Our Glorious Banana Republic

In the early 19th century, David Ricardo developed a model to explain how countries could increase their overall wealth by exporting the goods for which they have a comparative advantage, and importing the goods for which they don’t.

Honduras, for example. The Central American republic could devote their arable land to self-sufficient agriculture, as they did in the days of Mayan civilization, but instead they specialize in banana exports and import all their other food from the US. Division of labour ftw!

Well, it was a win for us, anyway, cuz the banana plantations were owned by Americans.

The American fruit companies, to their credit, reinvested their profits in local infrastructure. They built ports, highways, railroads, and funded a private army. So boundless was their civic involvement, that they eventually overthrew the Honduran government and installed their own banana business-friendly regime.

Back to the US. Somewhere along the line, the US decided that it would be Good for the Economy if we were to specialize in soybean production and let China do all the manufacturing. Labor costs are cheaper there, and they have millions of people willing to toil on an assembly line for lack of better opportunity. That’s how comparative advantage works – Americans have high opportunity costs, and by sending manufacturing jobs to China, we free up tons of labor that can be put to work on Something More Productive.

Specialization according to comparative advantage leads to an increase in overall wealth, but the wealth is not evenly distributed. Today, soybean exports make nary a dent in our $500 billion trade deficit with China. That’s okay; Chinese people make up for the deficit by buying other American things. Things like real estate, Reddit, Starwood Hotels, Smithfield Foods, AMC, 15% of Uber, Airbnb, Goldman Sachs, Tesla… I’m not even counting the investments made through shell companies.

The good news is, we don’t have to worry about foreign interests funding mercenary armies to execute regime change. Cuz that’s what lobbyists are for.

Leave a Reply