Friday, May 22, 2009

Quote of the Day on the Global Network System

Our modern living standards are almost entirely the result of investment, entrepreneurial discovery, and gains from depersonalized trade - trade between people who do not know each other and often never meet. As Adam Smith noted long ago, the division of labor is limited by the extent of the market. Much like a telephone or an Internet system, a market economy is a network good. As the size of the market expands from the local town or village to the region, nation, and beyond, network participants derive larger and larger benefits from trade, specialization, and economies of scale. For those connected to the global market, this system generates employment opportunities, high productivity per worker, and a vast array of consumer goods that are available at almost unbelievably low prices. This network system makes high-income levels and living standards possible.

~From James Gwartney's 2008 Presidential Address to the Southern Economic Association via Cafe Hayek

MP: It also could be noted that in the international network system known as the Global Economy, the gains from trade do not depend on whether the participants (buyers and sellers) both have driver's licenses from the same state (intra-state trade) or different states (interstate trade), and further don't depend on whether the participants have passports from the same countries (intra-country trade) or different countries (international trade).


At 5/22/2009 9:29 AM, Blogger Jack Miller said...

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At 5/22/2009 9:32 AM, Blogger Jack Miller said...

This is a powerful reality recognized by only a few. Most folk barely appreciate the exponential benefit of networks. Many appreciate that a single phone is of no value while a network of phones is far more valuable than two, but the step of appreciating free trade as a network is seldom taken. Most people don't even look at "the big picture". Politically, we just went through a cycle where those who previously complained about the pork dished out to special interest got in line to get their share of the pork! Thank you for doing what you can to enlighten the public.

At 5/22/2009 9:50 AM, Anonymous Anonymous said...

What is often lost in the discussion on free trade is the incredible impact trade has on reducing poverty. While many on the left emote about the plight of the third world, they invariably come down against the one thing that has proven to reduce poverty - free trade. The evidence for this has become so overwhelming that leftists, while grudgingly acknowledging trades positive effects, have had to shift their argument to disparities in wages, environmental rules, etc. - so called "fair trade". What this often amounts to is little more than an effort to strip a developing nation of it's advantages in a competitive world, undermining their ability to lay the foundations for future wealth. What leftists need is a lesson in western economic history.

As capitalists, we celebrate the opening of markets and the rise in peoples standards of living. While the environmental left frets about everyone wanting to live like an American, we see the material improvements in peoples lives as evidence of human progress. Millions and millions more people every year are better positioned to realize their full potential - and we all benefit. Poverty is the enemy of the environment. Don't believe me? Study the effect of communism on the environment of Eastern Europe. Go to some of the poorer places on the globe and see how much concern people have for the environment as they struggle to survive. Concern for the environment is a luxury.

While foreign aid has led to dependency and conflict, free trade leads to self sufficiency and cooperation. Further, when people are allowed to accumulate wealth they fight for political systems that recognize and protect private property a key foundation stone for democracy

Once again, the left has got it wrong.

At 5/22/2009 11:16 AM, Blogger Unknown said...

Good post, I completely agree with your points. I find it fascinating and frustrating that as our society benefits more and more from division of labor and trade we become more critical of it. Talk about biting the hand that feeds you! I see it as a real failing of the education system. Rarely do you find high school students that truly understand the complexities of trade that are required to build the cars they desire so much. I think high school econ classes should require each student to independently research all of the components and sources that are needed to make a household appliance. We have lost sight of the fact that simple, everyday things require vast amounts of coordination and logistics and that value is added at every step along the way. Someone's livelihood is tied to each step of the process.

At 5/22/2009 12:37 PM, Anonymous Janet said...

EXCELLENT analysis, anon! As a proud conservative I have been exasperated by liberals well-meaning intentions having downright negative outcomes as a result of their policies. I used to believe that they meant well but couldn't predict the harm of their policies, but now I truly believe that it is purposeful on the part of the left so that they may destroy capitalism and wealth creation period. If people would look beyond their little treetop over their head and see the larger forest, they would recognize that everybody benefits from free trade.

At 5/22/2009 2:45 PM, Blogger QT said...


Good post. I agree with much of what you and Jack say.

The downside of international trade and globalization seem to be an increased vulnerability to a systemic crisis. This domino effect was demonstrated by the recent international banking/financial crisis and the Asian financial crisis. Despite these occasional abberations, would have to agree that international trade and globalization do much more good than harm.

At present, the only place that is not benefitting from these forces is the continent of Africa where personal income has actually declined reflecting really horrendously bad government, civil war, etc.

At 5/26/2009 6:36 PM, Blogger sethstorm said...

...a vast array of consumer goods that are available at almost unbelievably low prices
All of which lack quality; such products crowding out any ability to manufacture quality at any price.


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