Monday, December 28, 2015

Comparative Advantage: An Idea Whose Time Has Passed?

Art Carden is living in the past.   Here, for example. Notice that he really just means "division of labor," because DoL is limited by the extent of the market, so "more trading partners" is just "more extent for the market.)

The truth is that "comparative advantage" is nearly useless, except as a pedagogical tool to amaze people innocent of economic knowledge.  My Freeman article, at FEE.

Now, "living in the past" may not be a bad thing.  When I say that about Jacob Levy, I mean that as a compliment, because Dr. Levy is actually studying ancient texts. 

But Dr. Carden (the DubMOE) is living in the past in a bad way, because he is ignoring an important feature of modern markets.  Here is a good summary of the view that I think we ought to jettison.  Not because it is wrong, but because it makes economics seem deterministic.  Very few of the factors that determine productivity are fixed.  So "opportunity cost" and "division of labor" are all we need.

To make the argument really work, of course, one must also resort to Buchanan's notion of returns to hard work and "increasing returns." 

1 comment:

Tim Worstall said...

I generally recast comparative advantage as "if we all do what we're least bad at and then share the results then we'll all be better off".

It's the same idea at heart and has the benefit that people see that it's obviously true.