Illusion of free trade

[daenku32]

Any economist would tell you, that we import from X because people at X are more productive.

This is because they use qty/$ rather than qty/person calculations. Which just replaces real human worth with a dollar sign.

Che!

 

[Puppycow]

In econ 101 I learned the concept as comparative advantage.

In economics, the law of comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal cost and opportunity cost than another person or country. It is the ability to produce a product most efficiently given all the other products that could be produced.[1][2] It can be contrasted with absolute advantage which refers to the ability of a person or a country to produce a particular good at a lower absolute cost than another.

Comparative advantage explains how trade can create value for both parties even when one can produce all goods with fewer resources than the other. The net benefits of such an outcome are called gains from trade.

 

[brumsen]

Which just replaces real human worth with a dollar sign.

Hmm - could you unpack that? Not sure what you're getting at.

 

[Francesca R]

Any economist would tell you, that we import from X because people at X are more productive.

This is because they use qty/$ rather than qty/person calculations. Which just replaces real human worth with a dollar sign.

Che!

Quantity per dollar is price. Quantity per person is productivity. Price responds to productivity; demand responds to price. Better now?

 

[blutoski]

Any economist would tell you, that we import from X because people at X are more productive.

This is because they use qty/$ rather than qty/person calculations. Which just replaces real human worth with a dollar sign.

Che!

Are you asking a question?

 

[dudalb]

Any economist would tell you, that we import from X because people at X are more productive.

This is because they use qty/$ rather than qty/person calculations. Which just replaces real human worth with a dollar sign.

Che!

I would love to see what kind of a grade you got in Economics 1A.

 

[Praktik]

I always thought the nonmenclature of "free trade" was more of a marketing approach than a descriptive approach.

Even "free trade" is subject to a series of rules and regulations. What it really means is "liberalised trade", as in a loosening of restrictions (rather than a removal of all of them).

The term "free trade" generates a warm, fuzzy feeling. Who is against "free"? Doesn't "free" mean "freedom"?

If one is "anti-free trade" are they really anti-freedom??

This is all besides the question of whether or not liberalised trade is beneficial or not. I think there are a host of benefits to it. But I think the debate would be healthier, and more accurate, to call it "liberalised trade" instead.

 

[drkitten]

I always thought the nonmenclature of "free trade" was more of a marketing approach than a descriptive approach.

Even "free trade" is subject to a series of rules and regulations.

So is "free speech." For example, even with "free speech" enshrined in the constitution, you still can't slander someone, commit espionage, conspire to commit a crime, defraud someone, or even keep them awake at 2am by shouting at them through a bullhorn?

How can it be "free" when you can be sent to jail for telephoning in a bomb threat?

I.e. the nomenclature issue is a) without merit and b) irrelevant anyway.

 

[Toke]

Any economist would tell you, that we import from X because people at X are more productive.

This is because they use qty/$ rather than qty/person calculations. Which just replaces real human worth with a dollar sign.

Che!

I read that as people having different pay pr hour and/or different level of automation in the production.
The comparative pay pr hour can be modified by currency values. (china)

 

[Toke]

BTW: I have the somewhat unsupported idea that a general tax/customs barrier of 5/10% on international trade would be a great idea.
Just like a tax on stock and currency trade.

 

[drkitten]

I read that as people having different pay pr hour and/or different level of automation in the production.

Or different skill levels, or different working conditions....

There are lots of reasons that people can have different productivity, even within a single society. As a simple example, imagine there are two hospitals -- one with one doctor and fifteen nurses per hundred patients and, the other with five doctors and seven nurses per hundred patients. All else being equal, which hospital would give better care?

Answer: that's a trick question, because it depends on the type of care. The first hospital would be better at giving care that needs to be given by a physician (e.g. performing surgery), while the second would be better at giving nursing care. And so you see "comparative advantage" at work, and you'd probably see those two hospitals specialize in different fields even if they were in the same city.

 

[Toke]

Or different skill levels, or different working conditions....

There are lots of reasons that people can have different productivity, even within a single society. As a simple example, imagine there are two hospitals -- one with one doctor and fifteen nurses per hundred patients and, the other with five doctors and seven nurses per hundred patients. All else being equal, which hospital would give better care?

Answer: that's a trick question, because it depends on the type of care. The first hospital would be better at giving care that needs to be given by a physician (e.g. performing surgery), while the second would be better at giving nursing care. And so you see "comparative advantage" at work, and you'd probably see those two hospitals specialize in different fields even if they were in the same city.

Yes, there are many factors that can affect productivity.

 

[daenku32]

I would love to see what kind of a grade you got in Economics 1A.

I got an A from ECON 201, Intro to Microecon, and B+ from ECON 202, Intro to Macroecon. That was in '08.

What I'm arguing is that the capital cost advantage of vast majority these countries comes from the fact that the people there are willing to work for so much less. It's not that people in those countries have greater finger dexterity or specific skill (EDIT: or better resources). They just can be paid so much less.

It would be about the same as saying that it makes sense to import crops from a food starved nation because those people are so desperate that they'll work for anything, including to export the very food they as a society need.

The biggest obstacle for more American exports is that we aren't going to pay our workers $20/month.

 

[drkitten]

What I'm arguing is that the capital cost advantage of vast majority these countries comes from the fact that the people there are willing to work for so much less.

Of course, it's also key that they have so much less lifestyle to support, and that the costs of supporting that lifestyle are so much lower. In that sense, it is substantially better resources, where the resources is "low cost of living" and "people who want to work but can't find anything to do."

There's a reason why even the Buy American folks tend to outsource phone support for large New York and California companies to flyover states in the corn belt. (Iowa is big for that.) McDonald's has a program in place where drive-thru orders are taken via the network instead of by local servers.

It would be about the same as saying that it makes sense to import crops from a food starved nation because those people are so desperate that they'll work for anything, including to export the very food they as a society need.

Not really. The single biggest thing that the people in these labor-rich countries need are jobs, not food (which is what makes them labor rich). They have a local undersupply of jobs and a local oversupply of labor -- which is also a resource. They're not exporting anything they need themselves, in fact, quite the opposite. They're exporting something they have lots of (free time from people with little or nothing to do) and importing something they don't have much of (money).

 

[daenku32]

Not really. The single biggest thing that the people in these labor-rich countries need are jobs, not food (which is what makes them labor rich). They have a local undersupply of jobs and a local oversupply of labor -- which is also a resource. They're not exporting anything they need themselves, in fact, quite the opposite. They're exporting something they have lots of (free time from people with little or nothing to do) and importing something they don't have much of (money).

They are exporting products of labor. In case of food, it is something that they have a need for, and certainly don't have a surplus of.

Yes, they need jobs. But if fewer people in those countries had export good jobs due to greater pay, that pay would trickle down to the rest of the economy, creating internal demand and therefore jobs. The extra money that would be delivered to the local economy by those who worked on exportable goods (jewerly, etc) would allow the misplaced export product workers to created goods for their fellow countryman instead of a foreign country.

The problem with these countries is that they produce everything for others, but nothing for themselves.

You would think that countries like Bangladesh wouldn't have any shortage of clothing or shoes considering how much of those things they make. However, I seriously doubt this is the case.

 

[Praktik]

I.e. the nomenclature issue is a) without merit and b) irrelevant anyway.

I disagree!! I think its marketing inclines the less informed to automatically suppose that it is a good thing - and that if people are going to conclude that I'd hope they do so after an inspection of the issues rather than based on the name being "freedom".

From here on in I am going to stick to my guns. "Liberalised Trade" it is!!

 

[Captain.Sassy]

FUUUUUUUU

I just wrote a two page essay and when I tried to post it, somehow I had been logged out.

[pooh] oh bother [/pooh]

Anyways, the gist of my argument was that the number of economic agents able to actually buy goods on the Chinese market and sell them on the North American market (either by offshoring or importing, the result is the same) is vastly smaller than the number of consumers in the North American market. My guess is that this gives the importers significant power to charge a lot more for the goods that they sell in NA than they pay for the goods in Ch. Consequently, you might not see an appreciation in real wage from offshoring- normally (i.e. competitive situation), the reduction in the price of goods would outweigh the loss in income for US workers laid off (since competition would push the importers to charge very similar prices in the US as in China for Chinese goods) and so real wage (goods per hour worked) should rise in the US. With market power, these gains from trade may not materialize, and you may end up with a net transfer of wealth from workers/consumers to those with the ability to import goods (generally economic actors with greater resources) and possibly to the Chinese economy. A transfer of wealth can cause a decrease in overall utility (i.e. increased concentration of wealth- if you don't understand this I can explain.) As a result, the average American might actually *not* be better off as a result of trade.

In Canada (where I'm from) median real wage has stagnated for decades. I don't know that it's necessarily trade related, but the openness of the Canadian market, the level of trade, and GDP have all been growing.

Finally, a way to start testing this theory would be to compare the price of some consumer goods that are produced in China on the Chinese and US markets.

 

[Toke]

As a result, the average American might actually *not* be better off as a result of trade.

I am not sure I follow your argument fully.
However I will say that outsourcing is an advantage to the individual company, but not necessarily to society as a whole. The same goes for free trade, it benefits the company but not necessarily society. (Free trade and outsourcing are closely related)

The concentration of wealth and reduction in real wages is a pretty good indicator that something is wrong.

 

[Francesca R]

you may end up with a net transfer of wealth from workers/consumers to those with the ability to import goods (generally economic actors with greater resources) and possibly to the Chinese economy. A transfer of wealth can cause a decrease in overall utility (i.e. increased concentration of wealth- if you don't understand this I can explain.)

But a net transfer of wealth to the Chinese economy is not prima-facie a concentration of wealth, it is the reverse.

 

[Francesca R]

The concentration of wealth and reduction in real wages is a pretty good indicator that something is wrong.

Again, reduction in--say--Danish real wages relative to Indian or Chinese real wages is the opposite of wealth concentration.

(And absolute Danish real wages may not fall if consumer prices are lowered due to international trade)