> That's how we get flat earth theories of > comparative advantages in the face of chronic and > seemingly intractable trade imbalances. > John C. Medaille Comparative advantage has to be applied to the whole balance of payments, to the totality of exchange, not just to the current account. As we know, the imbalance of the current account is offset by the oppposite balance of the capital account. The USA has a comparative advantage in government bonds, regarded as the safest in the world, in in the global use of the US dollar, so the US economy trades treasury bonds for the consumer goods for which foreign countries have a comparative advantage. But it is indeed true that the application of concepts in the history of thought such as comparative advantage to economic history have to take into account friction, such as the manipulation of interest rates by central banks and the fiscal interventions of government which skew the outcomes from what would be the case in a pure free market. For example, to the extent that taxes and excessive regulations make US exports more expensive, they increase the current account imbalance. Fred Foldvary