Everyone Works for Everybody

Here is a very good video that shows how the modern economy offers more diversity and more "wealth" due to exchange and specialization.

Some will call it simplistic, but the idea is correct. Because of the power of specialization and the division of labor that is possible with the modern marketplace, we have more choice and most of us enjoy better living standards than the wealthy of even a century ago. And, a great many people are involved in making those standards possible. And those same people benefit by providing us our wants and needs through the exchanges we make for their goods and services.

Does Military Conflict Boost the Economy?

Is it possible that when people talk about the ability of military conflict to "stimulate" the economy, this is what they have in mind?

I think that, like the broken window fallacy, people forget about the loss and how resources could have been otherwise used.

Theory of Moral Sentiments

The new edition of The New Statesman contains this review of Adam Smith's The Theory of Moral Sentiments (TMS).  (HT to Arts & Letters Daily). The review is by Amartya Sen, who won the 1998 Nobel Prize in Economics and teaches economics and philosophy at Harvard.

Sen's review puts the book in its proper context vis-a-vis The Wealth of Nations and helps explain why Smith is not the free-ranging, no-holds-barred self-centered capitalist that many people think. I've recommended TMS in the past and I will use this opportunity to do so once again. If you who really want to understand Smith and his message in The Wealth of Nations, you should read The Theory of Moral Sentiments. It is work, but it is rewarding.

Agriculture, Choices & Poverty

I really enjoy it when one resource becomes even more relevant due to another item popping up.

The topic for this post is agriculture, choices and poverty. My first recommendation is this research article on the Voxeu web site. It's a basic study of the effect on agricultural trade barriers on global poverty. The imposition of trade barriers is a choice, frequently a political one, which has far-reaching economic effects. There are often domestic benefits for the country imposing the barriers. And there are often foreign costs that are not considered.

The authors of the study feel that the costs to global poor are significant. Their conclusion states that removal of agricultural trade barriers could lower global poverty by 3%. While that may not sound like much, in absolute terms it is more impressive.

According to their research, removal of agricultural trade barriers will increase demand for the produce of the global poor who live in rural areas and depend on agriculture for their livelihood. The study recognizes that increased demand also can raise the price of staple foods these same poor need to survive. But it also posits that removal of global barriers, while providing higher prices for food for export can have beneficial effects on food prices within the various countries, and on wages. Overall, the Voxeu piece is a worthwhile read.

The second resource also deals with agriculture, poverty and choice. It deals with the "buy local" choice. This article in Foreign Policy magazine (HT to Division of Labour) shows how decisions to "buy local" can have an impact on global agriculture markets, again affecting the poor in other countries. It has some amazing photographs, as well.

This third article, from today' edition of The Wall Street Journal gets into the definition of a farmer's market. In my opinion, it also talks about how market drive competition and how competition reduces costs. If you’ll pardon the pun, it’s just some "food" for thought. Please share yours (not your food, your thought).

Debt, Debtors and Financial Reform

In another confluence of resources, here is an opinion piece that appeared in last Sunday's edition of The Washington Post. It deals with the failure to do anything significant about the national debt, not just now but over the last several decades. What really got my attention was the opening, which referred to Bill Gross, a founder of the investment firm PIMCO and his reluctance to buy any more U.S. debt. In fact, according to the author, Gross is unloading some of his holdings in favor of bonds from other countries. It seems he worries about our commitment to do anything about the national debt.

Of course, there is a recently formed bi-partisan commission that is to address the problem. But, you know what - "been there, done that, got the t-shirt." Some will say, "Yes, but the situation is more serious now. We'll certainly take action." Perhaps.  I think we will hear great statements and see wonderful posturing. These are, after all, the same people who think they can reform the financial system.

This brings me to this next item from The Indianapolis Star.  (HT to Carpe Diem.) Seems to me this may be another Captain Renault moment.

What do you think?

The Question of Research and Risk

Given the last flight of the Space Shuttle is not too far off, the future role of NASA is in question. That eventually leads us to ask "Who should fund research?" "Who should bear the costs of high risk ventures?"

The argument for private funding (corporate, etc.) is that knowledge then is proprietary and can be used for private gain. Losses are part of the risk. The argument for government funding is that knowledge should be available to everyone, and the cost should thus be spread as any gain should be for everyone.

However, this cartoon reminds me that many of the discoveries that are part of the "Age of Discovery" ended up being for the benefit of government (kings, etc.). Anyway, it's something you can use to stir debate.

Making of Florida One

There are so many concepts you can pull out of this video (HT to Cafe Hayek): exchange, specialization, division of labor, interdependence, economies of scale (imagine the cost if you were building only one), productivity, economic institutions, etc.

Please share other ideas.