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Sure. (as an aside if anyone can point out how to do proper bullet points I'll edit). Here's a non-exhaustive list of concerns that occur to me when I read e.g.

Sure. (as an aside if anyone can point out how to do proper bullet points I'll edit). Here's a non-exhaustive list of concerns that occur to me when I read e.g. the wikipedia page on comparative advantage. I'll happily admit my ignorance in this field. 1/ What is the nature of comparative advantage? Where does it come from? The standard explanations point to things like weather, but surely location-dependent industries are only a tiny fraction of modern economic output. 2/ Is comparative advantage fixed? To the best of my limited knowledge, heavy industry in the US civil war era was only able to grow because of trade barriers. If comparative advantage can vary over time, surely that implies a very different course of action to "specialise in what you're best at right now". 3/ How does a country automatically know what it is best at producing? 4/ What about cross-pollination of ideas between industries? 5/ What about diversification? Surely putting all your eggs in one industrial basket is a bad idea? Holland (and now Saudi Arabia, Nigeria, and others) specialised in oil production, which ultimately had nasty side effects on its economy. This is known as the Dutch disease. 6/ The usual claim is that "in the long run", everyone benefits. How long is the long run? How much suffering takes place in the short run? I mean, look what happened to Detroit. To address your "simple model" point: yes, many people do argue that "all models are wrong, but some are useful". If you're going to make that argument, you need a mechanisim for differentiating between bad and good models. I don't know of any such mechanism in economics. I'd be a whole lot happier with a series of detailed ethnographies than with a mathematical model. Some things are just too complicated for mathematics to handle.

lmm 10y ago
> 3/ How does a country automatically know what it is best at producing? I know the standard answer to this one: they don't, but they allow the free market to handle it. Industries which have an advantage in that country will flourish, those that don't will go bankrupt.
- soVeryTired 10y ago
  That's a fair point. I can partly get behind that argument, but it does make some assumptions - for example, that barriers to entry for most industries are low, and that other industrial players won't attempt to drive out new entrants.
  - marcosdumay 10y ago
    Barriers to enter are a kind of competitive advantage. According to the model, it will lead to concentration of this kind o industry on the places it is already established, and the migration of other kinds of industry to the other places.
- crdoconnor 10y ago
  Except the most successful economies in the last 40 years (Asian tigers) didn't do that - they chose to develop comparative advantage in industries such as shipping, electronics and pharmaceuticals. Other countries that started off from a similar starting point (e.g Thailand) and "let the market handle it" ended up way behind.
  - snrplfth 10y ago
    But those economies that did well were ones which moved in the direction of freer trade/economies. This is not to say that they had perfectly free trade or didn't pick winners with industrial policy - it's just that they started having freer trade and less industrial policy. And of course you'd expect them to develop a few large and particularly successful industries - but they developed on all fronts simultaneously, in some areas slightly faster than others. And I mean, the most successful "Asian tigers" were Hong Kong and Singapore - with the most open, least "state chosen" economies.
    - crdoconnor 10y ago
      They really didn't. Most of the tigers used tariffs and subsidies to target key industries and loaded up on US treasuries to reduce the value of their currencies and make their exports more competitive. Hong Kong and Singapore very much followed stated directed investment. Singapore went out of its way to court large multinationals (Philips and Shell were among the first lured over), for instance, built 90% of the housing stock in the country and even today gives out a multitude of grants to new businesses in 'key' industries.
      - snrplfth 10y ago
        Sure, they targeted key industries and sometimes "got them". But so did a lot of other countries try the same thing, and they didn't get them. I'll note also that throughout most of their boom periods, both Singapore and Hong Kong had very small or no tariffs on almost all goods - when the other Asian Tigers did tend to have protective tariffs on various goods. Also, that housing, the most government-controlled sector in both countries, is notably very expensive - not a particular success story. I'm not saying that any tariffs and subsidies will halt growth, or that industrial policy will always fail. What I am asserting as the general trend is that moving towards a freer economy pretty typically helps - and moving towards a dirigiste economy usually doesn't do much good. If anything Asia should be a demonstration of this - China before and after the 1978 reform process, Vietnam before and after the 1986 Doi Moi reforms, India's 1991 Rao-Singh reforms, among others. These didn't mark an increase in state intervention/ownership, tariffs and subsidies, but rather a decrease.
- raj_o 10y ago
  This makes no sense. A person who studies medicine, knows what his comparative advantage is, or should be. A business that makes springs, knows where to focus their energy in order to compete. The idea that a country doesn't know is because a country doesn't have an over-seeing rule-maker (a government) defining the rules of play. Outside of a regulatory framework, in modern economics, comparative advantage won't work. It will be those with the most power (derived from success or money or something else) will win. Those with the most resources wins. And yes those who can game the system will win. Otherwise you'd take the 'capital' out of capitalism. After all, who wouldn't capitalize over the stupidity of another country that let you take advantage of it? Outside of natural resources, can you please tell me how an area on this earth can have an advantage over another area. I am befuddled by this argument for free trade, in regards to countries.
  - snrplfth 10y ago
    The point is that comparative advantage is discovered in the market. I may think that I'm the best at painting houses - and I may be better than most! - but in striving for the best gains I can, I may find that my comparative advantage in doing something else, something I'm more expert in, is greater. To wit, "what is the best use of my limited time?" An advantage can come out of any number of things - climate, location relative to a trade route, particular local demands or preferences, or just happenstance. As you note, comparative advantage is not just about whole countries, but also about regions, companies, and individuals - so that it's not just about an "area of earth" but about the variety of things that happen in each place. Comparative advantage is an argument that trade makes people (regions, cities, etc.) better off even if they have nothing they are the best at.
    - sprafa 10y ago
      Markets and governments are necessarily linked. So even though you might "think" you are no good at painting houses, because you can't compete with foreign labor, actually what's happening is that their government has figured there is a huge multiplier for them to capture all the house painting work in your country, and therefore, they subsidise and protect their own house painters and help them in any they can. So that they can eventually force you out of the market. See China on consumer electronics, solar panels, etc. And if you say "but the perfect market wouldn't have any subsidies or aids" then you are living in a fantasy world made up by economists! They don't even have to subsidise, all they need to do is make it slightly easier for house painters to do their work there than anywhere else in the World, by easing legislation and lowering taxes. They will outcompete you just by following less laws and regulations and paying less tax. Because everyone ever has agreed that laws and tax should exist, you need to explain how "perfect" markets will ever exist. Again, look into China and it's the exact same thing. They don't need subsidies, they create Special Economic Zones. Anyway the idea that markets exist separate from governments is a fiction made up by economists. See "Debt the first 5000 years" on a description of how anthropologists have found that actually, the most common origin of a market is government intervention.
snrplfth 10y ago
1/ I think you may be focusing on the wrong part of comparative advantage - the point is that different countries, regions, companies and individuals will be better or worse than each other for any number of reasons - climate, skills, organization, preferences, history. That's the "advantage" part, which is straightforward. The second part is that even if one entity (country, region, person) is worse at everything than all their possible trading partners, they still have something to contribute, because they can focus on what they're "least bad at", freeing up the others to focus on their best (or "least bad") occupations. That's the comparative part, which is unintuitive. Consider an "individuals" example: I am a better cook than the average fast food worker, and I am also better than them at building databases. So why don't I split my time between my office and the fry vat? And why does the fast food worker have a job? Because if I do one thing, I can't do another - I have limited hours. And my advantage at building databases is much greater (let's say 10 times as good as them) than my advantage in making fast food (let's say 1.5 times as good.) So, we focus on what we have the greatest comparative advantage in, and trade the results. 2/ Precisely what the comparative advantages are is not fixed, it changes as much as industries and the world economy changes. But the principle remains the same. Heavy industry in the US did grow a lot behind substantial trade barriers, but the US had a very large internal free trade zone. Other countries, such as the UK and Sweden, had much freer trade and also saw large growth. 3/ They don't know what they're best at producing, you have to find this out by testing it against world markets. Which is better than just saying "we'll just make everything we need within our own borders." 4/ Well, what about it? Ideas can cross-pollinate across borders perfectly well, and probably better if you have free trade. 5/ Comparative advantage doesn't mean that each country must specialize in single things - it just means that even countries (rather, people in countries) with low productivity can still trade successfully. Countries can have a range of competitive sectors by specializing. And most of the consequences of "Dutch disease" are due to governments becoming over-dependent on revenues from the one big sector. 6/ Well, most people who are arguing for comparative advantage as an essential policy consideration would point to Detroit and say "actually, that happened because of massive urban demolition policies/continous bailouts for failing companies/unions with special privileges/very bad policing/overall, an attempt to ensure that a momentary 1950s economy was frozen in time". The problem with attempting to do detailed ethnographies is that it tends to capture more peoples' reactions to economic phenomena, than to those phenomena's actual causes. It's like doing a study of how people react to malaria (which could be useful!) without mentioning that it's spread by mosquitoes (which is essential to grasping the mechanics of the problem.) A lot of economics has to do with hard physical/informational realities. These have to be understood, at least on a basic level, with models.
marcosdumay 10y ago
You are mixing positive and normative aspects here, and getting a way less powerful worldview as a consequence. Well, you are not to blame, as by the time of Ricardo economists were always doing the same, so even the Wikipedia article will mix them. A model is a positive construct, not normative. From the model: 1 - That is not answered by the model. You'll almost certainly need to answer it case by case, as the origin of some advantages are that somebody just happened to be born in a place instead of another. Other are clearly more systematic. 2 - Does not seem to be. This is also not on the model. 3 - The country does not get to "know" what it is best at. In a competitive market¹ the less competitive industries fail while the more competitive ones thrive. 4 - That's also not on the model. It will probably change the comparative advantages in the future. 5 - This one is completely normative. 6 - A much more likely claim you'll hear from economists is that overall the population benefits from international trade. There's no "long run" there, and not "everyone" either. This one model does not explain how a population can spread that benefit so it goes to everyone and is sustainable on the long run, you'll have so look at many of them to get a good answer to that. As the GP said (and I on another comment), it's too simple. But you didn't point to flaws. 1 - Notice I didn't say "free market" here.

lmm 10y ago

> 3/ How does a country automatically know what it is best at producing? I know the standard answer to this one: they don't, but they allow the free market to handle it. Industries which have an advantage in that country will flourish, those that don't will go bankrupt.

soVeryTired 10y ago
That's a fair point. I can partly get behind that argument, but it does make some assumptions - for example, that barriers to entry for most industries are low, and that other industrial players won't attempt to drive out new entrants.
- marcosdumay 10y ago
  Barriers to enter are a kind of competitive advantage. According to the model, it will lead to concentration of this kind o industry on the places it is already established, and the migration of other kinds of industry to the other places.
crdoconnor 10y ago
Except the most successful economies in the last 40 years (Asian tigers) didn't do that - they chose to develop comparative advantage in industries such as shipping, electronics and pharmaceuticals. Other countries that started off from a similar starting point (e.g Thailand) and "let the market handle it" ended up way behind.
- snrplfth 10y ago
  But those economies that did well were ones which moved in the direction of freer trade/economies. This is not to say that they had perfectly free trade or didn't pick winners with industrial policy - it's just that they started having freer trade and less industrial policy. And of course you'd expect them to develop a few large and particularly successful industries - but they developed on all fronts simultaneously, in some areas slightly faster than others. And I mean, the most successful "Asian tigers" were Hong Kong and Singapore - with the most open, least "state chosen" economies.
  - crdoconnor 10y ago
    They really didn't. Most of the tigers used tariffs and subsidies to target key industries and loaded up on US treasuries to reduce the value of their currencies and make their exports more competitive. Hong Kong and Singapore very much followed stated directed investment. Singapore went out of its way to court large multinationals (Philips and Shell were among the first lured over), for instance, built 90% of the housing stock in the country and even today gives out a multitude of grants to new businesses in 'key' industries.
    - snrplfth 10y ago
      Sure, they targeted key industries and sometimes "got them". But so did a lot of other countries try the same thing, and they didn't get them. I'll note also that throughout most of their boom periods, both Singapore and Hong Kong had very small or no tariffs on almost all goods - when the other Asian Tigers did tend to have protective tariffs on various goods. Also, that housing, the most government-controlled sector in both countries, is notably very expensive - not a particular success story. I'm not saying that any tariffs and subsidies will halt growth, or that industrial policy will always fail. What I am asserting as the general trend is that moving towards a freer economy pretty typically helps - and moving towards a dirigiste economy usually doesn't do much good. If anything Asia should be a demonstration of this - China before and after the 1978 reform process, Vietnam before and after the 1986 Doi Moi reforms, India's 1991 Rao-Singh reforms, among others. These didn't mark an increase in state intervention/ownership, tariffs and subsidies, but rather a decrease.
raj_o 10y ago
This makes no sense. A person who studies medicine, knows what his comparative advantage is, or should be. A business that makes springs, knows where to focus their energy in order to compete. The idea that a country doesn't know is because a country doesn't have an over-seeing rule-maker (a government) defining the rules of play. Outside of a regulatory framework, in modern economics, comparative advantage won't work. It will be those with the most power (derived from success or money or something else) will win. Those with the most resources wins. And yes those who can game the system will win. Otherwise you'd take the 'capital' out of capitalism. After all, who wouldn't capitalize over the stupidity of another country that let you take advantage of it? Outside of natural resources, can you please tell me how an area on this earth can have an advantage over another area. I am befuddled by this argument for free trade, in regards to countries.
- snrplfth 10y ago
  The point is that comparative advantage is discovered in the market. I may think that I'm the best at painting houses - and I may be better than most! - but in striving for the best gains I can, I may find that my comparative advantage in doing something else, something I'm more expert in, is greater. To wit, "what is the best use of my limited time?" An advantage can come out of any number of things - climate, location relative to a trade route, particular local demands or preferences, or just happenstance. As you note, comparative advantage is not just about whole countries, but also about regions, companies, and individuals - so that it's not just about an "area of earth" but about the variety of things that happen in each place. Comparative advantage is an argument that trade makes people (regions, cities, etc.) better off even if they have nothing they are the best at.
  - sprafa 10y ago
    Markets and governments are necessarily linked. So even though you might "think" you are no good at painting houses, because you can't compete with foreign labor, actually what's happening is that their government has figured there is a huge multiplier for them to capture all the house painting work in your country, and therefore, they subsidise and protect their own house painters and help them in any they can. So that they can eventually force you out of the market. See China on consumer electronics, solar panels, etc. And if you say "but the perfect market wouldn't have any subsidies or aids" then you are living in a fantasy world made up by economists! They don't even have to subsidise, all they need to do is make it slightly easier for house painters to do their work there than anywhere else in the World, by easing legislation and lowering taxes. They will outcompete you just by following less laws and regulations and paying less tax. Because everyone ever has agreed that laws and tax should exist, you need to explain how "perfect" markets will ever exist. Again, look into China and it's the exact same thing. They don't need subsidies, they create Special Economic Zones. Anyway the idea that markets exist separate from governments is a fiction made up by economists. See "Debt the first 5000 years" on a description of how anthropologists have found that actually, the most common origin of a market is government intervention.

snrplfth 10y ago

1/ I think you may be focusing on the wrong part of comparative advantage - the point is that different countries, regions, companies and individuals will be better or worse than each other for any number of reasons - climate, skills, organization, preferences, history. That's the "advantage" part, which is straightforward. The second part is that even if one entity (country, region, person) is worse at everything than all their possible trading partners, they still have something to contribute, because they can focus on what they're "least bad at", freeing up the others to focus on their best (or "least bad") occupations. That's the comparative part, which is unintuitive. Consider an "individuals" example: I am a better cook than the average fast food worker, and I am also better than them at building databases. So why don't I split my time between my office and the fry vat? And why does the fast food worker have a job? Because if I do one thing, I can't do another - I have limited hours. And my advantage at building databases is much greater (let's say 10 times as good as them) than my advantage in making fast food (let's say 1.5 times as good.) So, we focus on what we have the greatest comparative advantage in, and trade the results. 2/ Precisely what the comparative advantages are is not fixed, it changes as much as industries and the world economy changes. But the principle remains the same. Heavy industry in the US did grow a lot behind substantial trade barriers, but the US had a very large internal free trade zone. Other countries, such as the UK and Sweden, had much freer trade and also saw large growth. 3/ They don't know what they're best at producing, you have to find this out by testing it against world markets. Which is better than just saying "we'll just make everything we need within our own borders." 4/ Well, what about it? Ideas can cross-pollinate across borders perfectly well, and probably better if you have free trade. 5/ Comparative advantage doesn't mean that each country must specialize in single things - it just means that even countries (rather, people in countries) with low productivity can still trade successfully. Countries can have a range of competitive sectors by specializing. And most of the consequences of "Dutch disease" are due to governments becoming over-dependent on revenues from the one big sector. 6/ Well, most people who are arguing for comparative advantage as an essential policy consideration would point to Detroit and say "actually, that happened because of massive urban demolition policies/continous bailouts for failing companies/unions with special privileges/very bad policing/overall, an attempt to ensure that a momentary 1950s economy was frozen in time". The problem with attempting to do detailed ethnographies is that it tends to capture more peoples' reactions to economic phenomena, than to those phenomena's actual causes. It's like doing a study of how people react to malaria (which could be useful!) without mentioning that it's spread by mosquitoes (which is essential to grasping the mechanics of the problem.) A lot of economics has to do with hard physical/informational realities. These have to be understood, at least on a basic level, with models.

marcosdumay 10y ago

You are mixing positive and normative aspects here, and getting a way less powerful worldview as a consequence. Well, you are not to blame, as by the time of Ricardo economists were always doing the same, so even the Wikipedia article will mix them. A model is a positive construct, not normative. From the model: 1 - That is not answered by the model. You'll almost certainly need to answer it case by case, as the origin of some advantages are that somebody just happened to be born in a place instead of another. Other are clearly more systematic. 2 - Does not seem to be. This is also not on the model. 3 - The country does not get to "know" what it is best at. In a competitive market¹ the less competitive industries fail while the more competitive ones thrive. 4 - That's also not on the model. It will probably change the comparative advantages in the future. 5 - This one is completely normative. 6 - A much more likely claim you'll hear from economists is that overall the population benefits from international trade. There's no "long run" there, and not "everyone" either. This one model does not explain how a population can spread that benefit so it goes to everyone and is sustainable on the long run, you'll have so look at many of them to get a good answer to that. As the GP said (and I on another comment), it's too simple. But you didn't point to flaws. 1 - Notice I didn't say "free market" here.