So I was spending the few hours of my extra time off watching TED videos (which is sadly pretty common. I’m a learning geek, what can I say?), when I ran into a term called comparative advantage. I whipped up a wikipedia tab on it, and it seemed confusing and complex. But I took the time to try to understand it, and it’s actually very beautiful.

Say there’s country 1 and country 2. And suppose country 1 is better at producing EVERYTHING than country 2. For a simple analogy say for every 8 T-shirts, country 1 also makes 8 bicycles; whereas country 2 proportionally makes 4 T-shirts and 2 bicycles. Why would country 1 want to buy ANYTHING from country 2?

1,  8  8  –>  6  10

2,  4  2  –>  6  0

Well, if you think about it, country 1 can buy 2 T-shirts from country 2, and shift the employees and staff necessary for those 2 T-shirts to bicycles. This actually increases the efficiency of all products. The idea is, as long as there is a difference in the efficiency of manufacturing (or other costs), relatively better companies should focus on that one product, and then excess workforce can be redirected from the less efficient jobs.

It almost sounds too good to be true. I wonder how things could go wrong with such a system? Is currency in country 1 depreciated? Are companies avoiding regulation by using international trade as a magic loophole for any law they don’t like? What is the source of the difference in efficiencies, and are those differences something we can stand for ethically? Are workers and children being exploited? Would they even appreciate a civil rights movement (at risk of losing their jobs)?

Too often, macro-economics and politics are blind to the role of monetary incentive in destroying these cooperative and collaborative systems. Ideally trade is a good thing. But when we’ve already screwed so much up here, why would we bring that to someone else?


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