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logo    Krugman, Ricardo's Difficult Idea, and Globalization


Paul Krugman, an economics professor at Princeton University, has an article on the internet entitled, "Ricardo's Difficult Idea" (RICARDO'S DIFFICULT IDEA http://web.mit.edu/krugman/www/ricardo.htm). Numerous comments on this article can also be found on-line; however, none raises what I consider to be its fundamental errors.

First, professor Krugman claims that people, especially those whom he calls intellectuals, are critical of the claims made by economists in support of free-market globalization for three reasons:

  • They do so to be intellectually fashionable.
  • They do so because the theory of Comparative Advantage is more difficult than it seems, because it is part of a network of ideas which constitute a mathematical model. 
  • They do so because of an aversion of mathematical ways of understanding of the world.

What evidence Mr. Krugman or anyone else could have to support the first and last of these items is hard to even imagine. Has he or anyone else taken a random survey of the people who are critical of globalization and counted their responses?

So, here is Mr. Krugman, passing himself off as some kind of  scientist (Oh, how economists like to make that claim!) making claims for which there is little if any evidence, which is not a practice that any legitimate scientist would ever engage in.

But even more so, consider the third item. There are countless people who will freely admit that they have no understanding of, say, the theory of relativity or quantum mechanics. Many of these people, perhaps, are not mathematically inclined and thus can be said to have an aversion to mathematical ways of understanding the world.  Yet there is no mass rejection of the claims of physicists made by such people, especially by those whom Krugman would characterize as intellectuals. So it follows that there must be something more than a mere aversion to mathematical models behind the criticism made of the economists' claims about globalization. No mere aversion can account for them.

Second, just because a theory has a mathematical model means noting . Any good mathematician can mathematically model any theory that does not involve a logical contradiction. The Earth Centric Theory of the Universe can be modeled mathematically; yet it is completely false. And anyone who has studied non-Euclidean geometry knows that numerous such geometries can be developed mathematically, but most have no application in the world we live in. So merely because economists have a mathematical model from which they derive their claims does not validate them.

Third, all sciences are not cut from the same cloth, so to speak. Some, like geology and the theory of evolution are almost entirely descriptive. They attempt to tell us how the present was formed based upon data about the past derived from searches of the earth's layers and fossils. They make no attempt to predict the future. Contrast those sciences to plate tectonics, for instance, which not only describes how the present continents were formed but also describes what the continents will look after some eons in the future. So if one claims that economics is a science, we can rightfully ask, What kind of science is it?

Furthermore, some sciences can be bifurcated into theoretical and applied branches. Theoretical physics, in most cases, cannot be directly applied to the world we live in. To do that, we need applied physics (engineering). Although theoretically a feather falls at the same rate as a metal sphere, no engineer would use that theoretical finding in building a roller-coaster, for example. An engineer would take into consideration the factors in the real world that the theorist ignores, such as the resistance of air and various weather conditions, especially the forces involved in storms. So again, we need to know whether, if economics is claimed to be a science, it is theoretical or applied, and how theoretical economics differs from applied economics. To my knowledge, no economist has never ever made the distinction, no less studied it.

Fourth, scientific theories are subject to verification. Empirical data. that is not contradicted by similar data from somewhere else, must be provided that supports scientific theories and in many cases, crucial experiments must be devised and carried out to acquire that data. No one really knew, for instance, not even Einstein, whether the theory of relativity was valid until a British solar eclipse team proved that light rays from distant stars were deflected by the gravity of the sun just as the theory of relativity had predicted.

Economics cannot provide any empirical data not contradicted by similar data gathered somewhere else to support its models and economists, to my knowledge, have never devised and carried out any crucial experiments.

Fifth, at least since the nineteenth century, scientists have engaged in an examination of their foundations, that is, their assumptions. Even the foundations of arithmetic have been investigated, yielding some spectacular results. All modeled theories are based on assumptions which need to be investigated. Free market economic theory is chock full of such assumptions, the validity of which are merely taken for granted by economists. For instance, Ricardos difficult idea makes the following assumptions:

  • Labor is only factor of production.
  • The supply and productivity of labor is fixed in each country.
  • Perfect competition prevails.
  • Perfect mobility of factors of production within countries exists.

None of these assumptions hold in the real world we live in.

Sixth, in science results matter. Physical laws work just as well in Austria, Australia, and Argentina. The results dont vary in different parts of the world. The same claim cannot be made for economics.

Since the eighteenth century, physicists have enabled mankind to put men on the moon, send planetary probes to the outer reaches of the solar system, land probes on comets, build countless appliances, skyscrapers, and vehicles, to mention just a few of their accomplishments.

Since the eighteenth century, economists have had some astounding successes; unfortunately there have been even more astounding failures. Yes free market Capitalism has brought wealth to some peoples, but it has also institutionalized human exploitation, poverty, child labor, greed, and general immorality. None of the authentic sciences has such a dismal history.

Some unabashedly admit that the prime motivation for globalization is that it reduces labor costs, and they advance at least one position that would be positively hilarious if the subject matter were not so grave. On one hand, they assure us that we needn't worry about losing jobs in software maintenance and development... automotive and aerospace component design, and pharmaceuticals research due to globalization since 70 percent of jobs in the U.S. result from services such as retail, restaurants and hotels, personal care services, and the like,  necessarily produced and consumed locally. On the other hand, they admit that many of the jobs lost to outsourcing are relatively undesirable because of their low pay or low prestige.

Is this an argument for outsourcing? Laid-off programmers can always get their cosmetology licenses? Americans don't want those undesirable jobs in aerospace design because of the more prestigious positions available in the hospitality industry? Oh, sure!

Our economists make equally ludicrous claims about their mathematical model. They claim that globalization produces increases in net wealth. Well, so did mercantilism. An economist might reply that that depends on how wealth is measured, and I would reply, Yes, indeed it does.

Economists need to ask themselves whether economics exists for the benefit of people or people exist for the benefit of economic theory. The people believe it should exist for them, not the other way around. Economists seem totally oblivious to this reality. Even the measurements of the economy they take ignores it. The distinction between core and total inflation leaves people cold. When told that they are not much worse off because core inflation is negligible, they react with incredulous disgust. What matters to them is total inflation. The employment rate is just as unimpressive. All of the factors that effect peoples lives are absent from it. People who have given up looking for work because they have not been able to find any are unemployed; yet, the employment rate doesnt measure them. And who cares if 10,000 jobs lost are balanced by 10,000 jobs gained? What people care about is what kinds of jobs have been lost and what kind have been gained. Ten thousand high-paying jobs lost are not balanced by 10,000 low-paying jobs gained. And now it has been pointed out that even our GNP measurements are faulty. Business Week has recently pointed out that we are measuring phantom GNP.

But there is something even more fundamentally wrong with free market Capitalism--it institutionalizes immorality. Its engine is exploitation, deceit, greed, and fraud, and any economist who defends it, no matter how brilliant, lacks even a scintilla of moral sense. So the gross criminals of this world are not those in prisons; they are the people who defend and manage this abominable model. (6/22/2007)