Comparative advantage is not about what you are better at compared to other people. That is absolute advantage. Comparative advantage is what you are better at doing relative to the other things that you could be doing. And as such it greatly strengthens the case for trade.
Worstall is pretty much correct, but I’m not sure that the first sentence is right. There is an interpersonal comparison of productivity. We should specialize where our opportunity cost is lowest. This, as described above, means we have to compare the costs of the alternative actions of one individual, but then we compare these opportunity costs to those of other individuals who could specialize in the same profession. If the theory of comparative advantage didn’t include an interpersonal element, then it wouldn’t make sense to make a connection between that theory and the theory of the division of labor.
But, the theory of comparative advantage is the least of our worries with respect to Coppola’s piece,
- Trade is not zero-sum. It could be zero-sum from an ex post analysis, if we consider malignant cases of asymmetric information. But, my guess is that the vast majority of exchanges are positive sum: we enter into exchanges to mutually improve our welfare. There are problems with things like persistent trade deficits, but again these are unique cases that are exceptions to the general benefits to trade. We don’t consider it a bad thing when we run a trade deficit against the local grocery store;
- While I agree that running a large, persistent trade deficit or surplus is a sign of a problem, I don’t know why this immediately leads us to the conclusion that the country in surplus needs to conduct structural reforms. Take the case of Germany and the Eurozone. Maybe we ought to blame bad monetary policy, or bad public policy in the countries running a deficit — maybe they’re the ones that should push structural reform;
- Coppola continues with the zero-sum theme throughout the piece, arguing that “[c]ountries compete with each other for market share and profits.” But, she neglects to mention that international trade allows us to increase the size of the pie, without necessarily increasing our productivity. Trade allows us to consume on a consumption possibility frontier that is beyond our production possibilities frontier. Further, she paints exporting capital in the same light as colonialism. There are no similarities between the two; one involves forced political acquisition, the other involves voluntary exchange. If we treated the export of capital to third world nations as the same as colonialism, and put an end to it, the third world would be worse off because of it — this is capital that isn’t accessible without trade, and capital that increases the wages of third world workers over the long-run. So, a firm in Uganda is owned by an American…so what?
I agree with Coppola that whoever advocates “exporting towards prosperity” is wrong. I think that anybody who currently makes that case is mistaking the purpose of countercyclical monetary policy. They think that monetary policy will make that country’s exports internationally cheaper, because traditionally that’s what we associate easy money with. When there’s a shortage of money, however, the role monetary policy plays is to increase demand, without necessarily decreasing the relative prices of our exports. But, Coppola takes her argument beyond that and ends up writing a generally anti-trade diatribe that is, in my opinion, dangerously misleading.