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Business, Politics & Society

Understanding the Hyperglobalized World

Paul Krugman

Lesson time 14:57 min

Globalization has forever changed the way we communicate and do business. Paul discusses the transformative technologies that led to efficient global trade and the impact of those developments on our country’s economy.

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Paul Krugman
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Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.
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The trade that existed in 1913-- people in England eating mutton from New Zealand-- countries made stuff, shipped it possibly 10,000 miles, and it was consumed someplace else. Your smartphone comes from China, but China is where it was assembled. The guts of the smartphone probably include a memory chip from Korea, a microprocessor from Japan. The design work was probably carried out in Silicon Valley. It's this elaborate supply chain, value chain that may actually cross major oceans several times before it finally shows up in your hand or in your home. What makes that possible? So long-distance international trade came about as soon as you had steamships and railroads. Transport costs became low enough to ship stuff long distances. But a lot of it is actually not so much literally the cost of shipping stuff as the transaction costs, the ability to coordinate stuff, the biggest innovation being the box containers. In 1960 when a freighter pulled into a port, lots of longshoremen clambered over it, took out bags of stuff, waded onto the docks, and all that. And that was pretty labor intensive. It took a lot of time. And actually keeping track of what was on the ship and where it was supposed to go was a pretty daunting task. Now a ship comes in. It's just got a bunch of boxes which are the size of a truck trailer sitting on the deck. And they've got barcodes on the side so that you can know right away what's in the container, which makes it possible to have these incredibly complex production processes that are spread across the globe and keep track of where things are. You know what's in that box. You know which train to put it on. I don't think anybody is ever going to make a movie featuring-- A "Ready Player One" type movie about freight containers. But it turns out that the freight container, the standardized freight container, is a transformative technology. The biggest event in the world economy over the last 30 years has been the rise of China, and to a lesser extent of some other developing countries. The biggest event within countries like ours has been the rise of inequality, the separation of the 1% from the working and middle class. If you want the story of the world since 1988 in one picture, it would be a chart devised by my colleague, Branko Milanovic. What Branko did was to say, step back, and let's think about this as the incomes of individuals wherever they live. Think about the global distribution of personal income, and what's been happening, and what's been the change in income depending upon where you sit. So one end, you have the poorest people in the world. And at the other end, you have the richest people in the world. What's been happening to income at different places there? It's a story that is not a simple one. Is the world growing more unequal or more equal? Actually, the answer is yes. There are two groups of people who have been seeing big gains. On the one hand, there's the global elite. The...


Think like an economist

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.



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Comments

JMCOLLINGE

"I worked myself up from nothing to a state of extreme poverty" - Groucho Marx

Lucie F.

I wish he would have also talked about environmental issues. I mean, when I hear hyperglobalized world and trades, I also hear environmental impacts. I wish I could have had more explanations here on how money, economy, impacts the decisions made about environmental issues. I wish I had a better understanding of why governments are not doing so much of a job on this critical issue. The terrible health situation we are in right now is one of the consequences, among others, of the terrible way we treat the Earth, and even though I ignore everything about how economy works, I guess there could be a way to make things work better.

Elizabeth I.

I agree with some of Steve Martin's comments below. I wish Paul Krugman would have addressed the markups that companies make on clothing made abroad and sold here. It seems to me that greed is the primary motivator for them. I wish we could ask questions in a "Chat" format to get the most from these lessons. My question here would be what would happen if companies took a minimal markup--they've got to make profit to survive and grow--that would benefit the poorer countries.

Rickie-Lee

I've been enjoying the analysis and learning more about what economists study. But I was kind of lost on the "what would happen to the Bangladeshis if we stopped buying the clothes made there?" argument. It doesn't seem like it's international trade's job to save people from what might be worse for them?

Sam

How come countries choose to import products rather than skills? If the US produced its own t shirts wouldn't that make its economy more independent and strong in trade? I suppose that innovation could happen on more fronts if US produced its own specialized goods.

Steve M.

So an irony of “Hyperglobilization” since the Reagan era has been the flat wages and/or decline of the standard of living for the once U.S. middle class. At the same time workers in China have seen a “massive”increase their standard of living. I suppose we should be content that things are seemingly balancing out. Is it really “educated elites” in the U.S. that are doing well in this scenario or is it more appropriate to cite the 1% (rent seeking capitalists) as the true beneficiary? I’m a bit tired of the the cliche that jobs exported to China can not return to the U.S. except as robots. Are the human beings in China currently being paid pennies on the dollar compared to Americans not human? These jobs could return tomorrow, but then American workers would have to surrender to a $1.50 per hour wage, and of course no one can live on that. Yet no one expects the CEO or other executives to lower their 300% greater income than the average worker even 30% to enable a livable wage for an American. Among the very sad aspects of Globalization is that purveyors of it lack the moral fiber to admit that they are fulfilling Marx’s insights of the global pursuit of ever cheaper labor to exploit forever greater demand of profit of the Capitalists.

RJane @.

The Electoral College hired Trump to be the CEO of United States and U.S.president, who did not have experience in politics. Americans must realize that it was the Electoral College that hired and elected Trump. The Electoral College is fully responsible for Trump’s presidency because they hired/elected Trump.

RJane @.

Trump did not have career experience in politics. However, the Electoral College (part of the U.S. government) chose and elected Trump to be the president, who had no experience in politics. I hope Trump is learning about trades, laws, rules and other important things inside politics and implement his learning to the advantage and benefit of the American people, not his business associates (including politicians) and their corporations/companies.

Craig K.

So, the main objective with 'balancing trade' today appears to be 'checking' the oppressive ( and not so invisible ) 'hand' of the centralized economies of countries like China, who subsidize their industries and then 'dump' their products on other nations, causing disruption (unemployment). Centralized ( state run ) economies pose a specific threat to normal ( or even mixed ) market economies. At some point, those disrupted economies will either need to take measures to defend themselves or radically adjust. And in the meantime, how do you do all of this and still keep the world economy running without too many problems? While I thoroughly believe that Donald Trump knows absolutely nothing about trade, he maybe on to something here....

Pisko

WTO n FTAs r run by the main economies, 2 favor the main economies, intensifying inequality between n within countries. Again, economies r controlled by lobbys that don't care about Bangladesh's development through trade, nor generating unenployement in the USA. The root of the system malfunction is prior to trade n hyperglobalization n I'll post it as a question in the "office hours" section soon 2 c what u all, specially Paul thinks about