Trade or Comparative Advantage

Trade, voluntary exchange, is now controversial, particularly international trade. Are we being taken advantage of by the Peoples Republic of China?  After all they have lower labor costs and fewer expensive pollution controls. Or, as in most areas of life, is it a trade off between benefits and detriments? Free trade with the PRC gets American consumers cheaper Iphones but causes other Americans to experience a loss of high paying manufacturing jobs.

I contend that trade creates a free benefit for all parties involved, be they more or less productive, higher or lower cost producers, developed or underdeveloped economies. Interestingly when trade occurs, the stronger benefits the weaker, as well as itself.

Imagine two castaways on an island.  In abstract, an economy

I will postulate some reality constraints on them.  Each has to eat to survive.  There are two categories of food available to them: fish and fruit.  If one ate only fish he would die of scurvy, if one ate only fruit he would lack protein and starve,

Our castaways, Mr A and Mr B, each need 4 small fish per day and 4 fine fruit to meet their caloric requirements. Mr A and Mr B can meet their requirements by each fishing 4 hours per day and each gathering fruit 4 hours per day. Under these conditions there would be no trade between them.

In the real world, some people are better than others at tasks.  Anyone who ever played a pick up game of sports knows some people are better than others at any given task. Suppose Mr A is a better fisherman and can catch his 4 small fish in three hours.  Suppose Mr B is a better gatherer and can gather his 4 fruit in three hours.

Without trade

Mr A      3 hours fishing (4 fish)      4 hours gathering (4 fruit)     7 hours work to survive

Mr B      4 hours fishing (4 fish)       3 hours gathering (4 fruit)      7 hours work to survive

Now suppose it occurs to Mr A and Mr B to make a trade.  Mr A could trade 4 fish to Mr B for 4 fruit.  Now the situation is:

Mr A     6 hours fishing (8 fish)   0 hours gathering fruit  (no fruit)      6 hours to survive

Mr B     0 hours fishing (no fish)   6 hours gathering fruit (8 fruit)     6 hours to survive

Our little economy just achieved the same output with two fewer hours of work per day, for free.

Next entry: what if Mr A is better at both fishing and fruit gathering than Mr B?

Digression

The left in its own theory refers to the racial issues as a subset of class issues, and treats them as it treated class warfare: a means of arguing that the powers above are unjust, and therefore must relinquish more control.

from amerika

This makes many things clear to me.  The Left is so critical of America, when obviously America is pretty near the best the world has to offer in everything, because they want to dispose the elite in America and replace it with themselves.

Why would Obama denigrate America when he rules it? He dosn’t really rule it, yet.  There are many power centers.  Wall Street is dominated by different people.  Academia and media are on board, but the military, some religious groups, some local governments, some private businesses in more competitive fields, small businessmen, parts of the Internet, the traditional family, the federal reserve, some federal courts, some local courts, and countless others wield significant power.

I studied world history, philosophy, religion and art. One thing absolutely clear to we students was there were three amazing civilizations in about five thousand  years of known human history:  Ancient Greece, the Roman Republic, and the United Kingdom.  I have no doubt that if in some time in the distant future similar students study world history the same three cultures will be lauded but with the addition of the United States.  Against all odds, where the norm is and has always been one man lording over another, America cut out a small area of self determination for any person. As a reward it became the richest, most powerful and most attractive country in the world.

Profits Are Good

When I got to college I was surprised at how much disdain capitalism and the bourgeoisie were held in.  I was a small town unsophisticated kid.  To me, a law abiding person who served the wants of fellow people and supported a family seemed good. The way life was ordered, with shopkeepers, tradesmen, doctors, clerks, was not only familiar but correct.

Professors didn’t agree with me. In fact, it was implied that my thinking was shallow. The bourgeoisie were exploitative, secretly dishonest, depraved, and above all boring.  The artist, the academic and the world historical individual were the ones who deserved respect. Don’t think too much about the trail of blood left by the world historical individual.

Anyway it is a story for another time how I came to decide that capitalism is good. I have decided to start a blog defending capitalism. To defend capitalism one has to defend profits.  For under capitalism no business exists and grows unless it is profitable.

Continue reading “Profits Are Good”

Uber is Revealing

Uber is revealing how government is generally a supporter of entrenched interests.  Upstarts and competitors are always hated by existing businesses. Under real capitalism there is little an existing business can do other than produce a better good or service at a lower price.  When the government has unlimited powers to regulate business however the more powerful existing business can wield the police power of the State to throttle competitors.

Here’s an example from the news: Counsel meeting could limit the number of Uber cars.  The stated public purpose is to fight congestion. That reasoning ignores the benefit to people. Of course adding Uber cars to the surface streets of Manhattan increases congestion. It also makes it possible for people to get around conveniently without bringing their own car.  Huge parts of Manhattan have no cabs cruising most hours because there is not enough demand. Calling a radio dispatched limo can involve an hour wait. Competition for yellow cabs will make service better. Just the entry of Uber often makes the local cabs cleaner, the local drivers more pleasant and the cars upkeep better.

The taxi industry proposed similar legislation before. Where are the people who commute to Manhattan by car and bus? Are they calling for this type of legislation?  How about pedestrians and businesses? Are there concerned committees with broad support?

Thousands of people want to work by providing a service to Manhattan. More thousands want to voluntary exchange their money for an Uber ride. Yet the city counsel wants to prevent this voluntary exchange.

Uber reveals this about regulation

Government almost always forwards the interests of established business over the upstart business and the customer.

Ostensibly, regulation of taxi services is for the safety of the public and to insure minimum levels of service.  In actuality it is to prevent competition in service, price and innovation, all to the benefit of entrenched taxi service providers.

I remember the cabs in NYC years ago.  The vehicles were poorly maintained and dirty.  The driver often spent his time on the cell phone talking loudly in a language I could not understand, as if he was on his own time instead of in my paid service..

In Miami the trip from the airport to Miami Beach was fixed fare.  Once the shocks on the cab were bad and it bounced up and down so severely I thought we would drive into the bay. Another time I could smell exhaust in the car. I thought the driver might pass out at any moment. Because the fare was fixed the drivers drove as fast as they could. At night they would turn off the dashboard lights so the passengers could not guess how fast they were flying. Nothing like speeding on a causeway over water in an under-maintained car while the driver is in deep conversation with someone miles away.

Then I tried an Uber car in Miami. The car was a very new Toyota small SUV. The driver had provided water and candy for passengers.  He asked about the temperature to set, whether there should be music or not and at what volume.  The trip cost slightly less than an equal taxi trip. I was hooked.

Why is Uber so much better?  Every major metropolitan area regulates taxis. They limit who can offer the service; hence it is a government enforced monopoly.  They act as monopolies always act  Either they raise prices (or not if prohibited by regulation) or cut on service and capital investment, or both.  The cabs are crappy  The drivers are rude and unconcerned about your experience,

The politicians gain the fees and support of taxi fleet owners. The fleet owners gain freedom from competition and the need to manage and provide a good customer experience.  The drivers gain almost nothing. Hired hands who take their little share out of the arrangement by freedom from providing customer service. After all, there will be fares no matter how surly or preoccupied the drivers are. The customer pays for the politician’s and the fleet owner’s benefits. He pays in crappy cabs, higher prices, lousy customer service.

It’s repeated everywhere. The most regulated enterprises provide the poorest customer service. Think of what your experience at the doctor’s office or hospital is like today