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Government Is At a Comparative Disadvantage – Big Time

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Here’s a letter to someone in Pittsburgh who, as he described to me his and his friends’ attitude, “completely distrust[s] laissez faire”:

Mr. Schwartz:

Thanks for your feedback on my column discussing Chinese and U.S. industrial policy [2].

You believe that “we need the government to direct us to obtain as a nation the comparative advantage which will best serve us.”

I disagree.

Comparative advantage does not exist at the level of the nation; it exists only at the level of the individual producing unit – that is, at the level of the worker, the entrepreneur, and the firm. A nation, therefore, has within it not one comparative advantage but, rather, countless comparative advantages.

It’s true that a nation’s geography, culture, institutions, and existing pattern of economic activities often help to determine which specific good or service a particular worker, entrepreneur, or firm has a comparative advantage at producing. But any comparative advantage, whatever it might be, is still located only in the actual, individual producing unit and not in the nation.

Recognizing this reality highlights another: nearly every person individually chooses his or her comparative advantage. Choosing to attend (or not) college, and choosing which major to pursue is a choice in changing one’s comparative advantage. Ditto when young in choosing which occupation to pursue. Ditto when older in choosing if and how to change careers. Ditto when choosing one’s business partners.

Given the multitude of choices constantly being made at the level of the individual either to change or to reinforce an existing comparative advantage, any attempt by the government to determine for the nation what ‘the’ comparative advantage – or what the set of comparative advantages – will be would require that the government override nearly all of these individual choices in order to enforce its national plan. I see no reason to believe that any council of politicians or bureaucrats can possibly know what are the ‘best’ comparative advantages for individuals to have and to pursue.

And I see every reason to believe that any attempt by politicians or bureaucrats to override these countless individual choices would unleash not merely gross inefficiencies, but also a mix of corruption and tyranny. Yet the government would indeed have to override these countless individual choices if it were intent on deciding what will be the country’s comparative advantage(s).

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

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