Linder Hypothesis

And finance Allah shmoop what our gains from trade Ah

the nineteen fifties hoop skirts do up big cars malt

shops Elvis in a near world economic domination by the

U S What was that last one Yeah well during

World War two pretty much all the world bombed itself

back into the Stone Age Well except for the U

S Which well nobody could reach with any bombers except

for Hawaii And well that was just that one time

you know Well besides just not getting bombed the U

S Had spent the war ramping up manufacturing production I

am making tanks and guns and other fun stuff So

after the war the US had all this capacity Teo

you know make stuff And in the rest of the

world well they had all this need for that stuff

and not much production capacity and well no capital and

well pretty much no buildings Yeah well time for some

international trade So the U S wouldn't make products and

send them around the world And if places couldn't afford

to buy those products well we just lend them money

and they become bankers to the world while we're at

it And then Well then they'd be kind of forced

to buy stuff with us for a long long time

till they get pay off those debts and they never

did So they keep buying Who's good time for us

business especially manufacturing You remember the guys the man in

the gray flannel suit That novel Yeah they had fedoras

and well they basically ran the world So that's an

obvious example of the gains from trade that we made

bombed out Europe benefited because it got much needed supplies

And the US benefited because well people had jobs and

could afford Jello with their TV dinners What when parties

are allowed to voluntarily trade with each other with low

friction while things usually get better for both sides That's

called gains from trade in the friction yet taxes and

transaction costs We don't want those So let's say you

have an island with two countries Yola India and Cool

Ooh Vania All right well the people of your land

eah are masters of the string arts and they could

make high quality Yo yo's fast inefficiently Meanwhile the people

of Hu Lu Vania have a knack for making circular

things like they make great loops Well if yo landers

have to make their own hula hoops It takes them

a long time Also takes the time away from their

true love which is making yo yo's So in a

typical week the old Landers can make a thousand yo

goes and five hundred hoops splitting their time evenly But

on the other side of the island the hula vain

Ian's can make three hundred yo goes and eight hundred

hula hoops splitting their time evenly between the two different

numbers there Yeah but what if they traded That is

what if the old landers on Lee made yo yo's

and the Who Louvain Ian's only made who loops Well

then the two countries could just trade with each other

and optimize their production efforts Right We'll dedicating their time

completely to making yo yo's The old landers can make

two thousand Yo yo's in that same time period and

full time Hula hoop making for the hula vain Ian's

while that leads to sixteen hundred loops So let's compare

that dynamic to the previous output Well before the old

Landers made a thousand yo goes and the hula vain

Ian's made three hundred yo yos and thirteen hundred yellow's

total And before the yield Landers made five hundred Who

loops And the Hula Vain Ian's made eight hundred Who

loops And that's thirteen hundred hula hoops total But after

the two gods started trading with each other well we've

got two thousand total Yo yo's and sixteen hundred Hula

hoops Production is generally up all things to the two

sides getting too focused on producing their specialty and note

There's no taxes and commissions and other stuff to cloud

the numbers here for you like there is in real

life Well when countries specialized they're able to become more

efficient They end up making their product cheaper by getting

better at making it Then other countries could write like

Think about how awesome watches are from Switzerland They've had

like four hundred years to perfect the art kind of

like semi conductors in Silicon Valley Well it all depends

on the country's conditions like countries by the ocean Well

produce or gather seafood right countries with good farmland produce

awesome corn and greens and stuff Countries with mountains produce

quell postcards While these conditions specialization a natural advantage lead

to a concept called comparative advantage Each country does what

it does best costs for everybody go down well Countries

end up specialising in particular production like Yolanda and Lulu

Vania Rather than creating a little of everything they specialize

and they make a surplus of the things they're good

at making Well They then export these surpluses to the

rest of the world With the money they get from

those exports they could afford to import other products right

The stuff they didn't produce themselves well These imports are

relatively cheap because they're being produced in countries that use

their comparative advantage to produce them at a lower cost

than they could generally be produced elsewhere Well everyone ends

up with Mohr of everything And as you know Mohr

is better We'll think about the good people of your

clammy and hula Vania Obviously they can't eat yo yo's

and hula hoops but their lousy farmers and their terrible

fishermen All they want to do is make Yo yo's

and or hula Hoop right So gains from trade allow

them to just do that The two thousand year Agos

and the sixteen hundred Hula hoops the two of them

make can get shipped to other countries They can use

the cash earned to bring in food from the U

S and cars from Japan and TVs from Korea You

know anything they want Well those air the short term

gains from trade Basically it's all about making money You're

making the most amount of money that you can buy

specializing But there are some long term gains from trade

to gains that can't necessarily be measured in bean counting

or tracking nickels and dimes Kuwait is a small country

in the Middle East The country doesn't have a lot

to do with the United States While circa nineteen ninety

most Americans had no idea that Kuwait even existed But

Kuwait produced a lot of oil oil Americans used Kuwait

had a strong trade relationship with us in oil well

In nineteen ninety Kuwait was invaded by the kindly loving

generals from Iraq Well rather than just shrug its shoulders

the U S launched its biggest military effort since Vietnam

in order to kick Iraq out and restore Kuwait as

a sovereign nation We'll compare that to what happened Teo

George Shit Different Georgia In two thousand eight Russia invaded

the country Did the U S Mount a major military

effort to save the tiny nation from a Russian invasion

No why Well Georgia's major exports included hazelnuts and wine

Yeah doesn't quite get the martial spirit pumping quite like

crude oil does because Kuwait had a strong trading relationship

with the US providing a vital commodity that we all

care about while the U S Was willing to step

in and protect Kuwait and risk American lives when it

was invaded While building trade relationships can be like buying

a friend in the doggy dog world of international relationships

if Kuwait had just tried to keep itself and not

sell oil to the U S well it wouldn't have

been able to talk us into protecting it in its

big time of need there But let's be really It's

mostly about money and the stuff money can buy gains

from trade lead all sorts of material benefits Think about

your own life because well there are farmers out there

who grow food and raise animals And because there are

manufacturers out there who assemble hot pockets and because you're

able specialize while you have time to get really good

at playing fortnight So these guys they're good at farming

and making greasy handheld food products You get great at

video games Nice trade The farmer in the worker can

then watch your twitch channel when they get home Yeah

everyone benefits eventually That's what happened in the post nineteen

fifties America Instead of making everything other countries finally rebuilt

themselves after well their destruction in World War two So

the U S could import better cheaper cars from Japan

and Korea and elsewhere Cheaper electronics from Taiwan and China

and other places Cheaper clothes from places like the Philippines

Latin America cheaper customer service Call talkers from India Better

music from Britain better actors from Australia So next time

you watch Hugh Jackman in a movie that has Beatle

songs on the soundtrack while enjoying it on a big

screen TV from Korea sitting on a couch made in

Mexico wearing a full length body snugly made in the 00:07:56.298 --> [endTime] Philippines Well you can think games from trade here