Globalization, Interdependence, and Local Trade

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Introduction

Definitions and Basics

    Interdependence and the division of labor: I, Pencil, by Leonard Read.
    Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn't it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year....
    Spatial Economics, from the Concise Encyclopedia of Economics
    Producers and buyers are dispersed in space, and overcoming the distances between them can be costly. Much commercial activity is concerned with "space bridging," and much entrepreneurship is aimed at making good use of locational opportunities and cutting the costs of transport and communication. Spatial economics is the study of how space (distance) affects economic behavior....

In the News and Examples

    Do you want to buy only goods made near you? Boudreaux on the Economics of "Buy Local", podcast on EconTalk. The 100-mile suit.
    Proponents of buying local argue that it is better to buy from the local hardware store owner and nearby farmer than from the Big Box chain store or the grocery store headquartered out of town because the money from the purchase is more likely to "stay in the local economy." Don Boudreaux of George Mason University talks with EconTalk host Russ Roberts about the economics of this idea. Is it better to buy local than from a seller based out of town? Is it better to buy American than to buy foreign products? Does the money matter? In this conversation, Boudreaux and Roberts pierce through the veil of money to expose what trade, whether local, national, or international, really accomplishes.
    The Buy-Locally-Owned Fallacy, by Karen Selick.
    An advertisement appears regularly in the newspaper in my community (Belleville, Ontario, Canada) sponsored by a group of local businesses. It reads: "Buy locally owned. Your money stays in the community. Think about it--everybody wins."
    The Locavore's Dilemma: Why Pineapples Shouldn't Be Grown in North Dakota, by Jayson L. Lusk and F. Bailey Norwood.
    Oklahoma's government, like those of 45 other states, funds a farm-to-school program encouraging cafeterias to buy their food from local sources. U.S. Representative Chellie Pingree (D-Maine) wants to help; she recently introduced the Eat Local Foods Act (HR 5806) to assist schools in providing local foods in school lunches. From Michelle Obama's White House garden to grants from the U.S. Department of Agriculture's "Know Your Farmer, Know Your Food" initiative, an agenda has emerged to give local foods more prominence on our dinner plates. Interestingly, no agricultural economist has informed the public that a key claim of local-food advocates--that local-food purchases enhance the local economy--violates the core economic principles taught in every introductory economics class. Until now.
    Munger on Middlemen, podcast on EconTalk
    Mike Munger of Duke University talks with EconTalk host Russ Roberts about the often-vilified middleman--someone who buys cheap, sells dear and does nothing to improve the product. Munger explains the economic function of arbitrage using a classic article about how prices emerged in a POW camp during World War II. Munger then applies the analysis to the financial crisis.
    Munger on Middlemen, podcast on EconTalk
    Mike Munger of Duke University talks with EconTalk host Russ Roberts about the often-vilified middleman--someone who buys cheap, sells dear and does nothing to improve the product. Munger explains the economic function of arbitrage using a classic article about how prices emerged in a POW camp during World War II. Munger then applies the analysis to the financial crisis.
    Don Boudreaux on Globalization and Trade Deficits, podcast on EconTalk
    Don Boudreaux, of George Mason University, talks about the ideas in his book, Globalization. He discusses comparative advantage, the winners and losers from trade, trade deficits, and inequality with EconTalk host Russ Roberts.
    Munger on Fair Trade and Free Trade, podcast on EconTalk
    Mike Munger, frequent guest and longtime Econlib contributor, speaks with EconTalk host Russ Roberts about fair trade coffee and free trade agreements. Does the premium for fair trade coffee end up in the hands of the grower? What economic forces might stop that from happening? They discuss the business strategy of using higher wages as a marketing strategy to attract concerned consumers. They turn to the issue of free trade agreements. If the ideal situation is open borders to foreign products, is it still worthwhile to negotiate bilateral and multilateral agreements that requires delays, exemptions and a bureaucracy to enforce? What is the cost of including environmental and various labor market regulations in these agreements?
    Licit Globalization, by Ibsen Martinez on Econlib
    None of their forays in global economics can compare in vehemence and media impact with the utterances of Diego Armando Maradona, the famous ex-soccer player now turned into a TV talk-show celebrity as an unflagging foe of globalization....

A Little History: Primary Sources and References

    Brook on Vermeer's Hat and the Dawn of Global Trade, podcast on EconTalk
    Timothy Brook, professor of history at the University of British Columbia and author of Vermeer's Hat: The Seventeenth Century and the Dawn of the Global World, talks with EconTalk host Russ Roberts about the expansion of global trade between Europe and the rest of the world, and in particular, North American and China. He discusses the differences and similarities between Chinese and Western attitudes toward trade and exploration and the implications for innovation and knowledge.
    William Bernstein on the History of Trade, podcast on EconTalk
    William Bernstein talks with EconTalk host Russ Roberts about the history of trade. Drawing on the insights from his recent book, A Splendid Exchange: How Trade Shaped the World, Bernstein talks about the magic of spices, how trade in sugar explain why Jews ended up in Manhattan, the real political economy of the Boston Tea Party and the demise of the Corn Laws in England. The discussion closes with the political economy of trade today and the interaction between trade and income inequality.
    Nye on Wine, War and Trade, podcast on EconTalk
    John Nye of George Mason University talks with EconTalk host Russ Roberts about his book, War, Wine, and Taxes. The conversation covers the history of Britain and France's trade policy, why the British drink beer and why Ricardo's example of Britain trading wool for Portuguese wine is bizarre. Nye turns the traditional story on its head--he argues that France was more of a free trader than Britain and that the repeal of the Corn Laws was not the dividing line between Britain's protectionist past and free trade future. At the end of the discussion, Nye emphasizes the importance of domestic free trade for economic growth.
    Exchange, by William Stanley Jevons. Chapter 2 from the Money and the Mechanism of Exchange
    Money is the measure and standard of value and the medium of exchange, yet it is not necessary that I should enter upon more than a very brief discussion concerning the nature of value, and the advantage of exchange. Every one must allow that the exchange of commodities depends upon the obvious principle that each of our wants taken separately requires a limited quantity of some article to produce satisfaction.
    Of the Division of Labor, by Adam Smith. Book I, Chapter 1 from the An Inquiry into the Nature and Causes of the Wealth of Nations
    Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.... [par. I.I.3]
    Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home, by Adam Smith. Book IV, Chapter 2 from the An Inquiry into the Nature and Causes of the Wealth of Nations
    To give the monopoly of the home-market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful. It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The taylor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a taylor. The farmer attempts to make neither the one nor the other, but employs those different artificers.... [par. IV.2.11]

Advanced Resources

    Leamer on Outsourcing and Globalization, podcast on EconTalk
    Is outsourcing good for America? How does foreign competition affect wages in the United States? Ed Leamer, professor of economics at UCLA, talks about the effects of outsourcing on wages, jobs, and the U.S. standard of living. Drawing on a review of Thomas Friedman's The World is Flat, Leamer talks with host Russ Roberts about technology, trade, productivity and inequality.
    Studies in the Theory of International Trade, by Jacob Viner

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