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Category Archive: Trade

  1. Foreigners Are Our Friends | Econ Chronicles


    Some people say technology is the driver of innovation, but society often takes great steps in prosperity by trading. Like technological shifts over history, trade is a powerful way of creating wealth for all parties. In one example, Professor of Economics Bryan Caplan imagines a machine that turned agricultural products directly into cars: it would disrupt the way we do business, but the US would be wealthier for it.

    If, however, that machine was nothing but a freighter that exchanges corn for cars with another nation, many people think this is unfair. Whether in dislike for foreign trade or worry about immigration, Prof. Caplan calls this “anti-foreign bias,” and points out that most economists don’t share these concerns. Professional economists think trade and immigration benefit all parties involved – just like innovative technology. As we said before: trade is made of win!

  2. Everything’s Amazing and Nobody’s Happy | Econ Chronicles


    People tend to think the world is much worse off than it actually is. Bad news gets a lot more attention than good news. Professor Bryan Caplan calls this “Pessimistic Bias,” and argues that it affects the policies people  vote for. Despite the amazing economic gains of the past 100 years and even the past decade, most people are under the impression that things are just getting worse. But Prof. Caplan argues that even with all the tough problems in the world, there is reason for optimism; contrary to most people’s expectations, he contends that the best is yet to come.

    Hat tip to Louis C.K.

  3. From Rags to Riches: The Cayman Islands Revolution


    The rule of law, Hayek wrote, is “a rule concerning what the law ought to be”: It ought to be general and abstract; equally applied, with legal privileges for none; certain, not subject to arbitrary changes; and just. In this Learn Liberty Academy, Andrew Morriss sets sail to show how the law of the Cayman Islands conforms with Hayek’s ideals, how it got that way through astute political entrepreneurship, and how the world at large benefits from its legal wisdom. The benefits of Caymanian rule of law are so diffuse and far-reaching that we can even attribute the American poor’s high consumption of healthcare to it.  Embark on Morriss’s expedition — read, watch lectures, and discuss!

    Song credit: “Coconut Water” – Dan O’Connor

    Archival images courtesy of the Cayman Islands National Archive

  4. How to Make a Criminal Cocktail | Off the Clock Economist Explores


    With a social-capital-inducing King Cake in tow, Off the Clock Economist Dan D’Amico heads out to a backyard bar. Discover how to make a New Orleans Sazerac, which many say was the very first cocktail ever invented. Why? Keep watching to learn how the criminalization of alcohol in the United States forever changed the way we consume liquor. There is no tastier way to figure out how social capital, unintended consequences, and government intervention helped the Big Easy create this famous drink – and don’t worry, the recipe is in the video too!

    Check out Rob Hahne’s shop: Homestead NOLA

  5. I Bet You Thought You Were Supposed to Hate These Guys


    Like most Americans, are you frustrated by ticket scalpers? These middle men buy tickets for events and then resell them at more than face value to make a profit. If you’ve ever purchased from a scalper, you may have been frustrated at having to pay higher than face value for your seats. But what were the alternatives? Since there may be more people who want to attend an event than the event can hold, an efficient market mechanism is to ensure that the people who are willing to pay the most are the ones who get to go. This cannot be accomplished by a lottery system to allocate leftover seats, as that would fall to pure chance to decide who won. Waiting in a long line might be an option, but maybe your time is more valuable and you’d like to get a ticket now. The scalper is able to help you get the tickets you want in the amount of time you desire.

    Prof. Stephen Davies explains that although ticket scalpers and other middle men are often looked down upon by the public because they don’t physically make any goods, they do provide a service that improves the efficiency of the market. Middle men who connect buyers and sellers and profit for their work do add value to society by enabling people to get what they want or sell what they don’t.

    In some cases, the ability to buy goods at a low price and sell them at a higher price has saved lives. In 18th century France it was illegal to purchase food in areas with low prices and sell them for a profit in areas where food was scarce due to a shortage or a failed harvest. As a result, many people literally starved to death because no one would supply them with food. At the same time, England did not have these laws. So while food prices increased in areas struck by famine, we don’t see many cases of people actually starving to death. The middle man’s ability to buy food inexpensively in one area and sell it for a profit in an area with a food shortage literally saved lives. Though looked down on by society, middle men perform a useful function in improving human well being.

  6. How Food Regulations Make Us Less Healthy


    Corn growers receive billions of dollars each year in subsidies from the U.S. government. The average American family pays $400 per year to subsidize corn. As a result, corn products and derivatives can be found in many items at American grocery stores. In the video, Professor Daniel J. D’Amico discusses how farm subsidies and other food regulations affect what Americans buy and eat.

    Regulations can also act as barriers to entry for smaller growers. For example, requirements for marketing food sold in the United States as “organic” are strenuous. While we may think this means the consumer is better protected from unscrupulous farmers, Prof. D’Amico shows how they form barriers to entry for small farmers. The paperwork and other costs associated with complying with the regulations for organic produce may prove too expensive and time consuming for the small farmer. This, in turn, makes it more difficult to find organic produce locally.

    Instead of allowing government to regulate and subsidize specific food types or farmers, Prof. D’Amico recommends a freer market. There are too many unintended consequences of food regulations and subsidies, such as price distortion and unfair competition between members of the same industry. A market without these distortions would allow consumers to buy less expensive, healthier food.

  7. Combating Global Poverty with a Cup of Coffee


    Millions of people in the developing world struggle to survive on just a couple of dollars a day. Fair trade claims that buying fair-trade labeled coffee is a way to help the poor. But is it the best way? Professor Colleen Haight has been researching fair-trade for the past 10 years; she’s also spent time on coffee plantations in Central America talking with the coffee farmers there about their experiences. She says that while fair trade has done a lot to increase consumer awareness, it may not be the best way to actually help the poor.

    Fair-trade coffees cost a little bit more than necessary and the extra profit is returned to the farmer. Fair trade farmers are small landowners, but migrant workers—who are much poorer than any landowner—do not benefit from fair trade. Fair-trade farmers are required to pay migrant workers the minimum wage in their country, but that’s already the law.

    Prof. Haight says there is a better way to help these poor migrant workers. You can help them by buying premium coffees instead of fair trade coffee. Premium coffee beans are harvested with greater care and fetch higher prices at the market. As a result, migrant workers receive higher pay working for farms that produce premium coffees. Premium coffees and fair-trade coffees cost about the same amount, but buying premium coffees does more to help the poor than buying fair-trade labeled coffees. You have a limited amount of money; you should be able to use it in a way that maximizes the benefits to the poor.

  8. Specialization and Trade: Because We Can’t Be Good At Everything


    Professor Art Carden is able to mow his yard, build a fence, and install a faucet all at the same time. How? He does this by specializing through trade. Rather than try to do those things himself—especially since he isn’t very good at doing them—he uses the money he earns doing what he specializes in to pay others to mow his yard, build a fence for him, and install a faucet.

    By employing others to do this work, Prof. Carden benefits because he can spend more time doing what he does best. He may also have more free time available because he does not have to use his spare time to mow his lawn, for example. At the same time, the people he hires to do the work around his house also benefit. They earn money working for him and are able to do what they specialize in, instead of having to spend too much of their time doing other things.

    Even if Wes, the man who mows Prof. Carden’s grass, is able to mow lawns and prepare economics lectures faster than Prof. Carden is able to do them, it still may be beneficial to trade. In the example that Prof. Carden uses to illustrate this, both he and Wes save thirty minutes by trading instead of each doing the same work. This frees up valuable time for them to spend as they please. This is a small example to show some of the logic behind a key principle in economics: Trade creates wealth.

  9. Capitalism Is NOT Imperialism


    Many people believe capitalism and imperialism are the same thing, or at least closely related. Professor Stephen Davies explains that this is not the case. While capitalism is based on voluntary exchange that benefits all parties involved, imperialism is based on exploitation and the exercise of political power, generally backed by a military force.

    We can see that capitalism and imperialism differ by looking at the history of empires in the world and examining trade patterns. Empires have existed for the whole of human history, long before the development of capitalism. Imperialism has led to the impoverishment of people and bears the blame for terrible famines, especially during the Victorian period in India. Under capitalism, we would expect to see global free trade between many countries, not just from world powers to less-developed countries, but also between less-developed countries. This does not happen under imperialism.

    While capitalism and imperialism have been closely linked in the minds of many, the truth is that the two systems are at odds with one another. Where one system flourishes, the other cannot. Many negative things, such as political corruption, the exploitation of the poor, and mass famines, have been blamed on capitalism, but that blame is misplaced. Real capitalism should work to improve circumstances for the poor by voluntary exchange, but imperialism hurts the poor by political or military domination that enables countries or government-backed businesses to profit at others’ expense.

  10. Why Do We Exchange Things?


    What can we learn about markets from a WWII POW camp? According to British economist R. A. Radford, POWs found that rather than give away unwanted rations to other POWs, “goodwill developed into trading as a more equitable means of maximizing individual satisfaction.” Professor Michael C. Munger explores what makes exchange more equitable than simply giving gifts. He finds that exchange is important for two reasons:

    1.       It corrects mistakes in allocation by moving things toward higher-valued uses.

    2.       It makes everyone involved in exchange happier.

    Prof. Munger provides a few examples of how exchange can make people better off without changing the total amount of wealth available. In one case, two people each have the same items but different preferences. In this case, they will exchange so each one has more of his or her preference. In another case, two people each have a different item, but both prefer to have some of both items. They will exchange so each one ends up with some of each item and both are happier. Exchange can even make people better off when they have different items and different preferences. This is the power of markets.

  11. Why Is There Corn in Your Coke?


    Coca-cola used to be made with real sugar, but in 1984 the makers of the soft drink replaced sugar with corn syrup. Why did this happen? Part of the reason is because corn syrup became less expensive than sugar. In fact, sugar is nearly twice as expensive in America as in the rest of the world. In this video, Professor Diana Thomas explains why.

    United States laws actually limit the amount of sugar imported each year. This limit causes the price of sugar to rise. Such a quota is meant to increase profits of domestic sugar producers and to protect them from foreign competition. The cost to Americans of this quota is a staggering $3 billion each year, in the form of higher prices for sugar and sugar products. But since the cost is split among all citizens, it isn’t worth it to the average American to complain.

    In contrast, sugar producers are much in favor of this policy. From 1980 to 1998, each U.S. sugar farmer earned approximately $3 million extra each year because of the quota. The farmers profit generously from this quota, while consumers are made worse off.

    How can we prevent some groups of taking advantage of others through laws like sugar quotas? One solution would be to limit what government can do.

  12. Top 3 Ways Sweatshops Help The Poor Escape Poverty


    Should sweatshops around the world be shut down? What might we say if we looked at sweatshops from the perspective of the world’s poor? While it may be true that sweatshops treat workers unfairly, Professor Matt Zwolinski says there are three points to be made in defense of sweatshops.

    • The exchange between the worker and the employer is mutually beneficial. Sweatshop jobs often pay three to seven times more than wages paid elsewhere in an economy. Workers in the developing world tend to view sweatshop labor as a very attractive option.
    • Even if sweatshop labor is unfair, it’s a bad idea to prohibit it. Taking away sweatshops just takes away an option for the poorest workers of the world. While countries can make it illegal for sweatshops to pay low wages, they cannot prevent sweatshops from shutting down and paying no wages. And when that happens, the workers all lose their jobs.
    • It is better to do something to end the problem of global poverty than it is to do nothing. Sweatshops are doing something to help. They are providing jobs that pay better than other alternatives, and they are contributing to a process of economic development that has the potential to offer dramatic living increases.

    If we look at sweatshops from the perspective of the world’s poor, which looks better: the American company that outsources to a sweatshop and provides jobs in developing countries, or the American company that, because of its high-minded moral principles, hires only U.S. workers?