I'm just going to post this magnificent refutation of Ricardian Comparative Advantage in the modern world where labor and capital move freely and are equivalent, from Cuckservative, because it is obvious you have no interest in actual debate on the subject of free trade:
Ricardo had a number of peculiar ideas, none of which are taken even a little bit seriously by economists today. In addition to the theory of comparative advantage, he also advocated the cost-of-production theory of value, which is a precursor of Karl Marx's long-outdated Labor Theory of Value, as well as the insane price-of-corn theory of profit. His method of presenting an argument was so hopelessly inept that Joseph Schumpeter openly mocked it in his epic History of Economic Analysis.
"His interest was in the clear-cut result of direct, practical significance. In order to get this he cut that general system to pieces, bundled up as large parts of it as possible, and put them in cold storage - so that as many things as possible should be frozen and 'given'. He then piled one simplifying assumption upon another until, having really settled everything by these assumptions, he was left with only a few aggregative variables between which, given these assumptions, he set up simple one-way relations so that, in the end, the desired results emerged almost as tautologies.... The habit of applying results of this character to the solution of practical problems we shall call the Ricardian Vice."
Furthermore, David Ricardo did not even originate the theory with which his name is synonymous, but instead borrowed the concept from Robert Torrens, who introduced the theory of comparative advantage in An Essay on the External Corn Trade.
But let us not do as SJWs and cuckservatives do, and pretend that simply disqualifying Ricardo suffices to settle the question of whether immigration is good for the economy or not. The more substantive objection is that the model Ricardo constructed to make his case is set in a world where goods and capital are mobile, but labor remains fixed. He described a scenario where two countries, Britain and Portugal, both produce cloth and wine, but at different levels of efficiency. Portugal produces cloth 10 percent less expensively than Britain, and produces wine at a 27 percent discount.
Unit Labor Costs Britain 100 cloth 110 wine Portugal 90 cloth 80 wine
According to Ricardo, in the absence of transportation costs, it is most efficient for Britain to produce only cloth, and Portugal to produce only wine, since, assuming that the two goods trade at an equal price (one unit of cloth for one unit of wine), Britain can then obtain wine at a cost of 100 labor units by producing cloth and trading it, rather than spend 110 units to produce the wine itself, and Portugal can obtain cloth at a cost of 80 units by trade rather than 90 by production.
Therefore, Ricardo's conclusion is that even though Britain could produce both inhabit, so let us consider the theory of comparative advantage in a mobile-labor scenario that utilizes Ricardo's original postulates from On the Principles of Political Economy and Taxation. To do so, we introduce immigration into the equation through the free movement of labor. Now that labor is permitted to move as easily as goods, both wine and cloth laborers will move to Britain, since they believe they will receive an 11 percent raise and a 38 percent raise respectively. However, once they get there, the doubling of the labor supply in Britain this immigration causes will quickly cause the price of labor to fall, and it will fall considerably.
Therefore, Ricardo's conclusion is that even though Britain could produce both its own cloth and wine, it is to Britain's benefit to specialize in producing only cloth, selling it, and buying imported Portuguese wine with the proceeds. It is this argument that is known as the theory of comparative advantage, and on the basis of little more than Ricardo's imaginary model, economists have concluded that free trade necessarily benefits all national economies and every political institution from NAFTA to the European Union that claims to be dedicated to free trade is therefore justified. However, this hypothetical and outdated world where capital and goods are mobile and labor is immobile is not actually relevant to the world we presently inhabit, so let us consider the theory of comparative advantage in a mobile-labor scenario that utilizes Ricardo's original postulates from On the Principles of Political Economy and Taxation. To do so, we introduce immigration into the equation through the free movement of labor. Now that labor is permitted to move as easily as goods, both wine and cloth laborers will move to Britain, since they believe they will receive an 11 percent raise and a 38 percent raise respectively. However, once they get there, the doubling of the labor supply in Britain this immigration causes will quickly cause the price of labor to fall, and it will fall considerably.
From the economic perspective, this is fantastic for Britain! It can now produce the same amount of cloth as before for price of only 47.5 units of labor, and the same amount of wine for 47.5 labor units as well. Britain will thereby produce an equal quantity of both wine and cloth for less than what it used to cost to produce the wine alone. This increase in production will vastly increase profits in the British cloth and wine industries, as well as creating a windfall for the financial industry investing in those industries!
As you can see here, what the economists completely fail to consider is whether what is good for the owners of the British cloth and wine industries, and their bankers, is actually good for anyone else in Britain.
Those massive new profits exist because wages have fallen by 50 percent, and since the costs of other goods haven't fallen in line with the reduced wages of the British workers who still have their jobs, their quality of life declines. Other consequences include how the newly unemployed British workers may go on the dole or turn to crime, how the new Portuguese immigrants are heavily inclined to vote for the Labour Party (thereby throwing the British political system out of balance), and how British women begin bearing half-Portuguese children, thereby lowering the average IQ of the next generation by two IQ points or more, but in the short term, these factors are all considered "non-economic" and therefore don't count as far as the economists are concerned. [This is really the key argument. Economists literally ignore the cultural degradation that free trade brings in its wake as irrelevant, when it clearly is not in the real world.]
They sound suspiciously familiar, though, don't they?
In conclusion, this neo-Ricardian model "proves" open immigration and the free movement of labor is not only economically desirable, but is vastly preferable to the immobile-labor comparative advantage model by a factor of 105/200 and to autarky by a factor of 105/210. Immigration is always good for every economy!
What else can we conclude from this unseemly exercise of the Ricardian Vice?
1. Ricardo implicitly postulated the immobility of labor. 2. The mobility of labor not only fails to disprove comparative advantage, but actually strengthens the case for even freer trade... at least if you're in the higher-labor-cost country and you only look at the labor costs. 3. The mobility of labor will eliminate international trade since everyone will be living in Britain. 4. The mobility of labor operates to the extreme detriment of labor and wage rates. 5. Ricardo's logic is irrelevant, proves absolutely nothing, and does not provide a credible basis for defending either free trade or immigration.
But these are abstract and theoretical arguments, and while the theoretical approach might have made sense in 1965, when there was little economic data to be had, or even in 1986, when the contrast between the stagflation of the 1970s and the Reagan boom of the 1980s is believed by economists to have had considerably more to do with lower tax and interest rates than immigration, this is no longer the case in 2015. Considering that we now have fifty years of immigration and economic data to analyze, a more empirical approach is not only possible, but is capable of clearly determining once and for all whether immigration of the nature and scale observed over the last five decades has been good for the economy or not.
If he is able to reduce corporate taxation as much as he has proposed, I think it may be more advantageous for companies to stay without the threat of taxing their imports. Not sure why he doesn't promote that more, guess he wants to appear tough.
I'm just going to post this magnificent refutation of Ricardian Comparative Advantage in the modern world where labor and capital move freely and are equivalent, from Cuckservative, because it is obvious you have no interest in actual debate on the subject of free trade:
ReplyDeleteRicardo had a number of peculiar ideas, none of which are taken even a little bit seriously by economists today. In addition to the theory of comparative advantage, he also advocated the cost-of-production theory of value, which is a precursor of Karl Marx's long-outdated Labor Theory of Value, as well as the insane price-of-corn theory of profit. His method of presenting an argument was so hopelessly inept that Joseph Schumpeter openly mocked it in his epic History of Economic Analysis.
"His interest was in the clear-cut result of direct, practical significance. In order to get this he cut that general system to pieces, bundled up as large parts of it as possible, and put them in cold storage - so that as many things as possible should be frozen and 'given'. He then piled one simplifying assumption upon another until, having really settled everything by these assumptions, he was left with only a few aggregative variables between which, given these assumptions, he set up simple one-way relations so that, in the end, the desired results emerged almost as tautologies.... The habit of applying results of this character to the solution of practical problems we shall call the Ricardian Vice."
Furthermore, David Ricardo did not even originate the theory with which his name is synonymous, but instead borrowed the concept from Robert Torrens, who introduced the theory of comparative advantage in An Essay on the External Corn Trade.
But let us not do as SJWs and cuckservatives do, and pretend that simply disqualifying Ricardo suffices to settle the question of whether immigration is good for the economy or not. The more substantive objection is that the model Ricardo constructed to make his case is set in a world where goods and capital are mobile, but labor remains fixed. He described a scenario where two countries, Britain and Portugal, both produce cloth and wine, but at different levels of efficiency. Portugal produces cloth 10 percent less expensively than Britain, and produces wine at a 27 percent discount.
Unit Labor Costs
Britain 100 cloth 110 wine
Portugal 90 cloth 80 wine
According to Ricardo, in the absence of transportation costs, it is most efficient for Britain to produce only cloth, and Portugal to produce only wine, since, assuming that the two goods trade at an equal price (one unit of cloth for one unit of wine), Britain can then obtain wine at a cost of 100 labor units by producing cloth and trading it, rather than spend 110 units to produce the wine itself, and Portugal can obtain cloth at a cost of 80 units by trade rather than 90 by production.
Therefore, Ricardo's conclusion is that even though Britain could produce both inhabit, so let us consider the theory of comparative advantage in a mobile-labor scenario that utilizes Ricardo's original postulates from On the Principles of Political Economy and Taxation. To do so, we introduce immigration into the equation through the free movement of labor. Now that labor is permitted to move as easily as goods, both wine and cloth laborers will move to Britain, since they believe they will receive an 11 percent raise and a 38 percent raise respectively. However, once they get there, the doubling of the labor supply in Britain this immigration causes will quickly cause the price of labor to fall, and it will fall considerably.
Therefore, Ricardo's conclusion is that even though Britain could produce both its own cloth and wine, it is to Britain's benefit to specialize in producing only cloth, selling it, and buying imported Portuguese wine with the proceeds. It is this argument that is known as the theory of comparative advantage, and on the basis of little more than Ricardo's imaginary model, economists have concluded that free trade necessarily benefits all national economies and every political institution from NAFTA to the European Union that claims to be dedicated to free trade is therefore justified.
ReplyDeleteHowever, this hypothetical and outdated world where capital and goods are mobile and labor is immobile is not actually relevant to the world we presently inhabit, so let us consider the theory of comparative advantage in a mobile-labor scenario that utilizes Ricardo's original postulates from On the Principles of Political Economy and Taxation. To do so, we introduce immigration into the equation through the free movement of labor. Now that labor is permitted to move as easily as goods, both wine and cloth laborers will move to Britain, since they believe they will receive an 11 percent raise and a 38 percent raise respectively. However, once they get there, the doubling of the labor supply in Britain this immigration causes will quickly cause the price of labor to fall, and it will fall considerably.
From the economic perspective, this is fantastic for Britain! It can now produce the same amount of cloth as before for price of only 47.5 units of labor, and the same amount of wine for 47.5 labor units as well. Britain will thereby produce an equal quantity of both wine and cloth for less than what it used to cost to produce the wine alone. This increase in production will vastly increase profits in the British cloth and wine industries, as well as creating a windfall for the financial industry investing in those industries!
As you can see here, what the economists completely fail to consider is whether what is good for the owners of the British cloth and wine industries, and their bankers, is actually good for anyone else in Britain.
Those massive new profits exist because wages have fallen by 50 percent, and since the costs of other goods haven't fallen in line with the reduced wages of the British workers who still have their jobs, their quality of life declines. Other consequences include how the newly unemployed British workers may go on the dole or turn to crime, how the new Portuguese immigrants are heavily inclined to vote for the Labour Party (thereby throwing the British political system out of balance), and how British women begin bearing half-Portuguese children, thereby lowering the average IQ of the next generation by two IQ points or more, but in the short term, these factors are all considered "non-economic" and therefore don't count as far as the economists are concerned. [This is really the key argument. Economists literally ignore the cultural degradation that free trade brings in its wake as irrelevant, when it clearly is not in the real world.]
They sound suspiciously familiar, though, don't they?
ReplyDeleteIn conclusion, this neo-Ricardian model "proves" open immigration and the free movement of labor is not only economically desirable, but is vastly preferable to the immobile-labor comparative advantage model by a factor of 105/200 and to autarky by a factor of 105/210. Immigration is always good for every economy!
What else can we conclude from this unseemly exercise of the Ricardian Vice?
1. Ricardo implicitly postulated the immobility of labor.
2. The mobility of labor not only fails to disprove comparative advantage, but actually strengthens the case for even freer trade... at least if you're in the higher-labor-cost country and you only look at the labor costs.
3. The mobility of labor will eliminate international trade since everyone will be living in Britain.
4. The mobility of labor operates to the extreme detriment of labor and wage rates.
5. Ricardo's logic is irrelevant, proves absolutely nothing, and does not provide a credible basis for defending either free trade or immigration.
But these are abstract and theoretical arguments, and while the theoretical approach might have made sense in 1965, when there was little economic data to be had, or even in 1986, when the contrast between the stagflation of the 1970s and the Reagan boom of the 1980s is believed by economists to have had considerably more to do with lower tax and interest rates than immigration, this is no longer the case in 2015. Considering that we now have fifty years of immigration and economic data to analyze, a more empirical approach is not only possible, but is capable of clearly determining once and for all whether immigration of the nature and scale observed over the last five decades has been good for the economy or not.
You are absolutely right! This man couldn't even run a sandwich shop. (Not!)
ReplyDeleteIf he is able to reduce corporate taxation as much as he has proposed, I think it may be more advantageous for companies to stay without the threat of taxing their imports. Not sure why he doesn't promote that more, guess he wants to appear tough.
ReplyDelete