Riffing on Krugman: The regulatory implications of his work on comparative advantage
As many are aware, this year's Nobel Prize in Economics went to Paul Krugman. According to some accounts, one of the accomplishments that garnered Krugman his prize was his work on international trade and comparative advantage. Basically, Krugman explained why it was that at the same time as Germany exports cars to Japan, Japan might also export cars to Germany. The reason is because Japanese cars have somewhat different characteristics than German cars, and this allows the dynamics of comparative advantage (aka Ricardo's Law) to manifest themselves within industries as well as across industries. (In a sense, Krugmen can also be seen as offering a solution to the famous koan advanced by the ancient Chinese philosopher Gongsun Long, who asked, " Is a 'white horse' a 'horse '?" Krugman’s answer would seem to be: "it depends on if they are competing or substitute goods.") But Krugman’s demonstration also has some important but heretofore overloo...