Assorted links


irt #8: Didn't Krugman cover this stuff back when he was one of the great trade economists of the 1990s, before he became one of the worst macroeconomists of the 1930s?

Are you referring to this?

When I look at the Slate piece, I see a claim that Ricardo and Smith did not believe in long-term growth, but no cited evidence. I do understand the logic of CA, and it does seem pretty persuasive.

The Slate piece is beyond daft. My only point is that MY's piece isn't particularly profound. Trade economists have noted for some time that gains from economies of scale and network effects can be larger than gains from comparative advantage. That's why certain places become known for certain things.

Go to a country where people still by things in markets and small stores and you'll find that different streets come to be dominated by different types of merchants. In China, you have whole cities that specialize in manufacturing one thing, like a city full of sink manufacturers.

True, in Kowloon I recall walking into a street with several blocks of cabinet knobs. No cabinets, just the knobs.

Comparative advantage is fine as long as you remember that when someone is better than you at something, you are losing. You may choose rationally to lose; there are lots of things where I could spend my time and resources to gain something but it would cost more than it is worth, such as Vermont going after weaving and spinning production. Vermont loses when they don't, but they gain when they spend their time and resources doing something else.

Giving away wholesale your production capacity because someone can do it cheaper is great as long as there is something else you can do to replace it of more value. Otherwise there is no gain, and the comparative advantage is competition at which you are losing. The rational response is to do what is necessary to be competitive. Comparative advantage is a reason why you are losing.

I write this from a country where opportunity lies only in sectors where there is less competition, extracting resources from the ground. The rest of the economy is service and government, with a few competitive niches but not enough to pay for everyone. There is no way to paint the pig other than saying we have lost, seriously lost in many sectors of the economy. Too much overhead.

"Giving away wholesale your production capacity because someone can do it cheaper is great as long as there is something else you can do to replace it of more value. Otherwise there is no gain, ..."

Doesn't the concept of comparative advantage imply, that there is ALWAYS some activity in which a country has an comparative advantage?

Maybe, maybe not. For example China and India, both very populous nations with a large proportion of their population in underdeveloped situations. The investment opportunities, the comparative advantage of both places were offered. Low wages, etc. China did better than India, making it possible for millions of Chinese to escape poverty. If that had happened in India, millions there would have had that opportunity, but didn't because it didn't happen there. The world economy benefited from the competition between the two, but one won, the other lost, relatively.

This is pretty basic economic function. I commonly am in a competitive bidding situation, and if I'm not low bidder, I lose. Someone else wins by being having lower costs, whatever. The economy as a whole gains, but I lose.

Same with nations. Canada and the US have cost structures that depend on economic growth. If the growth occurs elsewhere, increasing the costs for example of unemployment, the country loses. There are benefits to the economy as a whole by the competitive process, but individuals or companies or countries can lose, lose badly.

The response to this situation is what is important. An individual may get bitter and leave the work force. A company may persist in their inefficiency and go under, a nation may throw up barriers to trade that have some appearance of benefit but cement in the inefficiencies and doom them to a diminishing standard of living. Or any or all can respond by cutting costs, figuring out a better way of doing things, finding a niche where they are profitable. They benefit and so does the economy as a whole.

I'm surprised that this is even a question. We are seeing nations fail. Greece is losing so badly that it's young folks are forced into subsistence agriculture. The US had 1st quarter GDP of less than 2%, most of it driven by extraordinarily low mortgage interest rates due to money supply manipulations of the Fed. It worked so well last time around, these are last gasps of a nation that is losing it's competitive place. Japan once had a balance of trade surplus that funded profligate government spending, now it doesn't because it is losing in the competitive market, and facing a potential debt crisis. Etc. How these and other nations respond to the possibility of losing will determine their future well being.

Doesn’t the concept of comparative advantage imply, that there is ALWAYS some activity in which a country has an comparative advantage?

Couldn't there be ZMP countries? I don't think the concept guarantees that every country will have a comparative advantage, rather that whether it does or not, there is no benefit to it from restricting trade. However, this model assumes that countries' advantages are fixed. If it's possible for a country to develop an advantage over time, such as by coddling a local industry through protectionism and industrial policy, then maybe a country can give up some benefit from trade in the short term for a greater long-term benefit.

Not really. Consider Alice and Bob. Alice is twice as good as Bob at making lemonade - and twice as good as Bob at making chocolate milk. Then no situation of comparative advantage exists.

Comparative advantage is fine as long as you remember that when someone is better than you at something, you are losing .

I'm not sure I understand why you think so. Or maybe I'm failing to understand your definition of losing.

For most cases being second best is not really widely considered losing, though I do have a bumper sticker (not actually on my car) that says "Second Place is First Loser". Is that what you mean?

Maybe I dozed in class that week, but I don't think "comparative advantage" means "losing", more like "do what you're best at." I suppose you could say I am a loser of a baseball player since I spend all my time writing software.

2. Hanson doesn't mention "luck". The outcome of most bets is perceived as luck by many intelligent people and such people don't want to see others rewarded or punished for their luck but for their talent, good character and hard work. Hanson also doesn't understand sports betting if he thinks it's mostly about betting for "your team".

#2 - because bets, at least in the Hanson/Tabarrok model, look incredibly confrontational. When you start talking about a "bet on bullshit" you're implicitly accusing everyone else of being full of bullshit, pretty much all the time. Which is certainly an accurate representation of what Hanson believes, but is pretty obviously not socially acceptable (or desirable) behavior for us non-Robin Hansons.

+1, "When you start talking about a “bet on bullshit” you’re implicitly accusing everyone else of being full of bullshit, pretty much all the time."

I think the idea may have merit, but the presentation has been poor.

Mitt Romney will bet you $10,000 that you're wrong.

3. 'I would dispute some of the comparisons and reasoning'

Like including the Bahamas, Trinidad and Tobago, and Bahrain in a list of not 'small countries'?

This seems truly like Reinhart-Rogoff level data 'collection'.

And how is the effort to correct so much flawed analysis based on the Reinhart-Rogoff work going these days?

I read that Siemens took a billion dollar right-off exiting the solar power industry. I remember you making a rather big deal of Walmart taking a billion dollar loss when it pulled out of the German market. Do you have any comments about the issue?

#4. ACA
Yuval Levin warns that the Obama administration’s recent moves to delay or relax reporting requirements for employers and individuals under the Affordable Care Act will greatly increase the risk of fraud. ... The strongest counterargument that comes to mind is that the threat of future enforcement will contain the number of fraudulent claims, but this is hardly a guarantee. And last week employer mandate and income verification announcements aren’t the only signs that the ACA is on shaky ground,

I don't even understand this argument. People are going to be able to sign up for the exchange and get subsidized health insurance as long as they claim they're employer doesn't cover them. Why would they not do this, if it's economically advantageous? There's this mythical "threat of future enforcement", but there's no reasonable scenario whereby the Obama administration is going to start sending low wage workers to jail for lying on a healthcare form. And fining low wage workers is nearly pointless. Assuming the delay is only one year, or whatever time period it takes to get it past the 2014 elections, then the window will be pretty narrow. But I've got to wonder if the group of healthcare workers who have been hired to boost enrollment will not be pretty direct in telling prospective enrollees that there isn't any real penalty.

Also, I still don't understand why young, healthy workers without insurance won't just set their tax withholding to match their expected tax payments. The current law only allows the penaltax to come out of tax withholdings. There's no other mechanism to get the money and, of course, if their relatively low wage, there's no easy way to get it in any case.

I still don't understand how this is all going to work out in the end. But I'm confident it will cost a lot of money, before we do know.

"What is in Prince’s fridge?" appears to be an April fool's joke.

Was ACA designed to fail? Was it designed at all: is it a result of human action rather than human design? Or is it just a pile of steaming ordure?

Has there every been a government policy the most intellectually lazy response to which was *not* to say "it sucks it's gonna fail!"?

On a related note, for policies long since in effect and now sufficiently popular that it's no longer ok to talk about them that way (Medicare), what fraction of commentator responses pre-implementation-reform-popularity were of this easy and profoundly intellectually lazy variety? How many of those people recanted when the policy became successful and tremendously popular 15 years later?

Do the growing number of doctors who don't take Medicare patients count? Or anybody who works in medical billing?

Policies usually rob Peter to pay Paul. Paul usually approves, and that's usually all 'popularity" consists of.

Well, I wish the conservatives and Republicans who designed it would explain why they designed such a mess.

The liberal solution is obvious by looking at the evidence around the globe. A few variations on a theme are presented with one core principle: universal coverage of everyone by a more or less uniform regulated system.

Given conservatives love Israel, why not embrace the Israeli system of HMOs. Richard Nixon advocated HMOs and required employers provide HMOs as an option to their employees if an HMO was available. Insurers hated HMOs because HMOs could balance prevention with remedy in a dynamic fashion because the HMO had full access to every aspect of the costs of all services and the actuarial data on all policies, with doctors ultimately in control of the balance of spending on prevention and remedy.

If that takes away the profit seeking opportunity of doctors by making them work as a team of doctors balancing all the costs, then Medicare for all like in France or Taiwan give the doctors lots of control with a simple fee for service based primary system. Doctors in both nations have lots of autonomy and do not spend time or money on billing - every patient has a universal medical care with records and billing tied to it, and payment is handled immediately on delivery.

A hundred other nations have essentially universal systems as well. I get the idea the conservatives want the universal system in most of Africa: if you have money, you get the level of care you can afford anywhere in the world, otherwise you depend on NGOs funded by the US government and US charities in the majority, and other governments and charities to a lesser degree, with fundraising done by holding concerts organized by rich British pop stars. President Bush certainly has played a leadership role in Africa health reform; is that the conservative model they have in mind for the US?

The Republican leadership in designing Obamacare just can not be denied - it took two decades for the Republican health reform proposal to be turned into law, and the only reason I can see for Republicans opposing their proposal is they did not make it in good faith, and designed something so flawed they expected it to fail.

Is that the new Progressive meme? To deny reality and pretend that Republicans passed Obamacare and that any failures are their fault? I think Orwell had some comments on that type of behavior. ;)

Are you denying that Republicans proposed a mandate to buy private health insurance with government subsidies and so on, and that Mitt Romney the Republican governor signed just this law into effect in 2006 as his signature accomplishment he expected to sweep him into the White House to address the most critical problem addressing business owners in 2006?

Are you denying that Republicans wanted State run everything because the States can decide what is better for the State instead of a Federally run system like Medicare for all?

Are you denying that Republicans have called for tort reform, but at the State level, which Obamacare funds each State to study and do?

Are you denying that Republicans have demanded that Democrats pay for everything, while exempting themselves from PAYGO?

Republicans in the caucus decided before Obama took office to oppose everything he did in every respect. A number of Republicans rejected that "sit down strike" and worked with Obama, only to be punished by their fellow Republicans. A number of Republicans worked on the bill for a year in the three committees that wrote and rewrote major parts of the bill in the Senate. Hundreds of pages were added to the bill to satisfy them in their requests for features in the law.

Arlen Specter switched parties to avoid being stripped of his committees by McConnell to punish him for supporting Obama.

The Maine Senators paid a price as well, but as loyal Republicans voted against the bill, but it took its toll on Snowe who left Congress because of the politics of the Republicans.

Republicans have never proposed anything in the more than a decade they controlled Congress even as health care costs spiraled out of control. Where are their bills to address the problem?

A "leftist" health reform policy would be to replace Medicaid, employer, and individual plus uninsured with Medicare for all in some fashion. Instead Obamacare was designed like Bush's drug program, except it covers everyone and health care.

Where is the Republican bill to replace Obamacare? It can't be written because it would look like Obamacare.

Ah yes, the most stubborn ad nauseum argument of the left in recent years! Just because the Heritage foundation suggested TWO parts of what is currently in the ACA, they are the ones who came up with the 2000+ page monstrosity of new laws and regulations that Obama and the democrats pushed through with near zero republican support. They can't possibly be apples and oranges!

The Heritage proposal was a few pages long, and meant as a compromise to a more leftist idea, (Hillarycare). And did not propose minimum insurance requirements, business requirements, or heavy regulations. Romneycare, was designed to make peace with Mass Democrats (yes, that means Romney was actually the moderate there), and was a mere 70 pages long because he left out a lot of regulations and minimum insurance requirements (there's a repeating theme in there). But never mind those aren't oranges!

Since they both grow on trees, have seeds inside, and are forms of fruit, it's automatically an apples to apples comparison. Not possibly an apples to oranges comparison? Just keep repeating it, and people will start to believe that apples are oranges.

"Republicans have never proposed anything in the more than a decade they controlled Congress even as health care costs spiraled out of control."

Individual HSA's for high deductible accounts? Recent studies show that these policies have contributed to bending the cost curve in a desirable direction. I'm not even a republican, but dag nabbit, I find those lefty mistruths annoying!

You're high. No, scratch that. I've seen 10 guys that made more sense.

Given conservatives love Israel, why not embrace the Israeli system of HMOs

HMOs died here in 2001 thanks to Teddy Kennedy because they were only spending money on effective procedures. Now, not so much: They've got to cover your yoga classes and acupuncture.

then Medicare for all like in France or Taiwan give the doctors lots of control with a simple fee for service based primary system

France isn't a Medicare-for-all system. If you're uber-poor, the government gets the bill. Otherwise, you're on the hook for the cost at the time of outpatient service provision, with reimbursement coming
down the road. Citizens are insured by private insurance companies, and the French government merely sets the standards of what's covered and how much something is reimbursed at.

Personally, I'd go for the French system, but it's a non-starter. Selling Americans on "paying 100% cash up front, getting back maybe 20%" will be rough. Further, if you think the current "doc fix" is bad, wait until the AMA sees the same pressure over their whole customer base.

HMOs died in the 80s when Reagan signed an insurer driven "equity" tax law that requires HMOs to pay taxes on the insurance business that the insurers argued HMOs included.

You are thinking of the "product" insurers offer called an HMO where healthcare is managed by insurance company clerks who supervise your doctor's practice of medicine by denying payment for the treatment plan he proposes, based on the insurer improving your health by rationing care.

I do not know of an HMO still operating, just managed care firms which in some cases have worked out fee for service which is more comprehensive and requires the provider to take a risk, which is mitigated by spreading the risk over multiple patients - insurance by another name, but integrated with the provider.

France is a "Medicare for all" - the government provides a basic plan for everyone which everyone must participate in. Perhaps you are confused by the idea of agency, like the USPS and Social Security. The three French insurance agencies get their funding from taxes on income, or from government general fund transfers for those without incomes.

Like the US Medicare, this French benefit only covers about 80% of medical costs and fees, so private insurance is bought, just like with Medicare supplemental, by most French residents (85%) which is integrated with the national insurance system.

The most interesting piece of this comment, to me, is: Was ACA DESIGNED to fail? The rest of the comment seems to be assuming people are dumb, which, while a popular trope, is seldom true.

Perhaps Obama and the left built the ACA on (formerly?) right-wing positions, knowing, and in fact intending, it to fail. Then, when the collapse is complete, the Left can rise out of the ashes and say: see, I told you nothing short of single-payer would be successful.

Obama is plenty smart enough to play a long game.

Note: I do not think the ACA was designed to fail, but I DO think NCLB was.

Well NCLB has proved dumping additional money into education produces no additional results.
ACA seems to be designed to prove the same for medicine.

NCLB had very little money attached and was/is mostly an unfunded mandate. The money attached was for funding testing, but not the testing, designing/buying the testing, but the actual testing comes out of school time and teaching time.

Obama included in the "stimulus" a bunch of money that has gone into grants to fund education innovation and restructuring, that was separate from the money for teachers to make up for lost State and local revenue in the first year (which spanned two school years).

The business schools teach that measurement makes businesses successful, and Bush was an MBA, so NCLB was pure business theory - put metrics in place and measure and by magic quality will soar.

I tried to find John Stuart Mill's grave in Avignon once. I couldn't find anyone who even knew who he was to direct me.

#8: Yglesias is OK'ish, but doesn't go nearly far enough:That industrial policy ever worked in any meaningful sense, anywhere, is pure myth.

Let them come... .

Japan? South Korea? Singapore?

How does Singapore qualify as practicing industrial policy, it has zero tariffs on all imports. The low trade barrier East Asian economies (Hong Kong, Macau, Singapore) have significantly higher per capita GDP and growth rates than the high trade barrier countries (Japan, South Korea, Thailand, Taiwan). Also consider that East Asians in the low trade barrier West have higher GDP per capita than back in Asia.

That to me looks evidence that East Asians are smart, industrious and entrepreneurial and are inevitably going to be successful in any non-insane economic system. But overall it seems like industrial policy has somewhat significantly (though not drastically) hurt the East Asian nations that have practiced it.

I was thinking not of their policies today, but their policies in the postwar era.

Japan basically invented the term “industrial policy”, and the government was involved in the economy to the point of specifying the percentage of the economy that would be taken up by a certain sector, and hitting that target with taxes/subsidies. The government also had complete control over the exchange rate, as well as oversight with any private interaction with foreign entities.
South Korea had similar practices; a complete ban on any foreign ownership of domestic assets, large-scale subsidies to “leading industries,” lots of tariffs.

Singapore definitely did a lot less than the other East Asian countries, but they still practiced a type of industrial policy by using the minimum wage to drive out low-wage industries when the government felt that it was time to shift the whole economy toward higher-wage, higher-tech sectors.

Ah, Arjun, but you see, everyone agrees that the minimum wage policy was an abject failure. In a larger sense, you can always drive out industries with low labor productivity if you set the minimum wage high enough.

And Doug, Singapore has had an industrial policy, explicitly favoring loosely defined sectors that are promoted with low interest rates on borrowing from funds accumulated by domestic forced savings. For this, Singapore has been rewarded with the same growth rate and the same per capita GDP as do-nothing Hong Kong, but Singapore's per capita consumption has been lower than Hong Kong's all the time since 1960 or so.

I can get into the arcana of Japan, South Korea and Taiwan, too, in case anybody is interested. Or Germany post Napoleonic Wars.

This is ridiculous. The three examples you cite are cities. To compare Hong Kong with South Korea is just plain silly. That is like saying New York City did extremely well with a very large component of their economy the financial sector, everyone should have the same proportion.

"I can get into the arcana of Japan, South Korea and Taiwan, too, in case anybody is interested. Or Germany post Napoleonic Wars."

Yes, please.

#3: "I would dispute some of the comparisons and reasoning" - come on, the "research" piece is a total joke: they show that since 1980, both economic freedom and immigration have increased, and conclude that immigration causes increase in economic freedom (positive correlation coefficient!). How about global temperature - does rising temperature cause increase in economic freedom?

This is what you get when people do 'research' on hot-button, ideological, sacred cow, lie-if-you-have-to-it's-for-higher-good topic. So long Cato, I used to like reading articles you produced.

In their defense, doing such an analysis does at least show that if immigration does decrease economic freedom, the effect is negligible compared to other variables. Or at least, the negative affect tends to be outweighed by other variables (who knows, maybe without immigration we would be living in Freedomtopia).

2. I think the distrust of bets is like the norm against solving math problems w/o showing your work. If you're right for the wrong reason, I am not impressed. I don't just want your answer, I want to be able recalculate as conditions change.

Bets affect egos more than they solve actual problems, especially repeated ones under uncertainty and with natural imprecision. If bets were so valuable we'd use them more...or at least economists would. That said, I see prediction markets as an impersonal way to aggregate diverse beliefs so there may be a useful form.

A common saying in science is that advancement is made as influential people die. Some fields more or less than others, but the point is that ego is sticky. A bet challenges ego, hence it's utility.

ego fights back (even from the grave via students and groupies) ... I'd rather engage the idea and not the person. a big enough, arms length betting pool (like a market) and I warm to the setup.

Paul Samuelson was once asked by mathematician Stephen Smale to name a discovery in economics which was both nonobvious and true and profound. Samuelson replied, the law of comparative advantage. At another time he said it would still be true when the skyscrapers had turned to sand.

8: The headline writer used the word mercantilism to, in my mind, correctly describe the policy issue, not comparative disadvantage.

I have never seen a textbook describe comparative advantage of free trade to involve two nations paying wages well below the production of the workers with the profits siphoned off to some black hole.

How are the Bangladeshi workers earning 10% of the price of the clothing they make with 10% of the price ending up in a 3rd country to be used to pump and dump Wall Street and High Street security prices and to fund loans to US consumers to buy oil on the global market for their car to allow the Russian government to subsidize with their oil revenues weapons sales to Bangladesh. And yes, US consumers do buy the cheap clothes made in those factories, but they borrow part of the price back to buy global oil for their car, and the US government borrows part of it to subsidize US food factories to manufacture food to sell to the Bangladeshi workers, but the industry is banking a good part of the price so it can be borrowed by consumers and governments.

That is mercantilism which Adam Smith et al sought to discredit.

When he wrote of the economy and trade, he was thinking workers got paid in wages for what they produced, or at least for the share of the product value they created in a free market where the capital assets were priced at the labor value of the capital.

Instead we have mercantilism without tariffs and quotas in the international sense, but instead we have the equivalent in terms of patents and monopolies of other sorts that allow the "rent seeking" of a high fraction of GDP being diverted to Scrooge McDuck equivalents of tax haven bank accounts.

The US government and Fed and peers are funding the purchase of the global GDP while the corporations are siphoning off a big fraction to fund the pump and dump ponzi scheme of higher security prices and government debt all around the world. If the US governments were not providing all the welfare payments, and consumers were not going deeper in debt, GDP would fall because a big fraction of it could not be purchased based on the total wages paid.

When was the last time a stock sale occurred to buy capital equipment or services which requires the stock purchase translates into wages? Unless the money pouring into Wall Street are funding productive capital asset purchases which require new labor to produce, the economy is operating as a ponzi scheme.

Comparative advantage is fine if you live in a large nation and/or are able to migrate. If you're in a small economy and there are migration restrictions and increasing returns to scale, then the logic is probably overrated. People vary in their mental and physical abilities quite a lot, and some industries do not require a very varied labour pool. So if you happen to be a round peg and the major national industry only offers round holes, then hopefully you can emigrate. And no I am not Singaporean.

#2 betting. Do you trust the person you're betting to pay up quickly and honestly? Or even admit when they lose a bet?

Comparative advantage, as I have retained it after way too many years away from school, says that even if you're better than me at everything, we can still profitably trade. The cardiologist who can also repair his own car better than the mechanic at the shop can do better spending his high-value time fixing hearts, and let the mechanic fix his car, and both will come out ahead.

How does trade (or immigration) affect the number of ZMP workers? My intuition is that more trade or more immigration can shift that number in either direction, depending on circumstances. If all the work for guys with an IQ of 75 who dropped out of school in the ninth grade goes away, but we make way more money from software and financial services, the country may be better off as a whole, but we've probably got more ZMP workers to deal with. And that's both a financial cost (for public assistance to feed them) and a social cost (because it's hard on most people, at least in our society, to be unable to work to support yourself and stuck relying on public assistance).

A ZMP worker is the guy you can't afford to employ because you are paid so little of the price of the production you do that you can't consume all of what you produce so you must have the government print money and give it to the ZMP person so they can buy the rest of what you produce, but can't afford to buy.

Think of it this way, Chinese workers make 100% of global production, and half is sold to the US at a price lower than you can produce it at your wages, so you become a ZMP person on welfare. The Chinese workers get wages that equal only half of what they produce so they spend all their money buying half of China's production, but can't afford to buy what you could make because your wages are so high. The revenue from the 50% sold in the US goes into banks in China and Bahamas where they get channeled to the US government by buying US Treasuries.

No matter how much you cut your wages, you can't sell to the Chinese until your wages fall below theirs. But US businesses went to China for supplies because the wages were low enough to get high margins and lower prices so they can sell to you with a higher profit when you are on welfare.

ACA may seem to be "unraveling" if one thinks of it as a finished product rather than another move in a long effort to reduce health care expenditures that are not cost effective and increase those that are. Building on the "employer 'provided'" model was probably not ideal, but it seemed at the time the one most likely to gain bi-partisan agreement.

It is hard to say in the abstract whether comparative advantage is overrated. It does not seem to be overrated by those arguing that trade deficits are necessarily a bad thing or those who arguing as if world income is a fixed pot to be distributed. It probably is overrated by those who forget that the insights depend on policies that maintain full employment.

Betting looks bad because it is bad. Think about the incentive structure in a society where parlour bets on arguments are common. You have incentive to hoard knowledge and disseminate falsehoods. Knowledge is not zero sum, betting is. I suppose it would potentially increase the return on education, which is presumably why it has favor in some parts of academia.

Comments for this post are closed