My Continuing Conversation With Ian Fletcher

by Don Boudreaux on March 11, 2011

in Complexity & Emergence, Economics, Myths and Fallacies, Seen and Unseen, Standard of Living, Trade

Mr. Ian Fletcher

Dear Ian:

You continue to misunderstand the case for free trade.  Let’s take two examples from your latest essay (“Free Trade Theory Known to be Wrong – Since 1817!“), which you exported to me yesterday by e-mail.

First, it’s untrue that “The economic argument for free trade is ultimately based on the theory of comparative advantage.”  Comparative advantage does supply one important basis for justifying free trade.  But as Adam Smith showed, specialization and exchange generate net economic gains independently of specialization according to comparative advantage.  Likewise with the greater ability made possible by expanding markets for producers to take advantages of larger economies of scale.

Second, contrary to your claim, the principle of comparative advantage applies even when capital is mobile.  Mobil capital can (and often does) change the pattern of comparative advantage, but this mobility doesn’t eliminate comparative advantage.  The reason is that a producer has a comparative advantage whenever the amount of good A that he (or it) can produce relative to the amount of good B he can produce differs from the amount of good A that some other producer can produce relative to the amount of good B that that other producer can produce.  Unless and until the opportunity cost of producing every good and service in the world is identical for every producer in the world, comparative advantage will exist and provide occasions for mutually productive specialization and trade.

Capital mobility is highly unlikely to bring about such a weird, universal equality in productive capacities.  But if, per chance, it should do so, still no need to worry: see Example 1 (above).

Sincerely,
Donald J. Boudreaux

P.S. Stealing an idea from my former research assistant Mark Perry, I do a little editing to a part of your essay —-

This is precisely the problem Americans experience today: when imports technological advances replace goods produced here by workers with goods produced here by machines, capitalists like the higher profits and consumers like the lower prices—but workers don’t like the lost jobs. Given that consumers and workers are ultimately the same people, this means they may lose more as workers than they gain as consumers.

Contrary to free-trade economic-growth mythology,  there is no theorem in economics which guarantees that workers’ gains will exceed their losses under these circumstances. Things can go either way, which means that free trade innovation can be a losing move for them.  Whether it will be a losing move is a complicated question that turns on a number of different variables, but the threat is real.  The “win-win” guarantee that free traders those who celebrate advances in knowledge and innovation believe in is pure fantasy.
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{ 15 comments }

W.E.Heasley March 11, 2011 at 11:37 am

What little Ian doesn’t understand is that free trade is an axiom. Disproving the proven can be quite the ordeal. Further, little Ian merely needs to examine all that have come before him and see how they could not disprove the proven.
In the long run, all that come forth and try to disprove the free trade axiom merely retreat to the fallacy-cult world of protectionism. They fill their days by trading fallacious ideas with other fallacy believers. Ian is merely a believer, facilitator, perpetuator of the protectionist fallacy and will end by retreating to those enclaves of fallacious economics populated by other similar fallacy believers.

Ike March 11, 2011 at 1:30 pm

Don, he went “all-in” on the thesis that Comparative Advantage is the sole underpinning for Free Trade, but you let him off easy on his continuing fallacy of nationalism.

His response to Ricardo’s “Portuguese Whine”:

But he does not say it would be advantageous to the workers of England! This is precisely the problem Americans experience today: when imports replace goods produced here, capitalists like the higher profits and consumers like the lower prices—but workers don’t like the lost jobs. Given that consumers and workers are ultimately the same people, this means they may lose more as workers than they gain as consumers.

Why not do a little editing there as well?

But he does not say it would be advantageous to the workers of EnglandEast Cincinnati! This is precisely the problem AmericansWest Cincinnatians experience today: when importsthings made in East Cincinnati replace goods produced herein West Cincinnati, capitalistsWest Cincinnatians like the higher profits and consumersOhioans like the lower prices—but workersEast Cincinnatians don’t like the lost jobs. Given that consumersmany Ohioans and workersEast Cincinnatians are ultimately the same people, this means theya small number of East Cincinnatians may lose more as workers than theyOhioans in general gain as consumers.

Miles Stevenson March 11, 2011 at 1:30 pm

In some ways, I sympathize with Ian Fletcher because, as I have experienced myself, comparative advantage can be ridiculously difficult to understand, despite seeming so simple.

I think Mr. Fletcher could stand to learn a lot by listening to the Econtalk episode from 2/8/2010, “Roberts on Smith, Ricardo, and Trade.” Even if he refuses to agree with Smith & Ricardo, it would be wise for him to at the very least attempt to understand his intellectual adversaries.

whotrustedus March 11, 2011 at 1:36 pm

I read “Free Trade Doesn’t Work: What Should it Replace it and Why” from beginning to end. I was a painful read for someone of my bias. I was struck in reading it how much importance Fletcher places on comparative advantage as the justification for free trade. His basic premise is the comparative advantage has all kinds of downsides and therefore free trade is bad. As Don mentions, he ignores any other possible basis. He has long list of flaws in comparative advantage, some possibly valid but many seemingly just made up with no basis.

Further, to his credit, he acknowledges many of the pitfalls of central planning. He acknowledges that government interventions are often crony based and even when possibly not crony based, still fraught with unintended consequences. But even when acknowledging such, he keeps insisting positive government interventions are possible. He falls back the standard “we just need better regulations” theme.

He also seems to blindly accept that other countries: Germany, China, Japan, etc, have figured out how intervene wisely. He takes any positive economic results from those countries and assumes that they are the direct result of interventions.

Personally, I think Fletcher is beholden to the business lobbying group that seems to fund his work. He seems worthy of ignoring, imo.

All that said, I know I have a bias here.

KD March 11, 2011 at 1:47 pm

I wish the two of you would schedule a live debate. I’m sure Ian would decline since Don has a comparative advantage in debating this issue and Ian’s export of his ideas would decline.

Dan Moore March 11, 2011 at 2:03 pm

Don doesn’t necessarily have a comparative advantage in live debating this issue, but he certainly has an absolute advantage. ;)

DG Lesvic March 11, 2011 at 2:04 pm

Comparative Advantage is a good argument, but it’s a litle hard to grasp.

It should be made, but I think the ultimate arguments for free trade must rest on more fundamental and simple insights.

First, foreigners could have nothing to do with unemployment in the US, for they couldn’t tell Americans not to work, not to better house, cloth, feed, and employ one another. Only their own government could do so, and, when it is doing so, and the source of the problem is right under your very nose, it’s idiotic to look abroard fro it.

Secondly, the foreigners could only alleviate unemployment in the US. For after its own government had priced American labor out of the market, cheap imports, reducing the cost of doing business in America, priced it back in. So, without them, there would not be more but fewer jobs in America, and lower paying, for the cheap imports boost the purchasing power of American money and real wages.

Josh March 11, 2011 at 2:23 pm

I have found Fletcher’s posts to be designed to obscure rather than enlighten.

Still, how about Fletcher’s cited argument (if I may rephrase, and nevermind his ulterior reasons for making it) that the disemployment cost (borne by few) may somehow exceed the cost-of-consumption savings experienced by many?

In pure dollars, the cost to the few can’t exceed the savings of the many, perhaps, but we might agree that one person’s loss of $40K earnings has more ‘weight’ than, say, 40,000 people saving $1 each. If I’m not being too strange, the effect of money on happiness is greater the more concentrated it is (I think of it like gravity – a constant force, whose effects are more noticeable in areas where mass is concentrated than where it ain’t).

I don’t think it is safe to ignore this subject. How do we deal with it?

Don March 11, 2011 at 3:02 pm

Am I mistaken, or does this sound like so much Keynesian hogwash? It seems to share the common trait that the economy in America is a steady-state, zero sum game and if we let any money (or jobs) flow out of the country, then nothing of value will flow back in (or be created) ti fill the gap.

Perhaps I’m being to simplistic.

Oscar Varela March 11, 2011 at 10:20 pm

The problem for those like Fletcher who try to argue against free trade is that, even given all the benefits associated with free trade, it is desirable even if there were no benefits. My freedom to choose to trade with someone else needs no justification – I have no burden to prove that such trade is beneficial. The burden is on people like Fletcher, and this is a grave burden, for he has to prove beyond doubt that his reasons are big enough to justify the taking of freedoms away from people. So far, no one of his ilk has even come close to making such a case, for it borders on the dysfunctional for someone to desire to stand in the middle of two adults who desire to freely engage in a trade.

vikingvista March 11, 2011 at 11:33 pm

It’s times like this that I really miss that “Like” button.

Josh March 12, 2011 at 12:30 am

But voluntary trades between two people often have involuntary outcomes for others. Fletcher doesn’t have to work hard for proof, all he has to do is find an example of someone who lost a job due to free-trade enabled competition (or, fine, the invention of the wheel).

The question is, do consumers who benefit from competitive trade owe anything at all to this former employee?

S_M_V March 13, 2011 at 10:36 am

Josh -

By this argument hiring someone has involuntary outcomes for others not hired. Do employers owe something to those they do not hire?

kyle8 March 12, 2011 at 6:07 pm

Ultimately we cannot rely on theory, or reason to make the point for free trade. Happily we don’t have to. Instead we can point to the enormous growth in the economy of the entire world since most nations began lowering trade barriers in the 1980′s. (and the concomitant fact that those nations which did not liberalize have been left in the dust).

Those who argue against it are not arguing with a theory, they are arguing against facts.

Don Boudreaux March 12, 2011 at 8:44 pm

Yep.

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