Paul Davidson - Legal Arbitrage Is Not Comparative Advantage 4/4
2,074 views · Published 28 June 2012 · 7:13 · Indexed 26 September 2026
Channel: New Economic Thinking · 2012 · Film & Animation
In the fourth and final part of this four-part INET "From the Director's Chair" interview, INET Executive Director Robert Johnson talks with Journal of Post Keynesian Economics co-founder Paul Davidson about Davidson's book The Keynes Solution: The Path to Global Economic Prosperity. Davidson explores Ricardo's often-misunderstood idea of comparative advantage in a modern context. The concept is best applied to natural resources and agriculture, Davidson says, which was what the global economy consisted of when Ricardo was writing. But times have changed, and the notion of comparative advantage has been over-extended to apply to very different phenomena. Lower manufacturing costs due to a lack of labor laws isn't a comparative advantage, Davidson says, but is instead a form of legal arbitrage that has nothing to do with Ricardo's original idea. "American entrepreneurs could easily compete with the Chinese if we allow child labor," Davidson says. This "legal technicality" is not what Ricardo had in mind as a real comparative advantage
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