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Wednesday, January 21, 2015

David Ricardo and the Rise of Jihad

The rise in Jihad can be directly attributed to David Ricardo’s Comparative Advantage theory.  For those of you who have no idea what I’ve just said, let me break it down for you.

The theory of comparative advantage is the theory that free trade allows for more goods and services in the market than were possible with trade restrictions.  The idea is that you have country ‘A’ which can produce good ‘X’ and good ‘Y’ while country ‘B’ can produce good ‘X’ and good ‘Y’ at a much lower rate and quality.  So instead of both countries producing both goods, country ‘A’ produces only product ‘X’ while country ‘B’ produces only product ‘Y’.  The net result is significantly more products for both countries.

That’s the theory anyway but keen readers will be able to see the fallacies in the logic.  For those who can’t understand economics very well or mathematics, it is a simple matter of adding more countries and more products that causes the theory to break down.  Whenever you replace a constant with a variable, you get unpredictable results.

As a real world example, look at China’s current production.  The common Chinese citizen is very poor compared to the US yet they produce tons of products for the US to purchase.  On top of that, the citizens work for much less than Americans will work for, so Chinese companies can cut the prices since they don’t have to cover labor charges as much.  Labor costs are the largest expense of private enterprise.

So most of production moves overseas rather than here at home and we end up with shittier products (“Made in China” usually means garbage).

How does this apply to Jihad?  Well, the answer is simple really.

The theory of comparative advantage also doesn’t account for the structure of foreign governments and cultures.  It just assumes all things are equal and that everyone wants to trade freely with everyone else.  You know, that eternal optimism that everyone wants to just get along.

It was this misguided optimism that caused many companies to stop drilling in the United States for oil and start importing oil overseas into the US.  It was cheaper to get oil from the Middle East.  And oil is a commodity that is in high demand in the Western world.

So with all that oil flowing from the Middle East and all that money flowing back to an elite few, the opportunities for the rise of Jihad in those regions was inevitable.  With powerful financial backers, various terrorist groups now saw that they had the means to inflict serious harm on the corrupt Western civilization.

And so we have modern terrorist organizations killing people in the name of a god who cares nothing for them (seriously at least Jesus did something for mankind, Allah seems fairly benign).  They have financial backers such as Saudi princes whose oil money funds their operations against Israel, the US, and Western Europe.

Economics is never an exact science, but when it comes to praxeology, one should never discount it when looking at human behavior.  If the US had stuck to drilling at home rather than importing oil, I suspect that many of these Islamic terrorist organizations would have had much less of an impact on world events.

Understand that this is not the only reason for the rise of Jihad, just one that I believe is overlooked because it destroys the narrative of the neo-Keynesians, the Monetarists, and the Austrian economists alike.  Nearly all of them depend on free trade in some form or another to justify their economic theories.