What I'm Reading

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.

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.

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.

Ed

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.

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.

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.