One of my favourite quotes from “Yes Minister” goes:
An aggressive question is like fast bowling. Unless it is deadly accurate, one can use its pace against itself.
It is a favourite quote because the Blogosphere reminds me of it quite often. The latest to remind me of it is Ritwik Priya’s “fisking” in two parts [1,2 (via)] of Niranjan Rajadhyaksha’s rather innocuous article in Mint about how schools should allow children to specialize. Ritwik accuses him of, among other things, misusing Ricardo’s theory of comparative advantage.
Now, if you plan to accuse a trained economist of misusing basic economic concepts, your own concepts better be deadly accurate, or they’ll be hit for a four at third man. But this is what Ritwik says:
Ricardo’s theory is one of the most insightful in the entire field of classical and neoclassical microeconomics but it makes certain assumptions, namely
1) There is free trade of goods (explicit)
2) There is no trade of labour or capital, i.e factor inputs (explicit)
3) The demand for the traded products is reasonably similar (implicit, because what is actually being measured is the opportunity cost)Here, the ‘good’ that his daughter will specialise in is a certain level of competence in a field or a subject. It is thus safe to assume that the free trade assumption holds true. However, the second and the third assumptions are not true. The factor inputs in this case are aptitude and capital (the investment into the education to gain these skills) and on the individual level, capital can easily be traded. The situation will hence move towards absolute advantage. The product that her daughter, or anybody for that matter, will get in return for their skills is money. Money has a high demand almost universally. The same is not true for the product traded in return – i.e skills.
Can you count how many things are wrong in this?
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