>The more I look at the amazing rise of the U.S. stock market, the more I become convinced that we are looking at a mammoth psychological problem. I don’t mean mammoth as in “huge” (though maybe that too), but as in “elephant”.
—
If each country exports the goods in which it has comparative advantage, then all countries can in principle gain from trade. Once every country specializes in production of goods that has a comparative advantage in, and then trades its excess supply, world production increases. The extra production is the result of better allocation of resources. This extra production can be divided between the trading countries allowing them to achieve higher consumption levels.