Sunday, April 19, 2009

risky globalization

Two conflicting ideas hold independent great appeal to me. Division of labor and general exploitation of comparative advantages leads to huge gains from trade for all parties in an unequivocally utilitarian outcome that is hard to argue with (ignoring short term transitional pains.) But self-sufficiency, small local independent units of society/government/economy, appeals to my deeply ingrained and vehemently held modus operandi of "watch your own back and don't ever put yourself in a situation of dependence". Seeing as how that attitude causes me to make certain other decisions that most economists would find insane (I will never put my life savings in anything riskier than a savings account. I don't believe in free money, even from US government bonds.) I have tended to suppress the latter idea when forming opinions about such things as free trade, "buy local" movements, protectionism, government subsidies, etc.

But there's a legitimate point that can unify these lines of argument and leads me to be more sympathetic towards local-economy movements, no matter how misguided the actual propaganda is (Save the environment! Buy local produce, which happened to be produced with massive government agricultural and water subsidies which are indirectly destroying the environment in the rest of the country!) International division of labor is like putting your eggs all in one basket, or picking up nickels in front of a steamroller, as goes one of my favorite financial metaphors. If all the wheat comes from Russia, one bad season or one crazy political move screws over the rest of the world. Gains from trade (nickels) don't seem so important when a housing bubble bursting in one country sends the entire world into depression (steamroller).

It's the same reason government should be localized whenever possible. A disastrous educational policy, or healthcare policy, or free speech infringement, or whatever, is pretty terrible when it occurs in one county, and a natural impulse is to govern nationally so as to prevent localized tyranny. I admit myself I'd love to see a national constitutional amendment defining marriage without regard to gender. But national governments are also prone to tyranny, and when that happens, it's a lot harder to move to Canada than it is to move from Manhattan to Jersey City.

This almost feels too obvious to bother writing down. But I think it's worth pointing out that gains from trade in situations with comparative advantage, in the real world, are only probabilistic outcomes. Risk and reward should be weighed.

3 comments:

Fred said...

Are savings accounts really safer than US government bonds?

Vera said...

Well in the sense they are FDIC insured. and if things start to look fishy for FDIC coverage you can get your money out in full at any time, whereas with bonds you have to either wait for them to mature or sell them on a secondary market, which will have already gone south if things are looking fishy.

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