Implied Dissent

Friday, March 04, 2005

Econ 101

Productivity rose 2.1% in the fourth quarter of 2004, prompting some hand-wringing in DB's comment section. Here is (are?) my two cents, let me know if it's helpful or incoherent:

Imagine aliens come to Earth. Their technology, industrious and ingenuity are all vastly superior to ours (i.e., they are far more productive), and so are vastly richer than we are. Anything we can produce they can produce far more cheaply. They are benevolent and want to trade with us to mutual advantage, but because they are so productive, we have nothing to offer them. Will all of our industries close shop, leaving everyone unemployed? No, we will go on doing what we’ve always done and continue making all of the things we’ve made. We won't wind up trading with the aliens, so we just live our economic lives like before. (Economists: I know comparative advantage would mean we’d benefit from the situation, but I’m keeping it simple for non-economists, comparative advantage is a lesson for another day). This is what I think of when people complain about free trade or rising productivity. As long as we don't start a war or something like that, the worst case scenario is that we don’t gain anything.

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