Tuesday, February 10, 2004

Re: Comparative Advantage

Here is a traditional example to Ricardo's comparative advantage theory, although I think the example Joe offers gets the gist of it.

The Roberts-Schumer discussion focused on mobility of factors of production as the changed circumstance in today's economy. I don't think that accurately describes the problem. Rather, it is that there is a seemingly endless labor pool available in the global market. Larger countries can create armies of engineers and lab technicians and more quickly adapt to any developments in the market, making our labor pool way over-priced. The problem is not permanent--eventually our labor pool will be equally priced with everyone else, although it may take many decades to achieve an equilibrium between our labor market and developing nations. But I don't think that's a comforting prediction for most Americans.

Undoubtedly the job drain will not happen overnight, as it will take time for developing nations to accumulate the skills necessary to provide sufficient labor forces in highly specialized fields. And of course because a lot of the investment capital originates in the US that investment capital will reap huge gains. The problem as I see it is that the investment gains comes at the expense of the middle class. Unless the investment class is willing to share some of their profits with the rest of Americans, the disparity of wealth will only continue to advance--and I predict at an accelerating rate.

Using Joe's example is a little tough because surgeons will probably not lose their jobs to overseas workers--but typists are already feeling the pinch. A quick Google search on "outsource + india + typists" comes up with this link, one of many that advertise such services. If "lab technician" were substituted for surgeon, then what you might expect to see in the coming years is that both lab technicians and typists in America having to take jobs at Walmart or Best Buy as customer service representatives at far less pay than they could have made in their native professions because there are more typists and lab techs in India than there are jobs to fill worldwide.

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