One more problem with Keith's outline. It is a static analysis assuming things remain the same. And in the world of Ricardo we could make that assumption.
Things are dynamic, and when we mix in knowledge, knowhow, internal commercial and cultural ways of doing business---well the static analysis is misleading. arthur -----Original Message----- From: Keith Hudson [mailto:[EMAIL PROTECTED]] Sent: Friday, February 01, 2002 4:21 AM To: Harry Pollard Cc: [EMAIL PROTECTED]; Cordell, Arthur: ECOM Subject: Economics as a science (was Re: Double-stranded Economics) Hi Harry and Arthur, For the time being, let me take just one strand from your (HP's) latest mail and attempt to show how economics can be used as a science. This will never make the whole story at all times as we (HP and KH) both agree -- human nature is also involved -- but the overall structure over the longer term ought to be scientifically analysable *and* predictions made with a high degree of confidence: At 12:48 31/01/02 -0800, you wrote: (HP) <<<< You are right to separate the two strands. However, my separation would be different. The "science" you speak of I think is mostly mathematics. Mathematics is a great tool, but is never better than its premises. And they are often highly suspect. These scientists have drawn around themselves a self consistent world which is not part of the real world. (As is said, Arthur, to an economist, reality is a special case!) This is why they are completely unable to predict. >>>> I will attempt to prove that the composition of world trade will be largely predictable over the long term (that is, subject to temporary wayward swings of, what Greenspan calls "irrational exuberance") . ----- My five basic premisses are as follows -- the first two contributed by you (with which I obviously agree). I think these premisses are reasonable but I'm not going to attempt to justify these here: 1. Man's desires are unlimited; 2. Man seeks to satisfy his desires with the least exertion; 3. Ricardo's Law of Comparative Advantage holds; 4. As world-wide competitiveness increases, all national currencies (or a single world currency in due course) will increasingly represent the economic (that is, energy) efficiency of operations of supply of goods and services in any country, region, city, whatever; 5. As world-wide competitiveness increases, then the pattern of spending of all customers on staple goods and services will become increasingly similar. -------- Proof: Let the world consists of two countries only -- X and Y. Let X and Y have similar standards of living and similar patterns of consumer spending at a given instant. Let each country produce goods and services A,B,C,D,E,F,G,H. Let the efficiency of production of country X is in the order: A,B,C,D,E,F,G,H; and that the efficiency of production of country Y is E,F,G,H,A,B,C,D. Then, clearly, the standard of living of both countries can be maximised when country X makes and exports A,B,C,D only to country Y, and country Y makes and exports E,F,G,H only to country X. This can now be generalised to all goods and services and to all countries, regions, cities and, indeed individual producers and consumers. Therefore: Given enough computing power, then the overall pattern of world trade can be predicted. ------ Now the above can't account for new discoveries and innovative goods and services. But, given that important new ones come along now and again, then, as soon as they become incorporated in one statistically valid region (that is, one with enough consumers to give a sensible sample), then a reformulation of future world trade can be arrived at. ------ This has some important consequences: 1. Maximising world trade is desirable for all; 2. However, the shunting of production or service operations around the world (say, on the basis of the cost of labour only) by individual corporations with a narrow range of products is not desirable, nor stable, over the long term. This is the valid core of the argument of the anti-globalisation protesters and if they were to confine themselves to this point only then I would agree wholeheartedly with them. 3. Ideally, each country, region, city, of individual (any entity with aspirations) should not copy the staple operations of others but should maximise those operations which are unique to it/he/she (or to which it/he/she is especially benefited by location, climate, etc.). Very good examples of the dangers of not doing this are those of the 'copycat countries' of Asia which tried to replicate the production of consumer goods of other more established countries. They may succeed very well for a while with temporary increases in efficiency, particularly if they have a large domestic market, but unless they can show clear efficiency advantages over the longer term then they're in trouble as regards exports. Today, for example, Japan is not able to invest profitably at the present time because its present production mix is too similar to America's and doesn't seem to be developing anything which gives it a clear comparative advantage. The lesson is that all entities should specialise in what they are already particularly good at, or in the unique benefits which their region possesses. (As the pattern of consumer spending becomes increasingly similar, or aspired to, in all countries, this explains why tourism is becoming increasingly important to all countries, developed and undeveloped -- and speciality holidays even more so.) This isn't to say that they shouldn't also produce what other countries are able to but this won't increase their standard of living because they could import quite as easily -- this would only be 'make-work'. Keith Hudson __________________________________________________________ "Writers used to write because they had something to say; now they write in order to discover if they have something to say." John D. Barrow _________________________________________________ Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED] _________________________________________________
