Here’s a letter to the Washington Times:
Peter Morici does your readers a grave disservice by grossly misrepresenting the principle of comparative advantage (“Facing the facts about trade and immigration,” July 4).
Contrary to Mr. Morici’s assertions, the successful operation in reality of the principle of comparative advantage does not require “balanced trade and full employment.” It does not require that “workers displaced by imports … move to where the new jobs are.” It does not “assume” that “all countries and businesses are equally endowed with technology.”
Not even close.
The principle of comparative advantage is but the recognition that if the amount by which (say) American steel production falls if Americans produce an additional ton of lumber is less than is the amount by which Chinese steel production falls if the Chinese produce an additional ton of lumber, then Americans can produce lumber at a lower cost than can the Chinese, and the Chinese can produce steel at a lower cost than can Americans. Americans in this example have a comparative advantage over the Chinese at producing lumber and the Chinese have a comparative advantage over Americans at producing steel. Thus it pays the people of both countries to specialize according to their comparative advantages and trade with each other. The Chinese and the Americans will both become richer by specializing and trading in this way.
The principle of comparative advantage is simply applied arithmetic. And therefore the likes of full employment and equal endowments of technology are no more required for this principle to explain why in reality countries can gain by trading with each other than the likes of full employment and equal endowments of technology are required to explain why in reality 2+2 equals 4.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
