No, the public doesn't understand comparative advantage (or supply and demand)
By Scott Sumner
Noah Smith recently made this claim:
Maybe people are perfectly smart and rational enough to understand the David Ricardo idea, and also smart enough to understand something else that economists have known for 200 years — international trade doesn’t necessarily benefit everyone within a country.
I doubt it. Years ago Paul Krugman brilliantly demonstrated that even most experts don’t understand “Ricardo’s Difficult Idea.” More recently Nick Rowe had a post responding to Smith, where he basically took the Krugman position. He ended with this depressing anecdote:
One other related anecdote from that era: for some forgotten reason I was a reviewer for the proposed Ontario high school economics curriculum. One item on the proposed curriculum was the gains from trade due to differences in absolute advantage. I said it should be comparative advantage. They said it was too hard to teach comparative advantage. I said they should teach comparative advantage even if it meant deleting everything else from the curriculum, or else not teach gains from trade at all. They thought they had an eccentric cranky professor on their hands, and would only accept my recommendation if it were supported by other chairs. Which is why, somewhere deep in the silicon records, there are emails from the chair of every single Ontario economics department saying we should teach that the gains from trade come from comparative advantage not absolute advantage. I fear that some may still be teaching the case where England has an absolute advantage in wheat and Portugal an absolute advantage in wine. And stopping there. And that’s the kids who actually take economics at high school.
This reminded me of my daughter’s international business textbook. (She’s in 10th grade, at a highly rated public school.) The book (by Dlabay and Scott) is just a complete disaster. Here’s the definition of absolute advantage:
Absolute advantage exists when a country can produce a good or service at a lower cost than other countries.
Ouch. (That’s comparative advantage.) A few pages later is this gem:
The final indicator of a country’s economic situation is the unemployment rate. When people are not earning an income, they cannot purchase needed goods and services. This causes other people to lose their jobs.
Got that? Unemployment is caused by unemployment. A few pages earlier they distinguish between LDCs and industrial countries. Then they mention:
Between the extremes of economic development are the developing countries that are evolving from less developed to industrialized.
The book says the LDCs include Ethiopia and Hungary, and the “developing countries” include India and Singapore. Whatever.
The United States, Germany, and Japan are considered developed countries. However they still suffer from many of the issues that plague underdeveloped countries, such as hunger and homelessness.
I suppose that’s technically true, but of course it’s going to give students a hopelessly misleading impression of the relative scale of poverty in the LDCs.
Not sure any of this matters. The better students will pick up what they need, when they need it. Any student that plans to become an economist will eventually learn comparative advantage; just as a student that plans become a biologist will eventually learn evolution, even if they are home-schooled by a fundamentalist in the Bible Belt. The best argument for voucher schools is not that they can produce smarter students, but rather that they can produce equally uneducated students at a cost savings of hundreds of billions of dollars. Money that could be used to subsidize the wages of low-skilled workers.
PS. Supply and demand? Sometimes I wonder if that should be left for grad school. Not one student in a hundred can avoid reasoning from a price change.