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Entry: Faith-Based Economy Link: http://www.takimag.com/blogs/article/faith_based_economy#20736 Post contents: @ Joe Allen Comparative Advantage is an idealized conception that depends on three idealized conditions: The relative immobility of capital; full employment of resources in both countries, and; balanced trade between both countries. Thus it is useful as a <i>paradigm</i> but dangerous for those who do not understand the difference between a paradigm and actual conditions. If any of the initial conditions do not hold, the theory in practice does not hold. Neoclassical economists are famous for disregarding initial conditions and treating their theoretical paradigms as holding always and everywhere. But this is not the case. To take an example from the physical sciences, we know that objects near the earth fall at a rate of 32 ft./second squared. Except that they don't. The pardigm holds only in a vacuum. If one is going to actually use the formula (say, to design an airplane) one has to first take a measure of the distance between the paradigm and the actual conditions. In aeordynamics, that distance is measured by air pressure, which will modify the paradigmatic formula. Economic theories work the same way. To hold the formula without taking note of the distance from the ideal starting conditions would be like designing an airplane and disregarding air pressure. Sent at: 2008 10 06