[Vanity] 1823 Science - Time for an upgrade?

Neutrino | 03/06/2004 | Neutrino

[neutrino]

The originator of the free trade argument is David Ricardo, who lived from 1772 to 1823. You can read a brief biography at the link:

Ricardo

Here's an excerpt:

At age twenty-seven, after reading Adam Smith's The Wealth of Nations, Ricardo got excited about economics. He wrote his first economics article at age thirty-seven and then spent only fourteen years—his last ones—as a professional economist.

The world has changed considerably since 1823. We have new technologies, new political and social paradigms, and entire new fields of science. Nevertheless, we ignore all of that and continue to use economic ideas from 1823.

Is this wise? Can an economist who lived during the era of King George IV - predecessor of Queen Victoria - tell us how to conduct trade in an era of quantum physics, instant global communications, and robotic factories?

Many financial instruments were unknown then. The NYSE was conducting trades under a buttonwood tree in 1792. Yet we direct the course of our nation according to such out-dated concepts based on a single man’s intuition?

It's time to take a long, hard look at the underlying assumptions that are directing us to national economic disaster. Antique economics are not the solution to modern problems. Free trade, as promulgated by Ricardo, may not be the panacea presently claimed.

[js1138]

I merely propose the the world has changed sufficiently to invalidate Ricardo.

Propose all you want, but offer some evidence. By the way, Newton is still good enough for NASA to guide its space probes (that is when they remember their metric conversions). You are referring to fine tuning of ideas, not obsolescence.

[JLS]

"You presume that I am in favor of higher taxes, an assumption both incorrect and without basis."
_________________________________________________

I suspect you favor higher tariffs and a tax by any name is a tax. I know you are against freedom. As you seek to try to undermine the case for free voluntary exchange between people based on artificial imaginary geographic concepts.

Nations are useful for protecting us from attack. Protecting us from free exchange is of course not production but damaging us.

[A.J.Armitage]

I'd be willing bet money that what you want instead turns out to be a rehash of the even older pre-Adam Smith mercantilism.

[Joe Bonforte]

The present economic trends are a case in point. Notice that the economists who attempt to make job predictions are consistently wrong.

Who gives a flip about predictions? I care about what actually happens. And by historical standards of the last fifty years, unemployment is low and job creation numbers are good.

Economists do not use Ricardo's theories to predict employment numbers. They have econometric models predicated on a variety of theories, many of them quite recent. You can critique those if you like, but you can't pin job prediction problems on Ricardo.

My premise is that as the economies represented by Ricardo's underlying assumptions have changed from those he was familiar with, the theories he promulgated may have become inaccurate.

Fine, that's your premise. Where's your data?

So you think Ricardo may have become inaccurate because of the size of the economy and "speed and efficiency of the transfer of capital and information"? Hey, how about Adam Smith and the invisible hand? It is subject to the same changed conditions. How about representative democracy as a form of government? Same story. You can question anything as a result of changing conditions, but until you show some data to back that up, you're just blowing smoke.

From my own observations of economics over time, I'd say if anything that the complexity makes Ricardo's theories (and Smith's) even more applicable. In particular, as Hayek and von Mises added to the theory in the 20th century, one of the reasons laissez faire economics works is because no one person or small group can possess enough information to intelligently "manage" the economy. (The collapse of the Soviet system is the most obvious manifestation of this problem.)

So more complexity means it's even more important to keep away from such nonsense as "managed trade". It is literally impossible for anyone to gather and process enough information to make intelligent decisions about where to restrict trade in a way that the entire system benefits. Let me say that again. It's impossible to do what you anti-free-trade guys want to do, which is to somehow manage the process to protect certain jobs and industries, without having side effects that are worse than the benefits.

[Joe Bonforte]

And a major tenent of being intelligent is that one changes a behavior that has ceased to work.

And how has it ceased to work? The United States is the wealthiest nation in the history of the planet. Our "poor people" suffer from obesity, and the average American lives in conditions better than the richest people in the world one hundred years ago.

So how has anything "ceased to work"? You keep talking about problems, but you seem completely unwilling to bring up specifics.

This fits in with my general experience with anti-free-trade types. Their "evidence" is all anecdotal, and they can never come up with numbers on their side that represent anything other than very short-term fluctuations (say over a year or two).

Hey, it's not enough to say "I lost my job", or "my neighbor's cousin's dentist knows a guy whose lost his job because of NAFTA". The nature of our economy means jobs are being lost all the time. That's what makes it so successful! Unlike Europe, we don't try to sweep back the tide. Instead, we look to the future and new kinds of jobs and economic activity.

Yes, some people get hurt in the turnover. But the aggregate benefit is huge. Bush tried to protect steelworkers with tariffs, and the studies show 1.5-2 jobs lost for every job protected. Are you in favor of that?

[sully777]

Thanks, I'll cherish your advice always.

[sully777]

" It's impossible to do what you anti-free-trade guys want to do, which is to somehow manage the process to protect certain jobs and industries, without having side effects that are worse than the benefits."

This dimwit wants the federal government to protect all the people affected by the growth of the automobile and aerospace industries. Oh yes! Forgot Amtrak. There's a smashing financial success.

[billybudd]

We should reconsider their ideas based on new information. Or are we to worship Zeus and Hera?

Of course not. I'm just saying that you shouldn't dismiss ideas just because they're old. If you can point out some assumptions Ricardo maked about the world that were true back then but not now, that's good. But the age of an idea shouldn't be relevant.

[rock58seg]

Watch out! You'll offend Willie Green.

[neutrino]

Propose all you want, but offer some evidence.

Present day economists are making predictions of economic growth and job growth based on existing models. Those predictions are wrong. The economists publicly acknowledge that their predictions are wrong - and, furthermore, they do not know why.

This suggests a flaw in the existing models.

By the way, Newton is still good enough for NASA to guide its space probes (that is when they remember their metric conversions). You are referring to fine tuning of ideas, not obsolescence.

Newton needs fine tuning. Perhaps that is the case with Ricardo's ideas. On the other hand, perhaps they are, in fact, obsolete.

[neutrino]

I know you are against freedom. As you seek to try to undermine the case for free voluntary exchange between people based on artificial imaginary geographic concepts.

By this standard, I suppose that you are also opposed to all restrictions on immigration. Immigration is, after all, the movement of people willing to work to areas where employers are willing to hire them. Immigration controls and restrictions are, then, a mechanism to restrict the "free voluntary exchange between people based on artificial geographic concepts."

Why not post a vanity to that effect? Please ping me when you do.

[neutrino]

I'd be willing bet money that what you want instead turns out to be a rehash of the even older pre-Adam Smith mercantilism.

You'd lose that bet. I am in favor of ideas that work in the world as it is today. Ricardo had an idea that worked well for nearly 180 years - it's time to move forward, not backward to mercantilism.

[neutrino]

Thanks, I'll cherish your advice always.

Always glad to help! You're very welcome.

[neutrino]

This dimwit wants the federal government to protect all the people affected by the growth of the automobile and aerospace industries. Oh yes! Forgot Amtrak. There's a smashing financial success.

My, how eloquent you are! The sparkling brilliance of your writing truly impresses me. Not favorably, of course.

[neutrino]

If you can point out some assumptions Ricardo maked about the world that were true back then but not now, that's good. But the age of an idea shouldn't be relevant.

Very well. From the link at the beginning:

"In arguing for free trade, Ricardo formulated the idea of comparative costs, today called comparative advantage. Comparative advantage—a very subtle idea—is the main basis for most economists' belief in free trade today. The idea is this: a country that trades for products that it can get at lower cost from another country is better off than if it had made the products at home."

Now the question is - is this really true? If we assume a balance of trade, wherein each country produces something of value to the other, and there is a fair balance of trade, then it should. What if the Chinese impose an artificial restriction on domestic wages so that not just one product, but essentially all products can be produced at lower cost there? Does the assumption still hold true?

Many here will shrug and respond that it will. This is an assumption, not knowledge. It could reasonably be argued that I don't know that the assumption is false. That, also, would be true.

The simple truth is that, per our economists, things aren't working as expected. I contend that means it is time to look at the underlying assumptions.

[A. Pole]

Contrariwise, there are many studies that show that the best single predictor of economic health for a nation in the last two hundred years is how open it is to trade with the rest of the world. That would seem to completely validate Ricardo.

Give me examples of the nations which practiced a free trade (no tariffs) for a prolonged time since Ricardo, please. Present free/tariffless globalist trade is a new experiment.

[A. Pole]

We can add Newton, Locke, and Smith.

Locke was never good.

[A. Pole]

Or are we to worship Zeus and Hera?

No, we are to worship Mammon, and his high priests are Soros, Khodorkovsky, Skilling and other reform minded oligarchs.

[neutrino]

You ask for data. A most reasonable position.

Note the substantial imbalance in trade.

And here's a chart of net investment. Notice that foreign investors own more and more of America.

Now, notice that foreign holdings of U.S. Treasury debt is presently above 1.5 Trillion dollars. Link. Most are notes, some are bills - the average maturity is not stated. Let us assume the interest rate is 2%. treasury rates. The cost, then, is $30 billion per year or more.

Given the large and growing amount of debt to foreign nations, the large and growing size of our trade deficit, the large and growing foreign ownership of domestic assets, it seems that there is an imbalance of trade.

Notice that Ricardo assumes that trading partners will each be the best producer of something, and a balance of trade will result. These numbers suggest that trade is not balanced and is becoming more imbalanced. This, in my opinion, implies a defect in Ricardo's assumptions.

[A.J.Armitage]

You'd lose that bet. I am in favor of ideas that work in the world as it is today. Ricardo had an idea that worked well for nearly 180 years - it's time to move forward, not backward to mercantilism.

You sound like a politician giving a stump speech.

I would refuse to concede the bet until I had some idea what you had in mind, rather than what politalk you'd use to sell it.