Globalization

by Don Boudreaux on June 25, 2009

in Trade

Canada's wonderful Fraser Institute honored me by asking me to write a short essay on globalization, and then to participate in an on-line Q&A session with students on this topic.  Here's the result.

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{ 24 comments }

MWG June 25, 2009 at 9:24 pm

Great post.

dg lesvic June 25, 2009 at 10:03 pm

Congratulations. Wonderful exposition.

And, likewise, your answers to the questions put to you,

Russ Nelson June 25, 2009 at 11:16 pm

Honoured you, Don, they honoured you.

Male Enhancement Products June 25, 2009 at 11:51 pm

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Paul Sebastian June 26, 2009 at 12:24 am

Great piece! It's worth noting that though the event was 'for students' it should be required reading for the world's politicians, namely ours here in the US!

vidyohs June 26, 2009 at 7:09 am

Don,

From reading the questions, I got the sense that most of those who did submit questions missed the understanding you gave them that globalization was/is inevitable, and not something that has to be artificially created or stimulated. Globalization is simply what happened when people were left alone and developed the communications and delivery resources to foster trade beyond the distance they could walk or drive.

I read a lot of silly propaganda reflected in the questions they asked, as well.

May I ask a question, perhaps in the form of a comment?

Like yourself, I have great faith that the market will, and can, satisfy consumer demands without external forces to plan and direct it. Just leave it alone.

But, here is my observation that I am bothered by.

Our "market" is not the same market that Adam Smith wrote about, nor is it the same as Mises wrote about, Hayek possibly missed it, and of the greats possibly only Freidman saw the transition and acknowledged it. I have to confess I have not read any of those, so I may well be way off base.

The reason I say our market is not the same market Adam Smith wrote about, and can feel confident in saying it is that Adam Smith had no way of knowing how effective our world has learned to manipulate through advertising consumer desires. Manipulation that goes beyond fads. Smith surely saw fads, but did he see the power of advertising that we see today.

In essence I am saying that while the market responds, it now also creates; and, this puts a whole new dynamic into play that I am struggling to understand at a higher level than just street wisdom.

Though I am 67, I did not see the beginning of public manipulation via advertising, as that really happened with the advent of commercial radio; but, my studies make me aware of that. I have seen that power of manipulation expand astronomically with the advent of commercial television.

Would you share your thoughts, however briefly, with us on the idea that the market responds but also creates; and, what you see that bringing us in the future?

Tim June 26, 2009 at 7:26 am

Wow – wonderful piece! I love the questions and answers. The questions posed to you were obviously not watered down – they were the exact questions you hear from people and you answered them beautifully! Wonderful job!

vidyohs June 26, 2009 at 7:44 am

Don,

Just to clarify. When I said the market responds and also creates, I was addressing demand.

The market responds to demand, and it also now creates demand, at least that is the way I see it.

Of course that means that I see the advertising field as being as much a market as any other facet of commercial activity or trade.

Daniel Kuehn June 26, 2009 at 9:31 am

vidyohs -
That's a very interesting question – I think to a large extent all economists treat demand as a black box – not just neo-classical types who wrap it up in a utility function, but Austrians too who assume that WHAT people demand is their business – the same as almost all other economists approach the issue.

This really gets at the heart of what we mean when we say that the market is "optimal" or "efficient"… we mean "optimal conditional on the desires – transient or not so transient – of consumers". And maybe that's fine. I have a lot of faith not just in markets, but in people for demanding what truly has utility for them. But obviously it can't be perfect – and advertising plays into that. We have to always remember that the optimality we refer to is conditional on the inputs into the system – the inputs into human demand.

Slightly different, but you should look into the work on "multiple selves" that psychologists have done. It really raises some interesting issues on questions of inter-temporal demand. The idea is that your current self may demand something that your future self has to pay for (but may not demand anymore), or that your past self saved for (but may not have wanted). Inter-temporal utility maximization assumes that it's the same decision-maker at every time period. If this "multiple selves" theory holds any water, it's going to raise serious questions about intertemporal optimaility.

Seth June 26, 2009 at 12:10 pm

Don – Impressive. Focused. Easy to understand. Good questions and good answers. That's a great example of how such exchanges should take place.

dg lesvic June 26, 2009 at 12:46 pm

Vid,

What you call manipulation could as well be called leadership. There is nothing new about entrepreneurship leading the market. Transitor radios emerged not because of market demand for them but entrepreneurial anticipation of market demand for them.

No amount of manipulation could get people to buy Edsels. You can only "manipulate" them into something that satisfies them.

And what's wrong with that.

Remember too that the advertising is part of the product. If images of beautiful girls and young fellows cavorting over bottles of Phiz Slurp makes it more enjoyable for you, what's wrong with that?

And, whatever is wrong with it is the price of freedom, which liberals are never willing to pay, but you and I are.

dg lesvic June 26, 2009 at 2:51 pm

To have said that entrepreneurship leading the market was nothing new was an understatement. For that was its specific role. There are very few capable of anticipating and leading us into the future. Whether you call them manipulators or entrepreneurs doesn't change the fact that they are the indispensable leaders of the market.

And that is why the pencil pushers of Wall Street who don't appear to be doing anything productive are so well paid for it.

Jack of Spades June 26, 2009 at 5:02 pm

vidyohs -

The idea of the market artificially creating demand was raised by John Kenneth Galbraith as well. It's incorrect, however, to say that Hayek missed it. He published a very worthwhile essay answering Galbraith called "The Non-Sequitor of the ‘Dependence Effect." I'm sure you can find it online, if you're curious to know Hayek's views on the subject.

Sam Grove June 26, 2009 at 5:18 pm

Of course people are manipulable.
We are emotive beings, after all.

The commercial sector is not alone in recognizing the utility of emotional manipulation.

"What about the poor/children/etc.?"

I'm sure that rings a bell.

Commercial advertising is about attaching various means to basic human desires, hence hot sports cars are linked to reproductive instincts.

Of course, there is the issue of consumer fatigue. We get used to these manipulatives and begin to tune them out.

So they try harder.

Mandeville June 26, 2009 at 7:09 pm

Vidyohs,

You're not too old, at 67, to read Mises. "Human Action", by Mises, is the bible. You say that markets have changed, but the dynamics haven't.

Market manipulation has existed since time immemorial. Markets exist despite imbalances of power that favor some over others. Most legislation is for the purpose of favoring some groups at the expense of others. Even legislation that would prohibit what you call "manipulative advertising" falls into that category too. In a 'free' market, everyone has a right to portray themselves or their products as they wish, even to a fraudulent degree. This is because the 'quality' of things is a subjective measurement. It can't or shouldn't be legislated.

vidyohs June 26, 2009 at 11:12 pm

To all the kind gents that offered to guide me,

Thanks.

Professor Boudreaux,

You'd think I'd be smart enough to actually be aware of exactly when Hayek and Mises lived and died, but there it is, I was foolish to even mention them as they obviously saw the effects of the growing ability of consumer manipulation by the science of advertising.

However, my main focus was on Adam Smith who wasn't a contemprary of mine in any sense. He was the "Wealth of Nations" guy and spoke to the invisible hand.

I absolutely believe in the theory of the invisible hand, all 6 billion plus of us, so don't for a minute think I am mocking him.

I am even uncomfortable using the singular term market because of my awareness that there is no "market" per se, unless you're speaking generically to cover all 6 billion plus of us.

However, like the founding fathers of this nation, the authors of the Declaration of Independence and the Constitution, he could write timeless and valuable words, but had no real reason to predict, or even believe he could predict, how "the Markets" would evolve over the years.

So, back to Don, and my question, expressed clumsily and foolishly above:

Do you see the market(s) as being as Adam Smith saw them, or am I correct in saying that what we have today is not the same market(s), precisely because of the ability of market forces to quickly and eaisly create demand by intense and sustained advertising. Do you suppose Adam Smith might think that the whole scheme had simply run amok?

I advanced my idea that "the market" responds to demand, but now also creates demand. Is that a concept already addressed by others, and if so which of the great gurus would that be and what would I read to see what they thought and wrote?

Try as I might, I can see no demand for Miley Cyrus. Yet the market created her and reaped great rewards. I have seen nor heard of any great demand for a replacement for Miley Cyrus, yet her successor is already picked and being marketed.

I never saw a demand for the I-Phone. The Blackberry is a perfectly acceptable tool, yet the I-Phone was created, then marketed in such a way that the demand followed.

I never saw any demand for the I-Pod, yet it is the same as with the I-Phone. It was created on the assumption that the demand would follow as it was advertised.

I am even willing to advance the notion that there was no real demand for our current president, yet he was recreated by the media and supporters in a mold sufficient for the demand to follow.

There are countless examples in modern life, especially since commercial TV hit the air, of the market creating demand.

Fabian
Tailfins on early 60's sedans
Doubleknit Polyester suits
Cap & Trade Carbon emmission credits

I am curious as to your thought on how you might imagine Adam Smith might rewrite his book if he lived today?

vidyohs June 26, 2009 at 11:14 pm

To all the kind gents that offered to guide me,

Thanks.

Professor Boudreaux,

You'd think I'd be smart enough to actually be aware of exactly when Hayek and Mises lived and died, but there it is, I was foolish to even mention them as they obviously saw the effects of the growing ability of consumer manipulation by the science of advertising.

However, my main focus was on Adam Smith who wasn't a contemprary of mine in any sense. He was the "Wealth of Nations" guy and spoke to the invisible hand.

I absolutely believe in the theory of the invisible hand, all 6 billion plus of us, so don't for a minute think I am mocking him.

I am even uncomfortable using the singular term market because of my awareness that there is no "market" per se, unless you're speaking generically to cover all 6 billion plus of us.

However, like the founding fathers of this nation, the authors of the Declaration of Independence and the Constitution, he could write timeless and valuable words, but had no real reason to predict, or even believe he could predict, how "the Markets" would evolve over the years.

So, back to Don, and my question, expressed clumsily and foolishly above:

Do you see the market(s) as being as Adam Smith saw them, or am I correct in saying that what we have today is not the same market(s), precisely because of the ability of market forces to quickly and eaisly create demand by intense and sustained advertising. Do you suppose Adam Smith might think that the whole scheme had simply run amok?

I advanced my idea that "the market" responds to demand, but now also creates demand. Is that a concept already addressed by others, and if so which of the great gurus would that be and what would I read to see what they thought and wrote?

Try as I might, I can see no demand for Miley Cyrus. Yet the market created her and reaped great rewards. I have seen nor heard of any great demand for a replacement for Miley Cyrus, yet her successor is already picked and being marketed.

I never saw a demand for the I-Phone. The Blackberry is a perfectly acceptable tool, yet the I-Phone was created, then marketed in such a way that the demand followed.

I never saw any demand for the I-Pod, yet it is the same as with the I-Phone. It was created on the assumption that the demand would follow as it was advertised.

I am even willing to advance the notion that there was no real demand for our current president, yet he was recreated by the media and supporters in a mold sufficient for the demand to follow.

There are countless examples in modern life, especially since commercial TV hit the air, of the market creating demand.

Fabian
Tailfins on early 60's sedans
Doubleknit Polyester suits
Cap & Trade Carbon emmission credits

I am curious as to your thought on how you might imagine Adam Smith might rewrite his book if he lived today?

Gil June 26, 2009 at 11:36 pm

Don Boudreaux is rather photogenic! ;)

LowcountryJoe June 27, 2009 at 7:20 am

Vidyohs:

The research and development that goes into such things is quite extensive and expensive. Because of this, the 'market' is tested before production gets underway. You may not have seen a demand for such things but it was not just assumed to be there; it was known to be there otherwise the financial risk to begin production only to have the product bomb would have been too great.

The advertising then became a means to inform that the product exists. But more than inform, it also likely managed to convey the 'coolness' of just having the product. If successful, hype will follow.

So, yeah, many marketers are good at what they do but they wouldn't nearly be as good if our society were not so prosperous and focused on signaling things to one another. Because signaling things to one another [so as to get dates or attention, for examples] is very much a part of fullfilment [think Maslow's Hierarchy of Needs] and therefore utility.

As for products that just don't work (or are inferior] yet there's still a demand for them: they typically do not last long and the R & D that goes into them is only a fraction of a truly good product. The marketing in these instances is typically one that targets a deep-seated insecurity in those willing to try the product. Some examples that I can think of here are products to counter the effects of fatigue, balding, greying, being overweight, and all the 'enhancement' products that exist.

Mandeville June 27, 2009 at 9:21 am

The fundamental nature of markets have not changed since the time of Adam Smith until today. Only the wealth of people has changed. The examples cited by vidyohs can be explained.

Mises never described demand as causing supply to exist, or described supply as something responding to demand. In between is the entrepreneurial function that affects both. There is a difference between what the textbooks call "economic man" and man the total human being. "Human Action" is a treatise on man the being, rather then man the rational economic animal.

The marxists used to say, and still do, that socialism would be superior to capitalism because demand would be legislated to consist of only what is useful. The authorities would thus decide what people needed and what they didn't. They would say that capitalism was wasteful because it squandered resources creating trivial products, etc.

Once the basic physical needs of people are met, their demand for consumption shifts to things that provide them psychological recognition from their 'chosen' peers, or the social groups upon whom they seek to impress. The genius of the entrepreneur is that they see how this works. It is inappropriate to call this manipulative unless you admit to having been manipulated by your culture in virtually every aspect of your thoughts, emotions and beliefs. Yes, one can say that we are all manipulated to believe certian things. But the "demand" of the "ego" pre-exists the products offered to it for consumption. The advertising of products for the ego did NOT create the demand for them.

As societies grow richer, a higher percentage of products will be for the purpose of providing psychological value for the consumers. It is a fallacy to think that anything has changed regarding markets since the time of Adman Smith until today. Much was marketed and purchased that satisfied the ego then too. For example, people bought religious art and relics that had no functional value whatsoever. The rich bought rare things with limited usefulness just to distinguish them from the masses.

vidyohs June 27, 2009 at 11:22 pm

et.al.,

Maybe my momma dropped me on my head when I was a young man, but I think there is something in what I said. More than you folks seem willing to examine.

I see the market as not only responding to demand, but in many cases creating that demand.

I am still wondering how I missed the great groundswell of demand for Hannah Montana!

Where did that great groundswell of demand for Barak Obama come from? Are you telling me that was not created by the political market?

I have been a tad more than just comatose for the last 67 years, and I also missed the great groundswell of demand for the I-phone (a near duplicate of the Blackberry).

No "the market" today is not the same "market" that Adam Smith dealt with. The basic buy/sell is not even always the same. In his day there was credit but not time payments, that alone makes the markets dealing in credit selling/buying function differently.

The most sophisticated form of advertising Adam saw may have been a man wearing a sandwich board walking around downtown. Adam had no idea or even suspicion of how sophisitcated that market was to become.

The invisible hand is the ruler in fact, but the invisible hand can be taught to respond to outside forces.

Sam Grove June 28, 2009 at 10:59 pm

I am still wondering how I missed the great groundswell of demand for Hannah Montana!

Where did that great groundswell of demand for Barak Obama come from? Are you telling me that was not created by the political market?

There are several factors in play which I think are based in human tribal instincts.

1 Conformity
2 Status seeking
3 Follow the leader

Gil June 29, 2009 at 2:23 am

"There are several factors in play which I think are based in human tribal instincts.

1 Conformity
2 Status seeking
3 Follow the leader"

Can you not re-read what your wrote and get a cold shiver, S. Grove?

cheap kamagra jelly July 9, 2009 at 6:11 am

Thanks a lot!

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