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Thread: Jobs offshoring is Not Free Trade--Paul Craig Roberts Interview

  1. #1

    Default Jobs offshoring is Not Free Trade--Paul Craig Roberts Interview

    Joseph F. Cotto: America remains firmly caught in the Great Recession’s clutches. How do you think that our country can reclaim its economic vitality?

    Dr. Paul Craig Roberts: The US cannot reclaim its economic vitality, which US corporations have sent abroad to India, China, and elsewhere, unless it can retrieve the offshored middle class jobs. The only way in which the US can retrieve its middle class jobs is to tax US corporations according to the geographical location at which value is added to their product.

    If corporations produce domestically with US labor, they would have a low tax rate. If corporations produce abroad they would have a high tax rate.
    The tax rate can be calculated to more than offset the lower cost of foreign labor and, thus, cancel the excess profits that corporations make from substituting low cost foreign labor for US labor.

    Cotto: Prominent economists and politicians often say that free trade will only benefit America in the long run. What are your opinions about this idea?

    Dr. Roberts: Ralph E. Gomory and William J. Baumol have proven conclusively in their 2000 MIT Press book, Global Trade and Conflicting National Interests, that David Ricardo’s free trade theory was incorrect from the beginning. Therefore, the free trade issue is mute and a red herring.

    Jobs offshoring is not free trade. Even if free trade theory was correct, jobs offshoring is pursuit of absolute advantage, the opposite of comparative advantage, which is the basis for the free trade argument. The economists who continue to advocate free trade and continue to confuse jobs offshoring with free trade are simply incompetent and professionally ignorant.

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  3. #2


    I don't care if job offshoring is free trade, I care who it benefits.

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    For a response from Mark Brandly of the Mises Institute (

    The model developed by Gomory and Baumol is fundamentally flawed. Their argument regarding multiple equilibria ignores market factors, their analysis is confused, and their conclusions are fallacious. The distribution of the potential equilibria is defective because it is based on their mistaken concept of multiple equilibria, so we should not rely on their conclusion that trade leads to conflicting national interests. Furthermore, Gomory and Baumol’s policy prescriptions are naïve. While they show some recognition of the political difficulties of implementing effective government policy, particularly regarding the issues of the scarcity of knowledge and the potential for agents of the state to be influenced by political forces, for the most part they dismiss these possibilities out of hand.

    The problems of applying theories about intervention to down-to-earth issues prevent intervention from being effective. Some of these problems, in short, are issues about the incentives faced by elected officials and by bureaucrats that lead them to act against the general interest, such as the fact that government agents cannot use dispersed knowledge as effectively as market participants, and that given the absence of prices in most government decision making, officials face a calculation problem that cannot be overcome. Of course, Gomory and Baumol fail to recognize any of these complications.

    Baumol was reluctant to undertake this project. When the book was first proposed he “objected that he had never worked on international trade theory or directly related subjects” (p. xiv). He should have followed his first instinct. In short, this work is a setback for those making the case against free trade.

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    Repeat after me:



  6. #5


    Quote Originally Posted by stu2002 View Post
    Repeat after me:


    I'm don't consider myself a member of the Austrian school, just thought it was an interesting read given that Roberts claims that Gomory and Baumol "conclusively" proved their thesis. I assumed this forum would be more amicable to that critique rather than an analysis by a monetarist, for example.
    Last edited by LibertyIn08; 12-07-2012 at 10:03 AM.

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