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Thread: Dubious Assumption #6: Short-term efficiency causes long-term growth.

  1. #1

    Dubious Assumption #6: Short-term efficiency causes long-term growth.

    The theory of comparative advantage is what economists call "static" analysis. That is, it looks at the facts of a single instant in time and determines the best response to those facts at that instant. But it says nothing about how today's facts may change tomorrow. More importantly, it says nothing about how one might cause them to change in one's favor.

    So even if the theory of comparative advantage tells us our best move today, given our productivities in various industries, it doesn't tell us the best way to raise those productivities tomorrow. That, however, is the essence of economic growth, and in the long run much more important than squeezing every last drop of advantage from the productivities we have today. Economic growth is ultimately less about using one's factors of production than about transforming them--into more productive factors tomorrow.

    The theory of comparative advantage is not so much wrong about long-term growth as simply silent.

    Analogously, it is a valid application of personal comparative advantage for someone with secretarial skills to work as a secretary and someone with banking skills to work as a banker. In the short run, it is efficient for them both, as it results in both being better paid than if they tried to swap roles. (They would both be fired for inability to do their jobs and earn zero.) But the path to personal success doesn't consist in being the best possible secretary forever; it consists in upgrading one's skills to better-paid occupations, like banker. And there is very little about being the best possible secretary that tells one how to do this.

    http://www.ronpaulforums.com/showthr...92#post3202492
    Last edited by tangent4ronpaul; 04-10-2011 at 09:08 PM.



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    People are too dumb to respond to incentives. The $30k a year secretary has no incentive to work to become a $75k a year banker. The state must correct this short term efficiency.
    Truth forever on the scaffold, Wrong forever on the throne,--
    Yet that scaffold sways the future, and, behind the dim unknown,
    Standeth God within the shadow, keeping watch above his own.
    ‫‬‫‬



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