Handout: Comparative Advantage; Micro Trade Market Failures
J. Bradford DeLong
January 16, 2006
Take a look at some trade numbers:
Principal Goods Exports: November 2006:
- $4.31B: Semiconductors
- $4.25B: Civilian aircraft
- $3.08B: Computers and accessories
- $2.76B: Pharmaceutical preparations
- $2.73B: Industrial machines, other
Principal Goods Imports: November 2006:
- $21.09B: Automotive vehicles, parts, and engines
- $15.87B: Crude oil
- $5.65B: Pharmaceutical preparations
- $5.60B: Computers and accessories
- $5.35B: Apparel--cotton
We understand why we import crude oil--ExxonMobil's rigs can pump more oil at other places on the earth than they could here. We understand why we import autos--as a former owner of a Chevy Citation and a Ford Taurus, I understand that especially well. There are lots of goods that people in other countries can make more productively than we can here in America--can make with fewer workers and less capital. But why do we import goods like apparel, where U.S. producers are the most productive in the world?
The principle of comparative advantage...
You can be more productive than somebody else at a task, but it can still be not worth your time
Micro examples: I'm a d---ed good xeroxer.
The morality of comparative advantage:*
Is this ethical?
You're taking advantage of somebody else's lousy bargaining position...
You're giving them opportunities they wouldn't otherwise have had...
The case of Cuba: market exchange is inherently unjust and destructive and the U.S. trade embargo against Cuba is the source of the island's impoverishment
Micro Trade Market Failures
- Labor standards
- Communities of technological and craft practice
- People who don't know what they really need
All cases in which the maxim "if it's profitable, it's good" is false...
What is to be done?
- Domestic policies
- Trade policies
- Government failure
- Responsibility to people in other countries?