Arnold Kling  

What I'm Reading

Rand the Intuitionist... Correcting James Kwak...

Back on the Road to Serfdom, a collection of essays edited by Thomas E. Woods, Jr. The authors are mostly people you have not heard of, and the topics are varied.

Per Bylund writes (p. 52),

the Swedish model is unsustainable...The welfare state, it must be pointed out, is dependent on people not using the benefits it makes available to a more than minimal extent...people are supposed to have an impeccable work ethic while being taxed to ridiculous degrees

Dane Stangler of the Kauffman Foundation contributes a very interesting essay on the importance of start-ups in renewing economic growth. p. 98:

At some point, every subsystem of the economy--or the economy as a whole--reaches a point at which further investments in the prevailing model of complexity do not generate any more increasing returns.

On national innovation strategy implemented through government subsidies, Stangler writes (p. 107),

by focusing almost exclusively on established institutions, they contradict the very essence of innovation and entrepreneurship.

Tim Carney's essay on "The Culture of Corporatism" is particularly timely. On p. 120:

The best case study in political entrepreneurship may be General Electric. CEO Jeffrey Immelt pretty clearly laid out his approach in a letter to stockholders...just days after the inauguration of Barack Obama

He goes on to spell out GE's rent-seeking strategy. Of course, the essay was written long before the recent appointment of Immelt to head the President's Council on jobs and competitiveness.

By the way, I hate the term "competitiveness." One of the main goals of an economics course should be to teach the difference between comparative advantage and absolute advantage. One key result is that there is always comparative advantage, and hence no such thing as the absence of competitiveness. No government fix is required, because nothing is broken.

COMMENTS (6 to date)
fundamentalist writes:
One of the main goals of an economics course should be to teach the difference between comparative advantage and absolute advantage.

Exactly! Most people get it wrong. What they call comparative advantage is competitive advantage. The differences are subtle and hard for the mainstream media to get their little minds around, but they're very important. Everyone has a comparative advantage while few have a competitive advantage.

MikeP writes:

By the way, I hate the term "competitiveness."

It boggles the mind that politicians and journalists cannot conceive of the notion that an economic rise for China does not mean an economic fall for the US.

Would the US be better off if Europe were as poor as China is? Would California be better off if New York were as poor as inland China is? Of course not.

99% of the economic relationship between actors in the US and actors in China is cooperative. Why is competition the chosen theme of those with the public's ear?

Never mind. I know the answer. The public only yields power to the elite when they feel a threat.

Ed Hanson writes:

I have a reasonable gasp of the economic definition of comparative advantage and how it works. However what is the economic definition of absolute advantage?

I would find it helpful and enlightening if examples of absolute advantage were given, and a general discussion of its difference from comparable advantage.

Sorry to ask for the basics, but if possible, thank-you.


Scott Wentland writes:

One nit-picky point:

So you're exactly right that comparative advantage is all that is important in the context of whether we are competitive in the global economy and whether we can gain from trade.

But be a little careful about dismissing absolute advantage altogether. Absolute advantage does matter with respect to real income. Higher productivity does translate into higher real income in just about any trade model.

I think you mean that "competitiveness" seems to usually imply that absolute advantage is all important, whereas the idea of comparative advantage shows that AA is really secondary.

N. writes:

I think this speaks to something that I've noticed over the years... that some people absolutely cannot be shaken from the stance that every transaction is necessarily zero sum, even in the face of clear and irrefutable (I believe) counter examples. Among those folks who hold this view (which spans the political spectrum, near as I can tell) I have never managed to change an opinion. Very frustrating.

Floccina writes:

I have always thought that when people talk about competitiveness they are thinking of national security. That the country is in danger of being attacked if they lag in wealth.

My answer to that fear is allies. If China becomes the world leading power and gets belligerent we might ally with with Europe to keep them from attacking us.

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