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Roberts on Globalization -- Again!

Via an article on EconLog I learned that Paul Craig Roberts has published another article arguing against globalization. This new article has absolutely no new content, it's just a restatement of the position he's held for some time:

Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today's case, to a relatively few countries with abundant cheap labor. In this situation, there are no longer shared gains - some countries win and others lose. [source]

Arnold Kling dismisses him:

This is absolutely false. Ricardian comparative advantage can exist within a country. It can exist with mobile factors of production. [source]

My apologies to Arnold, but — not so fast!

Roberts isn't claiming that comparative advantage cannot exist within a country, or is incompatible with mobile factors of production. That's a straw man. He's only claiming that factor mobility can impair comparative advantage and the resulting decline in trade can actually harm one of the ex-traders. Roberts is right about that.

Last October I published an essay arguing that globalization is good that includes a simple numeric example demonstrating the effect Roberts is claiming. (Read from the beginning, through the section headed Factor Mobility. While you're at it, read the whole thing. It's good.)

What Roberts is wrong about is his view that national trade policy should be structured to impede the free movement of factors of production. My position is that factor mobility should nevertheless be unimpeded.

Mobile factors of production tend to go to those places where they are the most productive, where they produce the most output at the least cost. For the government to impede this process is to forcibly prevent this efficiency, holding down total production and making the world poorer than it otherwise would have been. Stated another way, it is to forcibly prevent individuals from acting as peaceful profit-maximizers.

The moral reason to support free trade, including factor mobility, is that it avoids the initiation of physical force. The economic reason, subordinate to the moral one, is that free trade (which implicitly means larger markets) increases the degree of specialization in the economy which enhances both productivity and comparative advantage and therefore trade. Factor mobility raises the basic level of production, and then increased specialization causes growth from that already higher level.

(That specialization creates comparative advantage and trade is clear — witness the existence of industry "centers" such as Silicon Valley, instead of diffuse employment across the whole country. I discuss this in more detail in my pro-globalization essay.)

Unemployment is caused by excessive wage rates, which may be caused by (as Arnold mentions) fiscal and monetary policy. Globalization may cause rebalancing of employment among the industries, but not unemployment on net, because overproduction is impossible — there is always demand for labor. I discuss that matter at great length in my pro-globalization essay.

I have no sympathy for Roberts's example American software engineers making $150K/yr being replaced by Indian engineers making $20K/yr. What that example says to me is that the American engineers had been grossly overpaid. Their employer should be free to accept the competing bids of the Indian engineers on precisely the same grounds that you as an individual consumer should be allowed to shop around for the lowest prices on the things you buy. The fact that the American engineers grew accustomed to a $150K/yr lifestyle does not entitle them to it. However, such a lavish income should make it financially comfortable for them to acquire new skills and apply for a new job. In my pro-globalization essay essay I argue why even the people directly harmed by the original factor mobility, such as these engineers, should support globalization.

Have you followed the links to that essay yet? Globalization is good! I don't know how many more times or how many more ways I can say it.

UPDATE 2004-01-08 02:34:30 UTC: It appears that the Schumer/Roberts Op-Ed has generated a lot of blogosphere response. (I'm not the only one who found it to be Shocking! Outrageous!) Truck and Barter has a lot of links.

Tiny Island