November 5, 2017

QotD: Explaining comparative advantage

Actually, it’s dead easy. No math, no arithmetic. It is in fact the soul of common sense. But you have to understand that comparative advantage is the principle of cooperation, as against competition. The word “advantage” gets us thinking of competition, which is perfectly reasonable in our own individual lives — we do compete with other businesses or other writers or whomever. But the system as a whole, whatever it is, does well of course by cooperating, in business or science or family life. It’s not all we do, admittedly. We also compete. But within a household or a company or a world economy the job is to produce a result in the best way, cooperatively. If you are running a household or a sports team or a world economy, you would want to assign roles to the various contributors to the common purpose sensibly. It turns out to be precisely on grounds of comparative advantage.

Consider Mum and 12-year old Oliver, who are to spend Saturday morning tidying up the garage. Oliver is incompetent in everything compared with Mum. He cannot sweep the floor as quickly as she can, and he is truly hopeless in sorting through the masses of rubbish that garages grow spontaneously. Mum, that is, has an absolute advantage in every sub-task in tidying up the garage. Oliver is like Bangladesh, which is poor because it makes everything — knit goods and medical reactors — with more labor and capital than Britain does. Its output per person is 8.4 percent of what it is in Britain. So too Oliver.

What to do? Let Mum do everything? No, of course not. That would not produce the most tidied garage in a morning’s work. Oliver should obviously be assigned to the broom, in which his disadvantage compared with Mum is comparatively least — hence “comparative advantage.” An omniscient central planner of the garage-tidying would assign Mum and Oliver just that way. So would an omniscient central planner of world production and trade. In the event, there’s no need for an international planner. The market, if Trump does not wreck it, does the correct assignment of tasks worldwide. Bangladesh does not sit down and let Britain make everything merely because Britain is “competitive” absolutely in everything. And in fact Bangladesh’s real income has been rising smartly in recent years precisely because it has specialized in knit goods. It has closed its ears to the siren song of protecting its medical reactor industry. It gets the equipment for cancer treatment from Britain.

Comparative advantage means assigning resources of labor and capital to the right jobs, whatever the absolute productivity of the economy. It applies within a single family, or within a single company, or within Britain, or within the world economy, all of which are made better off by such obvious efficiencies. Following comparative advantage enriches us all, because it gets the job done best. Policies commonly alleged to achieve absolute advantage lead to protection — that is, extortion, crony capitalism, and the rest in aid of “competitiveness.”

Dierdre N. McCloskey, “A Punter’s Guide to a True but Non-Obvious Proposition in Economics”, 2017-10-16.

August 15, 2015

Impersonal forces acting on passive innocents

Filed under: Britain, Media, Middle East, Religion — Tags: , , , , — Nicholas @ 04:00

We’ve seen plenty of examples of this kind of “reporting”, where the presentation of the case absolves the actors in advance of any motive or action … they’re always implicit victims of circumstances beyond their control. Theodore Dalrymple points to a recent example:

Sometimes the employment of a single word in common use gives away an entire worldview. There was just such a usage in the headline of a story in the Guardian newspaper late last month: “How the ‘Pompey Lads’ fell into the hands of Isis.”

Pompey is the colloquial name for Portsmouth, the naval town on the south coast of England, and the “lads” of the headline were five young men of Bangladeshi origin who grew up there and later joined Isis in Syria. The article describes how the last of the five has now been killed, three others having been killed before him and one, who returned to Britain, having been sentenced to a four-year prison sentence (in effect two years, with remission for good behavior). The use of the word “lads” is intended to imply to the newspaper’s readers that there was nothing special or different about these five young men, nothing that distinguished them from the other young men of Portsmouth. Its use was a manifestation of wishful or even magical thinking, as if reality itself could be altered in a desired way by the mere employment of language.

But the word that implied a whole worldview was “fell.” According to the headline, the young men “fell” into the hands of Isis as an apple falls passively to the ground by gravitational force. The word suggests that it could have happened to anybody, this going to Syria via Turkey to join a movement that delights in decapitation and other such activities in the name of a religion — their religion. Joining Isis is like multiple sclerosis; it’s something that just happens to people.

The word “fell” denies agency to the young men, as if they had no choice in the matter. They were victims of circumstance by virtue of their membership of a minority, for minorities are by definition victims without agency.

May 26, 2013

Bangladesh needs legal reform and free markets

Filed under: Asia, Bureaucracy, Economics, Law — Tags: , , , , , , — Nicholas @ 10:37

Sheldon Richman discusses the plight of workers — especially poor women workers — in Bangladesh:

According to a report written for the Netherlands ministry of foreign affairs, most Bangladeshis, unsurprisingly, are victimized by a land system that has long benefited the rural and urban elites. “Land-grabbing of both rural and urban land by domestic actors is a problem in Bangladesh,” the report states.

    Wealthy and influential people have encroached on public lands…, often with help of officials in land-administration and management departments. Among other examples, hundreds of housing companies in urban areas have started to demarcate their project area using pillars and signboard before receiving titles. They use local musclemen with guns and occupy local administrations, including the police. Most of the time, land owners feel obliged to sell their productive resources to the companies at a price inferior to market value. Civil servants within the government support these companies and receive some plot of land in exchange.

Women suffer most because of the patriarchy supported by the political system. “Women in Bangladesh rarely have equal property rights and rarely hold title to land,” the report notes. “Social and customary practices effectively exclude women from direct access to land.” As a result,

    Many of the rural poor in Bangladesh are landless, have only small plots of land, are depending on tenancy, or sharecropping. Moreover, tenure insecurity is high due to outdated and unfair laws and policies…. These growing rural inequalities and instability also generate migration to towns, increasing the rates of urban poverty.

Much as in Britain after the Enclosures, urban migration swells the ranks of workers, allowing employers to take advantage of them. Since Bangladesh does not have a free-market economy, starting a business is mired in regulatory red tape — and worse, such as “intellectual property” law — that benefit the elite while stifling the chance for poor individuals to find alternatives to factory work. (The owner of the Savar factory, Mohammed Sohel Rana, got rich in a system where, the Guardian writes, “politics and business are closely connected, corruption is rife, and the gap between rich and poor continues to grow.”) Moreover, until the factory collapse, garment workers could not organize without employer permission.

Crony capitalism deprives Bangladeshis of property rights, freedom of exchange, and therefore work options. The people need neither the corporatist status quo nor Western condescension. They need radical land reform and freed markets.

August 30, 2012

Exaggerating your points to make them seem more important than they are

Filed under: Economics, Environment, Media — Tags: , , , , — Nicholas @ 11:05

Geoff Chambers does a bit of Google searching to track down a few of the claims made in Stephen Emmot’s critically acclaimed one-man show “Ten Billion”:

The reviews were full of superlatives. The Times’ critic calls it “utterly gripping, terrifyingly lucid”; Time Out: “monumentally sobering”; Billington in the Guardian: “one of the most disturbing evenings I have ever spent in a theatre”; the Financial Times: “one of the most disturbing shows I have seen on a stage”; the Mail on Sunday “certainly the most scary show in London”. Almost all of them cite Emmott’s conclusion: “We’re f*cked”.

Here are some of the key “facts” (or “f*cts”) cited by Emmott and picked up by critics. (It is of course impossible to check whether the critics have quoted Emmott correctly, since no record of what he says exists):

1) A google search uses as much electricity as boiling a kettle.

2) It takes 3,000 litres of water to make a hamburger, (that’s 10 trillion litres of water annually to sustain the UK’s burger industry).

3) It takes 27,000 litres of water to make a bar of chocolate

4) Animal species are currently going extinct at a rate 1,000 times their natural level.

5) Bangladesh will be under water by the end of the century.

TL;DR for those who don’t feel up to reading the whole thing: 1) false, by a factor of 100. 2) true-ish, but massively misleading. 3) false, or Emmott eats humongous chocolate bars. 4) false, even though Wikipedia thinks it’s true. 5) false, the land area of Bangladesh has actually grown over the last 50 years thanks to land reclamation projects.

April 25, 2011

Grameen Bank cleared of “irregularities”, but Yunus will not be re-instated

Filed under: Asia, Economics, Law, Liberty — Tags: , , , , — Nicholas @ 11:06

The Bangladeshi government has completed their investigation into financial irregularities at microfinance specialist Grameen Bank, but the founder, Muhammad Yunus, will not be brought back:

Yunus, 70, was dismissed by a central bank order — upheld by the high court and supreme court — on the grounds that he had overstayed in his position and refused requests to quit.

Yunus, winner of the 2006 Nobel peace prize, set up Grameen, which means village in Bengali, and had been the bank’s managing director since 2000.

Lauded at home and abroad by politicians and financiers as the “banker to the poor”, he has been under attack by the government since late last year, after a Norwegian documentary alleged the bank was dodging taxes.

Yunus denied any wrongdoing and a Norwegian government investigation later also cleared him of any malpractice.

April 5, 2011

Grameen bank founder loses final appeal

Filed under: Asia, Economics, Law, Liberty — Tags: , , — Nicholas @ 09:09

The founder of the revolutionary micro-capital Grameen Bank has been removed from position of managing director:

Nobel laureate Muhammad Yunus has lost his final appeal in Bangladesh’s Supreme Court against his sacking from the Grameen micro-finance bank he founded.

The court upheld the decision by the central bank to remove him from office.

The bank said Professor Yunus had been improperly appointed while past retirement age.

But Professor Yunus said the attempt to remove him from the bank had been politically motivated.

The Grameen Bank has pioneered micro-lending to the poor by giving small loans to millions of borrowers.

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