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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 be
by 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.
- soVeryTired 10y agoPoints one, two, and three seem to be mutually contradictory. I understand the counterintuitive part of comparative advantage. Your fry cook should concentrate on what he's least bad at. But maybe he can take a computer science class and become better at that. In any case do you at least acknowledge that this stuff isn't clear cut? Or at least far less clear cut than the naive theory presents it?
- snrplfth 10y agoWell, yes, comparative advantage changes, and must be discovered through tests in markets. So the fry-cook becomes a computer scientist - but people still desire fries. So, the person who is now least bad at fast food cooking can move into that job. The overall point of comparative advantage is that, at any given time, and with any given arrangement of skills and capital, it's generally for the best to allow open trade between entities - the main reason being that total production, and therefore total consumption, can be maximized. It certainly is not an argument for a static economy, and doesn't assume one.
- summerdown2 10y ago> 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. Do you think there's a scarcity assumption built into the theory, then? Because it seems to me that if you could perfectly automate fast food cooking, you could flood the market and still spend a full working day doing database creation - thus stopping my comparative advantage working.
- snrplfth 10y agoScarcity still applies to robots/automation. Robots are not free, the resources used to make and maintain them are not free, and they still exist in a world where information and time are limited. Note that the fast-food-worker, definitionally, has another thing they're least bad at that they now move to - which is really the story we've seen with all of the process of automation. Now, if you had robots that could replicate themselves indefinitely, with effectively unlimited resources, then yes, comparative advantage would cease to apply in the sense I'm talking about. But then we'd have a Star Trek replicator economy, and we wouldn't have to worry about not having an "income" from work.