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Comparative advantage and when to blow up your island

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Re: Comparative advantage and when to blow up your island

#61

Post by lordnacho »

andybak wrote: post #27
lordnacho wrote: post #25

Earlier quoted context omitted.

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...

In the quoted context I'd agree it isn't a great use. However I do think it's something worth knowing about.

Another economic topic would perhaps be marginalism, so we don't keep getting flooded with "but why is water cheaper than diamonds, it must be injustice/bad values/conspiracy".

And perhaps some kind of history of thought on value, so we don't get the simple version of labour theory, or the Fisher-Price version of utility theory again and again.

Perhaps I sound like a snob, but I find a lot of economic discussions are derailed by having to clear up confusions that appear repeatedly.

Re: Comparative advantage and when to blow up your island

#62

Post by soVeryTired »

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.

Arrow's impossibility theorem has always seemed a little fishy to me: I think the axioms are too strong (if you pressed me on this, I'd wonder if the 'independence of irrelevant alternatives' axiom is problematic).

The fact that it holds when there are three or more options but not for two options just doesn't sit right with me.

Re: Comparative advantage and when to blow up your island

#63

Post by eloff »

admax88q wrote: post #53
merpnderp wrote: post #47

Earlier quoted context omitted.

I'm starting to see a consensus that one of the biggest drawbacks to free trade is the loss of skills. It is great to get cheap steel from China and great for China to sell steel at a profit, but it sucks losing the engineering jobs. But what truly is awful is now there is hardly anyone who knows how to run a steel mill anymore in the US. The US might not always be friends with China, but the US will always need stee…

On the other hand free trade stops wars. If each party is specialized in a needed item that the other side no longer knows how to produce, its much harder to go to war. The fact that the US will always need steel helps ensure that they _will_ always be friends with China, so long as they also specialize in something that China needs.

Economists were saying that about the interconnected economies of Europe prior to WWII. War is declared by human politicians in an instant. It is not required to be rational any more than human behavior is in general.

Re: Comparative advantage and when to blow up your island

#64

Post by commonturtle »

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…

This is a very important point, often overlooked. It's worth building and maintaining essential capabilities, even if you're not the most efficient at them. E.g., a large nation (> 50m people) should be able to feed itself (fine import oranges from somewhere else if you have to, but grow your own wheat and potatoes).

Re: Comparative advantage and when to blow up your island

#65

Post by RobertoG »

lalaithion wrote: post #31
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…

But did Japan, Korea, Taiwan, and mainland China reach their current status without utilizing free trade? That's the important question here, and it's certainly not trivial.

You can not reach a developed industrial capacity without protecting your industries. That's true for Japan, Korea, Taiwan, China and the USA. The historical examples are clear (1).

If you open your markets without restriction, before you have a developed industry your industry will die.

Of course, once your industry it's developed, your best strategy is to be a champion of free trade.

(1) - https://ips-dc.org/kicking_away_the_ladder_the_real_history_...

Re: Comparative advantage and when to blow up your island

#66

Post by mjw1007 »

soVeryTired wrote: post #62
lordnacho wrote: post #25

Earlier quoted context omitted.

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.

Arrow's impossibility theorem has always seemed a little fishy to me: I think the axioms are too strong (if you pressed me on this, I'd wonder if the 'independence of irrelevant alternatives' axiom is problematic). The fact that it holds when there are three or more options but not for two options just doesn't sit right with me.

It turns out that there is very little scope to relax the axioms: for almost any voting scheme, there are circumstances where you do better by not voting your true preferences.

See the Gibbard-Satterthwaite theorem.

Pretty much the only scheme that avoids this is "choose a voter at random and elect the candidate they like best".

Re: Comparative advantage and when to blow up your island

#67

Post by fragmede »

geofft wrote: post #55
merpnderp wrote: post #47

Earlier quoted context omitted.

I'm starting to see a consensus that one of the biggest drawbacks to free trade is the loss of skills. It is great to get cheap steel from China and great for China to sell steel at a profit, but it sucks losing the engineering jobs. But what truly is awful is now there is hardly anyone who knows how to run a steel mill anymore in the US. The US might not always be friends with China, but the US will always need stee…

How long would it take to figure out how to run a steel mill from (more or less) first principles? That is, if you're a country that has zero steel mills and zero people who have worked at one, and for some out-of-game reason (like a global pandemic) you can't travel to one, but you know that they exist, you have access to books, and perhaps you can interview people, how long will it take to build an acceptable-quali…

The metal (steel, aluminum, etc) used in new cars didn't exist 10 years ago. From first principles, making steel is easy. Making stainless steel, figuring out when to add additives and what those additives should be, is harder. Doing it at scale, in quantity, cheaply, and safely, taking all aspects into consideration is dramatically harder, and if you dump the expertise now, and then have to restart from first principles 10 years from now, then you're multiple decades behind the competition.

Geopolitical considerations may mean there's a business advantage to having it made in China as opposed to elsewhere, but as we've seen with the US pandemic response, there are sectors where it's just plain stupid to believe that expertise can be summoned up as needed, and that it's somehow cheaper not to pay for it in the interim. Government isn't a household, and you can't restart having expertise like canceling Netflix for a few months.

Re: Comparative advantage and when to blow up your island

#68

Post by saberdancer »

s1artibartfast wrote: post #30
blueblisters wrote: post #21

Earlier quoted context omitted.

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…

I'm not an economist but I think that comparative advantage is a different thing.

Absolute advantage is when you are best/cheapest at producing something. Comparative advantage is when you have the lowest opportunity cost to produce something. Others may be able to produce it cheaper but they have something more profitable to produce.

Example might be steel mills, USA probably can produce steel, but it is much more profitable to produce end products (machines, tools, cars). So USA could be the best at producing steel and machines, but it ends up producing machines giving China comparative advantage to produce steel (let's imagine they do not know how to produce machines in a cheap way).

It's quite a strange concept.

Re: Comparative advantage and when to blow up your island

#69

Post by yyyk »

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.

Arrow's theorem is nonsense that has set back election reform by decades. Because in any realistic scenario, "irrelevant" alternatives are never truly irrelevant. That is, Arrow's IIA assumption is simply not desirable or relevant.

Once IIA is relaxed to a sane axiom [read: abolished almost entirely], there are multiple methods that work like versions of STV. Besides, Arrow never applied to ordinal voting methods like Approval (which is OK) or Range (which I strongly dislike for other reasons).

Re: Comparative advantage and when to blow up your island

#70

Post by hyperpallium2 »

admax88q wrote: post #53
merpnderp wrote: post #47

Earlier quoted context omitted.

I'm starting to see a consensus that one of the biggest drawbacks to free trade is the loss of skills. It is great to get cheap steel from China and great for China to sell steel at a profit, but it sucks losing the engineering jobs. But what truly is awful is now there is hardly anyone who knows how to run a steel mill anymore in the US. The US might not always be friends with China, but the US will always need stee…

On the other hand free trade stops wars. If each party is specialized in a needed item that the other side no longer knows how to produce, its much harder to go to war. The fact that the US will always need steel helps ensure that they _will_ always be friends with China, so long as they also specialize in something that China needs.

Though China's trajectory is to not need the USA.
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