From his 1996 essay “Ricardo’s Difficult Idea”:
(via Cafe Hayek)Modern intellectuals are supposed to be daring innovators, not respecters of tradition. As any publisher will tell you, books about startling new scientific discoveries always sell better than books about known areas of science, even though the things science already knows are in many ways stranger than any of the speculations in the latest cosmological best-seller. Old ideas are viewed as boring, even if few people have heard of them; new ideas, even if they are probably wrong and not terribly important, are far more attractive….The same principle applies to international economics. Comparative advantage is an old idea; intellectuals who want to read about international trade want to hear radical new ideas, not boring old doctrines, even if they are quite blurry about what those doctrines actually say. Robert Reich, now Secretary of Labor, understood this point perfectly when he wrote an essay for Foreign Affairs entitled “Beyond free trade”. The article received wide attention, even though it was fairly unclear exactly how Reich proposed to go beyond free trade (there is a certain similarity between Reich and Gould in this respect: they make a great show of offering new ideas, but it is quite hard to pin down just what those new ideas really are). The great selling point was, clearly, the article’s title: free trade is old hat, it is something we must go beyond. In this sort of intellectual environment, it is quite hard to get anyone other than an economics student to sit still for an explanation of the concept of comparative advantage. Just imagine trying to tell an ambitious, energetic, forward-looking intellectual who is interested in economics – William Jefferson Clinton comes to mind – that before he can start talking knowledgeably about globalization and the information economy he must wrap his mind around a difficult concept that was devised by a frock-coated banker 180 years ago!
RW note:
Just imagine trying to tell an ambitious, energetic, not intellectually curious person who is not interested in economics (Or any other kind of intellectual thought) – Donald John Trump comes to mind – that before he can start talking knowledgeably about globalization and the information economy he must wrap his mind around a difficult concept that was devised by a frock-coated banker 180 years ago!
Fortunately there is no reason to explain the concept of comparative advantage to people unwilling or unable to understand it. It is a law that was not created by anyone it was and us discovered. Like the law of supply and demand or the law of gravity they have always existed and when people try to violate these laws of nature they get results that are harmful and generally not intended. Reality can be a harsh instructor and to paraphrase Ben Franklin most people will have no other.
ReplyDeleteSo what is the comparative advantage of the US? Comparative advantage is being used as a defense of NAFTA and TPP?
ReplyDeleteSome consider the comparative advantage of the U.S. to be the relative respect for private property found within its borders. However, comparative advantage is more about individual actors who actually trade with each other rather than arbitrary geographic regions. And using comparative advantage to defend NAFTA and TPP is like using the law of supply and demand to defend gas or water utility monopolies. Its absurd. Like monopolies, NAFTA and TPP are about using force and coercion and have nothing to do with free markets or free trade. As RW has stated many times, free trade does not require a thousand page document like NAFTA. Free trade can be unilaterally implemented by simply allowing all voluntary exchanges.
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