What Is "Comparative Advantage"?

A Note on Comparative Advantage

Posted: 15 Sep 2009 06:11 AM PDT

Moggio, commenting on this post <http://cafehayek.com/2009/09/witless-on-trade.html> , asks for "a text that explains that the principle of comparative advantage still holds under 'non standard' assumptions."

This principle is not an esoteric possibility, identified by clever economists, in search of applications in reality; it's not something that requires any unusual set of conditions in order to operate. It's operation is nearly universal. It permeates our reality. All that it requires is that, as between any two potential trading partners, the cost to one of them of producing (or, more generally, of trading away) at least some units of good X is less than is the cost to the other trading party of doing the same.

Critical to the point of comparative-advantage explanations is the recognition that costs are reckoned as values forgone by producing and trading.

I can walk faster than my secretary. Yet on those occasions when I need a document hand delivered quickly somewhere on campus, I send her to deliver it. The reason is that, although the amount of time that it would take me to deliver the document and to return to the office is less than the amount of time that my secretary requires to do the same task, the value of my time is greater than the value of her time. That is, the value of the output that I would forgo producing were I to deliver the document myself is greater than is the value of the output that she forgoes producing when she delivers the document.

So I have a comparative disadvantage, relative to my secretary, at hand-delivering documents - meaning she has a comparative advantage over me at this task. Because she can perform this valuable task at a cost lower than I can perform it, we both gain - I by paying her to relieve me of the cost of performing this task, and she by being paid an amount sufficient to compensate her for performing it.

Nothing in this account depends upon 'perfect competition,' 'perfect' knowledge, or anything particularly special. The facts of reality that create this particular instance of comparative advantage between my secretary and me are ubiquitous; they create countless instances of comparative advantage across each office suite, across each town, across each country, and across the globe.

These Articles Are "All Good"

Very well written on the topic of gun carry on campus. It's a complex topic. A well known tactic for suicide is to attack a police station; the attacker's motive is to force someone else to do what he cannot do for him self. There are also well documented patterns of folks attacking with guns where they know the victims will not be armed - attacks on schools and colleges, a Jewish Community Center, in a subway, in restaurants, at the US Post Office or other defacto locations of disarmed workers; these places attract the kind of killer that wants to be in control of what is happening. Running into an armed 'victim' spoils that plan.

The proposal below is little more than common sense to me. However, there is a significant part of our population that trusts the State as the monopoly agent on deadly force more than they trust 'we the people.' Strange.

http://www.newsweek.com/id/112174/output/print

"There's a famous example in Luby's Cafeteria in Texas. A woman with a concealed-carry permit was unable to stop a gunman from killing her parents and 21 others in 1991 because she had left her gun in her car to avoid breaking the state's law at the time, which banned gun owners from carrying their weapons into public places. She went before the state legislature and she said, "Look, if I'd been allowed to have my gun on me I could have stopped this guy. He had his back to me. He was only a few feet away. I didn't need lightning-fast reflexes. I didn't need dead-eye accuracy. I just needed my gun" ... She had been carrying the gun for several years for personal protection, and because she was a chiropractor she had become worried that because there was no legal provision for concealed carry in Texas at the time that if she got caught carrying that gun she might lose her chiropractic license, so she started leaving it in the car. When this shooting started she reached into her purse for a gun that wasn't there and
basically watched both of her parents be gunned down by this madman because she was unable to defend herself. There was the example at the church in Colorado Springs back in December
where they actually allowed members, encouraged certain members who had a concealed-handgun license to carry their guns at church. These people were not licensed security guards. They had not been through the state-mandated security guard training or any of that. These were simply people who had concealed-handgun licenses, and the church said, "You
know, we'd appreciate it if you would carry your guns at church for the protection of this church." And this woman actually managed to shoot a guy as he was walking through the door armed to the teeth, like Rambo. So concealed carry has mitigated dangerous situations like this in the past."

This passionate and hard hitting piece highlights the absurdity in claiming there's any way to determine causality between a specific govt action and the resulting employment or lack thereof. http://www.realclearmarkets.com/printpage/?url=http://www.realclearmarke
ts.com/articles/2009/09/14/saving_one_million_jobs_at_787000_per_job_974
04.html
"The White House Council of Economic Advisers said Thursday the $787 billion stimulus plan kept one million people working who would otherwise not have had jobs. But when the White House Council of Economic Advisers calculated the number of jobs saved by our government's massive stimulus spending, how is it that they entirely neglected to account for the impact on
employment of removing $787 billion dollars from the balance sheet of the private economy?

What kind of single-entry bookkeeping is this? Who are these experts so willing to make glib claims with a straight face? How is it that the press, politicians, and pundits credulously report these claims as facts? And why are those who question whether the emperor is wearing any clothes treated like obstructionist members of some lunatic fringe?

There are those who passionately promote the theory that the government can, on net, create jobs by taking money from one set of citizens and handing it to another. Does this make sense to you? Are these promoters easily fooled, willfully blind, or cunningly smart?"

Is no one above the law? Or, are some exempt from the rules they make for us to follow?
http://www.realclearpolitics.com/printpage/?url=http://www.realclearpoli
tics.com/articles/2009/09/15/the_entitled_one_98306.html
"Rangel is now the chairman of the House Ways and Means Committee and a man of immense importance in Washington. Nonetheless, he has been busy of late revising and amending the record, backing and filling, using buckets of Wite-Out as he discovers or remembers properties he has owned in New York, New Jersey, Florida and the Dominican Republic and God only knows where else -- and has forgotten or neglected to fully report on the required forms, not to mention the income from them. Oops!

Rangel recently even discovered bank accounts that no one in the world, apparently including him, knew he had. One was with the Congressional Federal Credit Union, and another was with Merrill Lynch -- each valued between $250,000 and $500,000. He somehow neglected to mention these accounts on his congressional disclosure forms, which means, if you can believe it, that when he signed the forms, he did not notice that maybe $1 million was missing. Someone ought to check the lighting in his office.

The dim bulb could also have accounted for why Rangel did not notice that he was soliciting contributions for the curiously named Charles B. Rangel Center for Public Service on the congressional letterhead of the very same Charles B. Rangel. It may also account for why he failed to report dividend income from various investments in addition to what he made by selling a townhouse in Harlem. The place went for $410,000 in 2004, and had been rented -- or not -- to various people, who paid rent or didn't -- since Rangel reported no income for years at a time. This is what he did, too, with the rent he earned on his Dominican Republic villa. Again, nada.

There is something wrong with Charlie Rangel. Either he did not notice that he was worth about twice as much as he said he was -- which is downright worrisome in a congressional leader -- or he thinks that he's above the law -- which is downright worrisome in a congressional leader. I was with Rangel on election night last year and heard him speak movingly and eloquently about what it meant for a black person to become president of the United States -- my God, who would have thought this day would ever come? -- and he moved me to tears. So I don't think age has muddled his brain. He is sharper on a bad day than most people on a good one."

Do You Believe?

From George Will (link below)

On the 233rd day of his presidency, Barack Obama grabbed the country's lapels for the 263rd time—that was, as of last Wednesday, the count of his speeches, press conferences, town halls, interviews, and other public remarks. His speech to Congress was the 122nd time he had publicly discussed health care. Just 14 hours would pass before the 123rd, on Thursday morning. His incessant talking cannot combat what it has caused: An increasing number of Americans do not believe that he believes what he says.

He says America's health-care system is going to wrack and ruin and requires root-and-branch reform—but that if you like your health care (as a large majority of Americans do), nothing will change for you. His slippery new formulation is that nothing in his plan will "require" anyone to change coverage. He used to say, "If you like your health-care plan, you'll be able to keep your health-care plan, period." He had to stop saying that because various disinterested analysts agree that his plan will give many employers incentives to stop providing coverage for employees.

He deplores "scare tactics" but says that unless he gets his way, people will die. He praises temperate discourse but says many of his opponents are liars. He says Medicare is an exemplary program that validates government's prowess at running health systems. But he also says Medicare is unsustainable and going broke, and that he will pay for much of his reforms by eliminating the hundreds of billions of dollars of waste and fraud in this paragon of a program, and in Medicaid. He says Congress will cut Medicare (it will not) by $500 billion—without affecting benefits.

He says the nation's economic health depends on controlling health-care costs. Yet so important is the trial bar in financing the Democratic Party, he says not a syllable in significant and specific support of tort reforms that could save hundreds of billions of dollars by reducing "defensive medicine" intended to protect not patients from illnesses but doctors from lawyers. He has said he will not add a dime to the deficit when bringing 47 million people into government-guaranteed health care. But Wednesday night, 17 million went missing: "There are now more than 30 million American citizens who cannot get coverage." Almost 10 million of the uninsured are not citizens, and most of them are illegal immigrants. Presumably the other 7 million could get insurance but chose not to. Democrats propose fines to eliminate that choice. He suggests health-insurance companies are making excessive profits. But since 1996, profits of the six such companies in the S&P 500 have been below the 500's average. He says a "public option"—a government insurance program—would not be subsidized to enable it to compete unfairly with private insurers. (The post office and the government's transportation -"public option," Amtrak, devour subsidies.)

McConnell of the Mona Lisa smile says Congress will pass something because Obama will sign anything.

(Obama) says "the time for bickering is over." Presidents of both parties disparage as mere bickering all inconvenient arguments about what government can and should do. Americans "didn't send us here to bicker," said George Herbert Walker Bush, in the first 15 minutes of America's most recent one-term presidency.

Find this article at
http://www.newsweek.com/id/215301

© 2009

A Bone In the Mouth is Worth How Many In The Water?

The dog looked down into the water and saw his reflection. He thought it was another dog with a bone in his mouth-- and it seemed to him that the other dog's bone was bigger than his. He decided that he was going to take the other dog's bone away and opened his mouth to attack. The result was that his own bone fell into the water and was lost.
http://www.realclearpolitics.com/articles/2009/09/15/fables_for_adults_98314.html

Market Based Health Care Reform Ideas, Powerful

"The problem with socialism is that eventually you run out of other people's money."
—Margaret Thatcher

http://online.wsj.com/article/SB10001424052970204251404574342170072865070.html

"While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system. Instead, we should be trying to achieve reforms by moving in the opposite direction—toward less government control and more individual empowerment. Here are eight reforms that would greatly lower the cost of health care for everyone:"

Can a Politician Tell the Truth and Live? Part 2

In a ten-year window, even if Obama delivered what he promised twice this week, it would save a grand total of $33 billion dollars - and that's for the whole industry. If the government covered a third of the costs, the total deficit reduction over ten years drops to a mere $11 billion dollars over 10 years. At that rate, how long will the "long run" need to be to save $4 trillion dollars in deficit spending? It would have to be 3,634 years.

http://hotair.com/archives/2009/09/12/can-obama-do-math/

Can a Politician Tell the Truth and Live?

Note: I disagree with the author's assertion that we can only have 2 of the 3 (see para 4 below), because on many fronts markets have shown us we can have it all if we can allow competition, and allow winning competitors to reap the benefits of their effort, risk taking, and success.

http://www.realclearpolitics.com/printpage/?url=http://www.realclearpolitics.com/articles/2009/09/14/the_candor_gap_98284.html
"When Obama says that "I am not the first president to take up this cause, but I am determined to be the last," he is indulging his ambition for a special place in history and illustrating why Americans don't discuss health care honestly."

"Americans generally want three things from their health care system. First, they think that everyone has a moral right to needed care; that suggests universal insurance. Second, they want choice; they want to select their doctors -- and want doctors to determine treatment. Finally, people want costs controlled; health care shouldn't consume all private compensation or taxes.
Appealing to these expectations, Obama told Americans what they want to hear. People with insurance won't be required to change plans or doctors; they'll enjoy more security because insurance companies won't be permitted to deny coverage based on "pre-existing conditions" or cancel policies when people get sick. All Americans will be required to have insurance, but those who can't afford it will get subsidies. "

"As for costs, not to worry. "Reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan," Obama said. He pledged to "not sign a plan that adds one dime to our (budget) deficits -- either now or in the future." If you believe Obama, what's not to like? Universal insurance. Continued choice. Lower costs. "

"The problem is that you can't entirely believe Obama. If he were candid -- if we were candid -- we'd all acknowledge that the goals of our ideal health care system collide. Perhaps we can have any two, but not all three. "

"If we want universal insurance and unlimited patient and doctor choice, costs will continually spiral upward, because there will be no reason or no one to stop them. We have a variant of that today -- a cost-plus system, with widespread insurance and open-ended reimbursement. Higher costs push up premiums and taxes. That's one reason health spending has gone from 5 percent of gross domestic product in 1960 to 16 percent in 2007. (Other reasons: new technologies, rising incomes.) But controlling spending requires limits on patients and doctors."

"The candor gap reflects a common condescension. One side believes it must fool Americans into thinking "reform" will do more than it will; the other thinks it must frighten Americans into believing that it will harm them in ways that it won't. Given Americans' contradictory expectations, any health care proposal can be criticized for offending some popular goal. We refuse to face unavoidable -- and unpleasant -- choices."