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gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

### Is free trade the problem?

QuoteOriginally posted by: exneratunriskNo, free trade is not the problem - the problem is capital accumulation by fixed market occupation. The solution is not protectionism and regulation, but progressive taxes and an unconditional basic income (citizen income) ...I think managing this well will be key. Someone doing deliveries for the past 20 years won't put on a lab coat (in your example) and start developing next generation of delivery drones. As consumption becomes less material, capital productivity increases and labor productivity becomes highly concentrated at the top, wealth distribution will become severe and there won't be enough demand to get the economy working. One solution is to reduce work hours as productivity increases. Keynes had the idea that generation's grandchildren would be enjoying 15 hr workweeks, which never materialized. It's difficult to do.

Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### Is free trade the problem?

QuoteOriginally posted by: gardener3QuoteOriginally posted by: exneratunriskNo, free trade is not the problem - the problem is capital accumulation by fixed market occupation. The solution is not protectionism and regulation, but progressive taxes and an unconditional basic income (citizen income) ...I think managing this well will be key. Someone doing deliveries for the past 20 years won't put on a lab coat (in your example) and start developing next generation of delivery drones. As consumption becomes less material, capital productivity increases and labor productivity becomes highly concentrated at the top, wealth distribution will become severe and there won't be enough demand to get the economy working. One solution is to reduce work hours as productivity increases. Keynes had the idea that generation's grandchildren would be enjoying 15 hr workweeks, which never materialized. It's difficult to do.Reducing the workweek (whilst holding annual salaries constant) doesn't make labour more valuable, only more expensive. Moreover, although some people might choose to work a modest X/2 hours per week, they will always have a lower standard of living than people that decide to work X per week by taking two jobs, working off the clock, or choosing self-employment (which combines the two strategies ).To a first approximation it comes down to: what can person_i accomplish in one hour that motivates person_j to work a hour so they can have person_i's output or services? That's just an approximation: person_j may need to work 1.5 hours to get 1 hour worth of after-tax earnings; or something might take N hours labour to produce but be worth M hours to consumers (creating wage disparities).One major challenge in today's world is the rise of hyper-productive labour in which one person might spend one hour creating a digital good that motivates one thousand or one million people to give one hour of wages for that good (e.g., sports stars, best selling authors, etc.). Rising inequality may say more about fundamental changes in the structure of consumption and fundamental changes in the structure of production, than class warfare ideologies. It's not the rich making the rich richer, it's the poor making the rich richer by choosing products and services dominated by winner-take-all competition.

Cuchulainn
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### Is free trade the problem?

QuoteOriginally posted by: gardener3QuoteIt's an idiom in English. For every statement/assumption there is a counter argument. And how do I quantify '80% of added value'? I think you are not realising the full impact of what outsourcing is, in the medium to long term but what do I know.QuoteI know what the phrase is, I just don't understand what you are trying to say. I linked to an article that shows how premature deindustrialization can have severe economic and political effects. As t4a mentioned, it's hard to assgign causality. And I have no idea 'what you know' or not know. Here's the fed article: http://www.frbsf.org/economic-research/ ... na/What-if scenario: that 80% added value is outsourced. You can post links to yout heart's content but it is not what I see on the ground.
Last edited by Cuchulainn on December 9th, 2013, 11:00 pm, edited 1 time in total.
"Compatibility means deliberately repeating other people's mistakes."
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http://www.datasim.nl

Pat
Topic Author
Posts: 1207
Joined: September 30th, 2001, 2:08 am

### Is free trade the problem?

Interesting story about Iowa vs. Detroit. But the numbers don't work out: It assumes that every dollar not spent on automotive labor is spend on farming labor ....The discrepancy is that for every $1 in lost wages, the price reduction of widgets is a fraction of$1, perhaps as low as 10%. So for every $10,000 lost in wages, only$1000 of corn is purchased. (According to FT article, labor cost of assembling an iPad in China is £4.60. Even if the cost of assembling them in US was £46, is ths going to affect the supply? Is Apple likely to change course -- or even prices --- baed on this)The interesting part is how the dollars are repatriated into the US economy. Apart for foreign held US debt (admittedly the biggest portion), the second largest repatriation comes from immigration: appartently there are a slew of people in the $8m to$20m category immigrating to Eur, CA, and US. So more realistic scenario is that 10,000 of wages are used to buy 1,000 of wheat , and the rest was used to buy Detriot real estate, factories, ...

exneratunrisk
Posts: 3559
Joined: April 20th, 2004, 12:25 pm

### Is free trade the problem?

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: gardener3QuoteOriginally posted by: exneratunriskNo, free trade is not the problem - the problem is capital accumulation by fixed market occupation. The solution is not protectionism and regulation, but progressive taxes and an unconditional basic income (citizen income) ...I think managing this well will be key. Someone doing deliveries for the past 20 years won't put on a lab coat (in your example) and start developing next generation of delivery drones. As consumption becomes less material, capital productivity increases and labor productivity becomes highly concentrated at the top, wealth distribution will become severe and there won't be enough demand to get the economy working. One solution is to reduce work hours as productivity increases. Keynes had the idea that generation's grandchildren would be enjoying 15 hr workweeks, which never materialized. It's difficult to do.Reducing the workweek (whilst holding annual salaries constant) doesn't make labour more valuable, only more expensive. Moreover, although some people might choose to work a modest X/2 hours per week, they will always have a lower standard of living than people that decide to work X per week by taking two jobs, working off the clock, or choosing self-employment (which combines the two strategies ).To a first approximation it comes down to: what can person_i accomplish in one hour that motivates person_j to work a hour so they can have person_i's output or services? That's just an approximation: person_j may need to work 1.5 hours to get 1 hour worth of after-tax earnings; or something might take N hours labour to produce but be worth M hours to consumers (creating wage disparities).One major challenge in today's world is the rise of hyper-productive labour in which one person might spend one hour creating a digital good that motivates one thousand or one million people to give one hour of wages for that good (e.g., sports stars, best selling authors, etc.). Rising inequality may say more about fundamental changes in the structure of consumption and fundamental changes in the structure of production, than class warfare ideologies. It's not the rich making the rich richer, it's the poor making the rich richer by choosing products and services dominated by winner-take-all competition.The analysis is correct, but the conclusion seems a little unfair. "We" (at least here) have sermonized the "dignity of slavery work" (the left) and withhold real education for the masses (the conservatives) and now wonder how stupid they are as workers, consumers, "infotainment recipients", ....But, IMO, we cannot deny that new technology developments will make human work less and polarized (the "Nobel laureates" and and the salt mine workers )? The reason, IMO, is not so much Kurzweil's "Singularity", but the fractal model of development. In classical automation there was a trade off between purpose/automation width and depth - but flexible systems (with higher level of domain engineering) are capable of automating wide and deep. In sw it is symbolic, domain specific programming .... 3 clever people can now do things for that I needed 100 for, 25 years ago. And the results replace another 100 at the user side.
Last edited by exneratunrisk on December 9th, 2013, 11:00 pm, edited 1 time in total.

Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### Is free trade the problem?

QuoteOriginally posted by: exneratunriskQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: gardener3QuoteOriginally posted by: exneratunriskNo, free trade is not the problem - the problem is capital accumulation by fixed market occupation. The solution is not protectionism and regulation, but progressive taxes and an unconditional basic income (citizen income) ...I think managing this well will be key. Someone doing deliveries for the past 20 years won't put on a lab coat (in your example) and start developing next generation of delivery drones. As consumption becomes less material, capital productivity increases and labor productivity becomes highly concentrated at the top, wealth distribution will become severe and there won't be enough demand to get the economy working. One solution is to reduce work hours as productivity increases. Keynes had the idea that generation's grandchildren would be enjoying 15 hr workweeks, which never materialized. It's difficult to do.Reducing the workweek (whilst holding annual salaries constant) doesn't make labour more valuable, only more expensive. Moreover, although some people might choose to work a modest X/2 hours per week, they will always have a lower standard of living than people that decide to work X per week by taking two jobs, working off the clock, or choosing self-employment (which combines the two strategies ).To a first approximation it comes down to: what can person_i accomplish in one hour that motivates person_j to work a hour so they can have person_i's output or services? That's just an approximation: person_j may need to work 1.5 hours to get 1 hour worth of after-tax earnings; or something might take N hours labour to produce but be worth M hours to consumers (creating wage disparities).One major challenge in today's world is the rise of hyper-productive labour in which one person might spend one hour creating a digital good that motivates one thousand or one million people to give one hour of wages for that good (e.g., sports stars, best selling authors, etc.). Rising inequality may say more about fundamental changes in the structure of consumption and fundamental changes in the structure of production, than class warfare ideologies. It's not the rich making the rich richer, it's the poor making the rich richer by choosing products and services dominated by winner-take-all competition.The analysis is correct, but the conclusion seems a little unfair. "We" (at least here) have sermonized the "dignity of slavery work" (the left) and withhold real education for the masses (the conservatives) and now wonder how stupid they are as workers, consumers, "infotainment recipients", ....But, IMO, we cannot deny that new technology developments will make human work less and polarized (the "Nobel laureates" and and the salt mine workers )? The reason, IMO, is not so much Kurzweil's "Singularity", but the fractal model of development. In classical automation there was a trade off between purpose/automation width and depth - but flexible systems (with higher level of domain engineering) are capable of automating wide and deep. In sw it is symbolic, domain specific programming .... 3 clever people can now do things for that I needed 100 for, 25 years ago. And the results replace another 100 at the user side.Agreed!Perhaps one key issue is that all these new technologies dramatically increase the productivity of the creators -- more people can invent more things, see them produced, and find customers for them than ever before. But the only way to make a exponential increase in the variety products also be economically sustainable (for the creators) is through free trade. The "long tail" by which a few products reach super-star status and most products sell in pathetically low volumes would seem to create a ghetto for most creators. If I create a product that 99.999% of people don't want because of long tail effects (but a niche 0.001% do), then I'll sell only 810 copies if I'm confined to selling in Germany due to trade protectionism. But I'll sell 70,000 copies if I have access to a world market.(P.S. Product (and service) differentiation is a huge missing factor in the "free trade is bad" narrative. Some domestic production -- usually at the higher-end of the value-scale -- will survive and make the economy larger (e.g., France manufactures luxury goods). Economic models that assume a fixed pie of money and a fixed portfolio of products are simply and dangerously wrong.)

Pat
Topic Author
Posts: 1207
Joined: September 30th, 2001, 2:08 am

### Is free trade the problem?

Back to the question:Consider a single country A.Which trade is good for country A, and which isn't good? One of the problems in discussing the issue is that there is a huge range of goods and services (books, films, legal briefs, computer architecture, construction, medical services, cars, refrigerators, ...), and the answer may well be different for the different seqments of the economy. Eg, I don't really want to outsource national defense.Suppose we narrowed the question to one product, say a refrigerator. When would the net benefits (long term and short term) to country A of importing its refrigerators from country B exceed the net costs? Are these criteria different than the criteria "the dollar cost of refrigerators from country B are less than the dollar cost of the refrigerators made in country A"
Last edited by Pat on December 10th, 2013, 11:00 pm, edited 1 time in total.

exneratunrisk
Posts: 3559
Joined: April 20th, 2004, 12:25 pm

### Is free trade the problem?

QuoteOriginally posted by: PatBack to the question:Consider a single country A.Which trade is good for country A, and which isn't good? One of the problems in discussing the issue is that there is a huge range of goods and services (books, films, legal briefs, computer architecture, construction, medical services, cars, refrigerators, ...), and the answer may well be different for the different seqments of the economy. Eg, I don't really want to outsource national defense.Suppose we narrowed the question to one product, say a refrigerator. When would the net benefits (long term and short term) to country A of importing its refrigerators from country B exceed the net costs? Are these criteria different than the criteria "the dollar cost of refrigerators from country B are less than the dollar cost of the refrigerators made in country A"The fundamental mistake is to highlight the competitive aspexts of trade and not the cooperation. The refrigerator might have components that are from country C and D. And such cooperation drives innovation (whilst static one-to-one competition kills it).Consequently, protectionism is a wealth killer.In concrete:" Europe" erects trade barriers agaist African food products, but forces Africa to buy else-iinto-the-trash parts of European food products. This hurts the local food production twofold - it is unbelievable stupid.
Last edited by exneratunrisk on December 11th, 2013, 11:00 pm, edited 1 time in total.

Pat
Topic Author
Posts: 1207
Joined: September 30th, 2001, 2:08 am

### Is free trade the problem?

As always, the issue is how to quantify, so we can assess the order of magnitude, and incorporate if needed ...I had always thought that competition drives innovation, and cooperation kills it.Example: In a mature industry, if a manager is tasked with developing a process or product, the first instinct is usually to license the product (whenever) feasible from someone established producer. Then one can guarantee that one is in the market at a more of less competitive price. If one tries to develop the process/product internally, then (A) project succeeds, and produces at a superior price (manager doesn't get fired), (B) the project succeeds but if produces the product at an inferior price (manager gets fired), or the project fails (manager gets fired). Corporations are not good innovatorsBesides, under your argument, doesn't Africa profit from the cheap imports? Isn't the essence of the free trade argument, that it doesn't matter if you industry is destroyed, if you can import the product cheaper, then the subsistence farmers it displaces are available to do higher value work?

gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

### Is free trade the problem?

QuoteOriginally posted by: PatInteresting story about Iowa vs. Detroit. But the numbers don't work out: It assumes that every dollar not spent on automotive labor is spend on farming labor ....The discrepancy is that for every $1 in lost wages, the price reduction of widgets is a fraction of$1, perhaps as low as 10%. So for every $10,000 lost in wages, only$1000 of corn is purchased. (According to FT article, labor cost of assembling an iPad in China is £4.60. Even if the cost of assembling them in US was £46, is ths going to affect the supply? Is Apple likely to change course -- or even prices --- baed on this)The interesting part is how the dollars are repatriated into the US economy. Apart for foreign held US debt (admittedly the biggest portion), the second largest repatriation comes from immigration: appartently there are a slew of people in the $8m to$20m category immigrating to Eur, CA, and US. So more realistic scenario is that 10,000 of wages are used to buy 1,000 of wheat , and the rest was used to buy Detriot real estate, factories, ...You are assuming that all import jobs/wages are lost. This is why the analogy is useful. Suppose you have data entry clerks at your widget factory. If you offshore data entry work, then the price reduction from offshoring will be a fraction of the lost wages if those people do not find new jobs. Now suppose new innovations in computing technology make the work of data entry clerks redundant. The effect will be similar, the the price reduction will be a fraction of lost wages. While everyone thinks that technological progress is good even if it makes some work redundant, everyone thinks that offshoring is a bad idea. And it's really the latter you have to worry about, if you are concerned about job losses or the effects of redistribution. The manufacturing job losses in the US mirror those in the rest of the world. Even China reached its peak manufacturing employment level 20 years ago has seen a decline in manufacturing employment.As an aside: most likely the money will be repatriated in the form of cheap debt. Countries cover their current account deficit by either running down their assets or accumulating liabilities. Earnings from US net asset position had been stable even though it's been running massive trade deficits for decades.

Herd
Posts: 562
Joined: October 2nd, 2003, 12:48 pm

### Is free trade the problem?

side comment on issue already mentioned (that at the end of the day it is all about power and that free trade is not that free! The most powerful nation decides who can do what and with whom...):"RBS will pay \$100m to the U.S. federal and state banking regulators as punishment for using U.S. correspondent banks to conduct transactions with customers in Iran, Sudan and other countries subject to international sanctions."

Herd
Posts: 562
Joined: October 2nd, 2003, 12:48 pm

### Is free trade the problem?

Pat said "don't really want to outsource national defense.".Agreed... and maybe other sectors too!*********************************************************************************If some other country has much cheaper labour, should we import everything and be all jobless and dependent?After all we could buy cheaper stuff that way!ps: apologies for not trying to reply to last questions. I'll try do it.
Last edited by Herd on December 11th, 2013, 11:00 pm, edited 1 time in total.

Cuchulainn
Posts: 64439
Joined: July 16th, 2004, 7:38 am
Location: Drosophila melanogaster
Contact:

### Is free trade the problem?

QuotePat said "don't really want to outsource national defense.".Look what happened to the Holy Roman Empire by outsourcing its defense.
"Compatibility means deliberately repeating other people's mistakes."
David Wheeler

http://www.datasimfinancial.com
http://www.datasim.nl

Pat
Topic Author
Posts: 1207
Joined: September 30th, 2001, 2:08 am

### Is free trade the problem?

Suppose there was a country, let's call it France, whose citizens decide that they'd really rather work 9 months a year, and they'd be happy to take a 25% cut in their income to do so. Not sure this is possible under free trade.

exneratunrisk
Posts: 3559
Joined: April 20th, 2004, 12:25 pm

### Is free trade the problem?

QuoteOriginally posted by: PatAs always, the issue is how to quantify, so we can assess the order of magnitude, and incorporate if needed ...I had always thought that competition drives innovation, and cooperation kills it.Example: In a mature industry, if a manager is tasked with developing a process or product, the first instinct is usually to license the product (whenever) feasible from someone established producer. Then one can guarantee that one is in the market at a more of less competitive price. If one tries to develop the process/product internally, then (A) project succeeds, and produces at a superior price (manager doesn't get fired), (B) the project succeeds but if produces the product at an inferior price (manager gets fired), or the project fails (manager gets fired). Corporations are not good innovatorsBesides, under your argument, doesn't Africa profit from the cheap imports? Isn't the essence of the free trade argument, that it doesn't matter if you industry is destroyed, if you can import the product cheaper, then the subsistence farmers it displaces are available to do higher value work?This is pointedly, but .... 10 Popular Idols Kill Innovation.(for 10 years I have evaluated or reviewed research and innovation projects in the European framework (for the EC) - those REALLY (not only collecting international partners to meet the formal requirements) co-operative had the better results)
Last edited by exneratunrisk on December 12th, 2013, 11:00 pm, edited 1 time in total.