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Colossians 3:23. “ Whatever you do, work heartily, as for the Lord and not for men…”. Q: How many Chicago School economists does it take to change a light bulb?. International Trade. International Trade. Run into our friend: zero sum thinking. International Trade.
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Colossians 3:23 “Whatever you do, work heartily, as for the Lord and not for men…”
Q: How many Chicago School economists does it take to change a light bulb?
International Trade • Run into our friend: zero sum thinking
International Trade • Run into our friend: zero sum thinking • Both sides can gain in international trade, and in fact, usually must or it wouldn’t take place
International Trade • Run into our friend: zero sum thinking • Both sides can gain in international trade, and in fact, usually must or it wouldn’t take place • Dr. S contends: no need for government or experts to tell us whether it’s “fair” or not
International Trade • No fixed number of jobs countries must fight over
International Trade • No fixed number of jobs countries must fight over • When NAFTA was approved, number of jobs increased in Mexico, Canada and U.S.
Sowellian thought “Most international trade, like most domestic trade, is done by millions of individuals, each of whom can determine whether the item purchased is worth what it cost and is preferable to what is available from others.”
International Trade • Opponents of international trade are still using language to confuse the situation. Examples?
International Trade • Opponents of international trade are still using language to confuse the situation. Examples? • “favorable” trade balance, “record trade deficit”
International Trade • Opponents of international trade are still using language to confuse the situation. Examples? • “favorable” trade balance, “record trade deficit” • Fact is, if the goods and services available are greater as a result of trade, then America is wealthier
Sowellian thought take 2 “If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer regardless of whether there is a ‘deficit’ or a ‘surplus’ in the international balance of trade.”
Q: How many Keynesian economists does it takes to change a light bulb?
The three advantages • Absolute advantage:
The three advantages • Absolute advantage: when one country, for any number of reasons, can produce some things cheaper or better than others
The three advantages • Absolute advantage: when one country, for any number of reasons, can produce some things cheaper or better than others • Examples?
The three advantages • Absolute advantage: when one country, for any number of reasons, can produce some things cheaper or better than others • Examples? Weather for bananas, engineers such as India, contra-seasonal veggies from South America
Q. How can you tellthe difference between an economist and someone with a really bad concussion?
The three advantages • Comparative advantage:
The three advantages • Comparative advantage: When one country can produce anything more efficiently than another, it still makes sense to trade thanks to comparative advantage
The three advantages • Comparative advantage: When one country can produce anything more efficiently than another, it still makes sense to trade thanks to comparative advantage • Yeah right, boy is this confusing
The three advantages • Comparative advantage: When one country can produce anything more efficiently than another, it still makes sense to trade thanks to comparative advantage • Yeah right, boy is this confusing • We gotta get this; foundational to international trade!
Comparative advantage • The secret is that even if a country can produce anything cheaper than another, it will be unable to make everything comparatively cheaper
Comparative advantage • The secret is that even if a country can produce anything cheaper than another, it will be unable to make everything comparatively cheaper • What??????????????? Are you nutz???
Comparative advantage • The secret is that even if a country can produce anything cheaper than another, it will be unable to make everything comparatively cheaper • What??????????????? Are you nutz??? • No, answer is our oldest econ friend, SRTHAU
Example… • Portugal is twice as efficient at producing cloth and three times more efficient at wine making than England
Example… • Portugal is twice as efficient at producing cloth and three times more efficient at wine making than England • Comparative advantage says Portugal should focus on making and trading with England that which it is “most best” at producing… namely, wine
Example… • England should focus on producing that which is it is “least worse” at producing, namely cloth
Example… • England should focus on producing that which is it is “least worse” as producing, namely cloth • They both can trade and “win”
Example… • England should focus on producing that which is it is “least worse” as producing, namely cloth • They both can trade and “win” • Also, remember the eye surgeon who is a better car washer but it makes no sense for him to wash his own car, he can do a lot better working on eyes
Little more Comparative Advantage • It’s been centuries since Great Britain could feed itself
Little more Comparative Advantage • It’s been centuries since Great Britain could feed itself • Nation focused on producing those things where it had comparative advantage... manufacturing, shipping, finance
Little more Comparative Advantage • It’s been centuries since Great Britain could feed itself • Nation focused on producing those things where it had comparative advantage... manufacturing, shipping, finance • Result: Nation is better fed and more prosperous than if it grew its own food
And final advantage… • Economies of scale: