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    Deja View

    Jun 15 • Economic Debates, Environment, Regulation, Thinking Economically • 456 Views

    3 giant redwoods were the problem. The issue was the view. Does a property owner have the legal right to a view of San Francisco Bay that his neighbors’ trees are blocking? Or, do the neighbors have the right to the privacy the trees provide?

    A view or privacy? What are the bounds of property rights when 3 increasingly tall redwoods are involved? The founder of Oracle, Larry Ellison, hired a tree attorney to get an answer.

    Scheduled for their court hearing on June 6th, the case was settled privately. The neighbors told Mr. Ellison that they would trim the trees.

    The Economic Lesson

    Central to a market economy, property rights need to be dependable, predictable and preservable. Also, though, the boundaries of property rights need to be defined.

    The “ancient lights” doctrine, from English common law, said that a property owner could prevent a neighbor from erecting a structure that blocked the sunlight he had been enjoying. Proclaiming that the importance of towns and villages superseded such broad property rights, U.S. courts ignored the “ancient lights.”

    You can see that Mr. Ellison’s suit had deep historic roots.

    An Economic Question: Your opinion about the following hypothetical dispute? Passed in 1978, California’s Solar Shade Act enforces a consumer’s right to install solar energy technology. Also, a local ordinance protects irreplaceable trees. Neighbor A has historic redwoods on their property. Neighbor B installs solar panels that the redwoods block. Both neighbors are environmentally proactive. Should the trees be destroyed or the solar panels removed? Explain.

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    Trading Places

    Jun 14 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, International Trade and Finance • 543 Views

    A switch has taken place.

    More than half of our imported goods used to come from the G-6 countries (Canada, France, Germany, Italy, Japan, the U.K.) Now, we import more from China, Mexico and Brazil.

    Specifically, in 1987, 55% of U.S. merchandise imports came from Europe and Japan. Now the total is down to 31%. By contrast, China, Mexico, and Brazil send us 32% of the goods we purchase from abroad. (Scrolling down here, you can see where the remaining 37% is coming from.)

    And, according to economist Michael Mandel, perhaps we are importing even more from China, Mexico and Brazil than the statistics indicate. If goods are now cheaper, then recent dollar totals may mask an even higher quantity.

    According to another point of view, though, maybe we are importing less. Take the iPhone. Assembled in China, its components come from 9 countries, including the U.S. Should it count as a Chinese export in U.S. trade statistics if researchers have calculated that the value added by the Chinese is only $6.50 out of a wholesale price of $178.96?

    The Economic Lesson

    Called net exports, a nation’s trade balance is the value of exports minus the value of imports. Simply defined, exports are goods produced in the U.S. and sold abroad. Imports are goods produced abroad and sold in the U.S. When the U.S. sells domestically produced goods that are worth more than those it imports, it has a trade surplus. It runs a trade deficit when the opposite is true. So, if a country imports a car for $20,000 and exports a tractor for $100,000, it has a trade surplus of $80,000.

    An Economic Question: Would you record the iPhone, with components that are made around the world but then assembled in China, as an import from China? Explain.

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    Irrational Expectations

    Jun 13 • Behavioral Economics, Demand, Supply, and Markets, Economic Thinkers, Financial Markets, Government, Households, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 503 Views

    Let’s say that you purchased the house in which you now live during 1997 for the average national price, $171,900. With housing prices steadily rising, by 2006, a neighbor’s house would have sold for as much as $317,000.

    In the NY Times, Nobel laureate Robert Schiller, explains the impact of rising home prices. Calling it a “contagion of optimism,” he says skyrocketing home prices fueled the stock market, the housing market, consumer spending and consumer expectations. Expecting our wealth to increase, we spent more.

    But, trees do not grow to the sky.

    After housing prices hit their high during the beginning of 2008, they plunged. The house that was worth $317,000 now would get $268,000 if it could be sold at all. This reversal of prices meant a reversal of expectations.

    Dr. Schiller believes that economists were unable to understand the housing bubble because prevailing economic theory inadequately explained the impact of our expectations.

    The Economic Lesson

    Economists study our expectations because they relate to current decisions, future outcomes and government policy.

    University of Chicago economist, Robert Lucas (1937- ) won the 1995 Nobel Prize in economics for his theory of rational expectations. Rational expectations theorists tell us that:

    For example, if people think housing prices will rise by 10%, those selling a house will price it 10% higher. The result? Prices are up by 10%. How should government respond? You can look here.

    An Economic Question: Thinking about wages, how might expectations about inflation create inflation?

     

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    Indicators of Political Unrest

    Jun 12 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 652 Views

    Is political upheaval fueled by corruption? Low GDP per person? Less democracy?

    This Economist interactive indicator lists 9 variables. Together they add up to 100%. But the question for readers is how to weight the variables. Which ones could create a revolution? 

    Then, based on your data, the Economist ranks 17 nations, most from the Middle East and North Africa, as your “index of unrest.” Would you select corruption as a major cause of unrest? Iraq, Yemen, and Mauritania are most likely to experience upheaval. If, instead, you say that countries with a large population under 25 are most vulnerable, then Egypt tops the list while Yemen is second.

    Looking at the Economist’s unrest indicator, you can see why the Saudis, Oman, and Bahrain all are increasing state spending. Saudi Arabia’s plans include $36 billion for “interest-free home loans, unemployment assistance and debt forgiveness.”

    The Economic Lesson

    Because land, labor, and capital are scarce, every nation has to answer the 3 basic economic questions: What will be produced? How will goods and services be produced? To whom will income go?

    Political upheaval changes the answers to the 3 basic economic questions.

    An Economic Question: How might political upheaval, during unrest and after, change the answers to the 3 basic economic questions?

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    Should Medical School Be Free?

    Jun 11 • Demand, Supply, and Markets, Government, Labor, Thinking Economically • 338 Views

    Is free medical school a “free lunch?” Proposed by 2 physicians in a NY Times Op-Ed, free medical school lets future doctors benefit by having no tuition debt. Society benefits because more people attend medical school. And, not having the $155,000 debt burden means additional doctors will select primary care, a lower paying specialty. 

    The Economic Lesson

    There is no such thing as a free lunch.

    With cost defined as sacrifice (choosing is refusing), each of us would pay for free medical school in a different way. Consequently, for some the cost is too high while for others, it is “affordable.” For example, as a society we might be sacrificing individual freedom because of more government. The cost for a law school would be the potential applicants who decide, instead, to become doctors.

    An Economic Question: Citing “cost,” for different people, do you support free medical school?

     

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