
Comparative Advantage- by Ian Bruene
A couple weeks ago Our Hostess posted about Economics being real and not some random studies degree or other nonsense. In the comments someone decided to deny the existence of Comparative Advantage, or rather, he didn’t strictly speaking deny it, he merely implied that it held the same status as employment statistics or money supply numbers; something artificial which could be “tweaked” at the government’s whim.
This is not true. This is not even close to true. And the failure to understand why it isn’t true belies a failure to understand not just this detail of economics, but what economics is about in the first place. Now admittedly these are common errors, so there is relatively little guilt in that ignorance. So common in fact are the errors that most of the people who call themselves “economists” still make what should be a five year old’s mistake.
So let us see what it is all about, using a seemingly unrelated story, which in the end will teach far more than just the concept of comparative advantage.
I currently work at Walmart, these days mostly in the back room sorting stuff. In the mid to late part of my shift this turns into sorting apparel into hanging / non-hanging, and between the different departments. For this story what matters is the hanging apparel, which is stored on wheeled racks so it can be moved around the back room and out to the floor as needed. These racks have 4-8 adjustable bars to hang apparel from, so the rack can be customized for what is needed. For a simple example; the intimates department has both bras, which take up less than a foot of vertical space, and also pajama sets, which can easily take up four feet or more of vertical space.
So, we are in the back. We have lots of boxes of clothing to sort through, and we need to efficiently use the racks we have because we don’t have an infinite number. Ignore for a moment the different departments and non-hanging clothing. All that matters is using the rack well.
The rack has 4 bars, set up for one tiny space, two medium size spaces (one on top of the other), and one giant space.
I pick up a pair of shorts. Where do I put them?
Well the rack is empty, so it doesn’t matter. I toss the shorts onto the nearest spot which happens to be the giant space which has plenty of room to fit them and move on. In fact after a little thought I realize that I should be using that largest space: it is objectively the best one, because it can hold any size garment, while the other, smaller, spaces have limitations and cannot hold larger garments.
I continue working, more clothing is put on the rack, eventually the giant space fills up. Oh well, that was bound to happen right? The rack is not infinitely sized. So I start putting clothing on the medium size sections. They might not be as good as the large one was, but at least they aren’t as small as the tiny space. Unfortunately dealing with longer dresses and pants is now a hassle, because the bottom bar is too low and they drag on the ground, so I have to put them on the top bar overlapping the stuff below and causing the whole rack to bulge out. It is annoying and frustrating, but can’t be helped after all.
Or could it?
I’m sure everyone caught the mistake – I certainly dropped enough anvils about it – but it bears articulating anyway. It is true that the giant section can hold any size garment. But thinking of it as “this can hold anything!” is backwards; the correct attitude is “this can hold things no other section can!”. That flexibility means every time I put a pair of shorts or a bra on it, I am sacrificing the ability to put a long pair of pants or a dress on the section which is the only one that can hold them. In doing so I reduce the total quantity of apparel which will fit on the rack.
Instead I should put the shorts and shirts on the medium size sections. I should put the bras on the tiny section. Only if something doesn’t fit on any of the other sections do I put it on the giant one. At least while there is room on those other sections: eventually they will fill up, and then I move to the next-smallest section which will hold the garment.
This is Comparative Advantage. This is not an analogy for it. Nor is it a hypothetical situation – I deal with it nearly every day of the week. This is the concept itself, stripped of the distractions and opportunities for excuses which are used to cloud the matter. And it is interlinked with many economic concepts which people do not understand but are fairly simple to explain.
First of all, there is no money involved. Because Economics is not about money. In fact the fastest way to tell someone doesn’t have the faintest iota of a clue about the subject – short of wearing a sickle and hammer – is that they think economics is about money and finance.
The technical definition of Economics is that it is the study of the allocation of scarce resources which have alternative uses. All of those parts matter: Scarcity, because I do not have infinite racks, and a given rack cannot hold an infinite quantity of apparel. Alternative Uses, because I could use a spot for this garment, or that garment, or a garment I pick up ten minutes from now. And Allocation, because I have to choose how I am going to divide the garments between the sections.
Second is Cost: a cost or price is not a dollar value. It is all of the options you sacrifice to choose this option. If I place a small garment in a spot where a larger one could go I am sacrificing the ability to put a larger garment there in the future. Or in monetary terms, If I go to Scheels and buy a box of 6.5 Grendel today, I am sacrificing the ability to use that money to go to the local Mongolian BBQ, as well as the ability to have that money in the bank to cover a bill, as well as an infinite number of potential other options I could have chosen.
Third is Value. In the same way that Cost is not Money, Value is not Cost. Value is a subjective thing to decide which costs you are willing to pay. If you pay a cost to get something then by your actions you prove that at the time of decision you value that something more than any of the alternatives you sacrificed to get it. Importantly Value must be subjective, because every attempt to define an objective value theory slams into fundamental problems, such as the classic “what is the value of a glass of water?”. Objective / Inherent Value Theories can only pretend to sort of badly fit reality by bolting on epicycles until they contain an ad hoc, badly-specified, incoherent, poorly-predictive implementation of half of Subjective Value Theory.
But in the end, why does any of this matter? That’s all a nice theory and has some cool quirks, and maybe it is more efficient and GDP number go up, but that isn’t what’s really important right? Who cares if you have 5% fewer luxuries; that doesn’t matter, and they are probably making you soft and weak anyway.
I’ll leave that last one for now. Beating that particular pinata might be fun but isn’t the subject at hand. The problem is that economic efficiency is not about trivial luxuries, or GDP number go up, or scummy businessmen benefiting themselves, or scummy politicians benefiting themselves. Instead economic efficiency is everything. And the only reason it can seem trivial and unimportant is because everyone reading this has lived in such unimaginable wealth for so many generations that the choice “do I starve today, or do my kids starve today?” because there isn’t enough food getting produced is not even in living memory any longer. Those “trivial luxuries”, are the reward of a culture not being moronic being less moronic about economic matters than is typical throughout human history.
Going back to my story: if I declare that using the rack efficiently doesn’t matter, I make my job harder. There is a very good chance I make my job impossible and have to leave boxes of clothing for the poor sod who sorts on the next day. Which will very likely be me.
To borrow a term from The Enemy: when you dismiss economics, you speak from a position of unimaginable privilege. If you aren’t simply ignorant of history, then you probably are one of those scummy politicians or scummy businessmen and think that economics is something which happens to other people.
*THIS IS SARAH: Ian Bruene, besides his make-ends-meet-job between-jobs is also a budding entrepreneur. If you buy gaming figurines, you could do worse than do it from Murphic industries.*






































































































































































































































