Free-Trade vs The Middle Class

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Thom Hartmann A...
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The days of guaranteed retirement benefit in the form of a pension are long gone. As numbers out of the Bureau of Labor Statistics show – defined benefit retirement pension are on a drastic decline since 1981. That was the year when over 80% of full-time workers in the private sector participated in a pension plan.

By 1997, that number had plummeted to just over 50%. And by 2011, looking at all workers in all private businesses in America, fewer than 20% of workers have some sort of pension retirement plan. This translates into economic insecurity for seniors – especially now that Republicans in the House are trying to turn Social Security and Medicare over to private sector profiteers. This also adds to the growing list of things that Corporate America is taking from their workers, in its quest for higher and higher profits.

In recent months – we’ve seen employers promise to reduce hours to avoid providing health insurance, we’ve seen the right to free political speech taken away, guaranteed vacation time and maternity leave don’t exist – workplace safety laws are getting watered down – heck, they’ve even taken our money by flattening our wages during a time of increased productivity. In some states, they even want to take away our bathroom breaks!

This is nothing short of theft. And pretty soon, we’ll be handing over the shirts on our backs, just so that our bosses can squeeze whatever profits they can out of them.  

Comments

stuff
stuff's picture
Despite the topic, there is

Despite the topic, there is nothing about trade, "free" or otherwise, in this brief essay. Indeed, the essay seems to be about pensions and the middle class, not free trade and the middle class.

The world has not yet achieved free trade. A great many goods and services are still subject to tariffs, like agricultural goods, and virtually all trade today is influenced one way or another by non-tariff barriers. Nonetheless, free trade is something worthwhile pursuing: No Democratic president in U.S. history has supported protective tariffs.

polycarp2
Free trade might work...if

Free trade might work...if all nations paid the same wages.

As Ricardo noted many years ago, a country that exports its labor costs will impoverish itself. That includes the ability to maintain pensions.

Retired Monk - "Ideology is a disease"

nimblecivet
nimblecivet's picture
The only possibility of wage

The only possibility of wage and currency disparities becoming on-par on a global scale is if reparations are paid to colonized peoples. Though Marx did not say anything about that he did recognize free trade as a necessary prelude to the global revolution of the proletariat. But first I suppose Capital will want to "lumpen" everybody together into that category.

douglaslee
douglaslee's picture
Are the American people

Are the American people obsolete? -

Take a look at tarifs during the most successful exapnsion of the middle class in history, vs what they became AR (after ronnie)

Scappoose
Scappoose's picture
Free trade is only free for

Free trade is only free for money and for the rentiers to extract wealth - 

Free trade is decidedly Not free for Labor or for the environment so why do people continue to use the term "Free"?

If one looks at the the details of a supposedly Free Trade agreement what you'll find is 10,000 pages of corporate giveaways, tax breaks and sweetheart deals for foreign subsidiaries of large multinational corporations - some of which call the USA home - although if you look into actual corporate ownership you'll find the same private corporate names over and over again.

What shouldn't be free is the freedom to Hide corporate ownership within the closely held private corporation.  

It's time to expose these vampire corporations to some much needed Sunlight.

chilidog
stuff wrote: No Democratic

stuff wrote:

No Democratic president in U.S. history has supported protective tariffs.

You've made this remark several times.  I don't understand the point. Is there something special about the words "president" and "protective"?

The President doesn't control tariffs.  Senators need to vote on treaties, Representative are not always excluded.  I don't even think a President can unilaterally break a trade treaty,

stuff
stuff's picture
Quote: I don't understand the

Quote:
I don't understand the point. Is there something special about the words "president" and "protective"?

The first comment regarding Democratic presidents is a fact. Those who consider themselves a Democrat (me, for instance) might want to ponder why it is that the leaders of our party have consistently opposed protective tariffs, from Jefferson to Obama. Republicans and robber barons are the ones who have supported protective tariffs, from Hamilton to W.

"Protective" tariffs are different from "revenue" tariffs, the point of the former being to distort trade and put money in the pockets of business owners, the latter being to put money in the public coffers, with as little distortion to trade and consumption as is possible.

Another point I have repeatedly made without much response from other posters is that the proceeds of protective tariffs have never been shared with labor. To argue otherwise is ahistorical and illogical. Even if protective tariffs somehow returned manufacturing enterprises to the United States, robots would perform the tasks that previously were performed by uneducated, low skilled unionized workers.

drc2
I can agree with you on

I can agree with you on tariffs, but your dream of free trade is still in the utopian romanticism category rather than real world economic thinking.  As Poly said earlier, Ricardo does not permit labor arbitrage to be how comparative advantage works, so this is just the new slavery, not free trade.

When we talk about fair trade, we have a much better understanding of economics because it is a factor of a social design instead of some magic force that is supposed to work beautifully if we don't interfere.  One of Graeber's interesting points about the 'free market' is that the only independent free market in human history happened during the Middle Ages in the Islamic world.  The trade route went through several different kingdoms, so no State ran and regulated this market.  The merchants did it themselves by pledging their sacred honor to Allah that they would never cheat or take advantage of any customers.  And they kept their word.

It was not that hard.  Instead of doing the Trumpean "Art of the Deal" or employing the competitive efficiencies markets are supposed to be good at, they practiced generosity and made sure that everyone got the better end of the deal with them.  That way everybody stayed in business and the trade route allowed comparative advantage to help them share among themselves a much greater range of offerings to their own customer base.  Graeber's point is that markets are cooperative and symbiotic rather than competetive and winner take all.  Fair is what works to allow commerce not to have to show the state everything all the time to catch the crooks.  Being a crook ain't cool anymore.

Democratic business folk can help break the myths about what makes a good business environment.  The idea that low taxes are good for business, for example, only makes sense inside the management bubble where labor is a cost overhead as well.  Executives are very rare and essential, so they get really big paychecks and benefits for the good of the company.  It makes so much sense!

What I learned watching Biz School's teach crap is that effective management serves the people making the product and doing the service.  It liberates them to be the people in the know about what they do and allows the effective supportive manager to have an empowered and loyal constituency beneath her/him when dealing with problems.  If the position is less than at the top, being able to deliver a lot of help facing problems is welcome up there, particularly if they are not coming with pitchforks.  The bottom line is that when a boss shares the problem being faced with those on the shop floor, and if that boss has been there for them, they will find a way to solve the problem if it is possible.  

Teamwork and unit solidarity work at work.  My brother-in-law's wildly successful company got rid of the ambitious individuals no matter how much skill they had.  He needed team players who would cover for each other and stick with the mission until it was accomplished.  These people did very well themselves because other employers wanted talented people they could trust rather than fast track ambitious users.

There are a bunch of reasons why this works so much better than bossism.  Leadership is either needed or it isn't.  If the manager cannot figure out what the people he/she works for need to do their work, get a professional.  Helping them be effective and happy together means that they will look to you to deal with the larger company as they have your back.  They will want you to be good at your job and can be your best advisors.  You treat them as human beings, not just as workers.

Top-down management does not get good data from its workers.  The feedback loops are clogged with authority badges and gatekeeping.  Never let them see you sweat.  The suits and the blue and white collars with tools or computers are different orders of beings.  What comes down from above is rarely roses and candy.  The workers learn to deal with the boss.  Sometimes they even fix some things and don't tell anyone because that would only cause trouble.  People feel like workers who check their lives at the door.  They might help out to save their jobs, but never from wanting to help the bosses.

I am all for the reduction of drudgery and repetitive tasks that do not require human skills.  We should be reducing work hours and sharing the profits of these efficiencies for human and psychological reasons even were no robots.  We work way too hard doing things that don't need doing.  We could have fewer "jobs" and a lot more vocations were we not obsessed with the idea that everything can be priced and systematized by money.  It cannot be.  The central point of human life is NOT the Economy, Stupid.  It is a subset of our real world thinking, not how to conceive reality.

stuff
stuff's picture
Quote:...your dream of free

Quote:
...your dream of free trade is still in the utopian romanticism category rather than real world economic thinking.

Probably so, drc, but so, too, are justice and equality. Even though they may never be achieved, they are worthwhile goals, worth striving for.

Scappoose
Scappoose's picture
From Michael Hudson --> "This

From Michael Hudson -->

"This idea that a “free market” is one free for Wall Street to act without regulation can be popularized only by censoring the history of economic thought. It would not do for people to read what Adam Smith and subsequent economists actually taught about rent, taxes and the need for regulation or public ownership. Academic economics is turned into an Orwellian exercise in doublethink, designed to convince the population that the bottom 99% should pay taxes rather than the 1% that obtain most interest, dividends and capital gains. By denying that a free lunch exists, and by confusing the relationship between money and taxes, they have turned the economics discipline and much political discourse into a lobbying effort for the 1%."

"The clearest way to analyze any financial system is to ask Who/Whom. That is because financial systems are basically a set of debts owed to creditors. In today’s neo-rentier economy the bottom 99% (labor and consumers) owe the 1% (bondholders, stockholders and property owners). Corporate business and government bodies also are indebted to this 1%. The degree of financial polarization has sharply accelerated as the 1% are making their move to indebt the 99% – along with industry, state, local and federal government – to the point where the entire economic surplus is owed as debt service. The aim is to monopolize the economy, above all the money-creating privilege of supplying the credit that the economy needs to grow and transact business, enabling them to extract interest and other fees for this privilege.

"The top 1% have nearly succeeded in siphoning off the entire surplus for themselves, receiving 93% of U.S. income growth since September 2008. Their control over the political process has enabled them to use each new financial crisis to strengthen their position by forcing companies, states and localities to relinquish property to creditors and financial investors. So after monopolizing the economic surplus, they now are seeking to transfer to themselves the economic infrastructure, land and natural resources, and any other asset on which a rent-extracting tollbooth can be placed."

Scappoose adds - Free Markets used to be the freedom From these parasites - now the concept has been turned around into freedom FOR these prasites to extract any and all profits.

nimblecivet
nimblecivet's picture
A free market would mean that

A free market would mean that I can choose with whom I deal. As it is now, I am forced to deal with a social class which monopolizes the entire economy. Nor are there many places left I could move to where its different. Of course, I am forced to deal with the government; but while I can choose between employers (e.g. Wendy's vs. Burger King, etc.) I cannot escape the imposition of corporate culture by capitalists, nor does the government any longer respond to democratic influence.

stuff
stuff's picture
Quote: I cannot escape the

Quote:
I cannot escape the imposition of corporate culture by capitalists...

One can by spending a few minutes each day on this Board.

chilidog
stuff wrote: Quote: I don't

stuff wrote:

Quote:
I don't understand the point. Is there something special about the words "president" and "protective"?

The first comment regarding Democratic presidents is a fact. Those who consider themselves a Democrat (me, for instance) might want to ponder why it is that the leaders of our party have consistently opposed protective tariffs, from Jefferson to Obama. Republicans and robber barons are the ones who have supported protective tariffs, from Hamilton to W.

I still don't get the point.  The history of the United States since 1945 is entirely different from its prior history.  I do know Clinton and Obama favored "free" trade.  I frankly do not know about Truman, Kennedy, Johnson, Carter... nor Eisenhower, Nixon... nor whoever was controlling the Congress from 1945 to 1990 (which was controlled by the Democrats for all but two years IIRC). Wasn't Nixon the one responsible for expanding trade with China? Wasn't NAFTA created by George H.W. Bush? Did Reagan want higher tariffs on Japanese cars? 

stuff wrote:

Another point I have repeatedly made without much response from other posters is that the proceeds of protective tariffs have never been shared with labor. To argue otherwise is ahistorical and illogical.

When you say "proceeds of protective tariffs" are you referring strictly to the actual taxes collected?  Because I would imagine that "protective tariffs" would produce, by design, very little revenue, sort of like sin taxes on tobacco (I know smoking is less than it was forty years ago, I would hope the excise taxes collected are less as well. I hope I'm not wrong on that.)

Is the converse true, that with lower tariffs, someone somewhere "shares" something with labor?  I know you say that labor gets more selection of higher quality goods for a lower price - is that the "sharing" you're referring to?

stuff
stuff's picture
Quote: I do know Clinton and

Quote:
I do know Clinton and Obama favored "free" trade. I frankly do not know about Truman, Kennedy, Johnson, Carter... nor Eisenhower, Nixon... nor whoever was controlling the Congress from 1945 to 1990 (which was controlled by the Democrats for all but two years IIRC). Wasn't Nixon the one responsible for expanding trade with China? Wasn't NAFTA created by George H.W. Bush? Did Reagan want higher tariffs on Japanese cars? 

Yes, Truman (GATT), JFK (Kennedy Round), LBJ and Carter all opposed protective tariffs. Eisenhower did virtually nothing to promote trade liberalization and Nixon, of course, brought us the "Nixon Shock," which almost single-handedly brought down the world trade and financial systems.

Nixon visited China, but it was Carter who formally unrecognized Taiwan, which opened China up to U.S. investment, and it was Clinton who signed NAFTA into law and brought China into the WTO.

Reagan brought us Voluntary Export Restraints (VER), which were aimed at Japan.

Quote:
When you say "proceeds of protective tariffs" are you referring strictly to the actual taxes collected?

No, I am talking about the windfall earnings of protected industries, which no longer have to compete fairly with foreign producers. Those earnings have always and without exception gone into the pockets of owners, not workers.

 

polycarp2
Well, some of the corporate

Well, some of the corporate income went into the pockets of workers. They didn't work for free.

The relationship is still the same. Some of the income still goes into the  pockets of owners...a portion still goes into the pockets of workers..the workers are just in a different country. The foreign workers have smaller pockets. Owner pockets have become larger.

Retired Monk - "Ideology is a disease"

stuff
stuff's picture
Quote:Well, some of the

Quote:
Well, some of the corporate income went into the pockets of workers.

And right back out again in the form of higher prices, fewer choices, company stores, union-busting goons, blackballing, environmental disaster, and appalling working conditions.

Quote:
They didn't work for free.

And neither do workers in poor countries who earn barely enough to keep themselves and their families alive. Of course, that doesn't prevent critics of "outsourcing" from denouncing cheap foreign labor.

polycarp2
Generally, higher wages can

Generally, higher wages can pay the higher prices. It equals itself out.  No wages can't pay anything.

Retired Monk - "Ideology is a disease"

chilidog
stuff wrote: No Democratic

stuff wrote:

No Democratic president in U.S. history has supported protective tariffs.

I still don't understand the point of this remark.

One problem is that I am assuming that Republican presidents must necessarly support protective tariffs, which does not appear to be the case with Eisenhower and the Bushes.  I'm still not sure about Reagan.  And I looked up "NIxon Shock" on Wikipedia and read the same things I'd already known about, shutting the gold window, price controls, etc., but nothing specifically about tariffs.  Now, devaluing the dollar might have some of the same results as raising tariffs, but it's not exactly the same thing.

 

 

stuff
stuff's picture
Quote:I still don't

Quote:
I still don't understand the point of this remark.

I am talking about the entirity of the history of the United States, not the past fifty years.

Look up Dick Nixon and the 10 percent import surcharge.

Look up Ronnie Reagan and Voluntary Export Restraints.

Look up George W. Bush and the 2002 U.S. steel tariff.

Eisenhower was a nominal Republican at best and is seldom mentioned by Republicans today as anything but a wartime hero. G.H.W. Bush, of course, was repudiated by his own party in 1992.

drc2
While much has passed, this

While much has passed, this comment deserves a pointed response.  You equate justice and equality with "free trade" as ideals worthy of our pursuit toward implementation as much as possible.  I see no such noble virtue in "free trade" per se.  

We do not pose radical equality as the virtue to pursue, either.  We have a desire to have a legal and civil equality in a winner take nearly all economy that rewards those who make money instead of redistributing it to meet the general welfare or even the common defense.  The defense of property as if it were persons or vital to our personhood stacks the deck from the start.  We are looking for both an unstacked deck and a truly human and effective safety net.  

I see a more dynamic foundation of security than a safety net, but the idea that risk taking is encouraged when the risk taker is not going to die or be reduced to servitude by failing makes good sense.  Rather than being driven to creativity and risk by desperation, I see creativity blossoming from those we have educated, kept healthy and housed and with the security to step away from a job to pursue a dream.  Far from being lazy drones on the dole, people with the opportunity to pursue their dreams do so.  For all the derision of the Nanny State and the implication that "real men" don't need any help, Nannies actually do a rather good job of helping children grow up.  I certainly don't find our Bully State an improvement.  Scrooge and his fellow thinkers need a few night visitors to show them the errors of their ways.

I strive for mutuality and for restorative justice and healing.  I strive for democracy and fair trade.  I see nothing in anything ever said or written about free trade that makes me believe that it is the road to human happiness, prosperity or liberty and justice for anyone.  The economic reduction of human life to its austere bottom line is bad religion.  The point about economics as the way to run the world is that the players don't have the incentives to respect the game--because the game is not economics but human life on earth.  To treat the latter as the art of the deal is to fail for sure.

stuff
stuff's picture
I think free trade is worth

I think free trade is worth pursuing. I think open borders are worth pursuing. I believe justice and equality are worth pursuing. They are different things and are not morally or ethically equivalent.

They have one thing in common: they are worth pursuing.

drc2
What is currently defined and

What is currently defined and pursued under the rubric of "free trade" is enclosure and impoverishment, not the genuine exchange of comparable advantage in climate, resources or skills.  You will have to do better than "open borders" in an unequal world and until and unless you achieve that utopia, your 'free trade' open borders will be an invitation to predatory exploitation.

Even in resources, their value is to those who live with them and is not a proper exchange for the far less than value these nations receive from their oil, iron and gold.  Unless you have nations using their own resources to build their own wealth at home, you will find impoverished resource exploited states with a few rich cronies of the privateers.  We need rules to protect the weak, not open them to the wolves.

stuff
stuff's picture
We have a different opinion

We have a different opinion about free trade. Nothing wrong with that.

Quote:
Unless you have nations using their own resources to build their own wealth at home, you will find impoverished resource exploited states with a few rich cronies of the privateers

Autarky has been tried but mostly failed. Even the Soviet Union, with its tremendous natural resources, vast labor force, and command and control authoritarianism, could not succeed economically without foreign trade and investment. The attempt by Stalin to achieve "socialism in one country" produced tens of millions of deaths.

I am not comparing you with Stalin, drc, and I am not characterizing your views as socialist or communist. I am simply trying to state that we live in an economically interdependent world and nothing short of another world war will reverse globalization.

polycarp2
Well, we'll never know if the

Well, we'll never know if the Soviets could have been self-sustaining or not.

1. Command economies don't work. They ignore the laws of value in an immediate  direct way rather than indirectly with "externalities" as we do.  They collapse way, way sooner.

2. Stalinism and socialism are incompatible. The U.S.S.R. never was a  socialist state. Primary to socialism is direct worker ownership of their own workplace. A political as well as democratic economic functioning.  Neither ever  occurred.

"Free trade" isn't essential to trade. Trade occurred way before the current system came into being which is really nothing more than transfering labor costs from one country to another. Ricardo, the theorist who is oft quoted as supporting that noted that it impoverished the nation that did it. That portion of his trade theories are ignored.

Retired Monk - "Ideology is a disease"

drc2
You have failed to understand

You have failed to understand my point, and I always accept some responsibility for not being heard or read as I intended.  I am not the one hearing or reading, and even when I edit, I know what I am saying and meaning.

Nonetheless, I find it a stretch for you to interpret my point about a nation not being subjected to resource exploitation as a rejection of all trade.  If we go back to your idealistic free trade world without borders, you still have an imbalance between manufacturing nations and where they go to get their "resources" for manufacture and energy.  They do not make a fair exchange of value for these resources under the present economic and trade theories because they leave devastated societies in their wake.  For there to be free trade, there must be stringent rules about fairness or it will only be a new way for masters to enslave workers with far less local ability to resist.

I was describing the conditions for trade, not shutting the door on all trade.  Of course we are interdependent, something the theologicans of neoliberal economics reject so we can all be 'free individuals enacting the power of choice in the market' (which will miraculously render all this economic activity into peace and prosperity in the best of all possible worlds).  This is obviously bullshit and does not deserve to be treated as any panacea for our problems.

If you want a conservative "supply sider" who hates what has been done with this economic theory, try Paul Craig Roberts.  He is angry about labor arbitrage and exploitation getting associated with his appreciation for supply side theory in his larger economic thinking.  I don't have to agree with him about all the latter to see that he is absolutely correct in condemning what passes as 'free trade' as nothing but these two cardinal sins.

stuff
stuff's picture
Quote:Well, we'll never know

Quote:
Well, we'll never know if the Soviets could have been self-sustaining or not.

We gave it 70 years to prove itself. I think that is enough time to render judgment.

Quote:
"Free trade" isn't essential to trade. Trade occurred way before the current system came into being which is really nothing more than transfering labor costs from one country to another. Ricardo, the theorist who is oft quoted as supporting that noted that it impoverished the nation that did it. That portion of his trade theories are ignored.

Of course "free trade" isn't essential, but it is desirable.

Your understanding of Ricardo is very different from mine. Relative advantage, as described by Ricardo, means that free trade makes every nation more wealthy that it would be without free trade. Whether Ricardo is right or wrong is, of course, debatable.

stuff
stuff's picture
Quote:Nonetheless, I find it

Quote:
Nonetheless, I find it a stretch for you to interpret my point about a nation not being subjected to resource exploitation as a rejection of all trade.

I apologize if I have misrepresented or misunderstood your meaning. I am sincerely trying to discuss a matter with you and I respect your opinions, which are often very different from mine. In any case, I am striving for a sincerely respectful discussion.

Quote:
If we go back to your idealistic free trade world without borders, you still have an imbalance between manufacturing nations and where they go to get their "resources" for manufacture and energy. They do not make a fair exchange of value for these resources under the present economic and trade theories because they leave devastated societies in their wake.

The "present economic and trade" regime is not "free." As I mentioned, many trade items are not covered by the WTO and are incumbered by tariff and non-tariff barriers (e.g., agricultural goods and raw materials like petroleum).

Whether the "present" regime is unfair is an ethical question; whether it has "devastated societies" is an empircal question. I am not really qualified to speak about the former and have seen no evidence of the latter. China has accomplished the greatest poverty reduction in the history of the world, mostly by opening itself to foreign trade and investment.

Quote:
For there to be free trade, there must be stringent rules about fairness or it will only be a new way for masters to enslave workers with far less local ability to resist.

"Fairness," in this case, is difficult to define. For example, is it fair that newly developing countries adhere to labor and environmental standards that the affluent countries ignored and violated during the period of their economic growth? That's a hard question for me.

polycarp2
Stuff wrote: "Your

Stuff wrote: "Your understanding of Ricardo is very different from mine. Relative advantage, as described by Ricardo, means that free trade makes every nation more wealthy that it would be without free trade. Whether Ricardo is right or wrong is, of course, debatable."

poly replies:

Relative advantage: It's more efficient to grow grapes in Portugal than it is in England. Greater productivity because of climate and soils. Portugal has a relative advantage in producing the same product. Both nations would do better if England traded its wool for grapes and used grape vineyards to produce something else. Free trade should be limited to specific products such as equal value of wool in exchange for an equal value of grapes..Both nations benefit. Wages aren't a consideration.

Absolute Advantage: Pineapple grows in Hawaii, it doesn't grow in Germany.

It remains that Ricardo noted, a country that exports its labor costs will impoverish itself. England was the first  to enter into the Great Depression. It exported its labor costs...shutting down English industry and raising unemployment..

Economics used to be concerned about the wealth and prosperity of nations as a whole. It's been usurped to  be concerned about the wealth and prosperity of a few...nations and their peoples be damned. Theory has been modified and/or interpreted to  those ends led by the Chicago School of Economics.. As Hudson states, "the economic language has been turned into double-think".

Retired Monk - "Ideology is a disease"

 

drc2
For most of the 20th Century,

For most of the 20th Century, Oregon was a colonial economy because our internal market and infrastructure could not support enough commerce and resource exportation was our source of wealth.  We now have a good internal, local and domestic market, but we still want to trade outside our borders in America and abroad.  

The other point I see Stuff missing along with the labor arbitrage Poly cites in #29 has to do with the relationship of resources and manufacturing.  Part of that picture is where the finished products will be used, so it can be legitimate to sell raw resources to others for them to work into finished products, particularly for their own domestic use.  The reason for this is that local ownership of design matters.  When we import products, we lose some control on quality and specialization.  How cheap can we afford to go down that line?

In general, nations do better producing the finished products from their own resources than by selling off the raw materials.  The record of international corporations in this regard is abysmal.  The wreckage of indigenous peoples and their environments is the norm.  If this is 'free trade,' so was piracy.

stuff
stuff's picture
Quote:It's more efficient to

Quote:
It's more efficient to grow grapes in Portugal than it is in England.

No, that's absolute advantage.

Relative advantage means that if Britain makes steam engines more efficiently than wheat, it should shift its labor and capital to the production of steam engines and import wheat.

stuff
stuff's picture
Quote:When we import

Quote:
When we import products, we lose some control on quality and specialization.

Not necessarily.

With more choices, consumers can purchase the goods they believe to be of higher quality.

In addition, labor and capital can switch to other industries, like service, providing insurance for international traders.

polycarp2
stuff wrote: Quote:It's more

stuff wrote:

Quote:
It's more efficient to grow grapes in Portugal than it is in England.

No, that's absolute advantage.

Relative advantage means that if Britain makes steam engines more efficiently than wheat, it should shift its labor and capital to the production of steam engines and import wheat.

That's the new interpretation. A relative advantage means just that. It's relative to another country. When a country has a relative advantage  over producing the same product, it's relative to the other country's ability to produce the same thing.

Ricardo was discussing relative trade between nations...not internal relativity which becomes a by-product of the trade.

Absolute Advantage means a competing country absolutely cannot produce the same thing on its own.

Economics used to be concerned about the wealth and prosperity of nations as a whole. It's been usurped to  be concerned about the wealth and prosperity of a few...nations and their peoples be damned. Theory has been modified and/or interpreted to  those ends led by the Chicago School of Economics.. As Hudson states, "the economic language has been turned into double-think".

Retired Monk - "Ideology is a disease"

stuff
stuff's picture
Quote:That's the new

Quote:
That's the new interpretation

Sorry, I meant comparative advantage, not relative advantage. Absolute advantage is associated with Smith, comparative advantage with Ricardo.

If Ricardo is correct, every nation can benefit from free trade irrespective of their initial endowment of land, labor, or capital.

David Ricardo published his book in 1817.

polycarp2
Same thing, is it

Same thing, is it not?

Relative: Adjective: considered in relation to something else; comparative:

Replace the word:

 A comparatative advantage means just that. It's compared to another country. When a country has a comparative advantage  over producing the same product, it's compared to the other country's ability to produce the same thing.

Ricardo was discussing comparative trade between nations...not internal comparativity which becomes a by-product of the trade. The trade itself shifts capital to a more efficient internal use.

And it remains, Ricardo noted that if a nation shipped its labor costs abroad, it would impoverish itself. A final  end result of that would be producing;nothing to trade with.

Economics used to be concerned about the wealth and prosperity of nations as a whole. It's been usurped to  be concerned about the wealth and prosperity of a few...nations and their peoples be damned. Theory has been modified and/or interpreted to  those ends led by the Chicago School of Economics.. As Hudson states, "the economic language has been turned into double-think".

Retired Monk - "Ideology is a disease"

stuff
stuff's picture
Quote:A comparatative

Quote:
A comparatative advantage means just that. It's compared to another country. When a country has a comparative advantage over producing the same product, it's compared to the other country's ability to produce the same thing.

This is not the meaning of "comparative advantage" as the term was used by Ricardo or is used by economists today.

polycarp2
Ricardo's theories were about

Ricardo's theories were about international trade. Comparative advantages and absolute advantages between nations. If you can't see that, you can't see it.

Portugal can produce grapes in greater abundance than England because of climate and soils. In England, the same productivity can't be reached even with additional economic input. Portugal has the Comparative Advantage. It isn't an Absolute Advantage. England can still produce grapes if it choses not to trade with Portugal and ship them to a captive trade colony like the Falkland Islands...or eat them itself.. Portugal's advantage in grape production is comparative...not absolute.

Hawaii has an Absolute Advantage over both of them. It can produce pineapple. Neither England or Portugal can.

Evidently you received your economics training after the early 80's....after it had been nearly completely turned into double think...more concerned about the wealth and prosperity of a few rather than the wealth and prosperity of nations..

Wealth of a few doesn't translate into the prosperity of a country. That should be obvious by now.

Retired Monk - "Ideology is a disease"

 

stuff
stuff's picture
Quote:Ricardo's theories were

Quote:
Ricardo's theories were about international trade. Comparative advantages and absolute advantages between nations. If you can't see that, you can't see it.

I am talking about international trade between nations, one form of which is free trade, which is what Ricardo was advocating.

This example might help:

Economics Department, University of North Carolina wrote:
Suppose Brazilians can grow coffee more easily than they can catch salmon, while Alaskans find it relatively easier to catch salmon than to grow coffee. Alaskans have a comparative advantage in salmon fishing, and Brazilians, in coffee production. Trading Alaskan salmon for Brazilian coffee clearly benefits both groups. The table below shows how both parties to a trade can gain whenever their opportunity costs differ. If Alaskans and Brazilians each specialize in their areas of comparative advantage, and if 1 pound of salmon trades for, say, 1 pound of coffee, then Alaskans can consume an extra 4 pounds of coffee daily while Brazilians can consume an additional 4 pounds of salmon. Note that the Alaskan opportunity cost of producing 1 pound of coffee is 5 pounds of salmon before trade, while each pound of coffee costs Brazilians only 1/5 of a pound of salmon.

Comparative Advantage and Absolute Advantage

nimblecivet
nimblecivet's picture
The best,

The best, most-likely-to-become-reality way of promoting free trade is to promote the development of markets between nations with currencies closer in value to each other than the poorest ones are to the U.S. For example, India and African nations, Mongolia, etc. Due to global warming Mongolia might see a lot of ski resort development. They have the space. Not so on the Corsican coastline.

stuff
stuff's picture
It's not so much the relative

It's not so much the relative value of currencies, because those fluctuate daily. Rather, it is the stability and direction of value changes over time. In addition, it depends whether currencies are fully convertible or subject to captial controls. You want to deal with countries whose currencies are stable and fully convertible, irrespective of the relative values.

Among the capital controls that screw up currencies are government-induced undervalution and restrictions on the repatriation of earnings.

drc2
stuff, with all due respect,

stuff, with all due respect, you seem determined not to learn anything from anyone as you insist upon, what I can only call, "utopian romaticism" about the so-called "free market."  On this issue of comparative advantage, or absolute advantage in the sense of monopoly of supply, what your lead theorists of the Enlightenment were hoping to achieve was mutuality and an equality in power between the traders.  

The practice of colonialism was slavery and resource theft as well as piracy.  Banking and insurance grew up serving these big money interests along with some decent local banks and coops growing up into banks.  It did not take very long for financial speculation and then financialization to become the game played by "the smart money."  We are not talking visionary investors who see the national benefit being shared through the development of infrastructure and use of new technology.  We are talking marketers and people who see the profits to be made in controlling these new avenues to wealth.

The relationship between the genius visionary who sees something that will greatly benefit humankind and the guy who makes money off it is not nearly as moral as your theory requires.  Making money out of something trumps all decency and leaves the public paying a lot more for the "enclosure" of the idea into a marketing plan for max profit rather than max availability at a decent return.  The mission of the business goes from making or doing something of value to squeezing the cash out of the enterprise so you can invest it elsewhere or even turn the company into a financial giant.

This is not how to run a business, btw.  It is how to make money, but not how to get paid for value created.  Businesses imply a long term, community based enterprise instead of a financial entity of the corporate casino.  They can be big like auto manufacturers or Main st., but they make or do something real instead of play with money to make money.

There are different capitalisms.  There is investment in a business mission and the capital to nurture its development and growth toward profitability.  What that means is protecting the mission from financialists who want to play with the assets and debts instead of stabilize the company and protect its mission integrity.   Great Venture Capital works like this.

However, almost all that passes for venture capital these days goes for the 'fiduciary' instead of the responsibility.  The laws make it hard not to, and the culture of greed made it fashionable to do all sorts of nasty things if there was money to be made.  Check out Palast on Paul, The Vulture, Singer.  No, that is his own choice of nickname, not what his enemies labled him.  A real piece of work.

Now we get to the mess propaganda has made of our economic thinking and our confusion about "capitalism."  Good honest business people such as yourself may well understand good business practices and personnel policies.  You may appreciate that keeping a customer base is vital to your being able to sell anything and to stay in business.  But, the "Chamber of Commerce" wants to make you believe that you are in the "private sector" where government is the problem.

You are supposed to identify with the interests of Wall St. and the Megabucks versions of the British East India Company, a front for many criminal activities.  That is the Pirate Version of Capitalism where money gets to do what it can, grab what it may and keep it 'perfectly legally.'

I have mentioned Investor Capitalism as the good form of Venture, and now to save a lot of grief, I will bless Main St. and unions as "economic democracy" rather than quibble about the real meaning of "socialism."  It hardly matters what we call this "rose" if we can get it to thrive and bloom.  We are certainly not looking for a centralized Command and Control 'Socialism' to replace the centralized Command and Control of the Empire and its Corporate Masters/Allies--you blend it to your taste.

If you want to design a democratic capitalism, you will have to find better models than the "free market" because it cannot be what you would have it be in this perverse stage of corporate financialism.  Unmasking the fraud perpetuated as "capitalism" to earnest business people who have been educated in Business Schools to believe this pap, and I think you are smarter than that and can see where it fails, would be a very valuable contribution to real change.

Stuff, I want to believe that you are an honest guy who really wants to know where you are wrong as well as put your case to us with an open hand.  I have met a lot of people who honestly believe this bad religion and have been shown impressive badges by its sales staff.  Or is it the high priests on or the Pope of Wall St?  CNBC shows in the locker room of my exercise club, and I laugh at the nonsense that passes for business news.  I don't blame you or others for being skeptical that anyone outside the seminary or "Bible College" can understand why what MBAs know.  And, if one gets a doctorate in economics in the Neocon funded programs, you have high priest expertise and arrogance aplenty.

I have no idea what would have become of me had I been 'successful' in the entrance qualifiers for Law or Business or had I seen the value of getting that Golden Ring early in the ride.  I was arrogant enough to turn away from the cash to do something that caught my attention, but I depended upon having a pretty secure back-up system if I need cash down the line.  I did see a lot of strivers looking for that big bucks career when I was "their chaplain" for a couple of years.  It made me glad not to have been seduced by cash.  Or even to have had the chance to say "yes" in some special way.

There is no question that I could have used my skills to make big money.  Grace saved me.  I might have used more of a financial cushion at several points, but I would never trade it for being engaged in the world I live in.  Music does not have to pay me back or at all.  It has already paid me forward in human contexts.  

What I hope real business people demand and hope for is not some utopian fantasy but a real democratic capitalism, understood in the vulgate rather than in the more precise economic theology of investor capital v. owner capital.

polycarp2
stuff wrote: Quote:Ricardo's

stuff wrote:

Quote:
Ricardo's theories were about international trade. Comparative advantages and absolute advantages between nations. If you can't see that, you can't see it.

I am talking about international trade between nations, one form of which is free trade, which is what Ricardo was advocating.

This example might help:

Economics Department, University of North Carolina wrote:
Suppose Brazilians can grow coffee more easily than they can catch salmon, while Alaskans find it relatively easier to catch salmon than to grow coffee. Alaskans have a comparative advantage in salmon fishing, and Brazilians, in coffee production. Trading Alaskan salmon for Brazilian coffee clearly benefits both groups. The table below shows how both parties to a trade can gain whenever their opportunity costs differ. If Alaskans and Brazilians each specialize in their areas of comparative advantage, and if 1 pound of salmon trades for, say, 1 pound of coffee, then Alaskans can consume an extra 4 pounds of coffee daily while Brazilians can consume an additional 4 pounds of salmon. Note that the Alaskan opportunity cost of producing 1 pound of coffee is 5 pounds of salmon before trade, while each pound of coffee costs Brazilians only 1/5 of a pound of salmon.

Comparative Advantage and Absolute Advantage

Note comparative advantage is exactly the same thing as my illustration between Portugal/English grape production which is then translated into absolute advantage. Smith's comparative advantage is attempted to be made the same as Absolute Advanatge. It isn't.

Comparative advantage isn't  Absolute. Perfect, Complete. No other recourse.

Note:

"England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth."

"To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth." - Ricardo

His summation of the above statement....a reversal of it.... requires the non-existence of fiat currencies...in particular the international currencies of the U.S. and Europe. It requires Gold/silver as an exchange medium as he himself notes.

Even Ricardo noted that the wealth of a nation was based on what it produced...not on what it imports.

"From what has been said, it will be seen that the wealth of a country may be increased in two ways: it may be increased by employing a greater portion of revenue in the maintenance of productive labour,—which will not only add to the quantity, but to the value of the mass of commodities; or it may be increased, without employing any additional quantity of labour, by making the same quantity more productive,—which will add to the abundance, but not to the value of commodities." - Ricardo

Ricardo was first and foremost a wealthy capitalist concerned with creation of individual wealth...not national prosperties. Most of his work is concerned with that......"for wealth always depends on the quantity of commodities produced, without any regard to the facility with which the instruments employed in production may have been procured." Thus outsourcing. Private wealth rather than national wealth.

"Labour, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price. The natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race,"

"The market price of labour is the price which is really paid for it, from the natural operation of the proportion of the supply to the demand; labour is dear when it is scarce, and cheap when it is plentiful."

"It is when the market price of labour exceeds its natural price, that the condition of the labourer is flourishing and happy, that he has it in his power to command a greater proportion of the necessaries and enjoyments of life, and therefore to rear a healthy and numerous family."

"When the market price of labour is below its natural price, the condition of the labourers is most wretched":- Ricardo

Again, as Ricardo notes in his summation..... cheap labor increases profts. Thus outsourcing to the greatest labor supply relative to the demand for labor.

 

http://www.econlib.org/library/Ricardo/ricPCover.html

Ricardo's entire trade theory is reliant on precious metals  being utlized to make balance of trade settlements...a limiting factor preventing the disolution of one nation's productive capacity in favor of another. They aren't utilzed...shattering his entire free trade theory.

Economics, once concerned about the wealth and prosperity of nations and their functioning,  has been usurped to be concerned only about the wealth and prosperity of a few.

Retired Monk - "Ideology is a disease"

 

Phaedrus76
Phaedrus76's picture
So once we are all in the

So once we are all in the service economy, what happens once they develop a computer that can do the work of an agent or broker? At what point of pain, poverty and misery do we choose to change how we operate our economy?

stuff
stuff's picture
Drc, you address issues that

Drc, you address issues that I have not. I appreciate your point of view, but I have never been asked my opinions about things and I never expressed an opinion, except that I think justice, equality, and "free trade" are worthy pursuits. I have been talking about theory, not praxis, mostly because I detect a bit of confusion regarding some foundational economic ideas on this Board. I haven't spent a lot of time talking about how things actually turn out or what I think of them in this thread.

I have expressed in other threads my definite political opinions on things like the American Empire, the NRA, and the Republican Party, all of which I deplore.

I am not blind to corruption, injustice, and exploitation. I concede that these things exist in "private" matters as well as public. I think where we may disagree is whether these economic ideas, these theories are evil in and ot themselves or whether they have been corrupted and perverted in practice. I certainly agree with the latter, if not the former.

If you wish to know my opinion about something, please ask and I will try to explain myself.

stuff
stuff's picture
Quote:Comparative advantage

Quote:
Comparative advantage isn't Absolute. Perfect, Complete. No other recourse.

You seem to use these words in their commonsense manner, not the way that economists use these words.

Ricardo wrote a great many things and is credited with a great many ideas in economics. I was refering to his idea of comparative advantage, not his other ideas.

stuff
stuff's picture
Quote:So once we are all in

Quote:
So once we are all in the service economy, what happens once they develop a computer that can do the work of an agent or broker?

Karl Marx might call it "communism."

Quote:
At what point of pain, poverty and misery do we choose to change how we operate our economy?

I don't know how to answer this question. It seems to include a great many unstated, unsubstantiated assumptions.

Economic change produces winners and losers. In theory, winners have an enlightened self-interest in sharing some of their winnings with the losers. Whether this sharing occurs in fact is a political question, not an economics question.

polycarp2
stuff

stuff wrote:

Quote:
Comparative advantage isn't Absolute. Perfect, Complete. No other recourse.

You seem to use these words in their commonsense manner, not the way that economists use these words.

Ricardo wrote a great many things and is credited with a great many ideas in economics. I was refering to his idea of comparative advantage, not his other ideas.

Haven't you ever noticed that statements by economists sometimes make no sense at all? It's because they don't. They do, however, justify a lot of nonsense.

Economics used to be concerned about the propserity, wealth and economic well-being of nations. It's been usurped to be concerned only about the prosperity, wealth and economic well-being of a few. One result of that is the  economic demise of nations...that have a global, cascading effect.

Ricardo's free  trade theories rest entirely upon using precious metals as a means of balancing trade. An automatic check on degrees of outsourcing. Since that isn't the case, his free trade prosperity theories benefiting all nations collapse like a house of cards. The underpinning of theory doesn't exist.

Retired Monk - "Ideology is a disease"

stuff
stuff's picture
Quote:Haven't you ever

Quote:
Haven't you ever noticed that statements by economists sometimes make no sense at all? It's because they don't. They do, however, justify a lot of nonsense.

Every discipline has its own jargon, I suppose, that baffles popular audiences.

Quote:
Ricardo's free trade theories rest entirely upon using precious metals as a means of balancing trade.

You are referring to international finance; Ricardo's theory of comparative advantage concerns international trade, not finance.

"Free trade" does not guarantee balanced trade. Deficits and surpluses still occur even between nations practicing free trade with one another. Those imbalances must be financed. Since the world no longer utilizes the gold standard, trade imbalances need not be financed with precious metals.

polycarp2
Perhaps you haven't read 

Perhaps you haven't read  Ricardo. His entire international trade theory is based upon precious metals being utilized in balance of trade settlements. It becomes an automatic brake on the degree of outsourcing. It prevents capitalists of any single nation from stripping its economy to the point of destitution...having nothing to trade with and nothing to produce/consume domestically.

"On the Principles of Political Economy and Taxation" - Ricardo. Enjoy.

 

http://www.econlib.org/library/Ricardo/ricPCover.html

 

Since fiat currencies, printing presses and Treasury Bonds  have replaced precious metals, the underpinning of his theory doesn't exist.

Retired Monk - "Ideology is a disease"

stuff
stuff's picture
Quote:Perhaps you haven't

Quote:
Perhaps you haven't read Ricardo.

Rather than make this a discussion about me and what I have or have not read, why don't we stick to the topic?

Quote:
His entire international trade theory is based upon precious metals being utilized in balance of trade settlements.

You confuse trade and finance.

polycarp2
Nope. Read Ricardo. I posted

Nope. Read Ricardo. I posted a link to his  treatise. His entire trade theory is based upon using precious metals to settle international acccounts . It limits outsourcing... as he himself states.  It prevents capitalists of any single nation from stripping its economy to the point of destitution...having nothing to trade with and nothing to produce/consume domestically.

The entire underpinning of his trade theory doesn't exist. We use fiat currencies, printing presses and Treasury Bonds to settle accounts....which allows capitalists of any single nation to strip its economy to the point of destituton ....having nothing to trade with and nothing to produce/consume domestically.

The underpinning of his theory doesn't exist.

Retired Monk - "Ideology is a disease"