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On the Comparative Advantage At Improving Comparative Advantages

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In my latest column for AIER, I counsel against trusting government with the power to use protectionist measures to engineer better comparative advantages in the home country [2]. A slice:

Which of the following situations do you find most plausible?

Situation A: To inspire a favorite student of mine to excel in class, I promise him not only that I will grade his exams and papers more leniently than I grade the work of other students, but that I will assign to him only high grades regardless of his performance. This student, grateful for the special privilege he is given, puts his nose to the academic grindstone in a way that he would otherwise not. He studies hard and diligently. Protected from failing by his special privilege, by semester’s end the academic industriousness that my ‘protection’ has inspired in this student has turned him into my star pupil. He no longer needs special protection from me to excel in the classroom.

Situation B: To inspire a favorite student of mine to excel in class, I promise him not only that I will grade his exams and papers more leniently than I grade the work of other students, but that I will assign to him only high grades regardless of his performance. This student, grateful for the special privilege he is given, slacks off in class. His studying becomes cursory, and his writing uninspired and sloppy. His overall performance in class is dismal. Protected by his special privilege from failing, by semester’s end this student’s only hope of ‘passing’ the class is that I stick to my promise to continue to assign to him grades much higher than those that he’s actually earned.

My confident guess is that, like me, the situation that you find most plausible is B. Indeed, situation A, while imaginable, is practically ridiculous. (If situation A were realistic, schools long ago would have quit assessing student performance by administering exams. Schools would instead have simply promised high grades to students unconditionally.)

Tariff protection is akin to situation B, despite being frequently sold as akin to situation A. Tariffs are no more likely to elicit from entrepreneurs, businesses, and workers the diligent effort required to develop the skills to excel economically than is the guarantee of lenient grading to elicit from students the effort to excel academically.

The example of schooling helps to reveal a second flaw in the argument that tariff protection is needed for the home country to develop better comparative advantages: Every student is striving to improve his or her comparative advantage.

When I was a college freshman, I worked at a supermarket bagging groceries. Such a low-value skill was then my comparative advantage. But I didn’t wish to spend the rest of my career bagging groceries. So I stayed in college, studied hard, and quite consciously changed my comparative advantage to one that’s superior to that of a grocery-bagger. To bring about this improvement in my comparative advantage, I didn’t require government-supplied protection. The government didn’t artificially prevent trained economists from teaching, lecturing, and researching in order to make it easier for me to become an economist and earn my living in that profession. (Had government done so, I’m certain that I would have become a poorer economist than I actually managed to become.) During college I continued to work at a steady succession of low-value-added jobs as I simultaneously pursued a better comparative advantage.

Reality teems with individuals and firms striving to improve their comparative advantages. These individuals and firms do so not despite the absence of government protection for them in their preferred occupations and market niches, but because of the absence of such protection. Each day, workers strive to improve their skills. Each day, businesses aim to increase their efficiency at supplying particular goods or services. Each day, improvements in comparative advantages occur. Powerful evidence in support of this claim is the fact that Americans’ real incomes have steadily risen over the decades and continue to do so [3].

Yet almost none of this improvement in comparative advantages is done behind walls of protection or other special privileges erected by government. Steady improvement in comparative advantage is overwhelmingly the result of individual initiative guided by market prices and wages. There is, therefore, no plausible case to be made that for us Americans to improve our comparative advantages we need government to protect any of us from foreign competition.

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