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.”