Open Economy

What is an open versus closed economy?

Well, to answer the question, let’s take a little trip. Consider The Isle of Forsaken Seclusion. It's way out in the ocean, far from any other country, and not along any particular trade route. No ships ever come by. No planes ever land. Tom Hanks and other Swiss Family Robinson characters aren’t stranded there. The natives subsist mostly on home-grown coconuts and specially farmed algae. They have never seen a Marvel movie. They have never tasted Dairy Queen. It's a very lonely, very sad island. There's no trade at all with the outside world...no exports and no imports. To say it another way: it's a closed economy.

Moving elsewhere in the world...we come to the United States of America. It's the center of the global economic network. It trades with other countries all the time. Imports and exports are both high. It's an open economy.

Don't think of open and closed economies like a light switch.

Lights off: completely closed.
Lights on: completely open.

Instead, the ideas of open and closed describe a continuum. More closed vs. more open. Every country falls somewhere on the spectrum. The U.S. is relatively open. But there are closed aspects. Tariffs on certain products. Import restrictions. Rules about exporting things like military technology. International banking rules.

Meanwhile, even the most closed economies in the real world don't get all the way to The Isle of Forsaken Seclusion situation. Even economies that are considered relatively closed, like in North Korea, are not completely closed. They have some trade. They might import weapons from China, for instance. Or export tweeted threats to South Korea. You could argue that Earth as a whole is a closed economy. After all, we have yet to set up any trade routes with creatures from Rigel 7. At least not yet. Keep watching the skies, people.

But even the idea of the Earth as a closed economy has some holes in it. Things like the gold and uranium we mine were probably deposited by meteors. Meanwhile, we import energy and light from the sun. And we export radio signals and old space junk. Somewhere in the cosmos, there might be a giant space crab using a Voyager probe as its shell. And it's probably only a matter of time before we start receiving signals from some space-monster version of Netflix emanating from the Vega system. Can't wait to see how their reboot of House of Cards turns out.