Mr. Roberts states that he is amazed that libertarians defend the international free trade in the face of mobility of factors. As he says, “If libertarians favor the international redistribution of income, why do they oppose the domestic redistribution of income?”
“Britain began to prohibit or seriously tax French wine imports in the late 1600s, allowing local beverage makers to earn enormous rents. Moreover, British investments in Portugal formed another interest group that benefited from protection by switching to wine production. The British had long tried to develop a wine industry in Portugal to serve as a bulwark against France...
The point Mr. Boudreaux is that comparative advantage depends on the differing internal opportunity costs of producing tradable goods. Those ratios depend on factor endowments. If the factors can leave, they do not specialize within the country where they have comparative advantage. They can move abroad where there is absolute advantage.
When Boudreaux writes that comparative advantage does not result from different countries having different internal cost ratios or different opportunity costs of producing one good in terms of another, he puts himself at odds with international trade theory. As economists have known for two centuries, the opportunity cost of one good in terms of another depends on the factors of production.
If Paul Craig Roberts is right about capital flight in a globalized world being devastating to the American standard of living and quite beneficial to Asian nations (which is not a position I’m entirely convinced of yet), then I’d like to hear his thoughts about “how best to recreate the conditions under which free trade produces shared gains.” It would seem to me that draconian measures would be required to make capital immobile, and these efforts would likely fail to maintain American well-being. What does Mr. Roberts have in mind?
Dr. Roberts is misled by the emphasis on the specific institutional assumptions used by international-trade theorists — institutional assumptions used to reveal most clearly the relevance of their work to the study of international trade. But it has been long recognized by economists, especially international-trade economists, that the principle of comparative advantage explains why individual people — you, me, Paul Krugman, Paul Craig Roberts, Paul McCartney, every productive member of society — specializes and trades.
I’m honored that Paul Craig Roberts took time to respond to my post. I preface my remarks here by saying that I write as an economist, not as a libertarian.
Dr. Roberts is not quite right when he says that “comparative advantage results from different countries having different internal cost ratios.”
Bruce Bartlett says too much has been made of the Keynes-Hitler connection.
Gene Callahan is mistaken. Factor mobility does not determine the difference between regional trade and international trade. Factor mobility determines whether international trade is mutually beneficial.International trade and regional trade are the same only under world government.
If, as he admits, Don Boudreaux ”cannot decipher” my argument about factor immobility and comparative advantage, on what basis does he undertake to correct me?
