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Comparative advantage is indeed difficult

Summary:
Comparative advantage is the one non-trivial and non-obvious finding in all the social sciences. That it’s non-obvious is shown by how many otherwise apparently bright and educated people manage to get it wrong.As here, with reference to the City Corporation’s announcement of how much tax the wholesale finance industry pays. Lots and lots. That haul coming from the manner in which the industry is decently profitable and also from the manner in which it pays rather higher salaries than other Britain based economic endeavours.So, we’ve got something in which Britain has that comparative advantage. We’re better at this than other things. Or, to aid in understanding, we’re less bad at this than we are at other things - for the real lesson of comparative advantage is that we should all be doing

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Comparative advantage is the one non-trivial and non-obvious finding in all the social sciences. That it’s non-obvious is shown by how many otherwise apparently bright and educated people manage to get it wrong.

As here, with reference to the City Corporation’s announcement of how much tax the wholesale finance industry pays. Lots and lots. That haul coming from the manner in which the industry is decently profitable and also from the manner in which it pays rather higher salaries than other Britain based economic endeavours.

So, we’ve got something in which Britain has that comparative advantage. We’re better at this than other things. Or, to aid in understanding, we’re less bad at this than we are at other things - for the real lesson of comparative advantage is that we should all be doing what we’re least bad at and swapping the resultant higher production.

At which point we’re told this:

Henry Parkes, senior economist at the Institute for Public Policy Research, said the report suggested the UK economy is “overly hooked on the finance sector”, however, and needs to “diversify”.

Eh? We’ve found what we’re least bad at therefore we should do less of it? We should deliberately go off and do more of what we’re worse at?

Yes, obviously, comparative advantage is difficult but can’t we at least hope that senior economists manage to grasp the basics of the concept? Apparently not but that does rather colour whatever else the IPPR has to say about economics, doesn’t it?

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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