In america, relatively or i would say, seemingly unskilled people make a lot more than an incredibly talented person in a pall. So why is that? And there a lot of different answers you could think about. David ricardo: Specialization and trade make us rich. The more America trades with nepal, the better both of us will be. Trade is mutually beneficial. It simply has to do with what we are good at.
Russ Roberts, host of EconTalk, does a monologue this week on the economics of trade and specialization. Economists have focused on David Ricardo's idea of comparative advantage as the source of specialization and wealth creation from trade. Drawing on Adam Smith and the work of James Buchanan, Yong Yoon, and Paul Romer, Roberts argues that we've neglected the role of the size of the market in creating incentives for specialization and wealth creation via trade. Simply put, the more people we trade with, the greater the opportunity to specialize and innovate, even when people are identical. The Ricardian insight masks the power of market size in driving innovation and the transformation of our standard of living over the last few centuries in the developed world.