• bank vault Libya oil price

    Why Safe Cracking is a Monetary Policy Tool in Libya

    May 16 • Demand, Supply, and Markets, Developing Economies, Economic Growth, fiscal policy, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Regulation • 73 Views

    Behind a concrete protective wall in Beyda, Libya, there sits a 48 year-old British made vault with an $184 million pile of gold and silver coins. Libya’s central bank needs that money because of a currency shortage. But they’ve not been able to access it…until now.

    Where are we going? To currency problems created by cheap oil.

    Libya’s Currency Problem and Solution

    At home, Libya’s economy has been devastated by a civil war and low oil prices. Even with Africa’s largest oil reserves, their oil revenue has declined by so much that they need more money to pay for government spending and imports. Yes, they do have that $184 million that could help solve their currency difficulties. However, because of the civil war, Libya has central bankers whose loyalties conflict. The monetary authorities with the vault’s 5-digit access code will not give it to the central bank that controls the vault. So the bank has hired two safe crackers to get the money for them.

    The Money that Venezuela Cannot Afford

    Meanwhile in Venezuela, it keeps on getting worse. With an annual inflation rate that could exceed 500 percent, the country needs more currency as everyday spending requires extra bolivars. To solve the problem (but actually contributing to it), the Venezuelan monetary authorities flew in 36 Boeing 747 cargo planes filled with cash from foreign printers. Still not enough, the government’s currency orders have increased.

    It turns out though that they have been slow in paying for their money. As a result, Venezuela is having a tough time finding a printer willing to accept a Bolivar order.

    Our Bottom Line: Externalities

    Defined as the impact of a transaction on an uninvolved party, the externalities of cheap oil have rippled somewhat unpredictably. In Libya, we have safe crackers getting more business while because of Venezuela, bolivar printers might not be paid.

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  • Comparing tax evasion in Italy and Sweden.

    Will We Find More Tax Evasion in Italy or Sweden?

    May 15 • Behavioral Economics, fiscal policy, Government, Regulation • 89 Views

    Asked who is least trustworthy among a group of EU nations, Italians named Italians during face-to-face interviews for Pew’s Global Attitudes survey in 2013.

    Tax cheats and trustworthiness studies from Pew

    Where are we going? To whether Italians cheat more on their taxes than Swedes.

    A Tax Surprise

    In a recent experiment, approximately 300 Italians and 300 Swedes were given the opportunity to deal with tax scenarios. The place was a lab where participants were asked to pay taxes in hypothetical but realistic situations. Knowing an audit was a possibility, some had high tax rates and others low, some enjoyed more redistribution and others less, and those with higher income might or might not have had a higher marginal rate.

    The results were surprising.  Although Italians have a less honest reputation than Swedish people, in the lab both groups had the same average rate of tax evasion. But looking more closely, the study uncovered entirely different kinds of cheating. Behaving like “fudgers,” Italians tended to be slightly dishonest somewhat frequently. Meanwhile displaying an “all or nothing” character, the Swedes were more likely than the Italians to pay entirely or not at all.

    You can see below that Italian and Swedish compliance rates are rather similar in the experiment:

    Different kinds of tax evasion in Italy and Sweden

    From: Are Some Countries More Honest than Others? Evidence from a Tax Compliance Experiment in Sweden and Italy

    However, displaying unequivocal honesty or dishonesty, a larger proportion of the Swedish group paid 100% of their taxes or 0% while the Italians’ behavior fell somewhere in between (below):

    Tax evasion in Italy and Sweden

    From: “Are Some Countries More Honest than Others? Evidence from a Tax Compliance Experiment in Sweden and Italy”

    Our Bottom Line: Tax Evasion

    Even when developed countries share similar kinds of tax structures and democratic institutions, their experience with tax evasion and avoidance could vary considerably. As a result, optimizing tax collections requires a closer look at culture and social norms when trying to remedy fiscal dysfunction.

    And that returns us where we began. Perhaps Italians need to stop believing they are untrustworthy.

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  • Weekly Roundup The econlife.com economics news summary

    Weekly Roundup: From Less Waste to More Chicken Feet

    May 14 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Economic Thinkers, Entertainment, Environment, fiscal policy, Gender Issues, Government, Households, International Trade and Finance, Labor, Lifestyle, Regulation, Thinking Economically • 76 Views

    Weekly News Roundup

    unpaid work at home Sunday 05.08.16

    What a mom should be paid…more

    Hamilton tickets and Broadway theater Monday 05.09.16

    Where price depends on who you are…more

    federal debt and the Congress Tuesday 05.10..16

    Why it’s tough to cut spending…more

    Weekly roundup and Chinese money Wednesday 05.11.16

    Reasons for less concern about China…more

    Weekly roundup and Chinese chicken tariffs Thursday 05.12.16

    Why chicken feet became a trade issue…more

    Weekly roundup and food waste prohibited at French supermarkets Friday 05.13.16

    How to avoid wasting food…more

    Ideas Roundup

    • GDP
    • monopoly
    • price discrimination
    • federal deficit
    • federal debt
    • manufacturing
    • outsourcing
    • globalization
    • tariffs
    • comparative advantage
    • trade
    • opportunity cost
    • social norms
    • cost
    • environment

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  • Weekly roundup and food waste prohibited at French supermarkets

    A Supermarket Where Expiration Dates Don’t Matter

    May 13 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Environment, Government, Labor, Lifestyle, Regulation, Thinking Economically • 111 Views

    Imagine a supermarket that only sells food with expiration dates that have passed. In the cereal aisle, the boxes could be somewhat smashed. As for the fruits and vegetables, I won’t even try to describe their unappealing appearance.

    So why go there? You will save a lot of money and also help our planet waste less.

    Where We Waste Less

    Last February, with a Danish princess proclaiming her approval of the surplus food concept, WeFood opened in Copenhagen. Although the prices at the WeFood supermarket in Copenhagen are 30 to 50 percent less, they tried not to be called a place for the poor. Instead, because an environmental cachet was a part of the message, their clientele was varied.

    Meanwhile the EU has pledged to cut food waste by 25 percent by 2025 and France has gone even farther. At the beginning of this year, the French parliament said it was against the law for supermarkets to destroy unsold edible food and large restaurants had to provide “un doggy bag” for leftovers to diners who request one. But Denmark seems to have made the most progress. Whereas their quest for ultra healthy eating habits led to more discarded food, more recently they’ve cut waste by 25 percent to 35 pounds a person per year.

    Our Bottom Line: The Cost of Food Waste

    Primarily from fruits and vegetables, the 141 trillion calories a year that the U.S. discarded in 2010 was nutrition from which no one will ever benefit. For the world, one-third of all food is destined for the garbage.

    Looking back at production, picture the land, labor and capital, the fresh water, the fertilizer and the transportation inputs that are wasted by discarding a lettuce. Looking forward, we have the impact of the garbage on the environment if it winds up in a landfill or of the dollars it might require to be recycled. Perceived as dollars, from “harvest to consumer,” the value of the food we wasted in 2010 was approximately $161.6 billion.

    I wonder if the EU, France and Denmark can make less waste as trendy as fresh food?

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  • Weekly roundup and Chinese chicken tariffs

    How China Protects its Chickens

    May 12 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Economic Thinkers, Government, International Trade and Finance, Regulation, Thinking Economically • 80 Views

    During the 1990s, no one in the U.S. cared about chicken feet. Used for animal feed, they were close to worthless.

    Now though they are big business.

    Chicken feet (called paws in China) are a perfect U.S. export. Plump because we grow big chickens and scarce since there are only two per chicken, U.S. chicken paws are a Chinese delicacy. Or, as one chicken executive explained, “Thankfully, paw exports are a win/win: The Chinese get more of what they love and we get the employment and profits from a part of the chicken that otherwise wouldn’t have much value.”

    Where are we going? To the benefits of free trade.

    Paw Wars

    Last Tuesday, the U.S. filed a trade complaint.

    We could say that the problems began when China said its chicken producers were being harmed by U.S. chicken subsidies. To remedy the situation, in 2010, they levied anti-dumping tariffs on chickens imported from the U.S.

    Chinese chicken tariffs

    Seeing the size of the tariffs, you can understand why they were successful:

    Chinese chicken tariffs

    From: WTO

    The U.S. responded by taking China to the WTO (World Trade Organization). Agreeing with the U.S. that China was violating WTO rules, they told China to lift the levies. During July 2014, China said it had complied; the U.S. disagreed.

    So now the U.S. and China are back in “court” again.

    Our Bottom Line: Comparative Advantage

    First explained by 19th century economist David Ricardo as the principle of comparative advantage, when nations do what they do best, specialization boosts worldwide productivity. How to decide what you do best? Comparing two items or tasks, just do whichever one requires the lesser sacrifice of land, labor and capital. As a result you will have the comparative advantage for producing that good or service and will optimize worldwide efficiency.

    Because the U.S. appears to have a comparative advantage for chicken paws, they should export them to China while China can use its resources for other goods and services.

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