Friday, February 28, 2020

The Consequences of a Global Economy

In my American History class, I explain the Market Revolution of the early 19th century:

A transformation from subsistence or local economy to money exchange of products over long distances

Subsistence: when nearly everything you consume you also produce and vice versa
A farmer makes much or most of materials he needs
•Grows his own food
•Makes his own leather (from wild animals or livestock)
•Makes his own clothes
–Little or no cash purchases or sales

Local economy
–Most everything you buy or sell is made within a few miles of you
–Some money trading hands, but lots of barter
–Common for societies with:
•Poor transportation
•Legal barriers to trade such as high tariffs
•Part of what held Europe back while the U.S. surged ahead

Market revolution
–Farmers and manufacturers:
•Selling products on a national or international scale
•Specializing in particular goods
–Consumers buying nationally or internationally
–Barter is impractical at long distances: money takes over
–What is the advantage of such a global market?

•Market revolution
–Efficiencies: some places or people are better at making some stuff
•Pineapples hard to grow in New England
•Apples not the best choice for Louisiana
•Manufacturing where rivers provide abundant power
•Smelting iron near coal seams
•Repetitive tasks where labor is cheap
•Market revolution
And this is where the coronavirus disaster comes in:

•Suddenly, what happens in Alabama matters in England
•Economic problems in one state can cause serious unemployment in another state
•But I don't think we want to go back to subsistence, or even a purely local economy
–“Visualize Industrial Collapse” bumper stickers: someone isn't clear on the concept

The stock market has probably wiped out $100,000 of my IRA in the last week, driven by coronavirus panic and interconnectedness.  (I am reluctant to check, because it will just depress me, and after this crisis is properly handled, my mutual funds will likely come back even stronger from having bought at the lower prices.)

1 comment:

  1. We’re down about that much too. Our investment advisor will use some of our cash to buy in at the bottom.