Do You Really Understand Comparative Advantage?

The theory of comparative advantage shows how voluntary exchange benefits both parties and encourages specialization. You don't need to possess an absolute advantage in any particular productive activity to enjoy a comparative advantage. Your comparative advantage is whatever you can do relatively cheaply compared to everything else and everyone else. For instance, Haiti still trades … Continue reading Do You Really Understand Comparative Advantage?

What “Buy Local” Campaigns Get Wrong

The economic thinking behind "buy local" campaigns is typically terrible. One such example is the claim that a dollar "circulates more" when you spend it locally. The rate of circulation of a dollar doesn't create any wealth. Try it out: circulate a dollar among a group of friends and feel your standard of living stay … Continue reading What “Buy Local” Campaigns Get Wrong

Can Globalization Go Too Far?

Dani Rodrik, the political scientist's favorite economist, argues for a limit to globalization in his recent book Globalization's Paradox. The LSE EUROPP blog has a nice little summary of the book's argument: Markets require a wide range of non-market institutions (of regulation, stabilisation, and legitimation) in order to work well and remain socially sustainable. These … Continue reading Can Globalization Go Too Far?

WTO Reaches First-Ever Agreement

Twenty years after its establishment, the World Trade Organization finally reached its first global trade deal last night at the meeting of the world's trade ministers in Bali. The successful agreement foiled expectations that this meeting, like all others of the Doha Round, would end in failure and acrimony. Media outlets have been reporting the … Continue reading WTO Reaches First-Ever Agreement

Does Comparative Advantage Not Work for Buffalo?

Nick Gillespie notes in a recent post: [I]f working on Reason Saves Cleveland taught me one thing, it's that there's no simple solution to urban decline. Some of it is simply historical - the Northeast is not going to dominate American business and culture that way it did 100 years ago and cities such as … Continue reading Does Comparative Advantage Not Work for Buffalo?

Trade and Employment

I teach my undergraduates that trade has no long-run effect on aggregate employment. I teach it because it's right, and very few economists would disagree. Tyler Cowen's recent postings on MR about the negative employment effects of trade have the potential to mislead. To the extent that trade and technology correlate with persistent disemployment in … Continue reading Trade and Employment