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?
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
The LSE's EUROPP blog has published my critique of Dani Rodrik's The Globalization Paradox. It's an expanded version of this blog post on Pileus from a few days ago.
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?
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
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?
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
Factor price equalization due to trade and investment flows across economies would substantially reduce economic reasons for immigration to rich countries. (Trade and investment flows will not eliminate economic reasons for migration because if polities differ in total factor productivity due to political institutions, there can still be an advantage to migrating to a more … Continue reading Trade or Migrate?
Conservatives and taxpayer groups are ready to fight the $1 trillion farm bill when it comes up for a vote in the new Congress. Agricultural subsidies, price supports, and tariffs in developed countries (the U.S., Japan, and the European Union especially) not only harm consumers at home by hitting them with higher prices, but cause … Continue reading For an Anti-Farm Bill League (update)
Seth Cohn wins Commenter of the Day for getting all three answers to my Middle-Earth quiz right. Here are the answers with brief logic: 1. The Shire will export Longbottom leaf and import mithril armor and iron ore. (Logic: Being abundant in land and scarce in labor and capital, The Shire can make leaf more … Continue reading Trade Politics in Middle-Earth (Answers & Winner) -updated
Seen on an International Political Economy quiz: The world of Middle-Earth has become largely peaceful, and international trade is growing. The Shire, Gondor, and Mordor are three countries in Middle-Earth. The Shire is abundant in land and scarce in labor and capital; Gondor is abundant in labor and capital and scarce in land; Mordor is … Continue reading Trade Politics in Middle-Earth
Matthew Slaughter and Robert Lawrence have an interesting little proposal in the NY Times: abolishing Trade Adjustment Assistance (TAA), rolling it into unemployment insurance, and reforming the program so as to reduce its work disincentives. They also advocate special tax treatment for unemployed workers' expenditures on job retraining. They sell the plan, which they say … Continue reading Reforming Trade Adjustment and Unemployment Assistance