MIM 513 Pacific Rim Economies Class One – Introduction to Globalization

Introductions and Syllabus review Country & Team Selections & Current Events sign-up Metrics & Current Events - Economic indicators – ISM Data Overview / Historical Thought What is International Economics about? Ricardo comparative models Globalization Overview – Articles Review Agenda

Economic Historical Thought Adam Smith – Invisible Hand (Against Mercantilism) John Maynard Keynes – pro-gov stimulus (IS-LM) (“It is better to be roughly right than precisely wrong”) David Ricardo – labor theory of value & trade Karl Marx – Surplus value / Exploitation labor Thomas Malthus – (Principals of population / Moore’s law) Milton Friedman – (“No Free Lunch” / monetary theory)

What is International Economics about? $3Trillion of foreign exchange transactions / day $12T goods & $3T services are sold across borders Four elements of International Economics: –Outsourcing –Immigration –Currency exchange –Sovereign wealth funds

What is International Economics about? Sovereign Nation States allow for: –Factor Mobility – Land, Labor, & Capital were viewed as national –Capital is the largest factor of production that moves Differing fiscal policies and regulations –Banking and financial systems Differing currency EU versus UK

Globalization Globalization – Interdependent and integrated world economy All firms export and import – 97% of firms in US <500 employees Globalization of Markets – global norms equate to trade 2006 over 2,500 trade treaties have been signed vs. 181 in Globalization of Production – low-cost factors of production

Example – Boeing 787

Dialectic Marketplace

Globalization Globalization can be cultural, political, & economic. –Cultural: A new Universalism (laws versus Jihad) –Political: policies regarding factors of production (oil) –Economic: Markets and Production Globalization of Markets – global norms equate to trade Globalization of Production – low-cost factors of production – Ricardo

Globalization -W-Bank – states that by % of econ activity by developing nations, today 35% -Foreign Direct investment is easier with technology -Multinationals are not the only participants; Haier for ex. -Backlash against market economy in some nations (Russia) -China is even different by province (Shenzhen vs. Hong Kong vs. Shanghai) -Outsourcing & Jobs -Consumer savings vs. job displacement -Division of income widens -Environment degradation in developing nations

Globalization - Political systems -Socialism vs. Capitalistic -“Follow the party” vs. free market -Intellectual Property issues -Foreign Corrupt Practices Act -Purchase Power Parity –

Overview of terms MPC / MPS GDP (location) / GNP (ownership) Income & IS-LM M1 (consumption) / M2 (M1 + savings, CDs) M3 (M2+ CD>$100K, 401K) = ~90% of $$$ Surplus Labor / Value Supply / Demand Consumer & Producer surplus

Overview Cont. Supply / Demand Consumer & Producer surplus Price Discrimination -> £8 charge leading to internet Sales Elasticity of Supply & Demand Formulas

Elasticity of Demand – what is it? Demand creation and consumption modeling

Ricardo’s comparative advantage – Beginning of Trade - Defined : A country will export goods with a low opportunity cost and import goods with a high opportunity cost - Key is relative or comparative, one country cannot produce everything -Comparative vs. Absolute advantage -Gains from Trade – models -Production Possibility Frontier (PPF) -Economies of scale – Efficiency (slope of PPF) -Aggregate shifts in PPF -Efficiencies in resources -Hechscher-Ohlin model – some countries have more resources -China- labor vs. US Agriculture -Flaw – assumes tech is equal

Inequality – GINI

HBC Inequality & Globalization What do we know? - Human development index (Gini) – life expectancy, education, & Std of living based on PPP -China – 43.4 but U.S. – 40.8? -Apartheid economy developing? -An issue in both developing and developed nations -GDP growth; PPP effect normalizes a little

Questions: -MDG / WB poverty levels muddying the water? $1 or $2 / day? -What is the cause of inequality? -Is trade to blame? Type of exports / imports? -Is it technology? -Is it governance? -What should be done as a global citizen and as a business leader?

Two Articles - Discussion Krugman, P (2009). How did economists get it so wrong? Cleveland, P. (2011). A vital link: Foreign markets and Oregon jobs.

Krugman’s point - Discussion -Monetarists versus Keynesian policy – Saltwater vs. freshwater economists -Financial markets do go offtrack, depressions are bad and can be avoided -Externalities do create abnormal behavior without consequence (pollution, real estate bubble based on sub-prime behavior) -Low inflation & high growth was over too long a period

Krugman – Multiplier deficits

Cleveland Article – MFG Jobs