House of Paine

compare notes

more half
 bitten thru shit 



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the  sunny illusion 
the  prison of complacence 

created by the notion of  comparative advantage
 dr pangloss basks in a false sun 

conventional   trade theory
 contains a concept
 that seems lost on non economists
  comparative advantage 

   not absolute advantage
 thats easy

no  
comparative 
or 
 relative advantage
 
 the example of a two tasks and two workers system  
say typing and photocopying 
one person may be better at both but 
 what will be the agreed to allocation 
not fifty fifty except for job time 
 the copy sets per minute 
original type ups per minute 
  the less fast typest will do all the copying 
 since typing is the longer task and thus the bottle neck 

this is easy 

not so with two sets of type/copy teams 
exchanging out puts 
if  two different currencies mediate 
  

  
  trade is the result of different prices between similar products 
in different markets 
when joined the new overall market price 
will direct production in the two regions now market merged 

take oranges and apples mexico and california 

  say Mexico can deliver an orange for 5 pesos and an apple for 1 2 pesos 

the ratio is then 5/2 or 2 +1/4 oranges for each apple 

 in California say its 4 cents for an orange and 10 cents for an apple
ratio 10/4   or 2 +1/2 oranges per apple 
 comparatively its cheaper for mex growers to up apples 
and cut oranges and for cal visa versa 


here’s where one added complication can come in 
the exchange ratio between currencies 
       whats the ratio between pesos and cents 
if its one to one then 
california has an absolute advantage in both 
apples and oranges 
mexican buyers will buy cents and then buy cal fruit 
 saving one peso on each orange and 2 pesos on each apple 
mexican growers are shut out if the full calmex demand can be met at those 
prices by cal growers
 or if reduced levels of mex fruit 
can’t be produced cheaply enough
for mex growers  to retain a part of the market 

 one  outside possibility is for the peso to fall below the  penny    
to say 2pesos to the penny 
all else remaining the same 
now the cal growers are out of the market 

  without devaluation 
   only   increasing costs of production 
as production quantity  itself increases
 can avoid this radical live or die outcome  

 is a small notion called diminishing returns 
if both oranges and apples cost more per unit to grow as more are grown
  then the cal/mex production mix shifts to equalize cost ratios 

    notice not necessarily absolute costs only ratios 
    so the cal/mex production cost ratios are the same 

    in cents lets say 10/5
  in pesos    say 20/10 
with the peso/cent ratio 
 2/1 we’re all set 
      apples will go one way oranges the other 
  when things settle down 
the whole system
 will at least produce 
as many of one and more of the other 
then before trade begins 
    both demand and supply changes are relevant 
 even if cal growers are still absolutely better at both fruits 
 from a land and labor input count 

 in two systems with n exchangible products 
the patterns can get complex 
if various technologies don’t obey 
the decreasing outputs
 dictated by the models 


  otherwise a trade gap opens up 
not to mention the end of
 any one product only production outfits   



  where the ecos hide is in the devaluation option 
there is some currency ratio where traded products
 will begin to reverse their flow 
closing the gap 

only if absolute advantage was not 
avoidible through enough  devalation
could one system destroy
 the trade production of another 

  technical advantage may be absolute 
  but exchange ratios really determine trade flows 


if you don’t want to see ratios adjust you can 

scenario A
 
take local currency surplus 
 buy up local real assets 


or 
scenario B

  loan locals your currency 
to pay for surplus