Do Local Economies Negate Comparative Advantage Over Time?

Presently, I'm just considering some of the correlations, because this is an area I'd like to return to and explore at some point. While it's hard to tell whether any of these musings might involve any "dreaded" causations, the effects over time of locked in market product definition are striking. Every day people are convinced they can't find a way to survive, when in fact the means of survival are everywhere around them - if not really arranged in very usable ways. Just the same, I have a little "stumbling in the dark" confusion about the apparently Keynesian notion of cost-push inflation. After looking at Wikipedia's definition, I groaned when I realized that monetarists don't believe in cost-push inflation and so add this to studies... Argh, some days I really wish I could actually think like a normal economist but there's no "hope" in that regard. As it is, all I can see is local economies unnecessarily adding to their costs and so I have to move forward with that for now.

However, the reason it feels necessary to explore this seemingly frightful area, is the fact that a growing consensus is essentially building on the left and the right, around the idea that imports hurt the U.S. Certainly the evening news has sounded rather protectionist for a long time. As a person who needs to be able to make a dollar stretch, and really appreciates the fact that low income countries often provide goods I can afford - "cheap" goods that local economies sometimes like to "hold their noses" over, all I can say is uh-oh. But let's look at some of the "evidence", as this latest article from Nancy Folbre at the NYT (could be gated) in "The Free Trade Blues" points out:

A growing body of research points to the adverse trade effects of lowered trade barriers on manufacturing workers and their communities. Whether or not the losses are beginning to outnumber the winners, free trade is increasing the economic distance between the two. Many economists continue to believe that increased foreign trade is a rising tide that will eventually lift all boats... 

Folbre adds that interpretations of trade theory now challenge the rising tide view, and cites a recent study (lots of options - YouTube link here). However, if this is true, here's my first thought: if indeed comparative advantage does not work as stated, what on earth does? For a dunce like myself, comparative advantage is about as basic as it gets. In a recent post I discussed the breakdown of the old consensus and why it is so hard for some on the left to be on the "losing" end - understandably so. But wishing the previous (political/social) consensus wouldn't go away - and then trying to block economic access to newer formations of production only makes things worse. Yes, there are lots of "holes" in the ocean bed that keep a rising tide from happening, but it's not the imports that are the problem.

For me, the "holes" exist in large part because of time utilization differences we create between ourselves at the most basic levels - which can never be correspondingly filled by one another's time as a result. Because we scramble to give our time to others and yet still come up with negative effects, we remain on a negative infinity path. We keep trying to rearrange wealth to fill the holes but because of the negative infinity, the tide never gets a chance to rise.

Also - in spite of myself - I have to follow the "get rid of international competition" to its logical conclusion: where, exactly, do we "draw the line" and happily revert back to "earlier" forms and times of production? Does that actually leave time for the pursuits of the mind, i.e. the most valuable aspect of all the creation of tangible wealth? Do we all discuss the mysteries of life while we sit on the porch stoop and shell the peas? While I enjoy "slow" production as much as anyone, and so leave time for it whenever possible, I have little doubt I would "chafe at the bit" if that became the primary life option left to me. Hint - whenever we want to go "back in time", something to consider first: aggregate realities of inclusivity.

Let's consider that aggravating hole filling problem. As long as older, more labor intensive definitions of manufacturing remained local, it was possible to fill many holes with this additional wealth. But as it slowly disappeared, local economies were faced with the need to maintain definitions of wealth as they had previously emerged, in order to continue funding services. The only way to do this - seemingly - was to take much of the negotiable or choice factor out of environment options to maintain an appropriate tax base. In the process, "productive" investment came to be identified more with passive forms of investment (the local mandates of Neanderthal low tech environment) and less with speculative investment, as before.

Just the same, those speculative investments (that often "heart" global cheap goods) tended more towards what was not government backed. Which also meant they didn't have the government inflated price tag: hence proved more dynamic than such "spurious" and "cavalier" spending might have seemed. This last thought is also a quick take on Jonathan Finegold's post on productive versus speculative investment, and my readers know that I often look at these in terms of passive (non tradable) goods or the active tradable goods of globalization. I also consider equal time service arbitrage as a potential active tradable good, instead of acting as a drag in its present passive role. Today, services are the mirror image of the much maligned, interest on reserve backed rendition of Neanderthal living and working environments.

Something important needs to be stressed about the broken consensus between the so called "makers and takers", icky though that phrase may be. They certainly are not happy with one another, these denizens of left and right, but they are still very much married to one another and do not really know how to break the chain. In their effort to maintain wealth as much of its dynamic aspects left for more affordable shores, they propped up even further the very environment that economic dynamism was forced to abandon. Through the valuations of the most engaged participants, the stage was set for the services that could flow from the agreed upon definition of wealth. IOR is in a sense the agreement, the "chain" between left and right, who forgot that dynamism was born of the efficiency that included the most economic actors possible.

Before wrapping up this post, I should add that I (somewhat) reluctantly supported interest on reserves initially as a stopgap solution. However, I believe that it needs to be phased out over time as local economies find ways to return to more sustainable and inclusive means of economic activity. That includes acknowledging the gains of  globalization (granted, not all financial was beneficial here...) where they actually exist - the creation of product which makes greater economic inclusion possible. To be able to phase IOR out over time would also make clear what the benefits of nominal targeting actually are. Without the overhang of IOR, one has a real chance to ascertain what different consumption paths between upper and lower income might actually consist of. Local economies would not only be able to follow through on new paths, they could once again embrace comparative advantage in the process of doing so.