that perhaps the entire premise of comparative vs absolute advantage has been over looked.
http://www.mises.org/fullarticle.asp?control=1420&id=65snip>
The case for free trade is based on David Ricardo’s principle of comparative advantage. Ricardo addressed the question how trade could take place between country A and country B (England and Portugal in his example) if country B was more efficient in the production of tradable goods (cloth and wine in his example) than A.
In other words, if Portugal could produce both cloth and wine at lower cost than England, how could trade between the countries benefit each?
Ricardo found the answer in relative or comparative advantage. He said that if Portugal specialized in wine, where its absolute advantage was greatest, and England specialized in cloth, where its disadvantage was least, total output would be higher than if both countries achieved self-sufficiency by producing both products. The higher productivity from specialization would result in mutual gains from trade.
For comparative advantage to reign, two conditions are necessary:
One is that capital and labor must be mobile within each country so that the capital and labor employed in England in the production of wine can flow into the production of cloth, where England’s trade advantage lies. In Portugal capital and labor must be able to flow from cloth to wine where Portugal’s advantage is greatest.
The other necessary condition is that capital and labor (factors of production) cannot be internationally mobile. If the factors of production are internationally mobile, capital and labor would move from England to Portugal, where both commodities can be produced the cheapest. Both wine and cloth would be produced in Portugal. Portugal would gain and England would lose.
Ricardo makes it clear that for trade to make both countries better off, trade must be based on comparative advantage. Ricardo gives reasons why, in his time, factors of production are internationally immobile.
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And a rebuttal from The WA Post (only one I could find)
http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A1985-2004Jan8¬Found=truesnip>
The joint byline on the New York Times op-ed page Jan. 6 -- "By Charles Schumer and Paul Craig Roberts" -- certainly was a shocker. Schumer is a liberal Democratic senator from New York; Roberts is one of the wildest of the bug-eyed supply-side conservative economists. Schumer's connections to the financial establishment and Roberts's free-market ranting make their message surprising as well: They have turned against free trade. But two people can be just as wrong as one.
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The core of free-trade theory is the concept of "comparative advantage." Schumer and Roberts make the classic college-student mistake of confusing comparative advantage with absolute advantage. Nations trade because for each one, there are goods or services it is more efficient to buy from abroad than to produce at home. If there is nothing America can offer the world that is either uniquely desirable or cheaper than elsewhere, the world will not buy anything from America. And after a while, the world won't sell anything to America either, because we won't have the foreign currency to pay for it. So even in this extreme case, there is no need to restrict trade, because trade will restrict itself. But in fact, as Ricardo demonstrated, there will always be something worth trading. Even if Nation A can produce both apples and oranges more efficiently than Nation B, it will still make sense to concentrate on producing one fruit and import the other. And Nation B will make itself poorer, not richer, by keeping out fruit from Nation A. If Nation A retaliates by keeping out fruit from Nation B -- and why shouldn't it? -- Nation B will be doubly punished.
That's the theory. It's pretty rock-solid. You can reject it in its entirety -- as, for example, Dick Gephardt, the most protectionist of the leading Democratic presidential candidates, pretty much does. But most critics don't have the guts to defy reality or conventional wisdom (take your pick) to that extent. Schumer and Roberts cling to the free-trade label and endorse the general principle, while claiming it no longer applies because "the factors of production can relocate to wherever they are most productive." In fact, that makes the theory even more compelling. If the factors of production become more productive, the whole world becomes richer. If there is some explanation of how a society can get richer by denying itself the fruits of this process (and most likely curtailing the whole process itself, as others misguidedly retaliate), Schumer and Roberts do not offer or even hint at it.
Traditionally, the most troublesome thing about free trade -- apart from the difficulty of convincing people that it works -- is the unequal distribution of its benefits. The whole country is better off, but there are winners and losers. Generally, the losers are lower-income workers, whose jobs are the easiest to duplicate in less developed countries. It seems misguided to me to avoid a policy that makes the whole nation richer because it makes some individuals poorer. With more to play with, it ought to be easy to ease the burden on free trade's losers. Of course, under a Republican administration, we don't do nearly enough of that
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