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?
If I may be permitted to decipher my argument–which is the argument of international trade theory and is totally independent of me and any personal preferences for a different reality that I might have to the contrary–comparative advantage results from different countries having different internal cost ratios. The reason it can pay for countries to specialize and trade even in cases where some countries can produce the entire range of tradable goods more cheaply than others is the different opportunity costs of producing the tradable goods within each country. In the famous example, although Portugal can produce both cloth and wine more cheaply than can England, the opportunity cost of cloth in terms of wine is favorable to Portugal specializing in wine. In England the internal cost ratio favors England’s production of cloth. It is the differing internal opportunity costs of one good in terms of another that results in total output increasing under specialization.
Note however, that, as it is cheaper to produce cloth and wine in Portugal, if English factors of production are internationally mobile, it pays English capitalists to move factors of production to Portugal and produce both goods there. There would be an international redistribution of income and wealth from England to Portugal.
What I have done is to point out two new real world developments, the consequence of which is that first world capital and technology are no longer confined to the first world, where labor costs are similar, and are now moving to the absolute advantage of cheap third world labor.
It follows that there is an international redistribution of income and wealth that will become more noticeable as the new development unfolds.
I am amazed that some libertarians defend this redistribution on the grounds that the Asians could benefit by more than Americans (first world in general) would lose. If libertarians favor the international redistribution of income, why do they oppose the domestic redistribution of income?
Libertarians should understand that they are not arguing with me. They are arguing with international trade theory. If they can disprove existing theory and supply a new one, they should do so. A Nobel prize awaits.
Posted by Paul Craig Roberts