Counterrevolutionary Meditations

Via Parapundit, an incisive refutation of that hoary old canard of the apologists, propagandists,and courtesans of free trade, the theory of comparative advantage:

First, the current incarnation of free trade is coming under pressure not because people are stupid, but because people are smart. The publics in countries like the United States and Britain have been remarkably tolerant of free trade over the last two decades, because the policy-relevant public "gets it", has been persuaded by economists from Ricardo on down that free trade is a positive-sum good thing. The arguments for protectionism that Chris catalogs are old tropes that we had almost managed to put behind us.

I've done no study, but here's a conjecture: The countries where protectionism is becoming popular are those with both growing current account deficits and shrinking tradables sectors. A shrinking tradables sector is not the same as a declining industry. Declining industries are normal and good. Even the near extinction of manufactures as a whole is okay. But a shrinking tradables sector is not. A shrinking tradables sector means a decline in nation's capacity to produce goods or services of any sort that citizens of other countries want to buy, at competitive prices.

Bear in mind, therefore, that under the conditions of globalization, there are few, if any, goods and services in which America possesses an absolute comparative advantage, such that such tradables could not be produced or provided elsewhere at a lower cost and with a comparable level of expertise. That is what globalization means. This is why both manifacturing is outsourced to Asia and services, inclusive, increasingly, of specialized financial services, are outsourced to countries such as India. The economic conditions of globalization would only be uniformly advantageous if, and only if, America could rationally and warrantably expect to retain indefinitely certain substantive, and derivatively, structural advantages in the production of tradables, relative to other nations - which is risible - or were warranted in assuming that her population were the 'most well endowed', cognitively speaking, such that, on the whole, our people would be in a superior position to benefit from the venture into terra incognita that is the conjunction of the elimination of the material basis of prosperity and its replacement by debt and debt services - which is either the folly of utopianism or utterly disingenuous as advocacy.

Ricardo is dead, and we live in a brave new world where, at least for a while, some countries are willing to trade persistently for debt not backed expanding (if adjusting) tradables capacity on the part of the debtor. This is not a Ricardian paradise. This is economic terra incognito, and citizens are right to be spooked.

Ricardo is taking the dirt nap; and his theory, along with all of its subsequent modifications at the hands of sophisters and calculators, is smoldering on the ash heap of history. Too bad it won't be permitted to rest in peace by all those who will attempt to resuscitate it.