Now this is bad economics

The opportunity cost of debating Brad DeLong over the operationalization of data sets is that truly stupid popular economic writing can slide by unscathed. Like the Senior Senator from New York, Chuck Schumer, who on Tuesday co-authored a New York Times op-ed that said the following:

The case for free trade is based on the British economist David Ricardo’s principle of “comparative advantage” — the idea that each nation should specialize in what it does best and trade with others for other needs. If each country focused on its comparative advantage, productivity would be highest and every nation would share part of a bigger global economic pie. However, when Ricardo said that free trade would produce shared gains for all nations, he assumed that the resources used to produce goods — what he called the “factors of production” — would not be easily moved over international borders. Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today’s case, to a relatively few countries with abundant cheap labor. In this situation, there are no longer shared gains — some countries win and others lose.

What’s wrong with this statement? Let’s go to Noam Scheiber at TNR’s &c.:

so-called factor immobility is NOT, in fact, one of the assumptions underlying the theoretical case for trade–at least not the way Schumer and Roberts seem to think it is. To see this, let’s back up for a second. At its broadest level, the point of free trade is to expand the size of the global economic pie by eliminating production inefficiencies, which arise when one country tries to produce everything itself using only the “endowments” of capital and labor (i.e., machines and workers) it has within its borders. Now, there are two ways you can eliminate these inefficiencies: When it’s not so easy to move machines and workers across borders, countries can specialize in the goods they produce most efficiently, which they then trade with one another. (We’ll be more precise about what we mean by “most efficiently” in a second.) When it is easy to move machines and workers across borders, you don’t have to specialize (at least not by country) and trade, because every country already has access to the most efficient machines and workers. Put differently, you can either trade machines and workers (which is basically what you’re doing when you’re outsourcing), or you can trade the goods these machines and workers make. But, as a theoretical proposition, the two scenarios are EXACTLY THE SAME: They both maximize productive efficiency. Indeed, one of the great accomplishments of international trade theory, post David Ricardo, was to prove mathematically that trade in goods accomplishes the exact same thing, efficiency-wise, as trade in machines and workers.

David Adesnik has more on this as well, including links on the future of employment in the computer sector. [UPDATE: DeLong comments as well]. ANOTHER UPDATE: Michael Kinsley dissects the op-ed in Slate. Among the highlights:

Schumer and Roberts cling to the free-trade label and endorse the general principle while claiming it no longer applies because “the factors of production can relocate to wherever they are most productive.” In fact, that makes the theory even more compelling. If the factors of production become more productive, the whole world becomes richer. If there is some explanation of how a society can get richer by denying itself the fruits of this process (and most likely curtailing the whole process itself, as others misguidedly retaliate), Schumer and Roberts do not offer or even hint at it…. But the real difference between traditional trade in heavy earth-bound objects and 21st-century trade in weightless electronic blips, or in sheer brainpower, is that the losers in new-style trade are more likely to be people that U.S. senators and fancy economic consultants actually know. These are people with advanced degrees and high incomes. Their incomes will likely be above average for our economy even if they are driven down by competition from poorer economies. Under these circumstances, denying the benefits of free trade to the whole nation—and denying opportunity to the rising middle class in developing countries—in order to protect the incomes of a relative few seems harder to justify, not easier, than it was back in the days when our biggest fear was Japanese cars.

This last point is one I have made before. The first point is spot-on. Going back to the op-ed, here are the sinister forces that, according to Schumer and Roberts, undercut the free-trade position:

[There has been] a seismic shift in the world economy brought on by three major developments. First, new political stability is allowing capital and technology to flow far more freely around the world. Second, strong educational systems are producing tens of millions of intelligent, motivated workers in the developing world, particularly in India and China, who are as capable as the most highly educated workers in the developed world but available to work at a tiny fraction of the cost. Last, inexpensive, high-bandwidth communications make it feasible for large work forces to be located and effectively managed anywhere.

More political stability. Better education. Lower communication costs. Yeah, I can see how this devastates the free trade position. [What about Joe Stigltz’s gloomy op-ed on NAFTA on the same day? Aren’t you going to pick on him?–ed. Well, according to Mark Kleiman, I’m supposed to tread carefully on the domain of other experts. But, I will point out that even Stiglitz acknowledges that Mexico’s growth in GDP per capita since NAFTA’s ratification is “better than in much of the rest of Latin America”. Stiglitz also overlooks the political benefits of NAFTA in democratizing Mexican politics and improving the rule of law south of the border.]