I tend to be very confused by global economics and so today's Paul Krugman blog gives a nice clarification...but now I'm wondering if I'm doing the right thing by "buying local" and trying to find items made in the US?
"Despite globalization and all that, the bulk of a consumer dollar spent in America falls on American-produced goods and services. The reason this matters — or at least one reason it matters — is for discussion of austerity, stimulus, and all that. I often get comments along the lines of “Well, maybe stimulus worked back in the old days, but now it just means spending more on stuff from China”. In reality, that’s nowhere near true.
Why? For one thing, most consumer spending is on services, few of which are really tradeable. For another, even if the thing you buy in WalMart says “Made in China”, the price includes a lot of US value-added in the form of transportation and retailing costs....so we’re still a country where about 85 cents of your consumer dollar is spent at home, one way or another. And this means, among other things, that the rules of macroeconomics haven’t changed nearly as much as people imagine."
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