Posts Tagged ‘economics’

Does the Import of Manufactured Goods Destroy US Jobs?

July 1, 2008

One of the implications of being home rather than at school is that at home not everyone has drunk the economics Kool-Aid, so to speak.  I have to grapple with opinions that I never hear around campus.  One frequently raised issue is trade with China, more specifically the effects of importing of manufacturing goods and having a negative balance of trade on manufacturing jobs and the US economy as a whole.  Many people at home think that the negative balance of trade destroys US manufacturing as Americans buy more imported goods.

Russel Roberts, the host of Econtalk, has a great essay responding to this point of view available here.  You will have to check out the original for the excellent charts that back up each of his claims, but his main points are the following:

1. Even though the United States has only run a persistent trade deficit since 1976, the long term increasing job creation trend did not change after 1976.

2. The relative number of manufacturing jobs to other American jobs has declined steadily since World War II, with no trend change in 1976.

3. During the same period, there have been huge productivity gains in American manufacturing.  Roberts shows that even though there are less manufacturing workers today than there were in 1959, there is 4.7 times more domestic manufacturing output today.

Roberts makes a few more points as well.  Read the whole article if you get a chance.

Pushing and Pulling towards Taiwan

June 29, 2008

I am taking advantage of my summer vacation to read up on the economics of migration, the topic on which I am going to write my master’s thesis.  Today I read part of one of my adviser’s papers about the effects of migration on fertility.   The underlying factor driving migration in her model is the differential in wages between rich countries and poor countries.  The idea is that the larger income increase an individual can get from migrating, the more likely he is to go.

The idea seems straightforward enough, but then I thought about my adviser herself.  She got her PHD a few years ago from UCLA, and for academics with American degrees there are few barriers to migration.  Combine this with the fact that teaching in Taiwan pays very, very little compared with an American university position (~$30,000/year vs. $94,000/year), and it seems like my adviser’s model would have a hard time explaining her own behavior.  Moreover, every single one of my professors last year at National Taiwan University had an American degree.

I suppose that proximity to one’s family or living in a familiar culture could also be considered wage factors, but with such a large nominal gap, one would not expect so many professors with American degrees to teach at NTU.

Free != Free

May 19, 2008

What’s the difference between Gmail and Wikipedia? Both are very good free products, but Gmail is a for profit venture by a for profit firm. No one is making money off of Wikipedia, and yet its quality is similar to that of the best encyclopedias. Why are people putting out such high quality product for no (monetary) compensation?

Are Economists going to have to pick a new motto? Maybe we can talk about it over lunch.

Hat tip: Chris Anderson on Econtalk

Smell the supply and demand?

May 17, 2008

The New York Times says Japan is running out of engineers. My response:

The red line is the number of people who study engineering. The blue line is the number of engineers that Japanese industry demands at the given salary. If we are at the light blue line, firms want more engineers than Japanese universities produce. In this situation, firms will raise the salary they pay to engineers, more students will enter the now more lucrative field, and we will end at the market clearing yellow line.

My guess is that the equilibrium used to be a a higher number of engineers, and the government is worried. In an efficient market, labor will go where it is most socially useful. The New York Times seems to think that the migration of workers to the arts and service industries is a bad thing, but here in Taiwan Japanese art is everywhere, from the fashion on the streets to the J-Pop on the radio. If Japan is a cultural force here in Asia, why not let that part of the economy grow stronger?

One of the key early insights in Economics was that in any voluntary transaction, both parties are made better off. Markets aren’t zero-sum games. If Japanese are choosing to pursue non-engineering careers, it might change the composition of Japan’s economy, but that isn’t a bad thing. In fact, students’ choice of other careers is making the Japanese (as a whole) better off.

Quality Time

May 15, 2008

Daniel Hamermesh wrote a blog yesterday about income elasticity and quality/quantity trade off.  Rich people don’t (necessarily) consume more than poor people, but they do consume better quality goods.  Hamermesh chalks this up to the fact that no matter how rich you are, there are only 24 hours in a day.  It takes at least twice as long to eat two Big Mac meals in place of one, but it takes the same amount of time to eat an arugula salad as it takes to eat one Big Mac meal.

Imagine if we could buy and sell time.  Would we have long lived rich and short lived poor?  Would an extra day of rich life be pricier than an extra day of poor life? Would the ultra rich live extremely long lives?

Wait, maybe that market already exists

Experts Schmexperts

May 5, 2008

ABC News reports:

Sen. Hillary Clinton, D-N.Y., declined this morning to name a single economist who backs her call for a gas tax suspension.

“I’m not going to put my lot in with economists,” Clinton said in an exclusive appearance on a special edition of “This Week” from Indianapolis.

Can we expect Senator Clinton to follow this logic further? Will she not put her lot in with doctors when she needs surgery, not put her lot in with accountants when doing her taxes, or not put her lot in with lawyers when going to court?

If you are relatively uninformed on a particular topic, it is rational to heed the opinions of experts. Experts won’t be correct all the time, but they will be correct more often than you are. Virtually all economists oppose the gas tax holiday as at best useless in lowering gas prices for consumers and at worst as a transfer of American government revenue to OPEC.

I suspect Clinton doesn’t expect the tax holiday to work, but she expects the rhetoric of the debate to cast her as being on the side of poor Americans. Maybe she would denounce her doctor’s opinion if she thought that would get her elected.

For a summary of economists’ opinions about why the gas tax holiday is a bad idea, check out this Economist blog.

Hat tip: Greg Mankiw

Progressive Taxes?

May 2, 2008

Bajillionaire Warren Buffett has argued that he isn’t being asked to pay his share. He went around his office, asking people what share of their income they pay in income taxes. Buffett’s 17.7 percent tax rate compared a bit too favorably with the 30 percent tax rate paid by his secretary.

So it appears that the tax system favors the super-rich over working stiffs.

And Buffett went a step further, putting his money where his mouth is. Last November he issued a challenge to his fellow billionaires:

I’ll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists.

So far, no-one has taken him up on this bet.

From a Justin Wolfers post on the Freakonomics blog. According to MSN money, there is a de facto flat tax in the United States when all taxes are considered. It doesn’t matter if you make $20,000 or $500,000, you pay about 40%.

Suboptimal Vending

May 2, 2008

Kevin Hurley ponders Japanese vending machines:

As an American who tends to think in terms of monetary value when I first saw this machine I was a little confused and amused. If you look closely at the small can of CC Lemon you will see that it is 120 Yen, if you look at the large can of CC Lemon you will see that it is 120 Yen. The same price! The Mountain Dew and Pepsi follow the same fashion. I pondered why this was and got a simple explanation in a story from one of the books I have. Japanese tend to think in terms of efficiency, so, even if the colas are priced the same they will purchase the drink that they are able to consume, not the one that is a better monetary value. That is the price we pay.

That explanation doesn’t seem right…

Imagine a tiny Japanese Salary-man who is only thirsty enough for a small can of Coke-a-Cora. He buys the little can for 120 yen, and enjoys it completely–ichiban!

The next customer is a large scruffy foreigner. This gaijin is thirsty enough to justify a large can. If the small and large can are the same price, he will buy the large can.

But what if the large can is only slightly more expensive? We can reasonably assume that the large thirsty foreigner will still buy the large can if it is 121 yen instead of 120. In fact, since the extra soda has some value to him, there must be some price greater than the price of the small can and less than the price of two small cans up to which he will agree to buy the large can.

Of course, the price hike might cause some customers to buy the smaller can when they would have bought the larger can otherwise, but from the Cola company’s point of view this is a good thing. Since the large can must cost more to make and fill, the company will take in the same revenue but have lower costs.

You might say that the price hike will might drive the hippy to choose Pepsi instead of Coke, but then why are the small cans so expensive to begin with? Unless Pepsi and Coke are in collusion, either Pepsi or Coke could lower the price of the small can slightly and gain a whole bunch more customers. Since the small can must cost less to produce, this must be possible.

In short, it doesn’t make sense to keep the prices the same. The larger can should be at least a tiny bit more expensive than the smaller can. Why has Japan’s economy been in the doldrums since, well, my elementary school graduation? Look no further than your nearest vending machine.

The Pritchett Club

April 20, 2008

If you read Greg Mankiw’s blog, you know that (in between his daily textbook adverts) every few weeks he unilaterally inaugurates a new member into his “Pigou Club”.  Usually he does this when someone famous espouses carbon taxation.

I’ve decided it’s time for another Economics related club.  I hereby found the Pritchett Club, after Lant Pritchett.  The club will restrict its membership to enlightened individuals who realize that if rich countries allowed more open immigration policies, the gains to the world’s poor would be enormous.

Let me begin by accepting Bryan Caplan.  He blogged earlier today about a quick, effective fix for Haiti’s food shortage.

The Pope is also currently under consideration.

Witty Robin Hanson Blog

April 15, 2008

Hanson writes that people ask for advice on relatively unimportant decisions, but not on big decisions:

For example, we like HowTo books, but not WhatTo books. How to manage your computer, not what machine to manage. How to please your partner, not what partner to please. How to fix your house, not where to live. How to drive fast, not what speed to drive. How to get promoted, not what job to work at. How to raise your kids, not how many kids to raise. And so on.

Well put, but I disagree with his main point. I remember getting a mountain of “big decision” advice books upon graduating from high school. The Career Center at Carleton College also had a room filled with them.