Wednesday, January 25, 2017

Comparative Advantage

The underlying theory behind all of the "free trade!" zombie-ism we see going on out there.

Long story short:  It is more as Warren terms it "gold standard thinking" and no longer applicable under our present conditions of nations operating numismatic systems.

Developed by this Ricardo person (Luuuuuuceeeee!) in the 1800s under the metals, the scarcity thereof of those 3 metals (all found in Column 11 of the PTE and ONLY metals exhibiting full D electron bands) transferred onto the real terms of production.  The theory relies on a transfer of Column 11 metal scarcity onto the real terms of production to assert that individual nations are limited in their production in real terms.

Meanwhile, the underlying real terms of production are in permanent surplus which cannot be realized under this theory from the era of our operating under the scarce Column 11 metals with the full D bands.

So the whole thing is BS as usual for today.

Adam Smith, the 18th Century Scottish economist who many see as the founding father of the subject, was in favour of it. But it was a later British writer, David Ricardo in the 19th Century, who set out the idea known as comparative advantage that underpins much of the argument for freer trade. 
It is not about countries being able to produce more cheaply or efficiently than others. You can have a comparative advantage in making something even if you are less efficient than your trade partner. 
When a country shifts resources to produce more of one good there is what economists call an "opportunity cost" in terms of how much less of something else you can make. You have a comparative advantage in making a product if the cost in that sense is less than it is in another country.


mike norman said...

Rarely do countries need to export and if they do, they don't need to export a lot.

Matt Franko said...

So you are saying that we dont need to export all of the refined petroleum products like we have been doing of late?


(PS Mike that will only go on until Mexico runs out of their USD balances... I'd be very surprised if the US refiners would ever accept MXN for their product...)

Ryan Harris said...

Most US exports are because loads of oil aren't fungible in reality only in markets. Refineries are designed to process only specific types of oil so sometimes we have to import and export to get the mix right or in the past store massive quantities of oil until refineries could be re-tooled to process different oils.

And then you have regional imbalances between refining capacity and demand, as refining goes down for maintenance and demand spikes etc.

Bob Roddis said...

Don Henley said: Having Don Felder sing "Victim of Love" is like having me play lead on "Hotel California:.

Matt Franko said...


"US gasoline exports to Mexico hit record high on refinery issues, strong demand"

The basic "issue" with the refinery is that the refinery is in Mexico....

so if they have orders and the customer can pay they are going to fill the orders...

This is a whole pot of munnie to go after now for these new people in control:

Matt Franko said...

Bob its a libertarian utopia enjoy it while you can it looks like it is finally starting to swing back the other way...