Wednesday, February 11, 2009

Globalization and the Current Recession

This post relates to the following Powell Center Keystone Economic Concepts:

1. We all make choices.
2. There ain’t no such thing as a free lunch.
4. Economic systems influence choices.

6. Do what you do best; trade for the rest.
9. Prices are determined by the market forces of supply and demand…and are constantly changing.

The concept of interdependence has value both at the micro and the macro level. And when the discussion turns to the development of less developed economies, trade can cut both ways. While it's obvious that the current recession is taking a toll around the world, it always helps to have a couple of articles that help clarify the idea.

There are a couple articles that fit this description from The Wall Street Journal. The first chronicles the impact of the slowdown on emerging markets. This is particularly notable because many of the less developed economies around the world have been experiencing notable improvements. As they have embraced trade, they have prospered.

The second article makes note of the impact of falling commodity prices on various Latin American economies. (It also contains some images and an interactive graphic.) Falling demand in industrial and industrializing economies has led to a precipitous fall in prices and exports. This is impacting government, business and personal finances.

The articles are important for a few reasons. The first and easiest is to draw the connections between economies in a global marketplace. The second, is to make students aware that foreign trade is not the problem. Indeed, the backlash against trade is a more significant problem for our future recovery. Changing trade rules would affect not only our ability to choose, but the ability of others. Consequently, it is important that the U.S. not retreat from its commitment to globalization and free trade. That issue is covered in this article from The Economist.

The third reason is to develop students with a true understanding of the dynamics of a global economy. Other people suffer in crisis. But crisis has a way of making people withdraw and focus on themselves. Adam Smith noted that we are often more sympathetic to the problems of a few near to us, than we are to millions suffering other parts of the world. The way to alleviate world problems is not to withdraw from the world, but to maintain a larger view.

If you see other economic concepts or lessons to be drawn from these articles, please share them. Your comments are always welcome.

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