Beating up on Ricardian comparative advantage

I’m currently reading Erik Reinert’s How Rich Countries Got Rich and Why Poor Countries Stay Poor. Immediate digression: part of why this book is notable is because the likes of Martin Wolf (Financial Times) said in the incredibly condescending manner typical of such pundits when speaking of critics of the neoliberal model, “Unlike much of the writing produced by opponents of contemporary globalization, [this is] a serious book, by a serious person.”

Anyway, after reading about 80 pages, my impression is that this is basically Ha-Joon Chang’s Kicking Away the Ladder (arguing that today’s developed countries are telling today’s developing countries not to do exactly what those rich countries did themselves to develop) but written with a keen eye towards the history of the discipline of economics. Reinert makes the argument that an entire alternate canon of economics, grounded in the German historical school, Schumpeter, List, etc, has been crowded out by neoclassical economics derived from Smith and Ricardo. This is nothing new if you’ve studied sociology, which in many ways carries on the traditions of the German historical school with a slightly different analytical perspective.

What’s fun is that Reinert is absolutely merciless when it comes to trashing Smith and Ricardo. I often find myself defending so-called global justice activists by saying things like, “we’re not anti-trade; it’s not like we’re saying ‘go to hell David Ricardo’ all the time.” The first part is true. Perhaps I should rephrase the second; after reading a bit of this book, maybe “Go to hell David Ricardo” is exactly what I should be saying. Right there in the introduction, Reinert says: “…historically the most important contribution of Ricardo’s trade theory was that, for the first time, it made colonialism morally defensible.”

Bang!

He elaborates later:

That a nation specializes according to its “comparative advantage” means that it specializes where it is relatively most efficient compared to another nation…. this theory creates the possibility for a nation to achieve a “comparative advantage” in being poor and ignorant. This happens beacuse the trade theory that forms the basis of today’s world economic order is based on nations exchanging identical labour hours – devoid of any qualitative features – against other such labour hours, in a system where production is absent. Ricardian trade theory sees a Stone Age labour hour on a par with a Silicon Valley labour hour, and therefore predicts that economic integration between these two types of economies will produce economic harmony and equalization of wages.

More later.

Flying Whale

Yes, it has to be regulation.

As it turns out, yesterday’s post about regulation has better versions everywhere.  Oh well.

But there is one element I haven’t seen elsewhere yet: why regulation is particularly important for industries like coal.

With other industries, we’ve got a major leverage point in addition to regulation: consumer pressure.

When Gap got in trouble for using (or allowing its subcontractors to use) sweatshop labor, they faced a consumer protest campaign.  Half of the news stories about Toyota’s recent woes centered on consumer response.

To make an Upper Big Branch metaphor, think of it this way: A local  restaurant is repeatedly fined for not having any smoke alarms or fire extinguishers, but the owner drags his/her feet because installing smoke alarms would require some electrical re-wiring.  A fire breaks out in the kitchen of one restaurant, spreads quickly, and kills 25 employees.

You would never go to that restaurant again.

The problem with coal companies–and other natural resource extraction companies–is that the link between the producer and the consumer is murky and convoluted.  Consumer won’t stop using Massey Energy coal to punish the company for their lax safety standards because consumers have no idea whether or not they’re using Massey Energy coal.

In the absence of pressure from the consumer, effective regulation becomes that much more important.

There are attempts–like the Dogwood Alliance’s Green Grades–to link natural resources to the retailers that buy them and then put consumer pressure on those retailers.  Undoubtedly, they offer an interesting alternative for the future.

But given how much trouble a university that wanted to stop buying mountain top removal coal had in pin-pointing the exact source of it’s coal, I’d say we’re a long way away from having anything but regulation for coal.

Jonas

The lesson of Upper Big Branch

I’ve heard a lot of different perspectives on the recent coal mine accident in West Virginia today.

Some folks speak as if  “accident” and “unavoidable” are synonyms.  Many others, especially those with family who were or are miners, talk about the dangers of mining and the bravery of the miners.  A few folks suggest that the regulators didn’t do their job.  One person told me that Massey Energy Company is an evil corporation.

And all of those things might be true, but I think they miss the point of this particular tragedy.

As far as I can tell, the problem wasn’t that the Mine Safety and Health Administration (MSHA) didn’t know there were problems with the mine–in March, the Upper Big Branch mine had 53 safety violations.  It’s that they didn’t have the leverage they needed to force change.

As in many industries, the effectiveness of MSHA is limited by the fact that it is usually cheaper to pay the fine than to comply with safety standards.  Last year, 500  citations were issued against the Upper Big Branch mine resulting in fines of $897,325.  I don’t know the specifics, but that averages out to slightly under $1,800 per violation.

When the dangers include flooding, the build-up of methane, roof collapse, equipment malfunction, and combustible coal dust, one can imagine that the remedies aren’t cheap.  And one can also imagine that $1,800 per fine doesn’t offer nearly enough incentive to make them happen.

In order to work, paying the fines has to be more expensive than complying with safety standards.

Plus, as an added benefit, we could invest the higher fines in beefing up inspection.

And the combination of these–broader inspection coverage and higher fines incentivizing compliance–would be a good thing for mine safety.

Jonas

Apparently, humans are idiots sometimes

I woke up this morning to discover Ezra Klein making a similar point to one in my last post about the classified US military video from WikiLeaks.  He’s writing about financial regulation, not war.  And he’s willing to call people idiots which I’m not.   But there is a conceptual link:

Larry Summers famously wrote — but sadly, did not publish — a paper that began with a timeless bit of wisdom: “THERE ARE IDIOTS,” Summers said. “Look around.” That paper was written decades ago. Maybe it’s time to finally publish it. Particularly that second line.

Like the poor, idiots will always be with us. In fact, we’ll frequently be among them. The seductions of group-think, the tendency to trust experts, the incentives for employees to go along with their bosses rather than contradict them and the need to deliver short-term profits even at the cost of long-term risk are more powerful than any regulation and will exist long after the visceral lessons of the subprime meltdown are gone.

So we’re left where Summers started: There are idiots. And if you look around, it turns out that they’re everywhere: In the banks, at the Federal Reserve, running the rating agencies, and selling mortgages. You can’t idiot-proof a system run by idiots.  But you can limit the damage they’re able to do.

And I think that’s part of what I was trying to articulate.  You can’t human-proof a system run by humans.  Rather than expecting our soldiers to be perfect super-humans, we should focus on minimizing how out-of-control their mistakes can become.

In this particular case, there was an opportunity to stop the massacre half-way by not firing on the evacuation van. Why didn’t that happen?

Ezra goes on to offer some thoughts on how we might limit the damage caused by failures in the financial sector.  I don’t know enough to propose parallel regulations and constraints for war.  But it still seems like a more productive response than some of my knee-jerk alternatives.

Jonas

We have to talk about this.

By this point, most of you have already seen the classified US military video over at WikiLeaks.  If you haven’t, you probably should (Go do that and come back.  I know it’s long.  Watch it anyway).

I watched it first thing this morning and have been stewing over it all day.  It leaves me thinking about the ethics of the war in Iraq, about the consequences of modern warfare technology, about the differences between policy and implementation with fidelity, about the future of investigative journalism, and on and on.

I’ll start out with a handful of qualifiers and then tackle the differences between policy and implementation.

Qualifiers:  First, the US military hasn’t confirmed or denied the authenticity of this video.  Second, the video doesn’t show any of the context preceding the shooting (if, for example, the military had legitimate reason to believe that this particular group of people was dangerous).  Third, I know almost nothing about the rules of engagement.  Fourth, war is horrible.  And for the most part, people on all sides do their best to survive and cope with what they have to.  They’re real people, just like all of us, with real limitations.  I don’t expect perfection.  But I do ask–as I believe all of us are obligated to–how we can minimize the consequences of those imperfections.

And now: policy versus implementation with fidelity.

We have pretty clear rules of engagement in Iraq.  They’ve been (perhaps rightly; again, I don’t know) criticized as being so restrictive that soldiers are unable to defend themselves.  But they exist.  And as far as I can tell, they were violated in this instance.

Which either means that 1) Command has encouraged soldiers to ignore them by looking the other way when they do or 2) Soldiers on the ground aren’t following the policies they’ve been given.

If it’s the first, then we should broaden the discussion of what the cover-up was covering up.

But let’s assume for a second that it’s the latter.  Implementation fidelity is never going to be 100%.  Add the stress of constant danger, the emotional impact of “The Enemy” rhetoric, the low value placed on Iraqi civilian life,  the emotional distance of long distance weaponry…and implementation fidelity plummets.

The problem with war is that infidelity often results in civilian deaths.

It’s not that we should be particularly surprised that soldiers don’t always follow the rules of engagement.  It’s that, rather than just wishing they would, we should be prepared to deal with it when they don’t.

Right now, it looks like our strategy is to cross out fingers and hope that no one finds out.  Which means that when a solider, inevitably, doesn’t follow the rules of engagement and kills a dozen civilians and a couple of journalists by bad coincidence, the competence of the military and the morality of the entire war is called into question.

I’m the last person to tell pro-war folks how to improve their position, but this seems like incredibly harmful framing for them.

At any rate, this is the hard position to hold.  To acknowledge that some of the horrors of war are because individual servicewomen and servicemen act outside the constraints they’ve been given.  And yet to avoid the temptation to demonize them and paint them as particularly evil people–people somehow different than us; we who would, of course, always implement with full fidelity.

Jonas

Gettin’ back on track

To start, a confession: I’ve bought into that thing.  That notion that because I haven’t written for a while, my next post must be better thought-out, on a more important issue, with more of my own unique analysis than usual.

And the longer I wait, the higher the bar climbs.  And the higher it climbs, the more inadequate each post idea seems.

You get the picture.

So I’ve been waiting.  Waiting for the perfect post to plop itself down in my mind.

Except, um, my brain doesn’t work that way.  I’m a better thinker when I’m engaged over time; I’m a better writer when I’m writing; and I’m happier when I’m doing both.

So, rather than the perfect post, here you have a confession.  And an unenforceable promise that non-perfect, more substantive posts are coming soon.

Jonas