Tag: economics

The price of free trade

Remember when the idea was that offshoring all the manufacturing jobs would lead to better, higher-paying jobs in technology? Yeah, about that….

The IT workers at Cengage Learning in the company’s Mason, Ohio offices learned of their fates game-show style. First, they were told to gather in a large conference room. There were vague remarks from an IT executive about a “transition.” Slides were shown that listed employee names, directing them to one of three rooms where they would be told specifically what was happening to them. Some employees were cold with worry.

The biggest group, those getting pink slips, were told to remain in the large conference room. Workers directed to go through what we’ll call Door No. 2, were offered employment with IT offshore outsourcing firm Cognizant. That was the smallest group. And those sent through Door No. 3 remained employed in Cengage’s IT department. This happened in mid-October.

“I was so furious,” said one of the IT workers over what happened. It seemed “surreal,” said another. There was disbelief, but little surprise. Cengage, a major producer of educational content and services, had outsourced accounting services earlier in the year. The IT workers rightly believed they were next.

The employees were warned that speaking to the news media meant loss of severance. Despite their fears, they want their story told. They want people to know what’s happening to IT jobs in the heartland. They don’t want the offshoring of their livelihoods to pass in silence.

The Web-based workers that the Cengage employees are training to take over their jobs are believed to be in India. Cognizant applies for thousands of H-1B visas annually, and is one of
the top three users of the visa, according to government data. Cengage
employees reached for comment didn’t know what visa, if any, the
contract workers in their offices were using.

There are four things you need to keep in mind if you are an ardent free trader:

  1. The arguments justifying free trade have always been entirely theoretical, not empirical. In this way, they are no different than the incorrect pre-scientific logical conclusions that were subsequently proven to be false by modern science. At the time they were formulated, inexpensive shipping, the free movement of capital, and the mass movement of labor were unknown.
  2. The USA historically enjoyed its fastest periods of economic growth under protectionist, restricted-immigration periods.
  3. The post-WWII growth was not the result of any trade or economic policies, but a positive application of Broken Window theory. Every other industrial nation had its industrial capacity smashed, so the US benefited from an intrinsic infrastructural advantage for around 25 years.
  4. Free trade levels all prices throughout the market. That’s why a cashier in Miami gets paid about the same amount as a cashier in Portland. Even if free trade increases the overall amount of global economic growth, in doing so, it necessarily reduces wages and standards of living in the wealthier nations to bring them more in line with the wages and standards of living in the poorest nations.

Look, I was an ardent theoretical free trader for decades. I know the pro-free trade arguments better than you do; my father gave me Free to Choose to read when I was ten years old. But the fact is, the theoretical arguments are incorrect; the conclusions their logic predicted have turned out to be observably wrong.

And perhaps you remember what I wrote about how half of all young Americans will have to leave the country in order to find work under a true global free trade regime?  The stage for that is already being set.

Offshore outsourcing is having “a fairly strong impact” on IT employment, said Janulaitis. Students coming out of college are facing trouble starting a career “and a lot of that is driven by jobs that are taken by non-U.S. nationals in our economy, and a lot of that is H-1B [visa holders],” he said.

Economics and science fiction

But I repeat myself. Speaking first of the latter, all three QUANTUM MORTIS novels are now available for free for Kindle Unlimited and Amazon Prime subscribers. If you were vaguely curious about them, but not enough to actually go out and buy them, here is your chance to test drive them. I’d particularly recommend checking out QUANTUM MORTIS: A MIND PROGRAMMED, which is the literary update and remix of my all-time favorite SF novel, THE PROGRAMMED MAN.

From an Amazon review: “Space Noir. That’s what this is. It’s a classic spy vs spy tale, but this time the stakes are much higher and there are enough twists and turns to make a Finnish rally driver happy.”

QUANTUM MORTIS: A MAN DISRUPTED and QUANTUM MORTIS: GRAVITY KILLS are also available via KU.

And for those who are more interested in economics than in science fiction (to the extent that one accepts the idea that the former is not a subset of the latter), here are the first week’s readings in my draft econ curriculum. Don’t ask me where you can find the texts, if you can’t figure out how to do that, you needn’t bother with the readings.

1. What is Economics    

  • RGD Introduction
  • MURPHY Part 1 Lesson 1
  • HAZLITT Part 1-1

RGD: The Return of the Great Depression, Vox Day
MURPHY:  Lessons for the Young Economist, Robert Murphy
HAZLITT: Economics in One Lesson, Henry Hazlitt

Out of date and out of touch

For once, the Washington Post is correct about the complete cluelessness of the Republican establishment:

The dirty little secret in Republican politics these days is that the longtime pillars of the party — politicians and ex-politicians, major donors and the consultant class — are further removed from the views of the GOP base than at any time in modern memory. They simply do not understand what the heck is happening within and to their party.

John Sununu, a former New Hampshire governor and longtime GOP hand, is one of the few who is willing to admit just how clueless he is about, among other things, the rise of Donald Trump and Ben Carson. Here’s what Sununu told the New York Times’s Jonathan Martin:

    I have no feeling for the electorate anymore. It is not responding the way it used to. Their priorities are so different that if I tried to analyze it I’d be making it up.

Sununu is far from alone in GOP  ranks. Think about how most establishment Republicans saw this race playing out: Jeb Bush gets in, raises a ton of money and blows everyone else out of the water. By this point in the year, most of the consultant class would have predicted that Bush would be solidly in first place in most of the early states and simply polishing his policy résumé for the general-election fight to come.

But the truth that Martin exposes via Sununu is that the old ways of doing things in the Republican Party have changed significantly since even George W. Bush was elected in 2000 — running, it’s worth noting, essentially the same campaign his younger brother is right now. Strategies — get big (in terms of organization), tout electability and inevitability, keep yourself close enough to the center that you can be viable in a general election — that once were fail-safe just don’t work in this electoral environment where the dominant sentiment of voters is anger about everything.

The social mood has shifted. What works when the voters are generally optimistic does not work when they are increasingly fearful, angry, and desperate. It’s fun to speak knowledgeably of Ricardo and wax eloquent about how immigrants are enriching the economy when you’re pulling down six digits at the office, but the cruel realities of supply and demand are a little more likely to strike home when you’ve been out of work for 18 months and haven’t had an interview in your last ten job applications.

What we’re seeing is an establishment that is out of sync with reality because they believe the false media narrative about the state of the union, whereas the grass roots has been forced to confront it.

They should have started with him

Ben Bernanke says financial executives should have been arrested and charged with crimes:

With publication of his memoir, The Courage to Act, on
Tuesday by W.W. Norton & Co., Bernanke has some thoughts about what
went right and what went wrong. For one thing, he says that more
corporate executives should have gone to jail for their misdeeds. The
Justice Department and other law-enforcement agencies focused on
indicting or threatening to indict financial firms, he notes, “but it
would have been my preference to have more investigation of individual
action, since obviously everything what went wrong or was illegal was
done by some individual, not by an abstract firm.”

He also offers a
detailed rebuttal to critics who argue the government could and should
have done more to rescue Lehman Brothers from bankruptcy in the worst
weekend of a tumultuous time. “We were very, very determined not to let
it collapse,” he says. “But we were out of bullets at that point.”

Still,
he does acknowledge some missteps by the Fed. Analysts were slow to
realize just how serious the economic downturn would become, and he
faults himself for not doing more to explain to Americans why it was in
their interests to rescue the financial firms that had helped cause it.

Needless to say, I will be reading and reviewing this book in the near future. And I will be very, very, very surprised if Mr. Bernanke manages to convince me that he is doing anything except whitewash his record. The idea that it was essential to rescue the financial firms that are still preying on the American economy and weighing it down is simply nonsensical. The Federal Reserve didn’t succeed in anything except kicking the can down the road and ensure that the next crisis will be even more severe.

Denying supply and demand

The US Employment-Population Ratio and Labor Force Participation Rate continue to fall:

A record 94,610,000 Americans were not in the American labor force last month — an increase of 579,000 from August — and the labor force participation rate reached its lowest point in 38 years, with 62.4 percent of the U.S. population either holding a job or actively seeking one.

The EPR is down to 59.2 percent. Imagine how many of those 94.6 million Americans could find jobs, and how much their wages would rise, if the 59 million post-1965 immigrants were repatriated.

You had ONE job

If the central banks eliminate cash, people will no longer need banks:

It has long been believed that when it comes to interest rates, zero is as low as you can go. Who would choose to keep their money in the bank if they had to pay for the privilege?

But for the people who control the world’s money, this idea has recently been thrown out of the window. Many central banks have pushed their rates into negative territory and yet the financial system has still to come to an abrupt end.

It is a discovery that flips on its head the conventional idea of how authorities could respond to future economic crises; and for central bankers, this has come as a relief.

Central bank policymakers had believed they had run out of room to support their respective economies, with their interest rates held close to the floor.

Traditionally, it was thought that if you wanted to boost the economy, the central bank would reduce its interest rates. Normally, the rates offered on savings accounts would follow, and people would choose to spend more, and save less.

But there’s a limit, what economists called the “zero lower bound”. Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy.

What is happening now should not – according to conventional thinking – be possible.

As central bank rates have turned negative, the rates offered on bank deposits have followed. Yet rather than stuffing cash under mattresses, people have left their money in the bank or spent it.

Nowhere is the experiment with negative rates more obvious than among Nordic central banks. Sweden – the first to dabble with negative rates – is perhaps the prime candidate for such experimentation.

The country already has high savings rates, the third highest in the developed world according to the OECD and, despite growing at healthy rates, there appears to be plenty of slack left in the economy to prevent an overheat.

Unemployment is unusually high for an advanced economy at more than 7pc, still well above its pre-crisis levels of sub-6pc. Crucially, the Riksbank’s mandate suggests that such a radical experiment is necessary. Policymakers have battled with deflation since late 2012, and with inflation at minus 0.2pc in August, it remains well below the central bank’s 2pc target.

To a great extent, the Riksbank’s hand has been forced by the plight of the eurozone. A tepid recovery in the currency union has required the European Central Bank (ECB) to bring in ever-looser policy.

As the ECB’s actions have weakened the euro against Sweden’s krona, the cost of importing goods into Sweden has fallen, and weighed down on inflation. The Riksbank has had to cut its own rates in response in an attempt to avoid deep deflation.

Sweden’s flexible approach to monetary policy has won it the plaudits of leading credit ratings agency. Standard and Poor’s recently reaffirmed the country’s triple AAA sovereign rating, remarking on the benefits it derives from “ample monetary policy flexibility”.

Noting that the Riksbank had introduced both negative interest rates and quantitative easing, S&P said that “should inflation rates stay low or the krona appreciate materially, the central bank could lower the repo rate further”.

Many City analysts believe that the Riksbank will continue cutting, reducing its key interest rate to minus 0.5pc by the end of the year. Switzerland’s is already deeper still, at minus 0.75pc, while Denmark and the eurozone have joined them as members of the negative zone.

It shouldn’t surprise anyone that people are willing to accept low negative interest rates. After all, banks began as institutions that charged people to hold their gold for them. It wasn’t until they began creating money by handing out multiple certificates of ownership that they needed to start paying “interest” rather than receiving “fees”.

However, banning cash will go too far; the reason people use “money” is that it is less of an annoyance than barter. In their desperate attempt to remain profitable in a deflationary environment, banks are taking the risk of rendering themselves irrelevant.

One-quarter of a job

After reading the actual study that is being used to claim that immigration actually creates new jobs for native workers, I became so skeptical of their mathematical modeling, their theoretical justifications, and their cherry-picked data that I have reached the conclusion that even with the wind of the credit boom at their backs, I can disprove their conclusions on the basis of the same 1980-to-2000 period they used to make their claims.

First, however, I have to note some corrections that I have made to my previous post. Because I used the labor force and not the working-age population, my numbers were a little off. My conservative interpretation of the NBER model meant that the U.S. economy was 24,367,681 short of the number of jobs predicted by the model. And from 2000 to 2015, 16.4 million new immigrants have created a total of 5,832,319 new jobs, for an average jobs/immigrant ratio of 0.36, which is still considerably short of the 1.2 that had been claimed.

But the economists’ claims were actually more outrageous than I thought at first. You may recall that I was thinking perhaps the 1.2 job included the immigrant’s job, for a net benefit to a native worker of 0.2. But that was simply how the media characterized the study, which actually claimed the following:

“Consistent with our prediction, the impacts of immigration on employment growth have become greater as the estimates imply that each new immigrant is predicted to add 2.5 new jobs (1.9 for native workers) to a city in which he or she settles.”

So that is the prediction we will use for the 20-year period they used, 2.5 new jobs per immigrant. In 1980, the U.S. working age population was 142,520,008 and the employment population ratio was 60.0. That means there were 85,512,005 jobs in 1980.

From 1980 through 1999, there were 16,822,980 legal immigrants, not counting refugees or undocumented workers. According to the study, they created 42,057,450 new jobs, which means that there should have been 127,569,455 jobs in the United States in 2000.

Were there? In January 2000, the working age population of the United States was
178,259,050 and the Employment-Population Ratio was 64.6, meaning there
were 115,155,346 jobs, leaving 12,414,109 of the newly created jobs unaccounted for. In fact, 16.8 million immigrants created 29,643,341 jobs, or 1.76 per immigrant. That looks pretty good, with each immigrant not only finding work but adding three-quarters of a new job per native. Of course, a credit boom is going to make most economic statistics look good.

However, if we put the two periods together, what we see is that from 1980 to 2015, 33,180,780 legal immigrants have created a total of 35,475,660 new jobs, for a net rate of 1.07 new jobs per legal immigrant. If we then add the additional 12 million illegal immigrants estimated to be resident in the USA, this reduces the 35-year new jobs/immigrant ratio to 0.78, which means that each immigrant eliminates approximately one-quarter of an existing American’s job.

And if the number of undocumented workers is as high as 30 million, as Ann Coulter and Donald Trump have asserted, then the new job/immigrant rate is 0.56 and each immigrant eliminates nearly half of an existing American’s job.

Immigration and new job creation

This is why you can’t trust one single thing the media says about immigration. Or, for that matter, economics. First, consider the assertions made in a ThinkProgress article attacking Bernie Sanders’s moderate position on immigration. I’ve emphasized the two of interest.

Sanders’ position on immigration has been called “complicated” and he has been criticized by immigration activists for supporting the idea that immigrants coming to the U.S. are taking jobs and hurting the economy, a theory that has been proven incorrect. Both of his leading Democratic challengers, Hillary Clinton and Martin O’Malley, have recognized that new immigrants coming to the country actually boost the economy. But Sanders continues to align himself more closely with Democratic positions of the past.

“I frankly do not believe that we should be bringing in significant numbers of unskilled to workers to compete with [unemployed] kids,” Sanders said. “I want to see these kids get jobs.”

Studies have shown that immigrants actually create jobs for American workers. Researchers recently found that each new immigrant has produced about 1.2 new jobs in the U.S., most of which have gone to native-born workers. And according to the Atlantic, an influx in immigration can cause non-tradable professions — jobs like hospitality and construction that cannot be outsourced — to see a wage increase because the demand for goods and services grows with the expanding population.

Sounds pretty conclusive, doesn’t it? The “theory” that immigrants are taking jobs and hurting the economy has been “proven incorrect”. Not only that, but “studies have shown” that each and every new immigrant creates 1.2 new jobs!

Second, let’s go and look at the study that provided the basis for these assertions, “Are Immigrants a Shot in the Arm for the Local Economy?”, published in April 2015:

Most research on the effects of immigration focuses on the effects of immigrants as adding to the supply of labor. By contrast, this paper studies the effects of immigrants on local labor demand, due to the increase in consumer demand for local services created by immigrants. This effect can attenuate downward pressure from immigrants on non-immigrants’ wages, and also benefit non-immigrants by increasing the variety of local services available. For this reason, immigrants can raise native workers’ real wages, and each immigrant could create more than one job. Using US Census data from 1980 to 2000, we find considerable evidence for these effects: Each immigrant creates 1.2 local jobs for local workers, most of them going to native workers, and 62% of these jobs are in non-traded services. Immigrants appear to raise local non-tradables sector wages and to attract native-born workers from elsewhere in the country. Overall, it appears that local workers benefit from the arrival of more immigrants.

Now, to anyone who pays attention to economics, those dates should ring a bell. 1980 to 2000… just happens to closely coincide with the dates of one of the largest debt-funded economic expansions in world history. Not only that, but that period also precedes the U.S. interventions in Afghanistan and Iraq which led to the usual influx of “refugees” from those and other countries, such as Somalia, where U.S. forces were active. From 1980 to 2000, there were 841,149 annual immigrants, 23 percent fewer than the average in the subsequent 15 years.

Not counting undocumented workers, the U.S. has been “strengthened” by adding an average of 1,090,520 legal immigrants annually, which, when combined with the reports of the study, means that from 2000 to 2015, immigrants should have created 19.6 million new jobs for native workers in addition to supplying approximately 10.6 million new jobs themselves. (The latter must be the case due to the new jobs reportedly going to native workers and is a conservative estimate based on the EPR). This amounts to a total of 30.2 million new jobs created by immigration since 2000.

Now let’s look at the numbers from 2000 to 2015. In January 2000, the working age population of the United States was 178,259,050 and the Employment-Population Ratio was 64.6, meaning there were 115,155,346 jobs. Therefore, according to the NBER model, the beneficial effects of immigration are such that after 15 more years of it there should be 145,355,346 jobs in 2015.

In March 2015 the working age population had grown by nearly 15 million to 204,026,416, which is in line with the 10.6 million new immigrant workers, but population grew to nearly 320 million and the EPR fell to 59.3.That works out to 120,987,665 jobs, which is a mere 24,367,681 fewer jobs than the NBER model predicted. From 2000 to 2015, 16.4 million new immigrants have created a grand total of 5,832,319 new jobs, which means that either a) over 10 million native Americans have lost their jobs to immigrant labor or b) over two-thirds of the new immigrants are collecting welfare. Either way, these 16.4 million immigrants have not been a boost to the economy.

I should note that it would have been just as easy to use GDP and wage statistics to disprove some of the other assertions in the first article, but it should suffice to point out that the reason the Federal Reserve has maintained a zero interest rate policy for the last five years is to compensate for insufficient demand, thereby proving that the demand for goods and services has not grown in line with the expanding population.

The facts are absolutely clear: immigrants do NOT create new jobs for native workers and they do not boost the economy.

The migrant crisis is Greek revenge

Steve Sailer points out that the Greeks warned Germany that they would manufacture a migrant crisis for the EU if they did not get debt relief back in March:

Yes, the Greeks are shoveling the Muslim mob through Greece as fast as possible because they are humanitarians. The Greeks are sending the Muslim masses north toward Germany as a gift to express how grateful Greece is for Germany’s kindness during last summer’s Euro crisis negotiations. The Greeks would love to hang onto all this prime human capital themselves, but they want Germany to benefit from the Merkel Youth as payback for Ms. Merkel’s kindness over the last seven years toward Greece.

It’s the least the Greeks could do for the Germans after all they’ve done for the Greeks.

As the old saying goes, “Never beware of Greeks bearing gifts.”

UPDATE: Oh, wait, it turns out that the Greek government explicitly threatened to unleash Muslim migrants upon Germany if Ms. Merkel’s government insisted upon a hardline in the Euro debt negotiations. From the Daily Express, 3/9/2015:

The rising tensions between Greece and the eurozone came as Panos Kammenos, the Greek defence minister, warned that Europe will be hit with migrants that could include “some jihadists of the Islamic State” if Greece is forced out of the euro.

He said: “If they deal a blow to Greece, then they should know the the migrants will get papers to go to Berlin.

“If Europe leaves us in the crisis, we will flood it with migrants, and it will be even worse for Berlin if in that wave of millions of economic migrants there will be some jihadists of the Islamic State too.”

His comments came shortly after Nikos Kotzias, the Greek foreign minister, warned that “there will be tens of millions of immigrants and thousands of jihadists” if bailout negotiations fail.

In retaliation to Mr Kammenos’ comments, the spokeswoman for EU Migration Commissioner Dimitris Avramopoulos assured she had spoken to Greek authorities and had “received assurances from the Ministry of Interior that no measures to open up detention centres have been taken.”

History never “just happens”.  I can’t even imagine how hard Mr. Kammenos must be laughing after reading American columnists writing about how “hospitable” and “humanitarian” the Greeks are in comparison to those terrible, very bad, and quite possibly NAZI Hungarians. Greece doesn’t intend to keep any of the migrants, it is weaponizing them and sending them north as revenge upon the rest of the EU.

In defense of Ricardo

Clark responds to my critique of his endorsement of David Ricardo and Comparative Advantage. I will respond to it in detail soon, although the chief defects of his defense should be readily apparent to those with the eyes to see it.

Vox and I got in a disagreement on twitter about economics when I told someone “Read David Ricardo”. Vox replied that Ricardo was wrong on many things, and wrong about comparative advantage – at least when we take into account flows of population and capital.

Vox lays out his objections here

It’s true that I literally wrote the words “read Ricardo”, but the context makes it clear that I was using “Ricardo” as a metonym for the theory of comparative advantage.  Vox objected to several aspects of Ricardo’s writings, so let me take a quick detour and address some of Vox’s points.

Let’s set out the areas where Vox and I agree (or, at least, where I think we agree):

I do not back the labor theory of value.

I’ve considered labor theory of value a horrific joke since I first read Das Kapital decades ago. I disagree with Vox that Ricardo endorsed such a thing; I suggest that Ricardo merely said that a commodity will never be sold for less than its cost of production, which is absolutely true (if we talk only of steady states of markets in equilibrium, like corn being grown in England, and not weird cases like warehouses full of remaindered Apple Newtons).  Is there really anything objectionable in Ricardo’s sentence fragment “But suppose corn to rise in price because more labour is necessary to produce it”? I suggest not.  Additionally, it’s unfair to paint Ricardo, by lack of context, as some proto-Marxist, when in fact he was actually writing after Adam Smith, and in the same vein, helping to move us from a state of ignorance of the laws that govern the market to one of better understanding.  Do we criticize Newton for getting the rules of force and momentum mostly right, but failing to include a relativistic component in his equations?

I do not assert that unlimited immigration is a good idea.

Unlike the conservative stereotype of libertarians and free market economics as pie-in-the-sky dreamers who ignore cultural issues, I most certainly do NOT ignore such issues, and often debate such people, asking them “what do you think an America of 900 million people, 600 million of them being new immigrants, would be like?  How would it vote?”.

On what do Vox and I disagree?  I assert merely that comparative advantage is a real phenomena, and persists in being a real phenomena even in a world of mobile capital and mobile labor.  I’m not even 100% sure that Vox disagrees with this, because his post seems to conflate knock on effects of immigration with the core point of comparative advantage.

But assuming that we do disagree on the thesis “comparative advantage is a real phenomena, and persists in being a real phenomena even in a world of mobile capital and mobile labor”, I proceed.

Let us define our terms.  The law of comparative advantage is this:

1) various producers are variously capable of producing different outputs at different costs.

2) therefore, in pure economic terms, it is to each producer’s advantage to concentrate his effort in what he’s best at and trade for much else…even, in many cases, if the producer of X is better at Y in absolute terms than the person that they choose to engage to do that task for them.

Examples often include lawn mowing, for whatever reason.  E.g.:

Take a model who makes $10,000 a day modeling but who is also very efficient at mowing her large yard around her mansion. If she cuts her grass herself, she can do it in one day. Or she can hire a lawn service that takes 2 days to mow the lawn and charges $400. Thus, the model has an absolute advantage in both working as a model and mowing her own lawn, but, she would, nonetheless, still hire the lawn service, because if she mowed her own lawn, she would have to give up a day of modeling, which means her earnings would be $10,000 less. By hiring the lawn service, she earns $10,000 a day as a model and pays the lawn service $400, for a net gain of $9,600.

Let us look at Ricardo’s original quote in context. First he defines the sorts of things that influence the productivity of a given population: natural resources and distribution of skills:

    But in different stages of society, the proportions of the whole
    produce of the earth which will be allotted… depend[s] mainly on the
    actual fertility of the soil, on the accumulation of capital and
    population, and on the skill, ingenuity, and instruments employed in
    agriculture.

Note that Ricardo is speaking here of the case within a given nation: imagine a world without trade between nations.  Given a high-IQ, high-conscientiousness, high-technology Japan, we would expect that a relatively small proportion of its population would be devoted to fishing.  The “skill, ingenuity, and instruments” and the Japanese people ensure that: there is no need for a million Japanese to stand in bamboo junks and throw lines into the water.  Instead, we’d expect a few thousand clever Japanese engineers to build massive ships, nets, etc.

On the other hand, in this theoretical world without foreign trade, we’d expect that a larger percentage of the population of Kenya, would be devoted to fishing, because the “skill, ingenuity, and instruments” of the Kenyan nation would require more labor to achieve a similar result.

Ricardo also notes that the natural resources of a country play into the calculation: a country blessed with relevant abundant resources is ahead of the game, and can generate more outputs with the same labor:

The same remark may be made respecting two or more countries. In America and Poland, on the land last taken into cultivation, a year’s labour of any given number of men, will produce much more corn than on land similarly circumstanced in England.

I see nothing objectionable here: Spain, with its sunny climate, is naturally better suited to making wine than is England.  North America is better suited to making beef than is Japan.  Etc.

Ricardo takes these two points and derives the concept of specialization:

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically

As we look around the actual world, this is largely what we see. Japan, blessed with an intelligent population and hampered by a lack of oil, specializes in exporting electronics and buys oil with the proceeds.  Saudi Arabia, blessed with oil, and not much else, exports oil and purchases electronics.

So, this, then, is Ricardo’s concept of comparative advantage.

Vox raises two objections: mobile capital and mobile labor.

Let us inject mobile capital into our model first. Picture Saudi Arabia in 1950.  It is oil-rich, but technology- and dollar-poor.  It learns that there is oil underneath its sands, but has neither the technology nor the wealth to build the infrastructure to get it out.

Who has the comparative advantage in both lending money and in building oil refineries?  The West.  And we see that it is the West that, indeed, lent the capital and the technology to get the oil out.

(By the way, there’s a line of attack on this argument that I sadly predict: “yeah, well, how did making Saudi Arabia an exporter of oil work out for us? Remember 9/11 !”.  And perhaps my hypothetical interlocutor is correct – perhaps we’d be better off in a world of less available oil and also a poorer Saudi Arabia – but that debate has absolutely nothing to do with comparative advantage.  In fact, I chose Saudi Arabia as the example here specifically to trigger and
then discard this objection).

Anyway, what does the addition of mobile capital do to concept of comparative advantage?  It acts only as a lubricant, to allow the gears to turn a little more freely, and make the inevitable – and mutually beneficial – specialization happen more quickly.  Saudi Arabia could have husbanded its resources in 1950, invested in one early well and refinery, used the profits from that too bootstrap a second well, and so forth, but there is no difference in the inevitable outcome.

Q.E.D.: comparative advantage exists, even with mobile capital.

Now let us look at Vox’s second objection: mobile labor.

Let us picture a Japanese sushi chef.  In Japan, he creates more value per unit of labor by making sushi than he does by, say, driving a bus. If he immigrates to the United States, it is likely that he continues to create more value per unit of labor by making sushi than he does by driving a bus.  In Japan his smart strategy is to sell his sushi-making labor and buy his transportation.  After immigrating to the US his strategy is likely still the same.

Let us consider a second example: a Mexican farmer.  Let us posit that he has skills tied to the particular climate of Mexican farms (agave cactus farming, let us say).  This his smart strategy is to work as a farmer, and hire relatively unskilled labor to mow his lawn or take out his garbage.

If the farmer immigrates to the US, perhaps, North Dakota, the utility of his agave expertise diminishes, and his comparative advantage is now perhaps in unskilled labor.  Perhaps the former farmer now carries trash for others, and uses the proceeds to buy agave, in an exact reversal of his former situation.

Q.E.D.: comparative advantage exists, even with mobile labor.

Because so many people who discuss Ricardo also carry water for legal and social policies that are repugnant to the alt-right, it’s easy to conflate the two, so let me by clear:

In this essay I have not demonstrated, not have I claimed, that:

  1. unchecked immigration is a good thing for the culture of the receiving country
  2. unchecked immigration is a good thing for the economy of the receiving country
  3. immigration of unskilled labor benefits unskilled natives
  4. unchecked importation of capital is good for the governance of the receiving country
  5. unchecked importation of capital is good for the economy of the receiving country

I believe that I have, however, demonstrated :

  1. that the law of comparative advantage exists
  2. that the law of comparative advantage continues to exist even with mobile capital
  3. that the law of comparative advantage continues to exist even with mobile labor

If Vox’s objection is only to one or more of the first five items, we have no quarrel.

If Vox’s objection is to one or more of the latter three items, I’d like to hear him explain – not how populations flows interact poorly with the modern anarcho-tyranical welfare states of the West – but how the law of comparative advantage qua the law of comparative advantage does not exist.