Many subscribe to the buy local = save jobs mantra as a solution to the prevailing economic malaise. While it’s intuitive, this notion that we only buy from our own city, province or country breaks down under closer inspection. This was the topic of the latest weekly round-table discussion on CBC Radio One (Windsor).
Our discussion quickly shifted to the economic theory of Comparative Advantage, though I don’t think that term is ever mentioned. As an aside, Paul Samuelson & Anthony Scott (in Economics – An Introductory Analysis, Second Canadian Edition) credit the theory’s introduction to a 19th century stock broker. They wrote:
David Ricardo, stockbroker and self-made millionaire, expert on the theory of land rent and of currency, came up in 1817 with the beautiful proof that international specialization pays for a nation. This is the famous theory of comparative advantage, or, as it is sometimes called, the theory of comparative cost.
Samuelson says that tariffs are often levied for political reasons. But whether trade tariffs are mild or prohibitive, Samuelson notes the impact is the same. Consumption of goods that people really want is curbed. The end consequence, he reasons, is to “channel resources from lines of true comparative advantage to economically inefficient uses”.