>Over at EconLog, Russ Roberts introduces the concept of Comparative Advantage by telling the fictional story of two married couples who shipwreck upon the same island. Each couple, together, encompass differing skill levels for the same sets of activities. In this case two: Fishing and collecting water. The second couple to land upon the Island, the Fishers (ha), are better than the other couple, the Palmers, at both activities. And that is the clincher: proving that trade between the couples is mutually beneficial, even though one couple is superior in each realm of work. That phenomenon is called Comparative Advantage (for y’all that don’t already know).
The only problem I see is that Roberts too casually tells us that the Fishers are, how shall I say, jerks? They refuse to associate with the Palmers when the Fishers discover that they are more than capable of surviving the island on their own:
Something else was clear, alas, to the Palmers. The Fishers didn’t want to have anything to do with them. Any attempts at friendship or cooperation were quickly rejected. So the Palmers labored on, waiting for rescue and doing the best they could.
Roberts goes on to tell us how the Palmers decide to appeal to the self interest of the Fishers by bringing them water. After all, the importance of Comparative Advantage is its ability to reveal that one party to a transaction has much to gain even if he or she is already able to produce that which is being traded for. The Fishers, the Palmers reckon, will soon see the folly of their decision to avoid interaction.
The Fishers indeed eventually accept the offerings of water by the Palmers, seeing as how the Fishers are now free to spend more time Fishing, something they accel at. The Palmers receive some fish in trade, something they desperately needed.
Only trouble is that in reality the rejection by the Fishers of the Palmer’s offer of companionship and camaraderie doesn’t so easily metamorphosize into a willingness to keep on trying to win the affection of the a-holes nonetheless. Roberts shows us how the Palmers debate the individual merits of: 1) plundering the Fishers and, 2) trading with the Fishers. As stated earlier, they eventually decide upon the latter course.
Too bad in reality the “psychic reward”, as an economist would put it, of plundering the Fishers will too often overcome the calm and calculated reflection of the long term material benefits of simply “kissing ass” (perhaps only in the short run, but still).
“Better to die on your feet than to live on your knees”, or something to that effect. (Wasn’t that Che Guevara?) Perhaps too overly dramatic for the story offered by Roberts, but something to consider.