Transcript Chapter 10 – Economic Globalization

Mr. Obama is making the flawed assumption that feeding these particular
sharks will not encourage more sharks to come to dinner.
Support, Challenge or Reject Keynesian Economics?
What is the purpose?
Chapter 10 – Economic
Globalization
Unit 3 – Ch 10-14
What is Sustainable Prosperity?
• Sustainable Prosperity = living a satisfying life,
as an individual and as a member of a
community, in a way that can be maintained into
the future.
• Different people have various perspectives on
what the criteria for “sustainable prosperity”
may be.
How did Economic Globalization
develop?
1. The establishment of a new international
monetary system (see notes from last week)
2. The creation of the World Bank and the
International Monetary Fund
3. The expansion of the free market economy into
former Soviet-bloc countries at the end of the
Cold War
4. The impact of new technologies on the
movement of $$ around the world.
What is the United Nations?
• The United Nations is an
international organization
founded in 1945 after the
Second World War by 50
countries committed to
maintaining international
peace and security,
developing friendly relations
among nations and
promoting social progress,
better living standards and
human rights.
2. World Bank & IMF?
• The World Bank = agency of United Nations provides loans to less developed countries that are
in financial difficulty, from Bretton Woods
Agreement, in charge of long-term financial
assistance for countries in need.
• International Monetary Fund = agency of
United Nations, from the Bretton Woods
Agreement, its purpose was to work together with
the World Bank to bring stability to international
monetary affairs and to help expand world trade.
Funded by quotas (proportional shares) that
member countries pay based on their size in world
economy. In charge of:
▫ Monitoring exchange rates
▫ Provide short-term financial assistance
3. Expansion of Free Market – Cold War
• The Cold War, that lasted over 40 years (1946 –
1989) was another driving force of change with
economic globalization.
• For 43 years, the world was divided between
▫ The communist world – The Soviet Union with a
planned economy.
▫ The Western Capitalist democracies – The United
Sates with a free market economy.
• As a result of the Cold War, many communist
countries decided to switch to a free market
economy.
• By 2000, an additional 3 billion people were
participating in the global market economy.
• Today, the entire world is part of the global
economy.
4. Technology and Communications
• New technologies decentralized the international money
markets, this means that instead of going through an
investment dealer, people could use their personal computers
to invest in companies and governments around the world.
The Electronic Herd
• Stocks and bonds could now be done from the computer, by
the stroke of a computer key billions of dollars could be
transferred worldwide.
Herd-like effect: profitable investments attracted
• more money, while funds that lost money lost even more
investors.
• “Like a herd of cattle, these investors can easily be spooked by
rumors that can cause a huge flow of money in and out of
countries. The movement of this money can have a big impact
on the currency and economy of a country, especially smaller
ones.”
– economist Thomas Friedman.
People of Economic Influence
Section 2 – Review
John Maynard Keynes
• British economist, developed theories
that called for a large role for
government in the economy.
• He argued that falling wages resulted in
decreased spending
• Direct government intervention in the
economy was necessary to increase total
spending and prevent- or lift the
economy out of recession.
• Today, Keynes’s arguments form the
basis of the rationale for gov’t spending
and taxation to stabilize the economy.
• Gov’ts spend and decrease taxes when
consumer spending is too low and
threatens a recession.
• Gov’ts reduce spending and increase
taxes when consumer spending is too
great and inflation becomes a problem.
Friedrich Hayek
• Believed when gov’ts try to plan or
control societies, those societies are
doomed to fail.
• Human societies are too complex to
be planned
• He analyzed totalitarian regimes
(USSR and Nazi Germany), where
governments had enormous control
over every aspect of society, including
the economy.
▫ These gov’ts claimed they were
creating an ideal state, i.e. stripping
the people of the basic rights and
freedoms.
• Role of government must be limited
in any society (generally accepted
policy today)
Free Trade and Economic
Globalization
Section 3
Contemporary Economic Globalization
• Economic Globalization = free trade
• Of the 193 Countries in the world, 190 have signed
at least one trade agreement.
Import vs. Export
Import – bringing goods into the country
Export – sending goods outside of the country
What is a tariff?
• A tariff is a tax imposed on imports to increase
their price and thus reduce competition with
domestic products.
General Agreement on Tariffs & Trade
GATT
• GATT = agency of the United Nations
• Established in 1947 (end of WWII)
• Operated according to 3 principles:
▫ Conducting trade in a non-discriminatory manner
(equal advantage)
▫ Treating imported goods from a member country
in the same manner as domestic goods (equal
taxation)
▫ Protecting domestic industries through tariffs
FTA = NAFTA
• 1989 FTA – Free Trade Agreement between
United States and Canada.
• Removed most tariffs between the two nations.
• 1994 FTA is extended to include Mexico &
becomes NAFTA – North American Free Trade
Agreement = largest free trade area in the world.
Canada Wanted:
•access to large US market
because of significant difference
in population size.
United States Wanted:
•Canada’s natural resources:
-Oil
-Gas
-Minerals
-Lumber
2 Perspectives on Free Trade
• Freer trade provides countries around the world
with great opportunities and benefits.
• Freer trade actually results in a number of
negative impacts for countries and their citizens.
Impact of Freer Trade on Canada
• The problem surrounding Canada-US trade is
the population size.
• The United States has 10 times Canada’s
population and is the world’s largest economy.
Two things can happen:
1. American industries can easily swamp
Canada’s smaller market with their products or
services, forcing local industries to adapt and
compete or face closure.
2. Smaller Canadian industries can adapt and
grow by selling their goods or services in the
huge US market.