Why Free Trade is in Trouble
Last night I was reading a piece that Paul Samuelson wrote 12 years ago titled “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization”. It talks about comparative advantage and how this principle is a core long term economic fact and will prevail.
This is no doubt still true, and the piece does concede that in the Short Term things could get out of kilter.
My take on all this is that a combination of the internet/software/technology, the comparative advantage that the US rode out of WWII has now been disseminated around the world, a world where wages are lower than here. What this means is that many areas of comparative advantage in the US have disappeared. What the US has to do is, i.e. figure out new areas where we still have comparative advantage in basic production operations. The current situation is highly focused on producing products which are produced by highly educated people whose ideas are easily stolen by the mechanisms in place. This results in reducing the comparative advantage of the more efficient basic US production worker.
And that, I would offer, has brewed the middle class revolution.
Maybe tight limits of transference of software and technology for use in foreign countries, whether the software/technology is used by foreign companies or foreign subsidiaries of US companies. US production facilities would use the highest level of technology and older generations could be leased/sold to foreign entities. This would mean US based workers would have the advantage of the core comparative advantage that we possess.
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