Posted by: graemebird | May 26, 2009

Wrong And Idiotic View Of Comparative Advantage. Historical Development Of this Wrong And Idiotic View. Humphreys and Davidson Wrong. Gerry Jackson Right In Every Respect.

Arbitrarily we divide up the economy into Primary, Secondary and Tertiary industry. Sometimes we say that this is Primary industry, manufacturing and services. The concept of Comparative Advantage DOES NOT DISCRIMINATE NEATLY across these arbitrary lines of theoretical division. In fact the theory of comparative advantage operates in a two-person business in just the way that Mises and Friedman have explained. A lawyer may hire a secretary even if he himself is a better secretary then her. Mathematical examples are given to show this. Since the effect of comparative advantage can work with as little as TWO HUMAN BEINGS it is most rash to think that it operates, arbitrarily across political boundaries, in a neat way, in accordance with the rather arbitrary way we conceptually divide up the economy.

Most particularly comparative advantage would not and cannot lead to a destruction of manufacturing in any country. It cannot do so and it never has done so. Since manufacturing is really central to what it means to be a wealthy nation, of any serious size, over the long term.

Manufacturing is like the torso of the economy. It makes no sense that we would have a thriving services sector without a strong manufacturing sector. Sometimes this happens where one country becomes a money-lender, and insurance-seller, but the ability to be bigshots in this area relies on bad monetary policy in other countries. And these industries tend to become parasitical and will bring the country down. This is the history of it. And this is what we have seen with the Unitied States, with Finance getting up to 22% of GDP and Manufacturing down to around 12%. Such an eventuality has nothing to do with comparative advantage and everything to do with bank-cash-pyramiding racketeering and the hopelessness of the currency in other countries.

Currently Humphreys is arguing with Gerry Jackson. Gerry is wholly right and Humphreys is totally wrong. Although there are more aspects to these problems then Gerry has talked about. He may deal with one or two aspects of how crap socialist fiat-fractional-monetary policy is and I may tend to dwell on other aspects of how it causes untold damage to our economy and our society. But I haven’t found anything in this regards that I disagree with Gerry about.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Here is a post that I’m trying to get through over at thoughts on freedom. But its a pretty hopeless case because the AUSTRALIAN (Not to be confused with “Austrian”) economists have all sorts of defense mechanisms, keeping them ignorant and belligerent, in their unscience.

These defense-mechanisms are so strong that discussions to do with monetary economics used to turn into threads of doom when I was allowed on these blogs. Because the non-committal and ignorant economists would “sponsor” (so to speak)any monetary crank that was willing to argue against me and bog the thread down. So that therefore the economists would “sponsor” Mark Hill, Fyodor, and Andrew Reynolds to keep the argument bogged down so no-one could actually learn anything about it.

Don’t let yourselves think that the recent monetary meltdown, which none of these guys predicted, has changed their view of these matters. The ignorance of a Sinclair Davidson and his coterie is a far deeper, stronger thing than that.

Here is the post I’m attempting to get through:
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

“Of course, the real reason that Australia’s manufacturing is in relative decline is that the comparative advantage of different nations is changing.”

This is not true at all John. The real reason is just as Gerry would have it: Its our crap socialist money system and our inept monetary policy. And particularly its the way our monetary system dovetails with company tax and depreciation. Bad monetary policy hurts all of our economy. But manufacturing is disproportionately hurt since depreciation, under inflationary conditions, overstates profits.

Finally Cambria remembers something he has been told:

“Don’t you think that economic policy has driven away some of our manufacturing base?

Not only is corporate tax far too high but inappropriate deprecation policies relating to tax is one example.”

Cambria is right. I could set up a mathematical scenario which shows this. Wherever heavy equipment being depreciated over long periods is concerned, then our monetary/tax policy disproportionately buggers these people. And this would be the case for mining as well, but we just happen to have all these resources, so that our mining industry wasn’t about to be destroyed.

Gerry Jackson is right in all respects on this matter. You just seemed determined not to learn the material. And of course Sinclair is ignorant.

Our Monetary/Fiscal mix would hurt all of our economy no matter what we do. But if we wanted to make the minimal change so that it didn’t disproportionately bugger manufacturing that would be to allow depreciation expensing of equipment in the year of the companies choosing.

But thats mostly dealing with the symptoms. Its the company tax and the socialist monetary system that need to go. Or be reformed in the meantime. But our economists, including you and Sinclair, refuse to learn and publicise this gear.

Once again this has got absolutely nothing whatsoever to do with comparative advantage. Nothing at all. You are just going to have to learn about comparative advantage all over again. Because the tribal consensus of the Australian economists is wrong. You cannot argue that case. You cannot make a case of it. You cannot make the case that comparative advantage supports the destruction of manufacturing. This is just Treasury horseshit and ignorance.

Lets see your Treasury Amigos make that case if they don’t agree that they are totally ignorant fools. Comparative advantage does not arbitrarily work on a sector by sector basis. Where did you guys get that idea from?

Well I know where you got it from. It was an historical reaction to us losing a lot of manufacturing after the tariffs came down. We could have had the tariffs come down and GAINED a lot of manufacturing. But this didn’t happen on the grounds of the rest of our policy mix. So in reaction to this, in their ignorance, Australian economists developed this unscientific and wrong view about comparative advantage.

John you have to get your head out of your ass and learn new stuff. Understand the other guys point of view. This is an incredible weakness that you and Australian economists more generally have. And thats flat learning curves due to arrogance and ignorance.”

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Responses

  1. Another post logged:

    No thats not true at all Terje. And you must get your act together as well.

    “If the optimal value for our currency is X, whether X is 50 US cents or 40 milligrams of gold or whatever, then if our currency is consistently valued at 1.5 times X then eventually I think prices will simply adjust to the new level.”

    You aren’t seriously insinuating that Jackson doesn’t understand how floating currencies are supposed to adjust to trade imbalances do you Terje?

    What is the point you are groping with here? Clearly you have no clue as to what Jackson is on about. And its not helpful to then bring this point about comparative advantage that our economists have totally buggered up and to just treat it like its a tribal issue to do with the gold standard.

    Jackson is dealing with one aspect of why our useless monetary policy causes these problems. He’s relating matters to the history of the gold standard. Since our fractional fiat system is highly artificial, and has nothing to do with free enterprise. And is in fact at least as artifical as a cap and kill carbon trading edifice……

    …… well to understand how we can expect it to work, it makes sense to understand a more natural monetary system. Under gold if the banks in one country went through a period of rampant bank-cash-pyramiding the first problem that would develop wasn’t inflation. Rather the first problem would be falling exports and surging imports. Since most goods flowing internationally tend to manufactured goods this is bank-cash-racketeering is an immediate blow to your manufacturers. Thats only one way in which manufacturing is damaged by inept monetary policy, since the fractional-fiat system does tend to mimic the gold standard in some ways.

    And its a valid point he makes. There are many more ways in which our policy mix is in the process of pauperising us. But Gerry is focusing on this aspect of things and he’s right to and you ought to try and understand where he is coming from.

  2. How does the edifice of compulsion-cash and bank-cash-pyramiding damage our manufacturing. Let me count the ways for yea they are legion. But elsewhere. Not here.

    Those countries with lower effective reserve asset ratios will be damaged the most all other things being equal. So the English-Speaking-World has been damaged by this system more. Because we were the people who got rid of our reserve-asset-ratio in its entirety.

    You could go the other way one supposes. Where a Defacto reserve asset ratio is maintained by sheer terror in the banking community. This is how you and Humphreys seem to want to do things, in violation of clarity in property rights.

    But nonetheless one must give that way of doing things its due. But the fact is that this way of doing things doesn’t exist. Ergo the sort of generalisations one makes on the basis of economic models that imply monetary stability DO NOT HOLD when you take the RAR (defacto or enforced) away.

    So here we have a whole lot of people who have forgotten the premises of the models they’ve learned. Have forgotten that these are simplified models. And are dragging in a perverted version of comparative advantage to justify this slow-moving business holocaust we are experiencing where we lose the productive basis of our wealth.

    We are losing our relative manufacturing POWER and EFFICACY not because of comparative advantage but because of the haemoraging, by multiple wounds, that our crap currency/tax system, inflicts upon us.

  3. Mr B

    I admit I don’t know a lot about Economics, although my eyes are wide open to the Cosmopolitan influence, if you get my drift.

    I think that’s why I didn’t get everything you said in this post the first time I read it.

    But I have great respect for your Common Sense and Good Judgment so I am going to print this page out right now and take it to the shitter to have another read while I send a load to the coast.

  4. THERE’S NO DEBUNKING THERE. RATHER THE POST CONFIRMS THE CONCRETE FACTS OF THE TRIP.

    ODINGA GOT TO POWER AS A COMPROMISE TO END THE VIOLENCE THAT HE, WITH OBAMA’S HELP, HAD STARTED.

    NOW THAT OBAMA HAS HIMSELF USPURPED HIS WAY INTO POWER, AS AN ASTONISHING DOUBLE-ACT, ITS HARDLY SURPRISING HE CAN GET SOME GOOSE-STEPPER TO VOUCH FOR HIM.

  5. DD

    you can mash your keyboard until the cows come home but no amount of button smashing will change the fact that B. Hussein Obama-Soetoro is a murdering usurper.

  6. So you concede you have no point to make. Good.

  7. Do a google search of Gerard Jackson and Corporate tax and what do you find? Do a google search of Sinclair Davidson and corporate tax and what do you find?

    I think I’ve done a bit more on the issue than has Gerry.

    I should also say I checked his references on the latest rant, and they don’t support his argument – especially the Schumpeter reference.

    Comment by Sinclair Davidson | May 27, 2009

    You know nothing Sinclair. You are ignorant. Or you would not have attributed our loss of manufacturing to “comparative advantage.” You can get any number of papers published you want like a good global warming unscientist. But if you are going to get “comparative advantage” wrong then what the hell are you good for?

    Comment by Chodorov | May 27, 2009

    Yeah, yeah. whatever.

    Comment by Sinclair Davidson | May 27, 2009

    Here is an example of what Gerry is complaining about from the article Sinclair and another bloke wrote. Apparently it was such a taxing article to write that it took two of them.

    “Reflecting on the claim that Australias extractive industries provide and unsustainable base for economic prosperity, the Opposition Leader and Shadow Minister for Industry have signalled their intention to rejuvenate Australias ability to “make things”. This call for ‘reindustrialisation’ is a return to leftist ideas of the 1980’s”

    What is offensive about that is that if I say that we have been gutted by bad monetary and fiscal policy dove-tailing with eachother, and if someone else says we have been gutted by reduction in tariffs, Sinclair is going to say the call for reindustrialisation is leftist either way. He is not alone in this outrageous stupidity. This was the general reaction amongst Australian economists. Gerry’s point is spot on. To make arguments of this sort is to hand policy over to protectionists. Because few people are so stupid as to imagine we can do without a robust manufacturing sector. And Sinclair and the others are fundamentally agreeing with those who say our relative position in manufacturing has been gutted due to economic liberty.

    This is not the case. People who argue this are ignorant of monetary-economics and are coming from a position where they assume that fiat-fractional consumer-price-targeting, represents some sort of facsimile of the free market. Which is obviously ludicrous on its face.

    The worst thing about this story is that Gerry pointed this out to you guys. Two years ago in fact. I pointed much the same story out to you as well. And you have not learned a damn thing in those two years. So we are talking some really flat learning curves here. Even Cambria picked up a couple of pointers on this score. But apparently Australian economic graduates are too clubby to deign to learn any damn thing.

    Comment by Chodorov | May 27, 2009

    Sinclair reduced to the comeback of a teenage sheila.

    Comment by Chodorov | May 27, 2009

  8. Hey Chodorov
    I’m happy to filter your comments but first you gotta get permission from the Quigler because I have an agreement with him. If you’re gonna commit to laying off the quigler and can tell him that (which doesn’t mean you have to kowtow to him) you’re in

  9. you can actually be nice to the quigler right? he argues in good faith even if he is wrong, unlike the wizard of deltoid

  10. I can be nice to the Quiggler so long as he refrains from promoting what we might call that stuff about mosquitoes ever again. In which case I’d probably abuse him either way on my own space.

    Also if he abuses the scientific approach to climate I’m likely to get shirty. But yeah on economic matters he argues the lefty perspective from a position of reasonably good faith. You’ll notice that my reviews of his comments on these things are not really harsh. I just consider it inevitable that banks will be nationalised once you go down the fraud-banking route. At first the banks are senior partners to the racket. Then when they go broke they come under the government orbit.

  11. My goodness Reynolds is a bullshit-artist isn’t he? Pretending that banks cannot pyramid up extra deposits. I don’t know whether he’s a committed liar or whether he’s really that dumb.

    Hopefully you are no longer using him as some sort of authority.

  12. alright I’ll write to the quiggler, keep your comment there.

  13. ok, the quiggler has agreed.

    you are back but under permanent moderation.,

  14. Good stuff. Quiggin has more cache now anyhow. Since Robert Murphy put up a respecful argument against him at Mises.

    Here is another post I have coming out against the real enemy.

    CO2-bedwetter Humphreys:

    Prodos offers a whole string of counter-arguments with his written comments over the video.

    Its straight irrationality to pretend the science doesn’t matter. Since whilst its pernicious to be encouraging the taxation of negative-externalities on a Pigouvian basis, its at least understandable. But to tax positive-externalities is the straight irrationality that Humphreys has stuck with through thick and thin.

    Why cannot Humphreys resolve the scientific question? Is this beyond his powers as an analyst? I’m saying it is. This is another example of an attack on heavy industry. This one-two punch to capital and energy-intensive industry is designed to impoverish us all. It will come hard on the heels of the damage that fractional fiat money already does.

    For Humphreys to advocate a carbon tax and to think that one can do this whilst ignoring the science is irrationality that I’m just not used to.

    The scientific argument MUST PRECEDE the economic argument. As it turns out those that get the science wrong also get the economics wrong. But its important that the science comes first. Yet Humphreys wants to ignore the science and actually thinks he can do this and thats fine. This is consistent with Humphreys behaviour more generally. With arguments in general, Humphreys just ignores the ones he finds convenient to ignore.

    Comment by Chodorov | May 27, 2009

  15. “I rue the day when I back up Homer on economics but of course he is right. There will be offsetting behaviour.

    The ETS is a drop in the ocean. The very article that CL cites actually has as its focus the IPART approved increase”

    Jason wrong and full of shit as usual. And Jason will not and cannot back up this statement. He can only believe this by refusing to act like an economist, refusing to write things down, and refusing to do anything else but go on his own liver quiver.

    The ETS will be an utter disaster if it is effective. Will be a terrible thing even if it is not.

    Jason is unrepentantly idiotic on this matter. He has refused to take anything about economics into account at all. Has he tried to list the costs when he has said this? Not at all. Its a statement in defiance of economics.

  16. Here is further SOON incompetence. Humprheys in error described the carbon tax as an excise tax. Which is ridiculous. Since the excise falls at the consumer end. Whereas the cap and kill reduces the structure of production since it falls on every stage of the process multiple times.

    “Turnbull should have fought for across the board tax cuts in return for an ETS. The ETS is bad policy. But the ETS is hardly the most egregious example of big government you can find. It amounts to a slight increase in the prices of some goods, and electricity prices have been kept artifially low by regulators. It won’t bankrupt electricity generators, as they are being compensated.”

    Totally wrong. Totally against his field of economics. All economics is forgotten in this idiocy.

    “Turnbull should have fought for across the board tax cuts in return for an ETS. The ETS is bad policy. But the ETS is hardly the most egregious example of big government you can find.”

    YES IT IS. BUT SUPPOSE I COULD FIND SOMETHING EVEN WORSE? I CANNOT. BUT SUPPOSE I COULD. THAT WOULD BE LIKE A STUDENT SENDING HIMSELF BROKE BY BASING EVERYTHING AROUND HIS BEER BILL.

    “It amounts to a slight increase in the prices of some goods….”

    NO IT DOESN’T. IT AMOUNTS TO A DIRECT TAX ON CAPITAL DEVELOPMENT ITSELF.

    “and electricity prices have been kept artifially low by regulators.”

    WHICH MEANS WE ARE TO BE HIT TWICE OVER. OR THE ELECTRICITY PEOPLE WILL BE DESTROYED. LOOK AT THE CONFUSED THINKING HERE. IF ELECTRICITY IS ALREADY UNDERPRICED THEN INVESTMENTS WILL BE PUT OFF AND WE WILL BE ON THE VERGE OF A BREAKDOWN BY SOONS OWN TESTIMONY. BUT SOMEHOW THE IDEA THAT THERE HAS BEEN PRICE CONTROLS, THAT WILL HAVE LEAD TO INVESTMENT DEGRADATION, MAKES THE ETS FINE IN SOONS VIEW. IT MAKES IT THE FALLING TREE THAT WILL DEVASTATE THE ALREADY INJURED AND HALF-DEAD CAMEL. SEE THE LUNACY OF WHAT SOON IS SAYING HERE?

    ” It won’t bankrupt electricity generators, as they are being compensated.”

    ITS ALREADY BANKRUPTING ELECTRICITY GENERATORS. AND IT HASN’T YET BEEN APPLIED. WHAT ABOUT THE REST OF US. SOON HERE CONFESSES THAT IT WILL ONLY DO LESS HARM TO THE EXTENT THAT IT IS CORRUPT AND INEFFECTUAL. WILLFUL IDIOCY ON THE PART OF SOON. AS SOON AS SOON WANTS TO HAVE THE LUXURY OF IRRATIONALISM, ALL HIS ECONOMICS GOES STRAIGHT OUT THE WINDOW.

  17. What is important here is that no-one listen to SOON. Its hard to get him to apply what he has learnt at the best of times. But here he is being a willfully ignorant quisling. The real situation is one of impending crisis. And it is very hard to recover economically once you have rolling brownouts like in South Africa and California. Like what will be coming to New South Wales shortly. Thanks to the quisling Turnbull.

  18. Too late. Someone listened to SOON. That is to say the idiot Ken Neilsen listened to SOON.

    “And as you point out C.L., in this country it does not matter. Important gestures, perhaps, for those who care about gestures but the ETS will have no effect on the earth that anyone can measure.
    A fellow I once worked for talked about “cost accountant’s savings” – a change to the product that you know will never appear on the bottom line.”

    Another idiotic statement. This time by Ken Neilsen. A fellow who confessed outright not long ago. Confessed outright, without evidence, to being a CO2-bedwetter. A CO2-bedwetter based on nothing at all.

    Now he further locks in his position as economics ignoramus. When people make these statements it is not on the basis of considered analysis. It is on the basis of refusing to ever make any considered analysis.

    There will be a breakdown of investment in energy. Since the most effective energy forms cannot invest. But neither can the second string investments go ahead. Because since the second string people must know that they are engaged in malinvestment, and since the ETS is irrational and there for no reason at all, it follows that the second string people cannot invest either. And that therefore the ETS will lead to a permanent crippling until such time as it is repealed.


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