[ExI] undercover at Walmart

[Rafal Smigrodzki]

On Sat, Feb 14, 2009 at 4:31 AM, Stathis Papaioannou <stathisp at gmail.com> wrote:
> 2009/2/14 Rafal Smigrodzki <rafal.smigrodzki at gmail.com>:
>
>> ### This is indeed the case - or more precisely it takes 1.33 billion
>> Chinese to make 3.251 trillion worth of goods and services per year,
>> while it takes only 303 million Americans to make 13.84 trillion of
>> stuff (statistics by Google). It is absolutely true that on average
>> Chinese products and services are not any cheaper in terms of labor
>> per unit of value than American-made ones, in fact, they are much more
>> time-consuming to make, very roughly approximated by a factor of
>> (13.84 x 1.33)/(3.251/0.303), you do the math. Since they take so much
>> time to make stuff, they can't make as much stuff as Americans, and
>> therefore they earn less.
>
> In that case there would be no advantage in American companies
> manufacturing things in China, since they would be able to so more
> cheaply using the more efficient workforce in the US and saving on
> shipping and other costs.

### The workforce is not inherently that much more efficient in the
US, but the companies are (you understand that this is not a paradox,
right?). American companies are very efficient at producing whatever
it is that combines into the 13.8 trillion GDP figure and as per
Ricardo's law they can make more money on what they do (airplanes,
corn, movies, capital management, pharmaceuticals, software, etc.)
than on other products, such as low-end tools.

I remember first reading about Ricardo's law of comparative advantage,
and feeling this thrill of understanding, an orgasmic intellectual
experience. Brilliant! Why the fuck didn't I think about it! - is what
I thought at that moment. This really changed my way of thinking about
the world, and I was an adult already. It is very useful to try to
gain an intuitive feeling for Ricardo's law, to be able to cleanse
your mind of the common-sense but completely wrong thinking that one
may have.

BTW, I mis-wrote the ratio in my previous post ... can you find the error :)

------------------------

>
> The GDP calculation assumes that the exchange rate is a fair measure
> of the worth of one country's output relative to another. In the case
> of the US dollar there are clearly other factors propping it up, such
> as the fact that it is the world's reserve currency and the fact that
> the Chinese would precipitate a disastrous drop in the value of their
> substantial US dollar investments if they decided to pull out.

### The calculations can be made using PPP, or purchasing power
parity, yielding similar results. It is true that a massive run on US
financial assets could lower the value of the US dollar but it doesn't
directly impact the ratios that are calculated using PPP, since the
unit used there is the so-called international dollar (see
Geary-Khamis dollar).

Rafal