Comment by mlyle
Comment by mlyle 2 days ago
I think you're missing the point of what I'm saying. The US has steadily moved away from those past competencies because there was more profit to be made elsewhere.
And, sure, there are absolutely network effects with related goods and industries that have steepened that movement. If it was a win to change the allocation of resources when e.g. steelmaking was strong in the US, it's even more of a win after steelmaking withered.
> and if there even is a textbook solution for that,
It's not quite what you're saying, but the closest work I have read is 'Dynamic Optimization: The calculus of variations and optimal control in economics and management' by Kamien et al. It is all about estimating gradients and plotting trajectories in dynamical economic systems.
The feeling of misunderstanding is mutual! I agree that there was more profit to be made elsewhere. But I'm arguing that those profits were short-term profits which may well have come at long-term expense. If you follow the local gradient of profitability, you'll always find great short-term returns selling off your seed corn. Unlike what Econ 101 asserts about maximizing comparative advantage being the most profitable strategy, there is absolutely no guarantee that following a locally-optimal comparative-advantage strategy is globally optimal over a long-term window, where advantages are path-dependent.
Manufacturing is the core example of path-dependent advantages, because (unlike what any econ 101 textbook teaches), marginal costs decline with increasing production quantity in the manufacturing sector. This means the more you make, the better you are at making more things!