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Response by Boudreaux

January 17, 2004

I'm honored that Paul Craig Roberts took time to respond to my post. I preface my remarks here by saying that I write as an economist, not as a libertarian.

Dr. Roberts is not quite right when he says that "comparative advantage results from different countries having different internal cost ratios."

In fact, comparative advantage results whenever one individual's cost of producing an item (with market value) differs from another individual's cost of producing that item.  For example, if it costs me two bananas for every fish I catch, and it costs Dr. Roberts one banana for every fish he catches, he has a comparative advantage over me at fishing -- and I have a comparative advantage over him at banana-gathering.  This fact is so regardless of the absolute quantities of fish and bananas that each of us is capable of producing.

The existence of comparative advantage and its corresponding gains from specialization and trade have absolutely nothing to do with countries.  If comparative advantage explains why people within a particular country find it advantageous to specialize and trade with each other -- and it certainly DOES explain this universal phenomenon -- then the fact that factors of production become more mobile across geo-political borders does nothing to eradicate, or even to modify, the relevance and applicability of the theory of comparative advantage.

When I wrote earlier that I have a difficult time deciphering what Dr. Roberts is saying, I meant that, on one hand, I find it impossible to believe that he would deny the truth expressed in the previous paragraph, but, on the other hand, I can make no sense of what he is saying if the above paragraph is correct.

Perhaps all he is saying is that increased factor mobility means that those industries that we westerners have had a comparative advantage in for the past few decades will now become industries that non-westerners have a comparative advantage in.  Perhaps.

But if so, so what?  If technological or other changes cause me to lose my comparative advantage in X, I will gain a comparative advantage in Y.  It might be that the income I earn by working in Y is less than was the income I earned while working in X.  Such an outcome, though, is possible in a world with no international factor mobility.

Changes in the "distribution," if you will, of comparative advantages -- changes in who enjoys a comparative advantage in this activity or that -- do indeed change the "distribution" of income.  But if we are to be unconcerned, as a matter of policy, about such potential changes that arise when factors aren't very internationally mobile, I see no reason why we should be concerned by such changes that arise because of greater factor mobility.

In other words, if it is correct to conclude that prosperity is best achieved by permitting free trade when factors are immobile, there's nothing unique about changes in the distribution of comparative advantages brought on by factor mobility that should cause us to change our conclusion.

One final, small point: government-coerced income redistribution is quite a different thing from changes in the pattern of income-earning that occur as a result of changes in comparative advantages.  A libertarian commits no inconsistency by opposing government-coerced redistribution and simultaneously tolerating, or even applauding, those changes in the pattern of income earning that result from market forces.

 

 

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