Globalization

I’ve been teaching the concepts of comparative advantage and trade in class. We’ve had a good discussion on the reasons many people are against trade, how valid/invalid they are and finally I asked them to come up with one positive and one negative effect of globalization -  they came up with many positive effects and maybe one negative effect in the form of cultural impositions. Then I was a discussion facilitator for the film “Economics of Happiness” by Helena Norberg-Hodge, Steven Gorelick & John Page in a community showing, and they seem to list many many reasons why we should localize and not globalize. I won’t list all those reasons – the main idea is we were much happier and close-knit communities before “economic” globalization (since cultural globalization is still welcome) and all economic globalization has done is make consumerism dominant and people more lonely.

I do agree that economics (efficiency in particular) should not be the sole reason for a decision on whether or not to trade, but it is not, there are political and cultural considerations when it comes to trade. If only efficiency were at play, we would not have to worry about immigration laws or taxes. However, to blame consumerism on globalization doesn’t work for me. I think people in general have to choose what they need and what they want. To blame the fact that they want more and more things on globalization is like saying the reason I’m not able to make up my mind is because I have so many choices…don’t we want the freedom to choose? Is there a point where there’s too much choice?

I also agree that people have grown more unhappy in general over the years – how much does this have to do with globalization versus just having a substantial increase in population and a competition for resources?

A major point which someone in the audience made was – how “local” should this localization be?

The idea of “sunk cost”

I created this account yesterday and spent some time thinking what I would write. It’s been a while since I’ve posted things online (other than the few random comments on Facebook and such. I realized when I thought about it that what I wanted to write were just totally random thoughts on anything and everything. So let me get started with this…

The idea of sunk cost in economics is that once an expenditure is made (or an action taken), it is irrelevant for future decision-making. What it is basically saying is – once you’ve purchased a movie ticket it doesn’t make sense to put yourself through a really bad movie just because you’ve paid for the ticket. Yet in our day to day lives, this is what we do.

My husband and I keep having this recurring argument about “wasting” an education. His contention is that you’ve spent the time and effort to get through college and get a degree (thereby presumably preventing someone else from getting one), so you have to do something with it. In my opinion the education is now a sunk cost and any decision-making should be done based on costs and benefits of that decision (I’m not talking monetary costs and benefits alone here). That’s not to say I follow the idea of a sunk cost in all my decisions. Recently we went on a cruise that took us to the Bahamas and the website said we needed to get a visa. I did that with a total cost of $150 (not so much when you think of it), only to go there and see that no one checked my visa! This now is clearly a sunk cost and my husband was able to let it go as such, not me!

So my thinking is that it is not that the concept of sunk cost is difficult to understand or put in action, but that it is not applicable for all things for all individuals – duh! Here, as in many other instances in economic theory, the underlying assumption of the rationality of human beings is the one in question.