World Economics Question

[Victor Galis]

Originally posted by DarkCloud
Victor

Thanks for pointing that out and for your reasoned response. I know I'm no expert in the field and value others' experience. There definitely are a lot of factors and assumptions to consider in this case.

If I'm correct then, in reading your propositions, Victor- a future scenario could be that the US declines in K, and T, and therefore L becomes more attractive, thus the rich in america suffer, and the economy as a whole suffers, but the middle class will once again grow?

Possibly. Though really my view of what will happen is more based on the outcome of the political process than fundamental economic forces. For example, if anti-immigrant sentiment makes it difficult to get people with technical degrees from abroad and the US doesn't make up for the shortfall, I could easily see an erosion of the US's technical lead. If on the other hand, the US continues to suck brainpower from the rest of the world, outcomes are different. The difference between those two outcomes isn't rooted in economic factors though.

I do believe the US will stop recieveing as much capital inflow as it currently is just because a declining dollar will make investing in the US a stupid proposition for foreigners. Honestly though, call this more of a hunch than a carefully studied position.

Well, I'd agree about that, but as countries develop a mature domestic market and can invest more in reliable and standard infrastructure, then they will have less reason to invest in America- correct?

Yes and no. Most foreign investment is among developed nations. It does mean they will attract more foreign capital, in general. To be fair, I think the big investors in the medium term will be oil-rich nations with poor governance, that are essencially loaded down with cash, but lack domestic outlets for it.

Therefore, in a sense (and especially if you add in rising resource costs for transportation), the pressure on the US middle class would not be relieved since the foreign firms wouldn't be investing to build US industries AND they would be withdrawing capital.

Right. I suspect resource-rich nations will profit and resource-poor ones will decline. That being said, I'm sure some nations will develop ways to cope with that.

I am having a little difficulty conceiving all the variables and possibilities here, so I'll try to draw a little chart- please correct me if I'm wrong.

That's fine. I can't really either

Is this a correct way to assume your proposition?

I don't think K outflows and loss of T superiority will be massive, though there will certainly be reductions in US's advantage in those areas.

If so, then wouldn't this still tend to lead to an international stratification of countries?

Yes and no. If every country were identical except for its endowments, probably. Some countries are governed better and will fare better as a result. Some countries may lead the way in renewable energy and not be as dependent on energy-imports.

In complete free trade, certain countries would specialize in several of the factors in which they are best in. Often, the countries would be in flux as new technologies are discovered, but wouldn't they tend to stratify toward national core competencies?

You assume such things exist. In complete free trade (which we don't have), K is fully mobile and L is at least partially. Companies can relocate freely to where they can make the most money. Using countries as units of analysis doesn't make as much sense now as it did in Ricardo's day.

In this case, it doesn't matter exactly HOW the US stratifies, just that it does in some direction. If it loses its advantage in "K" and multinationals relocate, then it'll restratify toward a more "middle class" society like Canada-- but countries that are "K" abundant would tend to eliminate their middle classes- and countries that are "M" abundant would be stuck focusing on "M" for long periods of time (barring political or social unrest)

Depends. I suspect small K-rich countries could turn into all-middle class societies with little poverty and few super rich individuals given the right tax structures. (see Scandinavia) Large countries would be more hard-pressed to find enough good jobs for their entire populations.

I appreciate your response Victor and it makes me feel a lot less as though the world as a whole is headed for a "doomsday scenario" though it does expose severe weaknesses in the United States, which might very well be headed for troubled economic times.

I think unfortunately (for the purposes of predictibility), a lot depends on the politicians we elect. This is both good and bad. It means not everything's pre-determined and we have some say in the direction we go in, but it also means that we can screw it up, allow corrupt, populist leaders to make a country an undesirable place for foreign capital and skilled workers and basically relegate it to long term decline.

[Vanguard]

You can't have Comparative Advantage in Capital. Probably not in technology either.

Comparative Advantage applies only to goods that can be traded.

The problem with increasing wealth imbalance is that it will eventually destroy trade. You cannot maintain a huge trade deficit forever. And the fact that trade is so imbalanced indicates that the world economy is being run very inefficiently.

[Kidlicious]

The concept of comparative advantage is totally irrelevent in today's economy.

[snoopy369]

Really? Perhaps you have some evidence backing that statement?

I think there are a small group of folks called 'nobel prize winning economists' who would love to argue with you on that.

[Kidlicious]

Originally posted by snoopy369
Really? Perhaps you have some evidence backing that statement?

I think there are a small group of folks called 'nobel prize winning economists' who would love to argue with you on that.

Exports are produced where labor is cheapest, period. That's not comparative advantage.

[snoopy369]

So why do we produce anything in the US?

[Kidlicious]

Originally posted by snoopy369
So why do we produce anything in the US?

Because it can't be imported.

[snoopy369]

So why do we export things from the US then?

[Kidlicious]

Originally posted by snoopy369
So why do we export things from the US then?

Market failure.

[Kidlicious]

Originally posted by snoopy369
So why do we export things from the US then?

Look here's the thing. Wages are suppose to be equal all over the world. They aren't so the whole idea of classical economics is turned on it's head. And that's not the only reason. It's a bunch of nonsense.

[snoopy369]

Well, I'll be looking out for your paper on the subject, then. With any luck your nobel will be arriving soon

[Victor Galis]

Originally posted by snoopy369
Well, I'll be looking out for your paper on the subject, then. With any luck your nobel will be arriving soon

To be fair, I think a fair number of the Nobel prizes in econ have been handed out for silly things too. Neoclassical economics is well... more suitable for comming up with a BS answer to on a macro exam than the real world.

[Agathon]

Originally posted by DarkCloud
Interestingly enough, that and what I outline above is the stated Communist Party theory in China "we must undergo a period of capitalization before true communism can be reached." I thought it was bizarre and disingenous when I first heard it... but oddly enjoy, even though they probably were lying to themselves, they may turn out to be right, anyway!

They finally read Marx, who was clear that communist societies must develop out of advanced capitalist societies, and not semi-feudal aristocracies or agrarian societies. It is the attempts of people like Stalin and Mao to jump start the process that created havoc.

The future will be that societies like China and India will be economically dominant. The reason for this is that they simply have the most people. Not just a few more, but many times more. The only problem they face is equipping their people with the requisite skills and building up their industrial base. The latter is well on the way, and the former will follow. The increasingly porous nature of knowledge will help them. The best thing is that they already know how it can be done with the example of other Asian countries that have achieved high development.

In the future people will look back at our time as an historical anomaly. It just so happens that the period of European expansion coincided with a period of Chinese weakness. That is, if there is a future. Western societies are unlikely to take this lying down, which is why I can see a nuclear exchange happening sometime in the next 30 years.

[Theben]

?? A nuclear exchange will only occur if enough people aren't getting food.

[Agathon]

Originally posted by Theben
?? A nuclear exchange will only occur if enough people aren't getting food.

Have you been reading the news lately?