Naked Economics Wheelan, Charles (books to read for 13 year olds TXT) 📖

If the World Bank is the world’s welfare agency, then its sister organization, the International Monetary Fund (IMF), is the fire department responsible for dousing international financial crises. Iceland called the IMF. So did Argentina, Mexico, and all the others. The IMF was also conceived at Bretton Woods as a cooperative global institution. Members pay funds into the IMF; in exchange they can borrow in times of difficulty “on condition that they undertake economic reforms to eliminate these difficulties for their own good and that of the entire membership.” No country is ever required to accept loans or advice from either the IMF or the World Bank. Both organizations derive power and influence from the carrots they wield.

Few institutions have attracted as much criticism as the World Bank and the IMF from such a broad swath of the political spectrum. The Economist once commented, “If the developing countries had a dollar for every proposal to change the ‘international financial architecture,’ the problem of third-world poverty would be solved.”15 Conservatives charge that the World Bank and the IMF are bureaucratic organizations that squander money on projects that have failed to lead nations out of poverty. They also argue that IMF bailouts make financial crises more likely in the first place; investors make imprudent international loans because they believe the IMF will come to the rescue when a country gets into trouble. In 2000, the Republican-led Congress convened a commission that recommended shrinking and overhauling both the World Bank and the International Monetary Fund.16

At the other end of the political spectrum, the antiglobalization coalition accuses the World Bank and IMF of acting as capitalist lackeys, forcing globalization on the developing world and leaving poor countries saddled with large debts in the process. The organizations’ meetings have become an occasion for violent protest. When the two institutions held their fall meeting in Prague in 2000, the local Kentucky Fried Chicken and Pizza Hut both ordered replacement glass ahead of time.

As the global recession of 2007 unfolded, the United States criticized several European nations for not doing more to stimulate their economies. The specific criticism is debatable, but it makes a crucial point nonetheless. For the American economy to recover, the European economies needed to recover, too. And Japan. And China. And every other major economy. Nations are not competitors in the traditional sense of the word. After all, the Red Sox would never complain that the Yankees were not doing enough in the off-season to improve their team. Baseball is a zero-sum game. Only one team can win the World Series. International economics is the opposite. All countries can become richer over time, even as individual firms within those countries compete for profits and resources. Global GDP has grown steadily for centuries. We’re richer collectively than we were in 1500. Who got poorer to make that possible? No one. The goal of global economic policy should be to make it easier for nations to cooperate with one another. The better we do it, the richer and more secure we will all be.

CHAPTER 12

Trade and Globalization:

The good news about Asian sweatshops

Imagine a spectacular invention: a machine that can convert corn into stereo equipment. When running at full capacity, this machine can turn fifty bushels of corn into a DVD player. Or with one switch of the dial, it will convert fifteen hundred bushels of soybeans into a four-door sedan. But this machine is even more versatile than that; when properly programmed, it can turn Windows software into the finest French wines. Or a Boeing 777 into enough fresh fruits and vegetables to feed a city for months. Indeed, the most amazing thing about this invention is that it can be set up anywhere in the world and programmed to turn whatever is grown or produced there into things that are usually much harder to come by.

Remarkably, it works for poor countries, too. Developing nations can put the things they manage to produce—commodities, cheap textiles, basic manufactured goods—into the machine and obtain goods that might otherwise be denied them: food, medicine, more advanced manufactured goods. Obviously, poor countries that have access to this machine would grow faster than countries that did not. We would expect that making this machine accessible to poor countries would be part of our strategy for lifting billions of people around the globe out of dire poverty.

Amazingly, this invention already exists. It is called trade.

If I write books for a living and use my income to buy a car made in Detroit, there is nothing particularly controversial about the transaction. It makes me better off, and it makes the car company better off, too. That’s Chapter 1 kind of stuff. A modern economy is built on trade. We pay others to do or make things that we can’t—everything from manufacturing a car to removing an appendix. As significant, we pay people to do all kinds of things that we could do but choose not to, usually because we have something better to do with our time. We pay others to brew coffee, make sandwiches, change the oil, clean the house, even walk the dog. Starbucks was not built on any great technological breakthrough. The company simply recognized that busy people will regularly pay several dollars for a cup of coffee rather than make their own or drink the lousy stuff that has been sitting around the office for six hours.

The easiest way to appreciate the gains from trade is to imagine life without it. You would wake up early in a small, drafty house that you had built yourself. You would put on clothes that you wove yourself after shearing the two sheep that graze in your backyard. Then you would pluck a few coffee beans off the scraggly tree that does not grow particularly well in Minneapolis—all the while hoping that your chicken had laid an egg overnight so that you