Thursday, November 16, 2006

Truth, Justice and David Ricardo

We love Cafe Hayek, really we do, but sometimes Russ Roberts needs to reign it in.

We first discovered Russ through his novel, The Invisible Heart. It's one of those delightful gems where characters deliver dialogue not to advance their motivations but to prop up arguments. The protagonist, a passionate defender of free markets, entertains stock objections to capitalism from his students with good cheer and aplomb. As a passionate defender of free markets myself, we found the rhetoric unremarkable; as a passionate defender of the good novel, we found the story equally dull. It's books like this (seconded only to L. Neil Smith's The Probability Broach) that make us cringe before announcing our libertarian sympathies.

But we love Cafe Hayek, and Roberts' ability to disperse economic ignorance - like a drop of soap in a dishpan of dirty water - more than makes up for his literary failings. So it is with gentle good humor (a polite roll of the eyes, a patronizing nod) that we find Professor Roberts fabulizing again.

He declares his intention, in a recent post at Cafe Hayek, to be to "teach and understand a concept that many would label the single most important insight of the discipline," namely, the Ricardian principle of comparative advantage. We agree with Professor Roberts that the importance of comparative advantage cannot be overstated. We agree also that the short shrift this idea gets in most economics classes verges on the criminal. Literally criminal, since ignoring the benefits of trade has led to thousands of worthless regulations (i.e., theft) for centuries.

What we cannot agree with is his hackneyed prose:
"Funny, you mentioned 'plunder.' " Pam said. "It's such an old-fashioned word. I had an economics professor who actually talked a lot about plunder. He said until the birth of capitalism, plunder was the main way you got ahead. You knocked your neighbor over the head and took his stuff. Here's the interesting thing about plunder. Plunder looks like it merely rearranges the economic pie."

"That's right," Pete said, happy to forget their troubles for a moment and think about the impact of plunder. "Theft means more for me and less for my neighbor. The total amount doesn't change."

"That seems right but my teacher pointed out that theft actually makes the size of the pie, properly measured, smaller."

"What's 'properly measured' mean?" Pete asked.
Camus would snicker behind his beret. Descartes would roll his eyes. Ayn Rand would probably take him to task for not pressing the point hard enough, but you see where we're going.

If Professor Roberts is so hard up for an illustrative analogy to teach the importance of comparative advantage, let him take this one for free: the Justice League.

The Justice League is a team of the most powerful superheroes on the planet: Superman, Batman, Wonder Woman, Aquaman, The Flash, The Martian Manhunter, Green Lantern and others ad hoc. Each of them has a specialty: Batman is the world's greatest detective, Aquaman has undisputed rule over the oceans, the Flash can run at the speed of light, etc.

But Superman is better than all of them.

Pre-Crisis, Superman could fly around the planet Earth fast enough to go back in time. He could hear sounds from practically anywhere, see through anything with his X-ray vision, and juggle suns. He could be a better detective than Batman, a better warrior than Wonder Woman and a faster mover than the Flash. If the chief export of a superhero is Justice, then Superman could produce more Justice than any other member of the League.

So why does Superman hang out with those guys? Because the Justice League produces more Justice than Superman acting alone. Batman may not be able to see through walls, but he can uncover clues while Superman is off pounding asteroids. Superman can fight more effectively than Wonder Woman, but he'd be better served by flying to Alpha Centauri and back to get this week's MacGuffin while Wonder Woman deals with those robot zombies. By sharing his time with these people, Superman produces more Justice than he would alone.

And since Justice is what Superman wants most in the world, he benefits by sharing time with people who are worse than him at everything.

That last sentence bears repeating, because that's the truly remarkable conclusion of Ricardo's theory: you can benefit by trading with people who are worse than you at everything. The very act of trade enriches all parties. Commerce benefits everyone who participates, even if you think the other party has nothing to offer. The world doesn't need a Superman - Superman needs the rest of the world.

We always prefer to check for existing analogies before constructing torturous bridges of our own: the audience is more likely to recognize a common reference than follow our lengthy explanations. We do dearly wish that Professor Roberts would take the same tack. He is, at times, like the Fisher family in his own example - trying to do everything by himself (produce brilliant economic theory and write novels) rather than trading with those who could do the latter better.


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