The Theory of Comparative Advantage

The International Economics Study Center ^ | Unknown | Steven Suranovic

[Luis Gonzalez]

"Trade Agreements that favor foreign nations at the expense of America."

"Government is not the solution to the problem, government is the problem." -- Ronald Reagan

The fatal flaw in all you guy's arguments: The government will conduct trade better than traders will conduct trade. The government will do things that benefit the government, even if it has to screw industry.

If you don't believe that, then you don't believe that all the taxes and alphabet agency requirements imposed on industry by government are at the root of most of our problems today.

The rest of those problems have as a source the unholy alliance of organized labor and political parties.

[CrucifiedTruth]

Patents are provided for in the Constitution. Removing patent protection would take a Constitutional amendment.

You are wrong:

U.S. Constitution
Article I - Legislative Department

Section 8.
The Congress shall have Power To ...
(Clause 8) To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

The congress has the power to provide patents but doesn't have the obligation to do so. If the congress were you, the congress would have the power to bear arms but absolutely no obligation to do so. (It's a very interesting fact that the constitution speaks only about individuals - "authors and inventors" not about corporations or reselling the exclusive right - but it's another topic)

I agree with you that there should be incentives for the authors. That's why, I'm arguing only about limiting the patent rights of expatriate producers. Very easy - limit their term to 3 years, limit the damages they can claim to 50% of the infringing product's profits, etc, etc. The possibilities for improvement are countless. They fit nicely in the spirit of tort reform.

[Doohickey]

What I was trying to express is that it takes a combination of talents and disciplines to.......oh hell, never mind.

[WRhine]

"Government is not the solution to the problem, government is the problem." -- Ronald Reagan

You bet. And the Government's finger prints are all over our One-Way Trade policies and offshoring incentives.

[RightWhale]

Am I the only one who lacks an economic theory lobe in his brain? This stuff is killer.

[LibertyAndJusticeForAll]

oh hell, never mind.

Very wise. Now do you think we could convince to him to walk across (or under) this bridge?

[LibertyAndJusticeForAll]

And the Government's finger prints are all over our One-Way Trade policies and offshoring incentives.

Well said.

[ninenot]

It doesn't take government intervention to make comparative advantage work.

Since PRC already has substantial PRC Governmental interference in "free trade," what might you suggest?

It is only the Feds who can re-align the position of this country toward a balance against PRC's aggressive/warlike stance.

Oh--I know!! It's in Algebra I!

right.

[CrucifiedTruth]

Namely, removing US patent protection for expatriate business.Why go to all this trouble? Why not just kill the CEO of any company that sends any jobs overseas?

My BS meter went out of range over that last remark. To compare the right of life to some silly patents is way over the top. Anyway I'm willing to accommodate you. How about just limiting the patent rights of your CEO? See post #202.

[ninenot]

you can't coerce them into being good

Congratulations on discovering the meaning of the phrase "you can't legislate morality."

Capitalists will not act as entrepreneurs unless there is the possibility of extraordinary gain, worth taking risks for.

Actually, I think that you're quite confused over "what's a capitalist?/what's an entrepreneur?"

Rarely is the capitalist (think the Sage of Omaha) an entrepreneur. Generally, capitalists are into preservation or incremental enhancement of their capital stock--which is why they tend to buy favors from Gummints.

Entrepreneurs, however, generally don't care about preservation/incremental enhancement; they are only concerned with a very opportune niche market--or market, period.

That's why (you noticed, I am sure) the 'offshoring' is done largely by VERY large firms, which are financially-managed: Eaton, FoMoCo, GM, HP, etc.

They DON'T have any new ideas--thus they practice labor/cost arbitrage.

That's capitalism unfettered--and it's wrong.

[Doohickey]

Why should he? His ideology is for others to suffer the consequences.

[CobaltBlue]

Comparative advantage is famously hard to grasp using just words, and the explanation which forms the basis for this thread isn't the best one I've seen.

A numerical model of comparative advantage:
http://www.systemics.com/docs/ricardo/david.html
Another numerical model of comparative advantage:
http://internationalecon.com/v1.0/ch40/40c130.html
Walter Williams essay on comparative advantage:
http://www.townhall.com/columnists/walterwilliams/ww20030514.shtml
Walter Williams essay on tariffs:
http://www.townhall.com/columnists/walterwilliams/ww20040225.shtml
From The Economist - a recent essay on comparative advantage:
http://www.economist.com/opinion/displayStory.cfm?story_id=2442040

Even Paul Krugman, a liberal, understands comparative advantage:
http://web.mit.edu/krugman/www/ricardo.htm

[CobaltBlue]

Warren Buffet most definitely is an entrepreneur. Remember GEICO? Used to be a public corporation that fell on hard times. Buffet bought it, took it private, and runs it. His corporation, Berkshire Hathaway, owns maybe 40 companies outright. General Re. Says Candies. Dairy Queen.

An entrepreneur organizes and operates a business, and assumes the risk of its failure. The reason entrepreneurs are willing to assume the risk of failure is that they are motivated by the dream of success, far beyond the success of labor.

Labor, on the other hand, wants a guaranteed paycheck. No guts, no glory.

[RightWhale]

If there is no higher math involved, there is nothing to this and nothing to understand. Can't we have even just a couple of simultaneous differential or integral equations? The second link was a beginning, but devolved to those notorious economics linear graphs.

[CobaltBlue]

Real economists use more complex math models. The term to search is "dynamic comparative advantage." Classic Ricardo is called "static comparative advantage."

[neutrino]

Ahh, yes, David Ricardo, the 1823 economist....and his antique ideas.

But all this STILL doesn't answer the question I keep asking - and you continue to ignore.

One more time - if free traitin' is so good, why are China and India doing so well with trade barriers? China is the sixth biggest economy in the world, you know. Why? Can you tell me?

And why is it that the US, through most of its history, had high tariffs and did really well? I posted the data. I even provided a chart. You never responded. That speaks volumes.

Free traitin' - a bad idea, going into well deserved oblivion!

[CobaltBlue]

Adam Smith is even older than Ricardo. For that matter, the Founding Fathers are older than Ricardo. Guess that makes their ideas even more wrong, in your book.

As for the US "always having high tariffs" -- after the demise of Smoot-Hawley, the US became the richest nation on earth, and remains so today.

[RightWhale]

Okay. Looks like it's set up for matrix analysis. My PDF reader won't read all the symbols, but it looks like numerical modeling along the lines of climates or cosmology. The days of elegant math are nearing an end.

[Toddsterpatriot]

How about just limiting the patent rights of your CEO? See post #202

Sorry just taking your idea to it's ultimate conclusion.

When your idea doesn't result in these jobs coming back to the U.S. I guess we'll just have to bump off the CEO's.

So, are imports bad?

[Toddsterpatriot]

One more time - if free traitin' is so good, why are China and India doing so well with trade barriers? China is the sixth biggest economy in the world, you know. Why? Can you tell me?

Great question!!!

Just curious, what's the per capita GDP in China and India?