In response to my posts in favor of uniting the Continent , Drawing North America and James Madison Wants Union with Mexico, my blogfriend Chirol from Coming Anarchy expressed the fears of many when he commented:
Little ole East Germany has already dragged the western part down (and still does). The whole of Mexico would ruin us.
In other words, because America is rich and Mexico is poor, economic union would be a disaster.
The opposite is true, as can be seen with an
example from the blogosphere….
Visually, his productions possibility curve looks like
Now imagine Blogger B is no better than Blogger A in drawing charts, but is worse than Blogger A in writing posts. Compared to Blogger A’s first-tier blog, Blogger’s B always seems to lag behind. He can at most draw 8 charts, but only write 9 posts
And his productions possibility frontier:
If both bloggers operate independently, their two production limits look like:
However, if they team up — they can get A LOT more done. The actual mathematics is vector addition, which I won’t bore you with, but the final production frontier looks like
As you can see, the production frontier now bows out — even though one blogger was at least as good, if not better, than the other at both tasks, they get more of what they want if they trade than if they don’t. Working together, trading, both bloggers get more than if they had stuck to themselves.
The benefit increases the greater the difference between the bloggers. Two twin bloggers trading wouldn’t get much out of it, but the more they are different from each other (the more they complement each other), the more the benefits.
This example isn’t just true for graphics and posts — it’s true for anythings produced. For instance, to calculate trade with America and Mexico you would give America an advantage in producting things with equipment (because America has more cpaital). The same advantages of trade will hold through.
How to explain Chirol’s example, then, of economic harm to Germany after reunification? Simple: socialism. If in our example the government way paying bloggers not to post, or making laws that prevented chart-production, the economy would be harmed. But under socialism the economy is harmed anyway.
Learn more about the productions possibility curve, and the benefits of free trade