Friday, January 27, 2006

Economist, Heal Thyself

Bryan Caplan (EconLog) "proves" that comparative advantage makes people better off, even if some of the people are less capable than others:
Trade between two people or groups increases total production even if one person or group is worse at everything. Suppose, for example, that Brains can make 5 Computer Programs or 10 Bushels of Wheat per day, and Brawns can make .1 Computer Programs or 5 Bushels of Wheat per day.

Computer Programs Bushets of Wheat
Brains 5 10
Brawns .1 5

Brains and Brawns can still trade to mutual benefit: Just have one Brain switch from farming to programming (+5 Programs, -10 Bushels of Wheat), and three Brawns switch from programming to farming (-.3 Programs, +15 Bushels of Wheat), and total production rises by 4.7 Programs and 5 Bushels of Wheat.

What Caplan has shown is that, for a given population, it makes economic sense for individuals to specialize in those occupations in which they have a comparative advantage. In Caplan's example, the Brains' comparative advantage lies in the writing of computer programs (20:1) over the growing of wheat (2:1), whereas the Brawns' comparative advantage lies in the growing of wheat (1:2) over the writing of computer programs (1:20).

So far, so good. But in a later post Caplan tries to apply the same principle to the question of population growth, specifically, the relative rate of growth among Brains as compared with Brawns:
What happens when low IQ people have more kids? It encourages greater specialization and trade. High-IQ people have a stronger incentive to focus on brainy work, because there are more low-IQ people to handle the non-brainy work.
The implication is that it doesn't matter if population growth is faster among Brawns than among Brains. Not so. To continue with the example from Caplan's earlier post, the addition of a Brain increases total output by 5 programs or 10 bushels of wheat, whereas the addition of a Brawn increases total output by only .1 program or 5 bushels of wheat. On the economic dimension, then, I would always prefer the addition of a Brain to the addition of a Brawn.

I'm not making an argument for eugenics -- just an observation about the mathematics of the issue. The only lesson to be drawn from this is that economists often tend to misapply the principles of static analysis to dynamic situations.

Related posts:

More about Social Security
Understanding Economic Growth
Wal-Mart and Jobs