household doesn't consume aggregate income, they consume household income so trade can make them better or worse off. We emphasize this very heavily when we teach this stuff. Everyone does since its at the very heart of the economic logic. That's Baker's point.<BR/> <BR/>Now, the next thing we usually say is that because the gains exceed the losses, you could make everyone better off -- if you compensate the losing households along the way. I think that the fundamental problem is that we leave off that last conditional phrase when we're speaking in public. <BR/><BR/>As a final note, "compensating the losers" would generally require that you tax away some of the gains from globalization to owners of capital and highly skilled workers, and of course our domestic tax policy has gone in quite the opposite direction on this front. The arguments against taxing imports are not so different from the arguments against taxing capital and human capital -- they lead to efficiency losses in the economy. An important question is then which taxes lead to the smallest efficiency losses: would you rather tax capital and human capital directly through corporate income taxes, capital gains taxes and more steeply progressive personal income taxes; or would you rather tax these factors of production indirectly by engaging in less trade thereby lowering the returns to these factors? (If Microsoft can't sell in China, it lowers the return on their investment in Office, and makes Bill Gates and lots of software programmers poorer.) These are very subtle questions, which is perhaps why no one gets into it in public.Anonymousnoreply@blogger.com