International Trade

Economics Economics Questions
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1

What would be the consequences for the world economy if

(a) capital was fully mobile but labor was not?
(b) both capital and labor could travel to each other freely?

I mean, the standard of living of Americans is high, because Americans are comparatively much more productive than the Chinese or Africans, and that is because Americans are far more plentifully supplied with capital goods, i.e., tools, machines, etc. That there is so much capital accumulated in the US, and so little elsewhere, is a fact of history. But if national borders were perfectly permeable, and abstracting from the political problems of massive immigration, and assuming that only labor is mobile, i.e., unemployed people cannot move easily, isn’t it the case that (b) would result in the capital presently concentrated in the US becoming “spread” over the entire world? This would improve the standard of living of the poor in the “developing” countries but greatly lower the standard of living of the US factor owners, workers and such. Isn’t this laissez-faire ideal therefore not exactly desirable, if one takes the somewhat parochial view of “America first”?

2

No on all counts:

  1. People in the Western World have more wealth because they have TRADITIONALLY had more freedom (Translate less government force on them) to exist, (Life), to enter into contracts with others (Liberty) and more ability to own and dispose of property (Pursue Happiness) than people in other parts of the world. It has nothing to do with the current amounts of human, physical or other capital.

  2. There is a lot of capital in all places on the planet. It is government that restricts people from using it.

  3. If more people became free, that would benefit the Western World not hurt it. It would expand the division of labor thus creating more goods and services at cheaper prices. Look at the development in China. The USA has benefited greatly from this. Think how high prices would be in the USA if China had the output that it had in 1972. Think of how much the USA sends to China. Without this commerce the USA would be a third world country with its spending ways and inflationary monetary policies.

  4. As people get more free, they will migrate towards the places where they can best exploit their freedom. This should hopefully be the Western World where most opportunities exist. Why would they leave the place where the action happens to move to a new place just developing.

  5. The only thing that could hurt the West would be that governments do what they are doing now, which is to steal property through taxes, inflation and debts, pick winners and losers among businesses (Even if the business happened to be headquartered in foreign countries), increase welfare and social safety nets and worst of all, strike fear into their citizens in build giant military-intelligence-police states.