The Intrinsic Flaws of Ricardo's Theory of Comparative Advantage

 If you've taken a basic Econ 101 course or read a foundational book on economics, you know that the primary argument for free trade between countries is premised on David Ricardo's Theory of Comparative Advantage which, essentially, states that countries can benefit from trading with each other by focusing on producing things for which they have a lower opportunity cost (i.e., in which they have a comparative advantage) while buying from other countries those goods that the other country can produce for a lower opportunity cost, even if the that other country is not as efficient overall at making those products. The classic example is that if Britain has a comparative advantage compared to France in producing wool, but France has a comparative advantage compared to Britain in making wine, then Britain is better off buying its wine from France rather than attempting to produce its own, and France is better off buying its wool from Britain rather than attempting to produce its own. 

    This is the basic argument as to why the United States was better off shipping its manufacturing to third world countries if that third world country could produce the goods for a lower overall cost, even if they weren't as efficient as American manufacturers. Because the cost of labor is generally higher in the U.S. than these third world countries, and nations like China don't care about certain costs that U.S. manufacturers have to bear--like worker safety, pollution mitigation, etc.--the consequence was always going to be a net loss of American jobs. 

    In any event, Vox Day decided to test out the DeepSeek AI by having it identify flaws with the Theory of Comparative Advantage, which he reports in his article, "The Intrinsic Flaws of Free Trade." He begins:

I asked Deepseek to share what it thought of what has, for more than two centuries, served as the conceptual foundation of the free trade policy that has served as a quasi-religion for the Western elite of the post-WWII era. And while I knew it was a fundamentally flawed theory, so much so that economist Joseph Schumpeter once described its question-begging formulation as “the Ricardian vice”, I was still a little surprised to see how completely it was demolished by the pattern recognition of the Chinese AI system.

Although the article goes into more detail on each point, the major flaws identified are: (1) simplistic assumptions; (2) the model's static nature; (3) unrealistic assumptions as to mobility and employment; (4) neglect of real world costs and barriers to trade; (5) it ignores social impacts; (6) it fails to recognize external costs (e.g., pollution); (7) it ignores services and costs of trade; and (8) it ignores social and political factors. Read the whole thing.