Tag: free trade

The illusion of knowledge

Now, I like Clark of PopeHat, but a challenge is a challenge. And one of the lures I find most irresistible is the cocksure breeziness of the man who thinks he knows what I know perfectly well he does not know. The fact is that no one who thinks “David Riccardo” is a reasonable response to a comment about immigration knows anything about economics. Or, for that matter, free trade.

James Thompson @JamesPsychol
Immigrants only benefit locals if they are better than the local average in ability and character, & make greater contributions

ClarkHat ‏@ClarkHat
The jury finds you guilty of economic ignorance and sentences you to read David Riccardo. 

Casher O’Neill @CasherONeill
@ClarkHat Do not invoke the sacred writings of Ricardo, that will get @voxday on your @@@ if he notices. 😀

ClarkHat ‏@ClarkHat
Vox can attack me on economics if he wants; I’ll fight back.

First, however, I will correct Mr. Thompson and observe that immigrants in sufficient numbers present a significant problem if even they are “better than the local average in ability and character”. Consider the British in India, for example. If immigrants are inferior, they drag the invaded nation down. If they are superior, they tend to set themselves up to rule over the natives in their own interest and at the natives’ expense.

Second, David Ricardo IS economic ignorance. Ricardo believed in a) the cost-of-production theory of value, which is a precursor of Marx’s Labor Theory of Value, b) the price-of-corn theory of profit, and c) the theory of comparative advantage, all of which are widely recognized by modern economists to be intrinsically false. His mode of argument was so hopelessly inept that Joseph Schumpeter even mocked it in his epic History of Economic Analysis.

His interest was in the clear-cut result
of direct, practical significance. In order to get this he cut that
general system to pieces, bundled up as large parts of it as
possible, and put them in cold storage – so that as many things as
possible should be frozen and ‘given’. He then piled one simplifying
assumption upon another until, having really settled everything by
these assumptions, he was left with only a few aggregative variables
between which, given these assumptions, he set up simple one-way
relations so that, in the end, the desired results emerged almost as
tautologies…. The habit of applying results of this character to
the solution of practical problems we shall call the Ricardian Vice.

Third, David Ricardo did not take immigration into account when he copied the concept from Robert Torrens, who introduced the theory of comparative advantage in An Essay on the External Corn Trade. As Ambrose Evans-Pritcher noted:

Ricardo described a world where free trade in goods was opening up, but labour markets remained largely closed. This is no longer the case. Globalisation bids up the wages of high-skilled engineers or software analysts towards international levels wherever they live.

Since Ricardo never took immigration into account, we shall do so on his behalf. I direct your attention to his original postulates from On the Principles of Political Economy and Taxation.

Unit Labor Costs

Britain 100 cloth 110 wine
Portugal 90 cloth 80 wine

In the absence of transportation costs, it is efficient for Britain to produce cloth, and Portugal to produce wine, since, assuming that the two goods trade at an equal price (1 unit of cloth for 1 unit of wine) Britain can then obtain wine at a cost of 100 labor units by producing cloth and trading, rather than 110 units by producing the wine itself, and Portugal can obtain cloth at a cost of 80 units by trade rather than 90 by production.

Now we introduce immigration into the equation and the free movement of labor. Obviously both wine and cloth laborers will move to Britain, since they believe they will receive an 11 percent raise and a 38 percent raise respectively. However, once they get there, the doubling of the labor supply in Britain this immigration causes will quickly cause the price of labor to fall. It will fall considerably.

This is great for Britain! It can now produce the same amount of cloth as before for price of only 47.5 units of labor and the same amount of wine for 47.5 labor units as well, thereby obtaining an equal quantity of both wine and cloth for less than what it used to cost to produce the wine alone. This will vastly increase profits in the British cloth and wine industries, as well as creating a windfall for the financial industry investing those profits! Granted, this is because wages have fallen by 50 percent; other consequences include how the newly unemployed British workers go on the dole and turn to crime, the new Portuguese immigrants are heavily inclined to vote for the Labour Party thereby imbalancing the British political system, and British women begin bearing half-Portuguese children and lower the average IQ of the next generation from 100 to 97.5, but those are mostly non-economic factors and therefore don’t count as far as economists are concerned.

They sound suspiciously familiar, though, don’t they?

In conclusion, we can see that open immigration and the free movement of labor is not only economically desirable, but is vastly preferable to comparative advantage by a factor of 105/200 and to autarky by a factor of 105/210. QED. What else can we conclude from this exercise of the Ricardian Vice?

  1. Ricardo implicitly postulated the immobility of labor.
  2. The mobility of labor not only fails to disprove comparative advantage, but actually strengthens the case for even freer trade… at least if you’re in the higher labor cost country and you only look at the labor costs.
  3. The mobility of labor will eliminate international trade since everyone will be living in Britain.
  4. The mobility of labor operates to the detriment of labor.
  5. Ricardo’s logic is remarkably stupid.

But my argument against free trade does not rest on David Ricardo’s intellectual corpse. It is not even, strictly speaking, economic in nature. This is the four-step Vox Day Argument Against Free Trade.

  1. Free trade, in its true, complete, and intellectually coherent
    form, is not limited to the free movement of goods, but includes the
    free movement of capital and labor as well. (The “invisible judicial line” doesn’t magically become visible simply because human bodies are involved.) 
  2. The difference between domestic economies and the global
    international economy is not trivial, but is substantive, material, and
    based on significant genetic, cultural, traditional, and legal
    differences between various self-identified peoples.
  3. Free trade is totally incompatible with national sovereignty,
    democracy, and self-determination, as well as the existence of
    independent nation-states with the right and ability to set their own
    laws according to the preferences of their nationals.
  4. Therefore, free trade must be opposed by every sovereign,
    democratic, or self-determined people, be they American, Chinese,
    German, or Zambian, who wish to preserve themselves as a free and
    distinct nation possessed of its own culture, traditions, and laws.

Rethinking their strategy

The CDC belatedly admits the obvious:

The Centers for Disease Control and Prevention (CDC) on Monday said it is starting to “rethink” its Ebola strategy after the first-ever US transmission of the virus put a “relatively large” number of healthcare workers at risk.

“We’re concerned, and unfortunately would not be surprised if we did see additional [Ebola] cases in healthcare workers who also provided care to the index patient,” CDC Director Tom Frieden said.

A nurse at Texas Presbyterian Hospital in Dallas was diagnosed with Ebola over the weekend, raising questions about the procedures that were followed when treating Thomas Eric Duncan. The nurse’s infection “doesn’t change the fact that it’s possible to take care of Ebola safely, but it does change, substantially, how we approach it,” Frieden said.

Notice that phrase: “it’s possible to take care of Ebola safely”. Possible. You are permitting Ebola victims to freely enter the USA because you MIGHT be able to safely take care of them?

They’ve already been wrong once. Who wants to bet his life that they’ve nailed it this time? They might have, but then again, perhaps not. What they need to rethink is preventing anyone who has been in Africa within the last two months from crossing any Western border.

See how useful borders can be, at least in theory, free traders?

Inequality and Piketty

Yesterday I was asked about Piketty’s argument that free trade reduces income equality. This requires an answer on several levels.

First, income inequality matters. The Keynesians claim that it doesn’t matter if Peter owes Paul or Paul owes Peter. This is observably false, just as it matters if there is a middle class that is economically active versus an economically dominant aristocracy that is primarily interested in conspicuous consumption. This isn’t some sort of new Levellism, merely a logical observation of fact.

Second, this is a literally Marxist perspective. It may surprise some to know that free trade is a Marxist position. Look it up. Free trade is not anticommunist, it is one aspect of communism.

Third, like most Marxist principles, this is wrong. Opening up an economy to additional outside players, most of whom have proved to be the apex predators in their native economies, means that the average individual’s income is going to go down because the outside player is not going to enter the market if it cannot extract sufficient resources to justify their capital expenses in penetrating it.

Now, I haven’t read Piketty and I see no reason to do so in the future. This is because he is attempting to sell a concept that is neither new nor true.

The truth about free trade

Free trade advocates are very often dishonest and attempt to claim that while they support the free movement of capital and goods, they do not support the free movement of people. But this is nonsense, because the free movement of people is intrinsically necessary for free trade in both labor and services. Furthermore, observe that the European Union’s “Four Freedoms” are explicit on this point:

One of the “Four Freedoms” of the Single Market is free movement of persons – along with free movement of capital, goods and services. Having a Single Market means having free movement of products (goods and services) and factors of production (capital and labour). Saying the UK wants to restrict free movement of persons but stay in the Single Market makes precisely as much/little sense (and for precisely the same reasons) as would saying “The UK wants to impose tariffs on imports from Germany and France but remain in the Single Market” or “The UK wants to impose capital controls on investment into Italy but remain in the Single Market”. Restricting free movement would, in substance, be withdrawing from the Single Market and hence in substance withdrawing from the EU. The substantive question is unambiguous. The only thing left to consider is the semantic question – whether withdrawing from free movement would be called “withdrawing from the EU” or not. Since the EU is the zone of EU citizenship and EU citizenship means free movement, the answer must be “Yes – the UK would not be in the EU”, though we might perhaps still be in some other form of “Europe”.

The second reason it is not mere word games is that many schemes for “withdrawing from the European Union” involve continuing to participate in some other form of “Europe” – e.g. the “Norway option” of continuing to be in the European Economic Area. “Out” hasn’t normally meant “no Europe”, merely “exiting the European Union”. But exiting the European Union is precisely what any form of restriction on the free movement of persons entails, by definition.

Past generations can be forgiven for not grasping that free trade meant the end of national sovereignty and the end of the very concept of “the nation”. They did not understand how inexpensive and easy travel would eventually become. But now we know better. And this is the real reason that “nationalism” has been attacked as  an intrinsic and dangerous evil; it is the strong point around which resistance to the universal pillaging of the global elite’s attempt to construct its vision of Eine Welt, Eine Art, Eine Ordnung.

Patient #2?

A possible case of Ebola in Washington DC:

A patient with Ebola-like symptoms is being treated at Howard University Hospital in Washington, D.C., a hospital spokesperson confirmed late Friday morning. The patient had traveled to Nigeria recently. That person has been admitted to the hospital in stable condition, and is being isolated. The medical team is working with the CDC and other authorities to monitor the patient’s condition.

Shut down air travel from Africa. Now. It’s a good thing this possible case is in DC, as perhaps the disease in the near vicinity will sufficiently alarm Congress to force ObolaObama to finally take action.

And if the CDC wants to avoid panicking the public, perhaps they should stop making statements that make them look like completely incompetent idiots.

Tom Frieden, director of the Centers for Disease Control and Prevention,
on Friday said restricting travel between the U.S. and West Africa
would likely “backfire” and put Americans more at risk of contracting
Ebola…. “Even if we tried to close the border, it wouldn’t work,” the top health official added. “People have a right to return. People transiting through could come in. And it would backfire, because by isolating these countries, it’ll make it harder to help them, it will spread more there and we’d be more likely to be exposed here.”

That’s complete horseshit. The moron may as well have painted a target in his back in the event Americans start dying from a disease that he could have, and should have, prevented from entering the country.

Competitive asset-stripping

Russia calls the globalist bluff:

Russian courts could get the
green light to seize foreign assets on Russian territory under a draft
law intended as a response to Western sanctions over the Ukraine crisis. The draft, which was submitted to parliament on Wednesday
by a pro-Kremlin deputy, would also allow state compensation for an
individual whose property is seized in foreign jurisdictions.
Italian authorities this week seized property worth about
30 million euros ($40 million) belonging to companies controlled by
Arkady Rotenberg, an ally of President Vladimir Putin targeted by the
U.S. and European Union sanctions.
The draft law, published on a parliamentary database,
would allow for compensation for Russian citizens who suffer because of
an “unlawful court act” in a foreign jurisdiction and clear the way to
foreign state assets in Russia being seized, even if they are subject to
international immunity.

Asset-stripping sanctions aren’t going to be very effective if the Russians simply compensate those whose assets are stripped by taking them from Western companies with Russian assets. This could have some interesting knock-on effects in the NBA.

And isn’t it remarkable how the sanctity of free trade is so readily disrupted when something is at stake besides the livelihoods and standards of living of the working and middle classes?

The end of comparative advantage

As I have repeatedly pointed out for several years, David Ricardo’s Law of Comparative Advantage has been shown to be based upon false assumptions. Now the mainstream economists are beginning to recognize this:

David Ricardo’s Theory of Comparative Advantage has broken down after 200 years, or so I learned at the Lindau forum of Nobel laureates in Bavaria.

The theory published in 1817 has been a guiding principle of free trade, taken as a given by every student of economics in the modern era. It has served us well, but just as Newton’s theories ran into limits and were overtaken by Einstein’s relativity, comparative advantage no longer explains the world.

Under Ricardo’s model, inequality was supposed to narrow within countries as globalisation accelerated exponentially in the Nineties. Instead it is getting wider….

Ricardo described a world where free trade in goods was opening up, but
labour markets remained largely closed. This is no longer the case.
Globalisation bids up the wages of high-skilled engineers or software
analysts towards international levels wherever they live.

The Nobel laureates at Lindau aren’t willing to give up on globalization yet (although they should), but the cracks in the economic wall are showing as they express their fears that it is “going horribly wrong”. But it’s not going wrong. It’s going the only way it could possibly have gone.

Free trade is incompatible with national sovereignty. International
labor mobility is incompatible with the very existence of nations. And the heterogeneous populations are economically detrimental and a material barrier to the growth of capital and national wealth. I shall repeat my core argument against free trade, which I first articulated in 2012 following a quasi-debate with Gary North:

1. Free trade, in its true, complete, and intellectually coherent
form, is not limited to the free movement of goods, but includes the
free movement of capital and labor as well. (The “invisible judicial line” doesn’t magically become visible when
because human bodies are involved.)

2. The difference between domestic economies and the global
international economy is not trivial, but is substantive, material, and
based on significant genetic, cultural, traditional, and legal
differences between various self-identified peoples.

3. Free trade is totally incompatible with national sovereignty,
democracy, and self-determination, as well as the existence of
independent nation-states with the right and ability to set their own
laws according to the preferences of their residents.

4. Therefore, free trade must be opposed by every sovereign,
democratic, or self-determined people, be they American, Chinese,
German, or Zambian, who wish to preserve themselves as a free and
distinct nation possessed of its own culture, traditions, and laws.

The H1B lie

It is readily apparent that there is no shortage of American tech workers when the Americans are being let go in order to hire the cheaper Indians, either via offshore outsourcing or immigration:

At A.B.’s company, about 220 IT jobs have been lost to offshore outsourcing over the last year. A.B. is telling the story because, initially, there was little knowledge among fellow employees about H-1B visa holders and how they are used. They didn’t know that offshore outsourcing firms are the largest users of H-1B visas, or exactly how this visa facilitates IT job losses in the U.S.

“I think once we learned about it, we became angrier toward the U.S. government than we were with the people that were over here from India,” A.B. said, “because the government is allowing this.”

The IT workers at this firm first learned of the offshore outsourcing threat through rumors. Later, the IT staff was called into an auditorium and heard directly from the CIO about the plan to replace them. It would take months for the transition to be completed, in part because of some new system installations.

Many younger IT workers found jobs and left. Mainframe workers were apparently in demand and also able to find new jobs. But older workers with skills in open systems, storage and SAN faced a harder time. About half the IT staffers, mostly the older ones, would stay to the end.

Training the replacement workers involved holding morning-long WebEx meetings several times a week with offshore outsourcing staff based in India. The sessions were recorded as details about the environment, including diagrams and scripts, were shared.

The entire foundation of free trade is a lie. There are multiple flaws in David Ricardo’s comparative advantage argument that I have previously pointed out – do a search or go through the Free Trade tag if you’re interested. So it should be totally unsurprising that the justifications for the H1B visas are lies as well.

Free Trade is global fascism

I worked that out on my own, but it turned out to be unnecessary. This document from the 1967 Congressional Record should suffice to demonstrate that conservatives who favor free trade are being played like Ronald Reagan signing the 1986 Immigration Amnesty under the belief that it would reduce future immigration from Mexico:

“For the widespread development of the multinational corporation is one of our major accomplishments in the years since the war, though its meaning and importance have not been generally understood. For the first time in history man has at his command an instrument that enables him to employ resource flexibility to meet the needs of peopels all over the world. Today a corporate management in Detroit or New York or London or Dusseldorf may decide that it can best serve the market of country Z by combining the resources of country X with labor and plan facilities in country Y – and it may alter that decision 6 months from now if changes occur in costs or price or transport. It is the ability to look out over the world and freely survey all possible sources of production… that is enabling man to employ the world’s finite stock of resources with a new degree of efficiency for the benefit of all mandkind.

But to fulfill its full potential the multinational corporation must be able to operate with little regard for national boundaries – or, in other words, for restrictions imposed by individual national governments.

To achieve such a free trading environment we must do far more than merely reduce or eliminate tariffs. We must move in the direction of common fiscal concepts, a common monetary policy, and common ideas of commercial responsibility. Already the economically advanced nations have made some progress in all of these areas through such agencies as the OECD and the committees it has sponsored, the Group of Ten, and the IMF, but we still have a long way to go. In my view, we could steer a faster and more direct course… by agreeing that what we seek at the end of the voyage is the full realization of the benefits of a world economy.

Implied in this, of course, is a considerable erosion of the rigid concepts of national sovereignty, but that erosion is taking place every day as national economies grow increasingly interdependent, and I think it desirable that this process be consciously continued. What I am recommending is nothing so unreal and idealistic as a world government, since I have spent too many years in the guerrilla warfare of practical diplomacy to be bemused by utopian visions. But it seems beyond question that modern business – sustained and reinforced by modern technology – has outgrown the constrictive limits of the antiquated political structures in which most of the world is organized, and that itself is a political fact which cannot be ignored. For the explosion of business beyond national borders will tend to create needs and pressures that can help alter political structures to fit the requirements of modern man far more adequately than the present crazy quilt of small national states. And meanwhile, commercial, monetary, and antitrust policies – and even the domiciliary supervision of earth-straddling corporations – will have to be increasingly entrusted to supranational institutions….

We will never be able to put the world’s resources to use with full efficiency so long as business decisions are frustrated by a multiplicity of different restrictions by relatively small nation states that are based on parochial considerations, reflect no common philosophy, and are keyed to no common goal.

Fascists are always all about “efficiency”. If the thought of global efficiency doesn’t put a shiver down the spine of a God-fearing free trader and cause him to rethink his position, well, there isn’t much hope for him. Note that “the idea behind getting rid of these barriers wasn’t about free trade, it was about reorganizing the world so that corporations could manage resources for “the benefit of mankind””

Corporate resource management in the name of freedom. That’s what “free trade” is.

Immigration: a temporal comparison

Steve Sailer draws attention to a failed social experiment in mass immigration.

Spain 2007: Imagine what would happen if a prosperous Western nation threw open its borders, allowing immigrants to flood in virtually unchecked. Soaring unemployment, overstretched social services, rising crime, even rioting in the streets? Not in Spain…. Over the past decade, the traditionally homogeneous country has become a sort of open-door laboratory on immigration. Spain has absorbed more than 3 million foreigners from places as diverse as Romania, Morocco, and South America. More than 11% of the country’s 44 million residents are now foreign-born, one of the highest proportions in Europe. With hundreds of thousands more arriving each year, Spain could soon reach the U.S. rate of 12.9%. And it doesn’t seem to have hurt much. Spain is Europe’s best-performing major economy, with growth averaging 3.1% over the past five years.
– Spain: Immigrants Welcome, May 20, 2007

Spain 2013: A strong tourist season helped the unemployment rate dip to 26.3
percent from 27.2 percent in the first quarter, the National Statistics
Institute said on Thursday. That left 5.98 million people out of work – a far greater proportion
of the population that every other euro zone country bar Greece.
–  Spain’s Unemployment Rate Falls, July 25, 2013

That should suffice to explode the myth that “Immigration is good for the economy”.  That is worse unemployment than Spain suffered during the Great Depression of the 1930s; for that matter, it is worse than the USA experienced during the Great Depression.

But there is more to it than just the problem of excess immigration. As I have pointed out, the free trade in labor has increasingly driven Spain’s native population out of the country.

“One interpretation of this finding is thus.  Given the quality of its institutions, Spain is due
for a lower wage structure, with lower quality jobs, as they might be
perceived by the workers themselves.  To some extent, Spain will achieve
this new equilibrium by population adjustment and exchange.  Spanish
engineers will move to southern Germany and Ecuadorans will move to
Spain.”

Free trade is incompatible with national sovereignty and national identity. It is, intrinsically and quite literally, anti-American, anti-semitic, and anti-everything except big corporations and even bigger governments.  Never forget that Karl Marx was a free trader for precisely that reason. You cannot claim to support either the U.S. Constitution or the American nation and also support free trade.

Free trade results in “equilibrium by population adjustment and exchange”.  In practical terms, that means 50 percent of your children will have to live in another country.