Reason.com

Free Minds & Free Markets

A True but Nonobvious Proposition?

Trade is about cooperation, not competition.

The great mathematician Stanislaw Ulam challenged the great economist Paul Samuelson to name a principle in the social sciences that was both true and nonobvious. Samuelson thought for a bit, then replied, "Ricardo's theory of comparative advantage."

"That this idea is logically true," he said, "need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them."

You can make the argument for comparative advantage seem highly nontrivial and devilishly hard to believe after it is explained to you by following the great English economist David Ricardo into arithmetic and clotted prose. Ricardo wrote in 1817 that "England exported cloth [to Portugal] in exchange for wine because, by so doing, her industry was rendered more productive to her; she had more cloth and wine than if she had manufactured both for herself; and…the industry of Portugal could be more beneficially employed for both countries in producing wine." If you can instantly grasp that logic (and go on believing it for practical purposes such as opposing Donald Trump's view of foreign trade) you are either already an economist or have an astonishing natural ability for the subject.

The economist Paul Krugman wrote a column a long time ago claiming that comparative advantage is in fact difficult to comprehend, requiring various tricky assumptions only an economist could love. But it is "difficult" only in the world of Princeton University economists in which market "imperfections" abound and mathematical proof reigns.

Actually, it's dead easy. No math, no arithmetic. It is, in fact, the soul of common sense. Comparative advantage is merely the principle of cooperation. The word advantage gets us thinking of competition, perfectly reasonable in our own individual lives—we do compete with other businesses or other writers or whomever. But we also massively cooperate with family and colleagues. The world as a whole, furthermore, does well by cooperating, in business or science or cultural life. It's not all we do, admittedly. I said: We also compete. But within a household or a company or a world economy, the job is to produce a result in the best way, cooperatively. If you were running a sports team, say, you would want to assign roles to the various contributors to the common purpose sensibly. It turns out to be precisely on grounds of comparative advantage.

Consider 12-year-old Oliver and his mother, who are to spend Saturday morning tidying up the garage. Oliver is incompetent in everything compared with mom. He cannot sweep the floor as quickly as she can, and he is truly hopeless in sorting through the masses of rubbish that garages grow spontaneously. Mom, that is, has an absolute advantage in every sub-task in tidying up the garage. Oliver is like Bangladesh, which is poor because it requires more labor and capital to make everything—from knit goods to medical reactors for shooting cancers—than more developed countries do. Its output per person is 8.4 percent of what it is in Britain. So too Oliver.

What to do? Let mom do everything? Of course not. That would not produce the most tidied garage in a morning's work. Oliver should obviously be assigned to the broom, in which his disadvantage compared with mom is least—hence "comparative advantage." An omniscient central planner of the garage-tidying would assign mom and Oliver just that way. So would an omniscient central planner of world production and trade.

In reality, there's no need for an international planner. The market, if Trump does not wreck it, does the correct assignment of tasks worldwide. Bangladesh does not sit down and let the British make everything merely because they are "competitive" absolutely in everything. Bangladesh's real income has been rising smartly in recent years precisely because it has specialized in knit goods. It has closed its ears to the siren song of protecting the Bangladeshi medical reactor industry and gets its equipment for cancer treatment from Britain.

Comparative advantage means assigning resources of labor and capital to the right jobs. It applies within a single family, or within a single company, or within the United States, or within the world economy, all of which are made better off by such obvious efficiencies.

Following comparative advantage enriches us all, because it gets the job done best. Policies commonly alleged to achieve absolute advantage lead to protection—that is, extortion, crony noncapitalism, shooting oneself in the foot by shielding domestic industries from competition.

People who think they understand comparative advantage, and also think that economists are anyway a passel of pretentious fools, say silly things about Ricardo and his principle. For example, the Anglo-French tycoon Sir James Goldsmith wrote with brisk assurance that "according to Ricardo, each nation should specialize in those activities in which it excels." No, Sir James. Each nation—or each member of the household, or each member of a sports team—should specialize in those activities in which it gives up the least of activity X in doing activity Y. Afterward, it should embark on trade. By the principle of cooperation and exchange, each will have more cloth and wine than if it had manufactured both for itself behind tariff walls.

The trouble we get into is that there is another principle in play—one in which the best wins. The Chicago Cubs were not "cooperating" with the Washington Nationals when they narrowly defeated them in the first round of the World Series competition in October. And after a baseball team or a company has arranged its affairs internally to do as well as it can with what it has, it does go out to compete. The Cubs compete with the Nationals. Harris Teeter competes with Whole Foods. But an absolute advantage that favors one or another actor under the silly rubric of "competitiveness" is regularly assumed to be the same as comparative advantage for cooperation. It's not.

The two in fact have nothing to do with each other. The pattern of trade is determined solely by comparative advantage. The size of real incomes is determined solely by absolute advantage. Absolute advantage has, after all, another description, namely, "being productive and therefore rich and successful." Any businessperson wants to "compete" in such a sense, and it's good for herself and the country that she does such striving (excepting the very common case in which her "competing" involves soliciting favors from the government of the day, or, for that matter, engaging in theft, bribes, lying, cheating, extortion, and outright violence in the name of "winning").

Krugman notes that one of the problems laypeople have is that they often don't grasp that wages are set by inter-industry competition, not by productivity in one industry: "It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards."

Socrates taught the same way I do. Chalk and talk; mainly talk. Yet productivity in alternative employment for me is substantially higher than for an elderly stone mason and philosopher 2,400 years ago. In the task of transporting people, a sea captain in 405 BCE was vastly less productive than is an airline pilot in 2018. So I get the benefit in wages of the vast improvement in industries other than teaching. Bangladeshi wages are determined by the alternative—very unproductive employment in breaking rocks or moving fans—not by a Bangladeshi's relatively good job making knit goods.

In short, comparative advantage is just the principle of doing as well as one can inside a family or team or business. But "internal" can properly be taken to mean "internal to the world's entire economy."

Let us set sail, then, on the principle of old Ricardo's trivial logic and not fall victim to the illogic of self-sufficiency, "competitiveness," and the building of walls between nations.

A version of this article previously appeared in the November 2017 newsletter of the Institute for Free Trade.

Photo Credit: Joanna Andreasson, akindo/iStockPhoto

Deirdre McCloskey is emerita professor of economics, history, English, and communication at the University of Illinois at Chicago and the author most recently of Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World

Media Contact Reprint Requests

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • sarcasmic||

    "England exported cloth [to Portugal] in exchange for wine because, by so doing, her industry was rendered more productive to her; she had more cloth and wine than if she had manufactured both for herself; and…the industry of Portugal could be more beneficially employed for both countries in producing wine."

    Unless the value of the cloth and wine traded are exactly equal, someone is getting screwed. Specifically the one who ends up with the most cloth and wine at the end of the day. They are made poorer because they don't have as much money as the other guy. Stuff means nothing. It's just stuff. Money is where the real wealth is at. Ideally you will have no stuff at all, and a pile of money. Then you'll be rich!

  • Old Mexican - Mostly Harmless||

    Nice sarcasm!

  • gaoxiaen||

    I don't resent the wealth of people who provide gasoline, air transportation, clothes, canned peas, toilet paper, computers, antibiotics, Costco roast chicken, etc... because they work for me. Anyone who doesn't understand this is an idiot. I'm better off than a king a few centuries ago.

  • JFree||

    Unless the value of the cloth and wine traded are exactly equal, someone is getting screwed.

    That's just a modern strawman that has nothing to do with comparative advantage either. IF the value of the cloth and wine are not equal, then the values of each currency (non-reserve) itself will adjust. Downward for the country running a deficit, upward for the country running a surplus. Which, for the country running a deficit with a declining currency, means ALL other imports will go up in price relatively and ALL domestic producers prices will go down in price relatively. Reverse for the country with a surplus. Which is precisely how those deficits/surpluses do adjust in reality. For EVERY COUNTRY where trade is not driven by reserve flows but by 'stuff' flows.

    If that had something to do with actual comparative advantage, then the Ricardian formulation would have to be: England should export cloth to Portugal in exchange for wine. And next week, when currencies shift, both countries should shut down what they are currently producing and open up what the other produced and England should export wine to Portugal and Portugal should export cloth to England.

    That is obvious nonsense. Which SHOULD tell you that the entire Ricardian framework is built on and assumes permanently fixed exchange rates. IOW - the world that Ricardo knew of every currency fixed to gold where all international trade was actually de facto priced in gold.

  • JFree||

    And that Ricardian framework is not 'wrong' either. It is true 'classical economics'. Comparative advantage is about the 'factors of production' (land, labor, capital) compared between countries.

    'Neo-classical' - or marginalist - or modern - economics doesn't use any of that. Nor does it actually have a damn thing to do with actual 'classical economics' except by coincidence. Instead, 'neoclassical' or marginalist economics just assumes 'factors of production' is both irrelevant and fixed. And ALL 'economic' decisions (marginal and non-marginal) take place because of changes at the margin reflected in price.

  • JFree||

    Comparative advantage (and modern 'free trade') is not at the core of the US issue now.

    It only applies if both countries are exporting stuff to each other. Not if the US is simply paying money for imports and running huge non-self-adjusting deficits. Ricardo didn't say Portugal should export both cloth and wine to England with England merely sending pounds/debt to Portugal. That situation - what we do today - is what Ricardo was DISPROVING (then called absolute advantage).

  • Old Mexican - Mostly Harmless||

    It only applies if both countries are exporting stuff to each other.


    Oh, gosh, you're an idiot.

    Hey, idiot: COUNTRIES DON'T TRADE. ONLY INDIVIDUAL HUMANS OF WILL TRADE. And Comparative Advantage ALWAYS applies, as it is derived from Opportunity Cost.

    I love it when Trumpistas and idiots talk about things they only superficially understand.

  • ||

    Oh, gosh, you're an idiot.

    Hey, idiot: COUNTRIES DON'T TRADE. ONLY INDIVIDUAL HUMANS OF WILL TRADE. And Comparative Advantage ALWAYS applies, as it is derived from Opportunity Cost.

    I love it when Trumpistas and idiots talk about things they only superficially understand.

    Holy shit! So the original proposition was about some guy named England and Portugal. The man.?

  • DJF||

    """" COUNTRIES DON'T TRADE. ONLY INDIVIDUAL HUMANS OF WILL TRADE"""

    So the companies owned by the communist government of China don't trade?

    Communism is now Individualism?

  • sarcasmic||

    It's kinda cute how conservatives who recognize that government runs companies into the ground somehow believe that the commies have perfected the art of government-run companies. If our government nationalized industries, those industries would soon die. But when the Chinese commies do it, they are an invincible juggernaut!

  • DJF||

    Well, the Communists do have some advantages

    They get to steal all the land and resources

    They get the full backing of the country they are in

    They get to use their police force against the workers

    They get to use their spies to steal patents and other information from other countries

    They get to dump their waste where ever they want

    And they get the support of "free traders" who claim that trade with communists=Free Trade

  • sarcasmic||

    I will take that as agreement.

  • vek||

    Their industries may not be as efficient as they would be in a free market, but when people are making less than a buck an hour it's not hard to sell you stuff into countries where people make 30x that much money on average!

  • JFree||

    Comparative advantage DOES NOT APPLY TO THE US NOW. Other countries - it applies. They don't run structural/perpetual deficits/surpluses. Their currency itself adjusts - which then adjusts the trade flows. We run structural deficits because we are the reserve currency country. That mathematically requires a perpetual export of that currency to rest of world. Indeed, you can pretty much define 'reserve currency' as 'whatever currency is currently being exported to RoW to balance third party transactions'. For the reserve currency country, uniquely, stuff does not drive trade flows. The money itself does.

    Opportunity cost still applies to analyzing those flows. But it means analyzing what the US does in order to be/remain the reserve currency.

    And that is:
    1. we spend our blood/treasure defending free navigation of the seas
    2. we spend our blood/treasure defending the free flow of oil to everywhere else
    3. we spend our blood/treasure forcibly opening other countries to 'free trade' and defending that 'free trade' system from threats.

  • sarcasmic||

    Comparative advantage is like supply and demand. It always applies.

  • JFree||

    No it doesn't - unless you are saying that our obligations as a reserve currency country are freely undertaken by the American people with their govt/financial sector - as the cost we are willing to pay in order to acquire cheap Chinese plastic crap.

  • sarcasmic||

    That doesn't make any sense.

  • JFree||

    Comparative advantage is only non-obvious when you pay a higher absolute price than if you made it yourself. For US/China, virtually everything they make is gonna be cheaper - so its easier to see comparative advantage from the Chinese perspective. We provide 'reserve currency services' (mainly defense of trade routes, oil imports/pricing, forcing WTO 'free trade practices' on third countries, etc) for them. Prob more expensively than they could do that themselves.

    They may well be fine with that. The question is - are WE providing those services with the full awareness - by the American people - that that is what we are producing and selling to China by running perpetual 'stuff' deficits? Or are we just being coerced/deluded/bamboozled into doing that? In which case WE are NOT 'better off' providing those services. And those services are then actually a form of cronyist protectionism (of our financial sector which produces that 'reserve currency').

  • sarcasmic||

    Money is not wealth.

  • vek||

    Uhhh, it kind of is. I mean we need things to live and enjoy life too... But money is also wealth. Money is assets that make you more money, so you can buy more things. Money builds your net worth over time. Etc etc etc.

    The argument that ONLY consuming in the current moment matters is a VERY short sighted and foolish idea. Methinks people who believe in that concept must not have very many investments, and will certainly never be truly wealthy people. That's a peasants mindset, not an intelligent persons.

  • Leo Kovalensky II||

    And much like supply and demand, if it doesn't fit your current narrative then you have to come up with compelling arguments to prove that it doesn't apply this one time.

  • JFree||

    It doesn't EVER apply to the reserve currency. At the time Ricardo wrote his work - physical gold itself was the reserve currency. He did not prove comparative advantage by saying 'Britain should export gold to Portugal in exchange for both cloth and wine'.

  • JFree||

    Oh - and yes - physical gold itself required similar obligations to the ones I describe above. The Spanish discovery of New World gold/silver also required them to build a big navy to defend that gold against pirates on the transfer of that gold back to Europe where it could then be used for trade within Europe.

    That military obligation re 'gold as a reserve currency' is what ACTUALLY underlays mercantilism. Sticking gold in Fort Knox requires much less military spending than using that gold to balance trade with other countries where you need a navy - or a big army on both sides at the point on land where the gold is transferred. And that big military by everyone creates its own risks. European history post-1492 - esp where it involves Spain and Spain's successors as 'gold transfer enforcer' - is better seen from an economic perspective than the standard textbook BS. And economics itself - as its own academic discipline - can only be understood if you know that context itself as it existed at the time.

  • freedomscribe||

    This is apparently what Samuelson meant by "non-obvious". That the US strangles citizens with enormous taxes, endless debt and stupid regulation, pursuing imperial ambitions, means that the absolute advantage that should exist is diminished. Comparative advantage still applies.

  • JFree||

    Only in the most absolutely meaningless sense. Yes - mathematical relationships still exist even in the world of dogs. But it is rather pointless for an adult dog to use math to explain the world to its puppies. And even if they did, what they bark as 'math' may or may not have a damn thing to do with anything that we know as 'math'.

    Comparative advantage was always normative - not empirically descriptive.

  • Sevo||

    "This is apparently what Samuelson meant by "non-obvious"."
    Yep, fools like JF think it's a special case instead of a universal law.

  • Sevo||

    "Comparative advantage DOES NOT APPLY TO THE US NOW."
    Bull
    .
    .
    .
    shit.

  • sarcasmic||

    Look. The dollar is the reserve currency for the entire world, and that distorts time and space. The law of gravity doesn't apply because of the national debt. Time flows differently now that the dollar is not backed with gold. It's inscribed on Einstein's tomb. Duh.

  • sarcasmic||

    The grocery store has never purchased anything from me. All trade is one-way. I guess I must be poorer as a result.

  • JFree||

    They also don't accept money that you created/define.

  • JFree||

    In a very real sense, a country's legal tender currency IS its internal 'reserve currency'. For US, it is mostly created/issued by banks (in a cartel called Federal Reserve) when they make mortgage loans. But it is not used solely to make mortgage payments. It's what YOU use at the grocery store - and what the grocery store demands that you use (if that is what they use to price their goods).

    The 'rest of the world' (by which I mean INTERnational stuff not INTRAnational stuff aggregated) also requires that sort of a transactional currency. Where the central bank of each country determines how different currencies will exchange with each other. Otherwise trade does not happen. That international reserve use was the sole purpose of a 'gold standard' - which morphed into a 'British pound as proxy for gold standard' - which morphed into 'US dollar as proxy for gold standard' - which morped into a 'US dollar as proxy for (mostly) oil/defense' standard.

  • Sevo||

    Are you trying to prove how stupid someone can be?

  • JFree||

    Are you trying to set the example of how stupid someone can be?

  • gaoxiaen||

    The USA gives people pieces of paper for goods that have intrinsic value. Can't find a better deal on Earth.

  • JFree||

    China's inclusion of 'pork' in their tariffs is specifically intended to send a message that it isn't. Those are targeted at ONE company. Smithfield Foods - which was just bought by a Chinese company - using those 'useless pieces of paper' in one of the few ways (others being to subsidize the cost of debt-capital for the US govt/companies or to drive up the prices of US housing) that they can be used.

    The MESSAGE by China to their own citizens is - You try to export dollar-denominated capital and exchange it outside China - and we can screw you hard.

    The message by China to Wall Street (the producer of those dollars) is - Don't you expect to benefit by default with any decision by China re exchange of those dollar-denominated assets.

    The (maybe implicit) message by China to American citizens (unheard) is - Don't you expect jobs to return to the US at the end of the 'reserve currency era'.

    Which is all part of the China government - US government struggle - We have ZERO intention of letting the Chinese assume any military obligations of being the reserve currency'. And part of China's own internal struggle re even BECOMING the reserve currency - ie are we really willing to gut our own export producers in order to run deficits and supply that reserve currency to the world or are we just gonna keep whining about the US willingness to do just that?

  • Cynical Asshole||

    It only applies if both countries are exporting stuff to each other. Not if the US is simply paying money for imports and running huge non-self-adjusting deficits.

    Right, we don't export anything at all to China. That's why they didn't hit us back with tariffs on pork, wine, and other agricultural products after we put tariffs on their shit.

  • JFree||

    Just because the actions LOOK the same as, eg a trade dispute between China and India - does not mean they ARE the same.

    Stop looking at the flows of stuff as if they drive the decisions. For the US - and everyone else who is looking at their bilateral current accounts with the US - it is the flows of reserve DOLLARS that drive all decisions. China is retaliating with tariffs on 'stuff' for POLITICAL reasons - not economic reasons. The 128 items that they selected are ALL intended to be seen in those political terms:

    eg 'pistachios' is intended to send a message to the US that China trade with Iran/Turkey/Syria (the 3 big producers who aren't China/US) might not need to be denominated in dollars. 'dried coconut' is intended to send the same message re Brazil and South Asia. etc

    What they are INTENDING to threaten is the US position as reserve currency. And if the US wants to keep its position as reserve currency king, then it will have to decide which of its domestic producers of 'stuff' to kill off.

  • JFree||

    When the Chinese 'action' re trade becomes stopping the pegging of their currency to the dollar; then and only then will the US-China bilateral relationship start to be driven more by 'stuff' (like the bilateral stuff of everyone else) and less by 'money'.

  • Old Mexican - Mostly Harmless||

    [...] and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.


    If intelligent men and women have difficulty grasping the concept, imagine trying to explain it to Trumpistas...

  • sarcasmic||

    If intelligent men and women have difficulty grasping the concept, perhaps their intelligence needs to be reevaluated.

  • Fist of Etiquette||

    Oliver should obviously be assigned to the broom, in which his disadvantage compared with mom is least—hence "comparative advantage."

    What's in it for Oliver?

  • gaoxiaen||

    Food and board. Maybe an allowance.

  • Echospinner||

    And mom doing what mothers have done since the beginning of history.

    Making your life miserable until you clean up your room or whatever.

    Then don't even try talking with dad. He is going to say the same thing. Sweep the garage. Not that hard. Work is work and you will face much harder in life. Is the broom to heavy?

    The fifth commandment is just practical advice. Has nothing to do with religious faith.

  • sharmota4zeb||

    The article was good overall, but I had to chuckle over the author's analogy in the domestic sphere. It assumes that the wife does the cleaning without the husband and that child labor is the key to making her unpaid labor more productive.

    In related news, my ex-boyfriend became my ex partly because he believed that housekeeping was entirely the wife's job, and partly because I was reluctant to let a paid professional cook for him on Friday evenings. I was fine with him going to strip clubs and enjoying the professional services there, but I drew the line at having someone else cook Friday night dinner for him. Some services should be done within a completely closed economic union.

  • Citizen X - #6||

    Comparative advantage is considered "non-obvious"? Damn, maybe i shoulda been an economist.

  • No Longer Amused||

    This is easy to comprehend. Are you implying that the world is even dumber than it appears?

  • DajjaI||

    In reality, there's no need for an international planner.

    You think it will be so easy to fire me?

  • Citizen X - #6||

    It is difficult to fire the unemployable.

  • Brett Bellmore||

    The basic problem with comparative advantage, (And I've learned to exploit it myself, so I'm familiar with the concept.) is that nobody experiences the average.

    By that I mean that exploitation of comparative advantage makes both nations wealthier on average, but this doesn't preclude most of the people in both nations ending up poorer. Because both the Portuguese weavers and English vintners can lose business, without being compensated.

    Just because enough wealth is generated to compensate them for their loses, doesn't mean they actually do get compensated. Depending on how things are arranged, a minority may secure all the gains.

  • sarcasmic||

    Why should they get compensated?

  • $park¥ leftist poser||

    Saying they don't isn't saying they should. But I could be misinterpreting.

  • Mickey Rat||

    The problem is the people who lose out have had their livelihoids damaged as a direct result of government policy. A significant portion of the population disadvantaged is something a government is going to pay attention to. Especially a representative government.

  • ||

    No moral reason - only political.

  • Mickey Rat||

    Political is what government runs on. One of the sources of discontent leading up to the French Revolution was a trade agreement that devastated the French textile industry. People tend to violently resent their government's policies putting them out of work

  • Leo Kovalensky II||

    I basically agree with your point Brett.

    In the case of tariffs what is being done is to artificially increase the advantage of the disadvantaged, thus bringing down the average wealth of everyone else. In other words: from each (industry) according to its ability, to each (industry) according to its needs. US auto makers have a comparative advantage (let's say), but they need to pay more for steel in order to prop up a dying US steel industry. The nation on a whole is less wealthy.

    Republicans will say that they don't believe in socialism/welfare on a personal level. But when you start talking about corporate welfare, they seem to be all for it in terms of distorting markets to favor the disadvantaged at the expense of everyone else.

  • Brett Bellmore||

    "In the case of tariffs what is being done is to artificially increase the advantage of the disadvantaged, thus bringing down the average wealth of everyone else."

    Likewise with immigration controls.

    The OP talks of true but non-obvious propositions. "Nobody experiences the average" would be one, that a lot of economists relentlessly ignore.

  • Ken Shultz||

    "Let us set sail, then, on the principle of old Ricardo's trivial logic and not fall victim to the illogic of self-sufficiency, "competitiveness," and the building of walls between nations."

    The reason an anti-free trade president was able to take the nomination from other Republicans and beat Hillary Clinton in the rust belt wasn't because voters don't understand how free trade works--even though they probably don't.

    The reason an anti-free trade president was able to take the nomination from other Republicans and beat Hillary Clinton was because voters in the rust belt understood that the elitists in both parties were contemptuous of them.

    If we can't find our way to caring about people whose cooperation is of little value and so make the case for free trade and immigration to swing voters in the rust belt--better than people who do care--then we are at a comparative disadvantage in getting our message out.

  • Texasmotiv||

    So lie to them and tell them we will give them things?

  • KenP||

    Wow! What a lack of mutual respect. Doesn't it require an idiot to call someone they disagree with one?

    This comparative advantage starts as an experiment. It is later codified but as a result of garnered information that is then used to advantage. It is the way successful business functions.

    Governments here and there are not experimental. Another popular term here is "unintended consequences" that we get from codified systems.

    Free trade is great but your premise assumes it is also fair trade. China doesn't allow that. Just read about the ongoing barriers they raise for American business operating there. I am sure you can Google that information. LOL

  • Ken Shultz||

    "Asked if it mattered that the person being put out of work by increased levels of immigration is an American, both [KS: Reason staff] answered with an emphatic no. Who cares if they're Americans? Who cares if it's the family next door? Who cares about the country? America isn't a place; it's an Idea!

    If someone tried to invent an ideology with no appeal to any decent human being, then that's it."

    ----Justin Raimondo

    http://www.chroniclesmagazine....../10843421/

    Question 1: Why would Midwestern swing voters support people who don't give a shit about them?

    Question 2: How do you make yourself care about other people? How do you stop being an elitist?

    Question 1 is rhetorical, but Question 2 is not.

    I can make some suggestions to answer Question 2, but the first step is looking in the mirror and admitting to yourself that you're an elitist.

  • gaoxiaen||

    Or a slacker. NTTAWWT.

  • Jerryskids||

    Judge Sotomayor did write a dissent, signed by Ruth Bader Ginsburg, warning that the majority decision sent the message that cops can "shoot first and think later."

    That message has been done to the point that it's a cliché - it's actually in the procedures manuals of many police departments. Officer safety is job one. Unfortunately, Dunphy and people like William Lewinski are not an aberration, they're the norm.

  • sarcasmic||

    Not only that, but officers are trained in what to put into their reports. The report will always say that the person they shot was armed, facing the officer, and approaching in a menacing manner, causing the officer to fear for their life. Every report says the same thing. Why? Because that's what they're trained to put into it. They are explicitly trained to lie.

  • Kivlor||

    Trade is about cooperation, not competition.

    And since capitalism is about competition, we can infer that free trade is not a capitalist policy. Bring on the trade wars!

  • ||

    Quick! Declare it true but not obvious! Maybe throw in an 'elegantly simple' for good measure.

  • Berserkerscientist||

    Capitalism is both. Competition between producers, and competition between consumers. But when the producer and consumer voluntarily make a contract, it is fully cooperation.

    Capitalism is cooperation with the threat of competition.

  • ||

    Thumbs up for clotted prose. I'm not an economist or a natural, but after several hours of study and diagrams and pretty pictures I did finally come to understand comparative advantage. It's devilishly hard to share that understanding with others though.

  • Iheartskeet||

    Yep. Much as I agree with everything in the article, this isn't going to convert anyone.

    The costs of free trade are concentrated and often highly visible, and the benefits dispersed, so I think there will always be a natural public skepticism about it. We're better off showing evidence of specific economic harms, and I wish more pro-trade politicians asserted it from a position of individual liberty, like, say, gun rights and free speech.

  • Mark22||

    The economic theory of comparative advantage tells us that free trade maximizes output if a number of preconditions are satisfied. But maximizing global economic output is not the primary goal of economic policy, and the preconditions are not satisfied anyway. So, while you can make heuristic arguments that, fewer trade restrictions are probably a good thing in many cases, representing that as if it were an established mathematical fact is wrong. This is the typical scientific hubris that academics and progressives are prone to.

  • RonBPalmer||

    This is a tremendously valuable insight on a critical topic that most people know nothing about. Thank You.

  • Stephen Lathrop||

    Comparative advantage depends critically on 2 non-obvious, unprovable, counter-intuitive assumptions:

    1. Labor must be reliably fungible. Sacrificing economic activity in less efficient local industry becomes advantageous only if persons previously employed do not become unemployed. To do that, they must have ability to learn new jobs in the advantageous specialty. For example, New England shoe makers must transform themselves—or at the very least, transform their children—into biotechnology researchers.

    The garage example is miscast. To correct it, in the initial condition, inefficient Oliver is already assigned the broom. After post-comparative-advantage transition, local sweeping is magically accomplished by workers elsewhere who sweep more efficiently. Oliver—for want of other useful skills—becomes unemployed. Loss of Oliver's limited ability to contribute must somehow compute to advantage in Oliver's own household, not just elsewhere, or the principle fails.

    2. Service the economy provides in distributing the fruits of capital and labor among workers must somehow escape disruption, despite a comparative advantage culture predicated on promoting disruption as a virtue. If economic activity itself botches distribution, then to avoid human catastrophe distribution must be accomplished by politics—which is usually unworkable, and sometimes disastrous to attempt.

    Comparative advantage examples limitations rationalism encounters in politics.

  • Mark22||

    Comparative advantage depends critically on 2 non-obvious, unprovable, counter-intuitive assumptions:

    In fact, trying to figure out the conditions under which comparative advantage actually benefits people has been an ongoing effort for many decades; it's a hard problem.

    Any economist who pretends that comparative advantage is "dead simple" and should be applied in reasoning about trade between any economies whatsoever is either incompetent or lying.

    I'm undecided which of those two applies to McCloskey.

  • vek||

    Yup. Free trade theory in the real world today falls down for a few reasons.

    1. Unemployment. This concept never even comes up in any of the foundational writings on the subject, but it CLEARLY happens en masse in the real world.

    2. Unemployed people going on welfare in the modern west! This makes it doubly worse once somebody loses a job.

    3. Now that we don't trade in gold, our trade imbalances aren't forced to correct themselves when we're not being competitive on exports... So we run a perpetual deficit, and in fact have had to start selling off our assets to pay for current consumption. US businesses and citizens used to own more assets abroad than foreigners owned in the USA. In other words we made a net profit from our foreign investments, which enriched the USA. This has now reversed and more US assets are owned by foreigners, effectively milking the USA of some of our productivity every year.

    When somebody can explain those in the real world, then maybe I'll become a 100% true believer in free trade ALWAYS being good... But I don't think that's gonna happen.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online