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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

#71

Post by frgtpsswrdlame »

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…

Yes, the unhelpful part of these simplistic examples is that they show Comparative Advantage as a property that arises from the ether. It just happens to be that my island has easily accessible bananas and yours has easily accessible coconuts or whatever. But modern trade is more often about complex products where comparative advantage isn't a byproduct of the natural world but a created situation. So we're left with the question: Where does comparative advantage come from? And the answer is that it comes from lots of different factors but sometimes, in some cases, one of those factors is protectionism. And that complicates the whole thing. It could be that your island has a CA in computer chips and mine has a CA in McDonald's toys. It could also be that the inhabitants of my island don't like that scenario and think they might be happier if they had the CA in computer chips and yours had the CA in McDonald's toys. So what can I do to make that the case?

These toy examples are useful as an introduction but basically irrelevant to modern political debates around economics, we need to move past discussing trade like we do in "Econ 101."

Re: Comparative advantage and when to blow up your island

#72

Post by s1artibartfast »

saberdancer wrote: post #68
s1artibartfast wrote: post #30

Earlier quoted context omitted.

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 p…

yeah, I think that it a more nuanced and accurate description. It is about having the lowest opportunity costs. I guess an individual or country could have both an absolute and comparative advantage if you can only do one thing and do it well.

Re: Comparative advantage and when to blow up your island

#73

Post by learnstats2 »

The article describes someone exploiting an unfair advantage and then says they are "worse off" when they are situationally forced to stop that exploitation.

This is a horrible perspective. Exploiting another person's need to survive in order to gain unlimited labour is akin to slavery.

Serious question: Is there an ethics course for popular economics?

Re: Comparative advantage and when to blow up your island

#74

Post by MiroF »

learnstats2 wrote: post #73

The article describes someone exploiting an unfair advantage and then says they are "worse off" when they are situationally forced to stop that exploitation. This is a horrible perspective. Exploiting another person's need to survive in order to gain unlimited labour is akin to slavery. Serious question: Is there an ethics course for popular economics?

Exploiting someone's need to survive for labor is what the modern labor market is

Re: Comparative advantage and when to blow up your island

#75

Post by yyyk »

mjw1007 wrote: post #66
soVeryTired wrote: post #62

Earlier quoted context omitted.

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".

>for almost any voting scheme, there are circumstances where you do better by not voting your true preferences.

Which isn't a very important consideration compared to other attributes of election methods. Usually, coordination and signalling problems make tactical voting inadvisable. But even when tactical voting does work, it's not necessarily a problem.

The source of all of Arrow's nonsense is treating an election as a very large opinion poll on a single candidate. Of course pollsters hate liars, so everyone who takes Arrow seriously tries to eliminate tactical voting.

However, that's the completely wrong model. An election is an opportunity for a citizen to use their equal political weight to try to steer the polity. If some citizens managed to be smart and use their political weight smartly good for them. So what if their vote wasn't their true preference?

Tactical voting is only a problem when the election method allows a minority to win frequently - because political weight isn't really equal in that case - but one can imagine methods where tactical voting can happen yet the winning candidate always ends up with a majority (e.g. France's 2-stage Presidential elections). In those cases, tactical voting is not a problem to be eliminated.

Re: Comparative advantage and when to blow up your island

#77

Post by jacobr1 »

thomashobohm wrote: post #76

I think it's sort of strange to refer to comparative advantage, which is taught in every "Introduction to Macroeconomics" class/textbook in existence, as an "arcane" part of economics.

Arcane might be the wrong word ... but how many people leave an economics class actually understanding comparative advantage? I would bet (just on the basis of my mostly college educated friends and family) that most don't actually retain the knowledge if they even learned in the first place.

Re: Comparative advantage and when to blow up your island

#78

Post by missedthecue »

eloff wrote: post #63
admax88q wrote: post #53

Earlier quoted context omitted.

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.

On the other hand, it's been what... 80 years since a conflict between continental European nations. Has there ever been a gap that long in recorded history?

Re: Comparative advantage and when to blow up your island

#79

Post by [deleted] »

jbay808 wrote: post #54
bluGill wrote: post #40

Earlier quoted context omitted.

The US can produce large numbers of N95 masks. What we cannot do is produce large numbers tomorrow. If you are willing to bankroll me I'll setup a factory and in 2 years I'll produce any arbitrary number of N95 masks you care. There are two obvious problems above. First, 2 years, will we even need N95 masks in two years? Second, I said I'd make them, but I cannot promise I can make them cheaper than China can.

I think it took both China and Taiwan much less than 2 years to ramp up production. Why would it take you so long?

[deleted]

Re: Comparative advantage and when to blow up your island

#80

Post by leetcrew »

learnstats2 wrote: post #73

The article describes someone exploiting an unfair advantage and then says they are "worse off" when they are situationally forced to stop that exploitation. This is a horrible perspective. Exploiting another person's need to survive in order to gain unlimited labour is akin to slavery. Serious question: Is there an ethics course for popular economics?

being materially worse off or better off is orthogonal to ethical concerns. you will miss out on a lot of important analysis if you refuse to consider cases where people make unethical choices to follow incentives.
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