All that just to get to the point of trade being to leverage comparative advantage into unlocking more value in the economy, which is the actual textbook reason for trade. Don’t get me wrong, this was an enjoyable read and illustrates that heterogeneous preferences is an appealing but inadequate answer to why we trade. The post also gets at various reasons comparative advantage might come about (nice), but without actually naming the broad concept that umbrellas these things together to explain the benefit of trade. Comparative advantage, whether it exists because you (or the organization, or country, or whatever entity is the unit of analysis) have task-switching costs, are closer to the means of production, are inherently better at the task, have accumulated more experience with the task, or (looking to the comments now) have accumulated more capital devoted to the task via path dependencies, is the reason for trade. The point of trade is to unlock the added value that resides in making more efficient use of scarce resources.
I feel like I might be being a little coy stating this, but I feel like “heterogeneous preferences” may not be as inadequate as it seems. At least, if you allow that those heterogeneous preferences are not only innate like taste preference for apples over oranges.
If I have a comparative advantage in making apples, I’m going to have a lot of apples, and value the marginal apple less than the marginal orange. I don’t think this is a different kind of “preference” than liking the taste of oranges better: Both base out in me preferring an orange to an apple. And so we engage in trade for exactly that reason. In fact, I predict we stop trading once I value the marginal apple more than the marginal orange (or you, vice versa), regardless of the state of my comparative advantage. (That is, in a causal sense, the comparative advantage is covered by my marginal value assignments. My comparative advantage may inform my value assignments, but once you know those, you don’t need to know if I still have a comparative advantage or not for the question “will I trade apples for oranges?”)
Comparative advantage is why trade is useful, but I don’t know if it’s really accurate to say that heterogeneous preferences are an “inadequate answer to why we trade.”
I feel like comparative advantage is a bit hard to understand and the concept often seems to be used incorrectly (as far as I can tell). For example, people giving career advice talk about “finding your comparative advantage” when this amounts to “do what pays the most” which seems obvious and uninteresting. (The following example that it can be better to hire someone than do everything yourself is slightly less obvious, though has caveats in the real world due to principal-agent/search costs/etc).
Didn’t follow that link, but the conclusion is wrong.
Youth should pursue their competitive advantage which is closer to “what has the best (pay+pleasure)/effort ratio” than “what pays the most.”
I agree with you that it’s hard to understand and that a lot of times people use the term inexactly to mean something else, but neither of these is a reason to avoid using the term, especially in the exact context where it is easiest to illustrate and can be used correctly.
All that just to get to the point of trade being to leverage comparative advantage into unlocking more value in the economy, which is the actual textbook reason for trade. Don’t get me wrong, this was an enjoyable read and illustrates that heterogeneous preferences is an appealing but inadequate answer to why we trade. The post also gets at various reasons comparative advantage might come about (nice), but without actually naming the broad concept that umbrellas these things together to explain the benefit of trade. Comparative advantage, whether it exists because you (or the organization, or country, or whatever entity is the unit of analysis) have task-switching costs, are closer to the means of production, are inherently better at the task, have accumulated more experience with the task, or (looking to the comments now) have accumulated more capital devoted to the task via path dependencies, is the reason for trade. The point of trade is to unlock the added value that resides in making more efficient use of scarce resources.
I feel like I might be being a little coy stating this, but I feel like “heterogeneous preferences” may not be as inadequate as it seems. At least, if you allow that those heterogeneous preferences are not only innate like taste preference for apples over oranges.
If I have a comparative advantage in making apples, I’m going to have a lot of apples, and value the marginal apple less than the marginal orange. I don’t think this is a different kind of “preference” than liking the taste of oranges better: Both base out in me preferring an orange to an apple. And so we engage in trade for exactly that reason. In fact, I predict we stop trading once I value the marginal apple more than the marginal orange (or you, vice versa), regardless of the state of my comparative advantage. (That is, in a causal sense, the comparative advantage is covered by my marginal value assignments. My comparative advantage may inform my value assignments, but once you know those, you don’t need to know if I still have a comparative advantage or not for the question “will I trade apples for oranges?”)
Comparative advantage is why trade is useful, but I don’t know if it’s really accurate to say that heterogeneous preferences are an “inadequate answer to why we trade.”
I feel like comparative advantage is a bit hard to understand and the concept often seems to be used incorrectly (as far as I can tell). For example, people giving career advice talk about “finding your comparative advantage” when this amounts to “do what pays the most” which seems obvious and uninteresting. (The following example that it can be better to hire someone than do everything yourself is slightly less obvious, though has caveats in the real world due to principal-agent/search costs/etc).
Didn’t follow that link, but the conclusion is wrong. Youth should pursue their competitive advantage which is closer to “what has the best (pay+pleasure)/effort ratio” than “what pays the most.”
I agree with you that it’s hard to understand and that a lot of times people use the term inexactly to mean something else, but neither of these is a reason to avoid using the term, especially in the exact context where it is easiest to illustrate and can be used correctly.