1. "This is worse than his attempt to refute Ricardo's law of association, and when he tried to prove that debt is inherently 'bad.'"
2. "Next, there is nothing intrinsically wrong with a current account deficit, not only because it's met with a corresponding capital account surplus, but also because it's often better to buy from someone else than to produce it on your own. In other words, cooperation is always more efficient relative to isolationism/self-sufficiency (Ricardo's law of comparative costs)."
3. "This response is riddled with pure mysticism and a denial of basic and fundamental economic doctrines. For example:...He flatly denies the universal validity of Ricardo's law of comparative costs (which stands at the very center of economic theory)"
All these statements from one of the contributors to this forum, while laudable in their staunch emotional defense of Ricardo's Law, at the same time sadly reveal total misunderstanding of said Law.
Let us remind ourselves what Ricardo's law says. Our source Is good old Human Action:
4. The Ricardian Law of Association Ricardo expounded the law of association in order to demonstrate what the consequences of the division of labor are when an individual or a group, more efficient in every regard, cooperates with an in- dividual or a group less efficient in every regard. He investigated the effects of trade between two areas, unequally endowed by nature, under the assumption that the products, but not the workers and the accumulated factors of future production (capital goods), can freely move from each area into the other. The division of labor between two such areas will, as Ricardo's law shows, increase the productivity of
labor and is therefore advantageous to all concerned, even if the physical conditions of production for any commodity are more favorable in one of these two areas than in the other. It is advanta- geous for the better endowed area to concentrate its efforts upon the production of those commodities for which its superiority is greater, and to leave to the less endowed area the production of other goods in which its own superiority is less.
And so forth. Let us raise Mr Ricardo from the dead and ask him about his Law.
Dave: Glad to see you, Mr Ricardo
Ricardo: Glad to be here. Nothing sucks like rotting in a grave.
D: So your Law says that trade between two nations always benefits both.
R: With apodictic certainty, especially if each country sticks to what it does best.
D: But what if China does everything better than the USA?
R: Then China should make the item that profits it most, and let the USA to the other thing.
D: So assuming a simple economic situation, where only two things are made, TV sets and mudpies....
R: Mudpies? MUDPIES? Who in Heaven's name will buy mudpies? Are you mocking me?
D: Well, in the USA there is a great fondness for mudpies, though of course the Chinese have no use for them. So according to your law both countries are best served by the Chinese making TV sets, and the Americans making their beloved mudpies, maximizing production of both.
R: Dave, you brought me back from the dead to waste my time? How are the Americans going to pay for the Chinese TV sets? The Chinese have no use for mudpies.
D: That's simple, they will buy the TV sets on credit. The Chinese are pretty stupid, new to entrepeneurship, and think US dollars are a valuable good in and of themselves. Little do they realize that it's just monopoly money.
R: All very interesting, but why slander my good name by saying that absurd situation has anything to do with my Law?
D: But you said everyone should make what they do best.
R: What they do best THAT HAS TRADE VALUE. Mudpies [and all the other garbage the US makes] have no trade value. Why do you think the US has to borrow 50 billion dollars a month from China?
I never discussed the ridiculous situation you describe, Dave. It has nothing to do with my Law, where each side makes something useful to both countries.
D: But the US makes all kinds of stuff. We are so productive. Look at the charts.
R [sneering]: Productive, maybe. BUT NOT PRODUCTIVE ENOUGH. In fact 50 billion dollars a month worth of not enough. You may as well be making mudpies, because the Chinese obviously don't want what you are producing.
D: Well, I see we're running out of time. Thank you Mr Ricardo, enjoy the afterlife.
R: Thank you, Dave.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Dave,
This post is a disservice to your argument. You cannot raise people from the dead, put words in their mouth, and use those words to justify your position. Just keep in mind, there are far more people reading these threads to learn (myself included) than there are participating, and that (if they are like me) they really grasp economics from following the debates on the forums. I enjoy your entertaining posts, but come on, you can do better than this.
they said we would have an unfair fun advantage
Mika,
Judge not by the person who says them [in this case an imaginary zombie], but by the ideas themselves.
TY for the compliment.