explanibrag

Yes, that's a futures (or forward) trade. Doing the whole thing as a forward would be cheaper than trading a put and a call.

Shorting ETFs is expensive. You need to borrow the shares from someone in order to re-sell them, and you pay them for the privilege.

Futures work on margin with relatively low fees so if you wanted leveraged short exposure to the US market that's what you'd naturally trade.

One of the posters below who describes buying a put and selling a call at the same strike is describing a roundabout futures trade. The put/call method would have far higher transaction costs, though.

All the finite simple groups would be nice, for example.

I once read that NASA control engineers have three independent teams code up three versions of their guidance systems. If the systems disagree, they go with the majority vote.

Yes, but my original point was that the foundational model isn't convincing at all to the layman. It can't stand on its own feet, and needs additional structure. Any decent model should come with caveats, and should specify the domain in which it's applicable.

Krugman was using the model to argue in favour of free trade. He'd be much better off arguing using historical examples if he wanted to be convincing.

"To me, the simplest explanation is that trade is always beneficial, because parties only agree to it when they both see advantage."

That's true in an efficient-economic-agent sort of way, but do you really think it's true in the real world? Do you think actors (nations, companies, individuals) don't make errors of judgement?

What if England doesn't realise it could be better at heavy industry than it is at financial services?

Edit: shouldn't your point be "no matter what England does, someone will always benefit from free trade"? What's globally optimal isn't necessarily optimal for England.

I think free trade has benefited mankind hugely and is largely responsible for lifting China out of poverty. However, I don't find the standard model of comparative advantage to be a convincing argument in favour of free trade.

The problem is that the basic model is heavily oversimplified, and more complex models get very complex very quickly. With a model, it's hard to be sure you've captured all the effects and calibrated it correctly (especially in a world with changing demographics and changing technology).

I think most intelligent people hear the basic idea, and then come up with criticisms like the following:

1/ It appears to assume that comparative advantage is fixed. But couldn't a country deliberately specialise in something it's not innately good at, thus retraining its workers and eventually shifting its comparative advantage over time?

2/ All the textbook examples concentrate on manufacturing. It's not a giant leap to see the same effect in services, but I don't think it's completely clear-cut either.

3/ It assumes labour is immobile. Otherwise why wouldn't the specialist weavers from England move to France and the specialist masons from France move to England?

4/ How can a country know what its comparative advantages are? Comparative advantage is not observable in the real world, so producers have to resort to guesswork. How can we know they guess correctly?

Now if you ditch some of the basic assumptions it's not at all clear how the conclusions change. So I think it's perfectly reasonable for laymen not to be convinced by the basic model.