Comparative advantage and when to blow up your island • Hacker News Board

Re: Comparative advantage and when to blow up your island

#21

Post by blueblisters » Tue, Sep 15, 2020, 4:30 PM UTC

defen wrote: post #18

These simple models of free trade work fine when discussing commodities or raw materials, but one thing I never see addressed (I'm far from an expert, just an interested layman) is that modern manufacturing involves far more than the raw inputs - there's complicated logistics and an entire holistic knowledge base of the company or companies which produce a thing. A society can forget how to make things, especially if…

The reason the US can't produce N95 masks in large numbers is because it made a trade with countries that have comparative advantage in manufacturing commodity items. Commodity items have low margins and low barriers of entry, hence the comparative advantage is usually labor cost, lack of regulations, government subsidies etc.

Even if automation removes the labor cost arbitrage factor, the market distortion due to other factors is unlikely to encourage a spurt in manufacturing unless the US also decides to intervene in markets.

Re: Comparative advantage and when to blow up your island

#22

Post by jbay808 » Tue, Sep 15, 2020, 4:38 PM UTC

defen wrote: post #18

These simple models of free trade work fine when discussing commodities or raw materials, but one thing I never see addressed (I'm far from an expert, just an interested layman) is that modern manufacturing involves far more than the raw inputs - there's complicated logistics and an entire holistic knowledge base of the company or companies which produce a thing. A society can forget how to make things, especially if…

N95 is not a very good example, but there are many other good examples. I wouldn't want the above important point to be derailed by the choice of a hot-button example. Unfortunately it seems like it has been.

Advantages are not static; they're path-dependent and time-dependent variables, and treating them properly as such can really change the optimum strategy. The path dependence means that sometimes, instead of always maximally exploiting your existing advantages, you can make a short-term sacrifice to gradually create advantages that you didn't originally have.

Re: Comparative advantage and when to blow up your island

#23

Post by pyronik19 » Tue, Sep 15, 2020, 4:40 PM UTC

lotsofpulp wrote: post #14

mabbo wrote: post #9

What bothers me in today's world is that we ignore how some countries achieve their comparative advantage. Why did Hershey's chocolate close the factory not too far from where I grew up, and move the manufacturing to Mexico? Well, labor is cheap there because there are no unions, few health and safety regulations, few workers' rights groups. That makes it much cheaper to operate. Why can China manufacture clothing ch…

> In my opinion, we need trade rules that explicitly tax and tariff those countries who are only finding comparative advantages through exploitation and unethical activity. The US and Europe have this situation too, where some European countries have decent parental leave and overtime rules, non employer subsidized healthcare, and lack of employer dependent H1B workers. Even within the US, you have states like CA off…

Many people don't think all of the goodies you mentioned for workers are things they should have rights to. Why is a company responsible for your decision to have kids? That makes no sense. If CA wants to make up said rights then it has to suffer the consequences. The only way this logic makes sense to me is when it comes to environmental issues which everyone suffers the externalities.

Re: Comparative advantage and when to blow up your island

#24

Post by lotsofpulp » Tue, Sep 15, 2020, 4:57 PM UTC

pyronik19 wrote: post #23

lotsofpulp wrote: post #14

Earlier quoted context omitted.

> In my opinion, we need trade rules that explicitly tax and tariff those countries who are only finding comparative advantages through exploitation and unethical activity. The US and Europe have this situation too, where some European countries have decent parental leave and overtime rules, non employer subsidized healthcare, and lack of employer dependent H1B workers. Even within the US, you have states like CA off…

Many people don't think all of the goodies you mentioned for workers are things they should have rights to. Why is a company responsible for your decision to have kids? That makes no sense. If CA wants to make up said rights then it has to suffer the consequences. The only way this logic makes sense to me is when it comes to environmental issues which everyone suffers the externalities.

I consider taxpayer funded healthcare needed by a child due to the child's mother not being able to breastfeed due to needing to work all the time an externality.

Employers also do not need to be responsible for people's decision to have children. Parental leave can be paid for by the government. However, in the current economic system, retaining one's ability to earn income may need to be protected by the state and involve employers having to do something. Maybe with a universal basic income, employers can be completely left out of the equation.

Re: Comparative advantage and when to blow up your island

#25

Post by lordnacho » Tue, Sep 15, 2020, 4:59 PM UTC

aklemm wrote: post #13

"Comparative advantage" has always embodied, to me, the difficulty with electoral politics. It's a fairly easy concept, taught fairly widely, yet almost no one really understands it and views the world through that lens. Most voters are operating without an understanding of comparative advantage. Now apply that to dozens of other concepts in other fields. Same situation. It's depressing.

I agree so much with this. The more I study economics, the more issues I run into that people ought to know but are unknown to everyone who hasn't studied it. Arrow's Impossibility theorem is another interesting one that perhaps ought to be more well known.

Re: Comparative advantage and when to blow up your island

#26

Post by rbecker » Tue, Sep 15, 2020, 5:00 PM UTC

James K. Galbraith has stated that "free trade has attained the status of a god" and that " ... none of the world's most successful trading regions, including Japan, Korea, Taiwan, and now mainland China, reached their current status by adopting neoliberal trading rules." [..] These comments have been heavily criticized by mainstream academics like Paul Krugman, who noted the lack of mathematical modeling or simulations supporting the argument -- https://en.wikipedia.org/wiki/Comparative_advantage#Criticis...

Imagine criticizing an empirical result on the basis that simulations don't support it. In other sciences, it's the other way around - if the simulation differs from the experiment, it's the simulation that's considered faulty.

I guess economists think their simulations are so perfect and complete, such good representations of a system as complicated as human behavior and society, that any result disagreing with those simulations must be due to experimental error.

Edit as reply to the question of whether Japan, Korea, Taiwan, China reached their status "without utilizing free trade":

They utilized trade, but not completely free, unrestricted trade. I'm sure we're all aware of China's historic and current protectionist policies. Western countries also used and still use various "protectionist" policies (e.g. corn subsidies in the US), they just try to be subtle about it. That's what was meant by "neoliberal trading rules".

Re: Comparative advantage and when to blow up your island

#27

Post by andybak » Tue, Sep 15, 2020, 5:05 PM UTC

lordnacho wrote: post #25

aklemm wrote: post #13

"Comparative advantage" has always embodied, to me, the difficulty with electoral politics. It's a fairly easy concept, taught fairly widely, yet almost no one really understands it and views the world through that lens. Most voters are operating without an understanding of comparative advantage. Now apply that to dozens of other concepts in other fields. Same situation. It's depressing.

I agree so much with this. The more I study economics, the more issues I run into that people ought to know but are unknown to everyone who hasn't studied it. Arrow's Impossibility theorem is another interesting one that perhaps ought to be more well known.

What's worse is when someone thinks they understand it and acts like a complete ass: https://forum.electionscience.org/t/arrows-theorem-mentioned...

Re: Comparative advantage and when to blow up your island

#28

Post by extremeMath » Tue, Sep 15, 2020, 5:10 PM UTC

defen wrote: post #18

These simple models of free trade work fine when discussing commodities or raw materials, but one thing I never see addressed (I'm far from an expert, just an interested layman) is that modern manufacturing involves far more than the raw inputs - there's complicated logistics and an entire holistic knowledge base of the company or companies which produce a thing. A society can forget how to make things, especially if…

>large numbers of N95 masks

Certifications take time, masks are simple, testing takes time.

This is a government problem, not a manufacturing problem.

Re: Comparative advantage and when to blow up your island

#29

Post by balthasar » Tue, Sep 15, 2020, 5:11 PM UTC

rbecker wrote: post #26

James K. Galbraith has stated that "free trade has attained the status of a god" and that " ... none of the world's most successful trading regions, including Japan, Korea, Taiwan, and now mainland China, reached their current status by adopting neoliberal trading rules." [..] These comments have been heavily criticized by mainstream academics like Paul Krugman, who noted the lack of mathematical modeling or simulati…

Paul "By 2005, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s” Krugman.

Re: Comparative advantage and when to blow up your island

#30

Post by s1artibartfast » Tue, Sep 15, 2020, 5:12 PM UTC

blueblisters wrote: post #21

defen wrote: post #18

These simple models of free trade work fine when discussing commodities or raw materials, but one thing I never see addressed (I'm far from an expert, just an interested layman) is that modern manufacturing involves far more than the raw inputs - there's complicated logistics and an entire holistic knowledge base of the company or companies which produce a thing. A society can forget how to make things, especially if…

The reason the US can't produce N95 masks in large numbers is because it made a trade with countries that have comparative advantage in manufacturing commodity items. Commodity items have low margins and low barriers of entry, hence the comparative advantage is usually labor cost, lack of regulations, government subsidies etc. Even if automation removes the labor cost arbitrage factor, the market distortion due to ot…

If I understand the terminology correctly, comparative advantage is used within a country (or island) while absolute advantage is used between countries. China has both a comparative advantage and an absolute advantage in manufacturing masks.

Additionally, mask making in the US has very low comparative value. Us workers and business have much better products they to produce.

Dave Chappelle hit the nail on the head in one of his standup routines "I wanna wear Nikes, I don’t wanna make those things. Stop trying to give us Chinese jobs"