Wednesday, October 13, 2010


I've had several posts on trade lately, so I will continue in that vein.

Jeff Jacoby of The Boston Globe had a very good editorial last week about trade with China (HT to Cafe Hayek). As the title suggests, the enemy is not cheap goods. In fact, one of his phrases really struck home with me. He called Chinese manufactured goods one of the best "anti-poverty programs". I think this is an excellent image to use if you are explaining the real income model. Because dropping the cost of any one good in an individual market basket makes more resources available - increasing real income. You can also use opportunity cost and benefits of trade.

To go from global to local, Russ Roberts has a useful post on Cafe Hayek about "Buy Local." Roberts doesn't agree with the economic reasons some put forth for buying local. He uses an original line of thinking, in my opinion.  When we teach specialization and division of labor, we explain the extent that it's possible is dependent upon the size of the market.  Larger markets allow for more specialization and greater division of labor. These can, in turn, provide more opportunity for growth.  Artificially restricting trade to a "local" market limits possibilities. The idea of relating growth to size of the market is not new. But you may not have used the "buy local" movement as an illustration.  (I have to also mention that Roberts' comment "we tried buy local in the Middle didn't work" is priceless.)

I recommend both of these as interesting ways to connect concepts and reinforce understanding.

No comments: