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Comparative Advantage Still Exists

Wednesday, January 11, 2017 11:29
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(Before It's News)

(Don Boudreaux)

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Here’s a letter to First Things:

Robert P. Cummins rightly calls for tax and regulatory relief (“My Orange Juice Came from Brazil,” Jan. 5).  But his essay is severely marred by his lengthy discussion of comparative advantage.  According to Mr. Cummins, comparative advantage is now “obsolete,” it having been “erased” by globalization and technological innovation.  Mr. Cummins’s is deeply mistaken.

If comparative advantage didn’t exist – either naturally or (as Adam Smith would have it) as the result of specialization itself – there would be no trade, including none of the trade that Mr. Cummins today finds to be both prevalent and worrisome.  Without comparative advantage, no one would benefit from buying any goods or services from others, or from producing any goods or services for sale to others.  Each individual would be self-sufficient.  Society as we know it would not exist.

The reason is that the absence of comparative advantage means that each individual confronts the same cost of producing each and every good or services as is confronted by every other individual.  In the (barely imaginable) world of no comparative advantage, I could grow the corn that I eat just as efficiently as could anyone else.  Ditto for weaving the cloth that I wear, building the automobiles that I drive, transporting myself to Paris, and performing surgery on myself.  And what would be true for me would be true for every other person.  Only in such a bizarre world would there be no comparative advantage and, hence, no trade.

Put differently, the only economic reason for trade is that each of us produces some goods or services at costs lower than the costs that our trading partners would incur to produce those same goods or services.  That is, each of us has a comparative advantage in supplying the goods or services that we sell to others, and a comparative disadvantage in supplying each of the many goods and services that we buy from others.  Therefore, because we humans continue to specialize and trade – and especially because global trade today is so vast and growing (as Mr. Cummins’s himself admits) – comparative advantage has not been “erased” or made “obsolete.”  Quite the contrary.

Sincerely,

Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

(I thank P.J. Hill and Jeff Ankrom for alerting me to Mr. Cummins’s essay.)  Other errors mar Mr. Cummins’s essay, but the comparative-advantage error is the most egregious.

Here’s a comparatively passable introduction to comparative advantage.



Source: http://cafehayek.com/2017/01/41982.html

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