Guarding the temple of comparative advantage

George Borjas makes a good point on the respective roles of ideology and evidence in the economics profession, arguing that not all fields are the same:

There are some fields in economics--for example, labor--that are heavily empirical. The voice of the data rules. There are other fields in economics that are much less empirical and have a much stronger tradition of theoretically derived prescriptions. For example, trade.

It is telling that when labor economists decided to study the costs and benefits of immigration, they chose to do so not by deriving ever fancier models, but by looking at data and interpreting the data with the help of economic models. My impression of the debate over trade is very different. It has been mostly guided by the insights gleaned from ever fancier models, and the use of empirical analysis to get some validation on those theories is a much more recent phenomenon.

...

So maybe we need to modify the underlying hypothesis of the ongoing debate slightly. Not all economists are created equal. Some economists are much more willing to let the data speak--and these attitudes, I suspect, vary strongly by field.

This is clearly right, although today trade is an intensely empirical field. (However, empirical work in trade does remain much more strongly grounded in theory compared to labor, which on balance should be a good thing). When I was a graduate student in the 1980s, you would have been warned away from writing an empirical dissertation in trade if you had any academic pretensions. Empirical work was for those who wanted to end up in consulting firms or international organizations. Today it would be nearly impossible to get an academic job in trade if your job market does not have some decent regressions paying due attention to identification issues and the like.

Here is an alternative hypothesis. One reason that trade economists have an almost-religious attachment to free trade may be the aura that attaches to the doctrine of comparative advantage. A well known story illustrates the point. Paul Samuelson was once confronted by a prominent mathematician who doubted that economics was a science and challenged Samuelson to produce one result in economics that was at one true and non-trivial. Samuelson confesses to scratching his head for a while, but eventually he had his answer: the doctrine of comparative advantage. A mathematician can easily figure out that the doctrine is true. And it is certainly non-trivial: look at how many people don't get it. ("But we cannot possibly gain from trade; we have nothing to export since we produce everything more expensively than rich countries...") 

Trade economists tend to feel that they are the guardians of this most lofty theorem of them all. That makes them very protective of the doctrine and contemptuous of the barbarians who do not "get it."

Comments

[paine]

comparative advantage
ie barter ratio based
cross border trade
in the real world
is a hypogriff

it has never
and can never
operated in a system where credit instruments
indefinitely delay closure to ratio only trading

the reality is trade
operates thru slow adjustment processes
that never complete
themselves
absolute price
disadvantages
lead to slow bleeds
and gaps reduced
far more often
by income clots
and
countering moves'
in relative prices

credit markets can suspend
rapid forex adjustments

its like a boxer
who can hold up his opponent
keep him from a knock down
all the better to unceasingly
beat
the hell out of him

[wjd123]

Many economist are like Bush, they cherry pick information in order to sell a policy. For instance in the free trade debates economist will emphasize the benefits of comparative advantage while failing to mention the disadvantages of factor-price equalization for well paid workers in developed countries. This is tantamount to putting aside a century of laws and regulations that have been enacted to protect workers, consumers. and the environment in order to pursue a pet project.

In the name of free trade they have set aside a century of our economic morality as easily as Bush set aside a century of civil liberties. They have trusted in the invisible hand to make things right while millions of workers and communities have been destroyed. The have shown as much disregard for the consequences of their actions as Bush has shown for the consequences of his actions in pursuing his war in Iraq. They have used the mantra of "comparative advantage" to justify this destruction of economic morality just as Bush justifies his destruction in Iraq with the mantra "war on terror."

These economist have presided over one of the worst economic blunders in the history of America just as Bush has presided over one of the worst foreign policy blunders. Many of them are just as much in denial over their failures.

We need a policy change in the way we practice free trade in order to protect labor against abuse, along with consumers and our environment--to save our economic morality. Instead, what we get from economist is more talk about the shock and awe of free trade and comparative advantage.

[paine]

wjd
u need to figure out why its not a blunder ...for certain ...interests

find who benefits and see if they could keep this rig job going
despite
a long run
uncomped loser
jobbler majority
to translate into trade theory jabber-talky
where real producers and
social constructs
like systems of exchange
and its institutions
which allow no producing agents
to appropriate
producing agents value added
ie
who's " schein-factor"
gains
relative revenue share
from the globe's
real productive " factors"

[paine]

"and
countering moves'
in relative prices"

this needs unpacking

the pure price adjustment assumption
even in the absence of tariffs
has such serious "real "
day after day short falls and incompleteness
that quantity effects
occur

basically all would be well
if edgeworth recontracting could go on
till relative prices
reach
their intrinsic
pareto optimal
exchange ratios
before any real trade occurs
and of course any more production or consumption

wonderland assumption numero uno eh ???

oh ya with
an infinite future to expect
and even without
wild non linearities in production
or a heavy peppering of externalities
pecuniary and real
this recontracting can't end

time goes side ways for ....ever and ever

oz has no trading day that's not
a bill murray
ground hog's day

[Per Kurowski]

As it could be relevant to a debate on empiricism and modeling, which of course is never an either or but whatever you can lay your hands on and constructively use, let me, as a modest street-walking economist, copy below a brief comment on “research data” that I made at the World Bank last year. Before that though, in the name of transparency, I should perhaps disclose that I am harboring some serious entrepreneurial intentions about a project titled “A guaranteed Ph.D.-free University” (Any investors?)

My comment then: “But to move forward in this and many new areas, we have to be able to fix some huge knowledge gaps that still exist within our Knowledge Bank, gaps which mostly result from either the fact that there are no data to research or that the data are so old and have been squeezed and resqueezed way beyond the last drop. Coming as I do from the private sector, I cannot think of one single proposal that I would dare to present to the board of a corporation that includes data from a decade ago, and not data of this year, this month, today, last hour, or even perhaps right now. We must refuse being tail-wagged by the lack of data and must find new and innovative ways of getting our hands on some accurate, timely, and juicy research data. We also need to be able to monitor the outcome of our policy recommendations much faster, preferably in real time, and all this indicates to me that the Bank faces some very important information-gathering and information-processing challenges. Another thing I would also do, right now, is to require that a panel review the data to be used in any research, ex ante, not only to avoid the waste of resources but also to avoid having to live with dubious research that, ex post, is so much harder to criticize on account of professional solidarity.”

[robertdfeinman]

I think there are two types of policy proponents (I hesitate to call them liberal vs conservative).

One group flies at 20,000 feet. They see the big picture. The are fond of quoting aggregate figures and averages. They also believe that the forces of the market (or tax policy, or whatever nostrum they are pushing) will work out for the best "eventually".

They are the (perhaps inadvertent) tools of those who benefit from the status quo.

The other group walks among the multitudes. They see the individual injustices in life. They are focused on anecdotal evidence not averages. They want policies put in place that correct immediate problems now, not eventually.

They are the empathetic and usually have something in their own background which has led to this outlook. The fact is that a patrician joins this group rarely, which is why there has only been one FDR in the past 100 years.

[Per Kurowski]

paine says “basically all would be well - if edgeworth recontracting could go on - till relative prices - reach - their intrinsic - pareto optimal - exchange ratios - before any real trade occurs - and of course any more production or consumption”

By which paine reminds us that the travelling frequently matters much more than the destination.

[Ali Sohail (pakistan)]

An economist should learn to draw boundaries. Debate is healthy! but it has its limitations. There is only soo much one specific policy debate can achieve. We all understand the draw backs of each side of the story interms of policy of trade.
We have exhausted our skilled resource heads. The time has come to stop pondering on the degree of the dilema each policy stand has!
In my view, rather than getting lost in the policy debate. A broader stance by each regime should rather be based on which segment of the society within each country each government wants to support, what would be its balancing act towards the relatively suffering segment of its society. (that is to give a politically viable directive)
In specific for the developing world, the goal and policy stand supported by each regime should be drawn in line with its progression not solely on economic growth or interms of mode of strategy to industralization but rather a relative directive towards economic income subsistence levels, which should be modified i.e it should allows for a decent meal 3 times day, a few glasses on wine, 5-6 unbranded clothing wear to work through a month, a shelter with basic cooking facilites, basic health, maybe not a cure for cancer for all.. but basic atleast, good schooling! In all.. basic living standards!
Implying that a human being can have a decent life, decent measured in terms of a good evevning out, a happy, hard fun loving day and something to fall back on, freedom of thought, practice and right! that should be good enough. Otherwise, the human instinct of inequality and always wanting more, wanting to be the power figure, well sir thats human nature and thats something each indivdual needs to work on with on an personal level rather than turning the head and making our personal aspirations global or government level issues.

In other words, meaning, that the income levels should not only be looked interms of the by-product of industralisation but rather as a stand pre and post policy.
In addition, i feel income inequality is a bad indicator for all times to come. Inequality is inevitable and a by-product of the capitalistic system we live in, which regardless of how fancy we may want to make it, by giving it new notions of modern and new mode capitalism, would always remain capitalism in its pure jist.

A point to note: In response to the post by wjd123 based on American foreign policy: History tells us Egoisitic decision or an egoisitic lifestyle whether it be on a individual, national or international level will always have an eventual alienating outcome.

[paine]

per
"travelling frequently matters much more than the destination."

especially
when we can never....arrive

[paine]

ali s :

"A broader stance by each regime should rather be based on which segment of the society within each country each government wants to support"

i suggest this is what goes down allows already
24/7 /365

our task
as outsiders
keep clear
on which side
the present
or candidate regime is on

and only by looking
at its actions
not its honey suckle words

especially not
its self serving dogmas
usually served up
disguised as
pseudo scientific rationalizations

[Per Kurowski]

Paine says: “our task - as outsiders - keep clear - on which side - the present - or candidate regime is on - and only by looking - at its actions - not its honey suckle words - especially not - its self serving dogmas - usually served up - disguised as - pseudo scientific rationalizations”

Could not agree with him more. That way the world would have long time ago already discovered that Hugo Chavez in Venezuela, after almost nine years in government, is by selling the gas locally at less than 10 us cents per gallon managing to transfer about 10% of GDP from the poorest of the poor to those who drive cars; something which obviously cannot have anything to do with any socialism, of any century, but seems more to be a model for an “Asocialism of the XXI century”… no matter what the honey suckle words or the beating at Bush could mean.

[Per Kurowski]

Ali Sohail argues for measuring how countries allow their people to have “a decent meal 3 times day, a few glasses on wine, 5-6 unbranded clothing wear to work through a month, a shelter with basic cooking facilities, basic health, maybe not a cure for cancer for all.. but basic at least, good schooling! In all.. basic living standards!”

What a dream measure in terms that it will most probably remain a dream since it would measure in a too concrete manner the politician’s delivery on the promises they made. By the way to the above measure I would only add the need for a relative sense of safety.

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