Michael Taillard - 101 Things Everyone Needs to Know about the Global Economy: The Guide to Understanding International Finance, World Markets, and How They Can Affect Your Financial Future

Issues in global economics are common news stories, but its sometimes difficult to find out what any of it actually means. Even though those current events are among the most important in your life, the people who give you the news often dont know or explain how these issues will affect you.

This is why we should start with the basics. Not only is everything else in global economics built upon these fundamentals, but even these most basic principles impact our daily lives. Unless you know what youre looking for or how to properly respond, youre at the mercy of the ebb and flow of the economic tides that reach across the globe.

Globalization refers to both the increasing integration of the worlds nations and the process by which that integration occurs. Although globalization is not a new conceptthere are major international trade routes dating back at least as far as 2,000 B.C. trends in technological advancements and cross-border issues have dramatically increased the degree to which far-separated locations on the earth have become interconnected, both economically and otherwise. Much of what contributes to the increased globalization is attributed, rightfully or not, to the efforts of governments as they work to coordinate agreements and treaties that facilitate these international interactions (the development of trade blocs such as the European Union, for example). The reality, however, is that globalization often occurs independent of any government policy.

Increasing globalization is inevitable; it affects all industries and all nations. What is its real cause? In a word: technology. As we make improvements in our ability to communicate instantly across long distances and more quickly transport people and cargo, our ability to take advantage of the benefits of associating with foreign nations increases. Not only have these technological advances made it faster and more convenient to buy and sell goods across the globe, but its also cheaper because were improving the cost efficiency of communication and transportation, as well as decreasing the risks associated with transporting goods over long distances.

Consider such new technology as the cargo jet, the computer, or even just the telephone. Because of these inventions, to place an order we no longer have to send a letter overseas (where it can easily go astray). We dont have to pay a higher price to cover the risk that the company were buying from might lose shipments to storms or bandits.

Globalization is a fact, but like many facts, it isnt all good or all bad. For example, pollution crosses national boundaries without concern for what policies are in place to limit international trade. The airborne carbon from a Chinese coal power plant is dispersed through the global atmosphere just as easily as the ash from an Icelandic volcano or the fallout from a nuclear bomb. At the same time, research and trade in information goes on daily between nations using informal or unofficial channels.

Globalization means we can better take advantage of a greater range of markets to which we can sell our goods or from which we can purchase our supplies. Economists study and try to explain human behavior in their relations with one another. Globalization is an inevitable result of our own attempts to maximize the value of our transactions. It has increased during the past few decades as a result of technological advances, and so has global economic interdependence.

If you buy something from someone on the other side of the planet, the principles are still the same as if you were trading with someone across the street. National boundaries are artificial barriers that add complexity to our transactions (which will be discussed in later chapters), but other than the sheer distance involved, the transactions themselves are no different.