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A Beginner's Guide to the World Economy: Eighty-One Basic Economic Concepts That Will Change the Way You See the Worldby Randy Charles Epping
Author Q & A
Q: Why is there a need for an updated, third edition of A Beginner's Guide to the World Economy?
A: Over the last few years, there's been a virtual explosion in the world economy. Every day we're being confronted with complex economic concepts--such as trade wars, stock options, black markets, G7/G8, income gaps between rich and poor--and many of us are at a loss to understand it all.
Unfortunately, faced with the baffling complexity of the world economy, many people are turning against it. And I'm not just referring to protestors in Seattle or Davos, calling for an end to "globalization"--whatever that is. Many consumers in rich countries in North America and Europe are now refusing to buy foreign products--either out of loyalty to local businesses or because they think it is "immoral" that people in Third World countries are paid as little as a dollar an hour.
This backlash against globalization is anything but benign. Turning our backs on world markets and foreign products can actually end up hurting our own businesses and even end up taking jobs away from the very people we are trying to protect--the world's poor. Hunger, disease, and poverty aren't going to be ended by blowing up a McDonald's in Paris or smashing the windows of a Starbucks in Seattle.
Q: What solutions do you propose?
A: The first step is to become economically literate. If we want to help the world's poor, we need to know how the global economic system works. If we want to invest in foreign markets, we first have to understand the basics of international finance. If we want to fight against exploitation of workers, we have to do it in a way that isn't going to take their jobs away. If we're going to succeed in this new world economy, whoever we are, we have to understand the basics.
Q: How does this book allow people to become economically literate?
A: As the title says, it's a beginner's guide, providing simple explanations of eighty-one basic concepts-from GDP to hyperinflation to free trade to Swiss bank accounts. The idea of the book is to provide readers with an easy-to-read guide, a primer that allows them to understand the basic concepts of the world economy without having to go all the trouble of reading a normal economics textbook.
Q: What's wrong with normal economics textbooks?
A: Nothing--if you have the time and the energy to read them. Anyone who's ever taken an economics class, however, knows how difficult it is for economists to relate their complex theories to our daily lives. Traditional economics textbooks, with all their equations and formulas, are simply not an option for people in today's busy world.
Q: How is your book different?
A: First, I only cover those economic concepts that touch our daily lives. And instead of using graphs or equations, I explain these concepts by using simple, everyday examples. For example, I use a monopoly game to explain how money supply affects inflation and interest rates, and Gilligan's Island to describe a simple market economy.
My view is that the world economy is really no more complicated than the domestic economy we experience every day--it just has to be explained in an easy-to-understand manner.
Q: Who should read this book and why?
A: Anyone whose daily life is touched by the world economy--and these days, we're all affected, one way or another. Consumers, college students, managers, farmers and environmental activists--we're all being asked to make economic decisions on a daily basis, and it's important for us to base those decisions on sound economic principles.
The internet and expanding cross-border communications are allowing the world economy to touch our lives in ways unheard of just a few years ago--from new jobs, goods, and services to new threats to our economic welfare at home. By understanding the basics of the world economy, we will be able to make better decisions--as consumers and voters--about where we want this world to go.
Q: Can this book be used by investors?
A: Of course. Any successful foray into the global marketplace must be accompanied by a thorough understanding of the basics. Would you invest in a dot-com company without first understanding what the internet is?
I do warn readers in the introduction, however, that this is not a get-rich-quick book--it won't tell you how to make a killing in foreign markets, for example. But it will tell you how you can invest abroad and how you can keep track of those investments. Investors will find chapters on evaluating international risk, currency options, equity funds, hot money, tax havens etc.
I've even included web-sites for all the major international stock markets. By arming themselves with a thorough understanding of the basics, investors will certainly be better prepared to plunge into the turbulent world of global markets.
Q: What about consumers?
A: It's difficult being a responsible consumer in today's global world. We're no longer just deciding on the best product at the best price, we're now required to make choices that affect people on the other side of thecountry-and often on the other side of the world.
Do we buy locally-made products to protect jobs at home? Or do we try to support workers abroad who, without access to foreign markets, would have no way of supporting their families? How do we stop the use of child-labor to produce soccer balls? Or the use of fishing nets that end up killing dolphins and sea turtles? How can we promote jobs and growth abroad without destroying the environment?
Being a global consumer is no longer just drinking our imported coffee or watching our foreign-made television sets. We're now required to make decisions that include a whole range of factors: moral, environmental, legal, political and economic.
Q: What can consumers do?
A: It's difficult. Most consumers want to do the right thing, but they're confronted with a lot of conflicting information. First we're told we should boycott companies that pay their foreign workers only a dollar an hour; then we're told that we should encourage companies to make more products in low-wage-countries in order to create jobs and improve local living standards.
Q: What's the answer?
A: In the introduction to my book, I cite the fact that school teachers in Connecticut are paid $52,000 a year while those in South Dakota are paid $29,000. Is that immoral? Not if it costs 50% less to live in South Dakota.
Anyone who's been to Vietnam can see that it costs a whole lot less to live in Saigon than it does to live in Seattle. If you take a Vietnamese worker's job away simply because he or she isn't earning as much as someone in Toronto or New York, is that not immoral?
The answer is definitely not to turn our backs on foreign markets, on foreign goods and services. Millions of people--billions probably--depend on access to the world economy for their families' survival. If we remove ourselves--and them--from the world economy, their problems--and ours--are only going to get worse.
Q: What can be done to close the income gap between rich and poor countries?
A: It's interesting. Many people in rich countries see economic growth in the Third World as a worst-case scenario--with more and more people consuming more and more energy and producing more and more waste. They think the people in the world's underdeveloped countries would somehow be better off if we just left them alone.
But most people in the Third World see things quite differently: they are already living the worst case scenario--with overcrowded slums and polluted cities, no access to clean water, no basic services such as health care, and, above all, no jobs. Economic growth, for most people in the Third World, is basically their only hope for a better life.
Q: What about child-labor?
A: Obviously, child labor--or any abuse of workers' rights--cannot be tolerated anywhere. Basically, no one should be forced to work at a job that is inappropriate for them. One of the chapters in my book even looks at the issue of slavery and forced labor that exist in every country in the world-even in the United States.
Often, consumers can play a role in ending these practices through economic sanctions such as trade embargos. But economic sanctions are only effective if they are respected by all countries in the world economy. In South Africa, for example, apartheid was ended in response to a world-wide boycott of South African goods and services. But in many other cases, economic sanctions have been a disaster--essentially hurting the poor people in the country while leaving the wealthy elite virtually untouched. Ironically, closing off countries from the world economy often helps dictators or despotic regimes remain in power. Allowing countries like China and Iran to have access to international trade and investment--and the Internet--may actually be the most effective way to get them to adopt international standards for human rights.
Q: What about international organizations? Why has there been so much criticism of the World Bank and the World Trade Organization?
A: It's funny, if you look at who's doing the protesting, you rarely see anyone from any of the underdeveloped countries. From Seattle to Davos to Prague to Washington, all the protesters look alike: white, educated, and critical of the "globalization" movement in general.
If you ask someone from a Third World country what they think about the WTO and the World Bank, they'll more often than not tell you they're angry as well, but for completely different reasons. They're angry because the WTO and the other international organizations aren't doing enough to remove barriers to world trade. They see a conspiracy of rich countries to keep them poor and indebted. They want their place in the world economy, too.
Q: Why don't governments do more?
A: It's hard to get governments to "do the right thing" if they're facing electorates that are uninformed or unwilling to force them to change. Take the case of trade barriers. Economists around the world, almost without exception, agree that trade barriers hurt everyone--by raising costs and by losing access to foreign markets. If it costs more for a carmaker to buy locally-produced steel, for example, the cost of locally-made cars goes up as well. In the end, everyone loses--except a few inefficient producers with political clout. But politicians buy into the "protectionism" theory, not because they don't know any better, but because they're responding to the wishes of voters who think that "buying local" is somehow good for the economy as a whole.
I believe most politicians want to do the right thing, economically. But when they're taking their cue from an ill-informed electorate, you know what they're going to do--they're going to go for the votes. I begin my book with a quote from the Economist which says that politicians don't really care about what economists think, they care about what voters think--especially voters in blocks--and the only way to make governments behave as if they were economically literate is to confront them with electorates that are.
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