• Chinese Consumers and Fresh Apples

    Chinese Economic Growth

    Mar 17 • Developing Economies, Economic History, Economic Thinkers, International Trade and Finance, Macroeconomic Measurement, Uncategorized • 813 Views

    Our story ends with the recent 2030 Word Bank Report on Chinese economic growth. But we have to start with sunflower seeds.

    There once was a poor Chinese farmer who believed he could excel at nothing but sunflower seeds. Traditionally sold in stores, in bulk with other types of nuts, sunflower seeds had been nothing unusual. But then calling them Idiot’s Seeds, the farmer, Mr. Nian stir-fried, salted, and packaged them. And soon, during the 1980s, millions of people in China were munching Idiot’s Seeds as they watched TV or played cards.

    In Capitalism With Chinese Characteristics, an M.I.T. scholar uses Mr. Nian as an example of the prototypical 1980s Chinese entrepreneur. Saying that entrepreneurs like Mr. Nian initially fueled Chinese economic growth, he then takes the reader to the 1990s when SOEs (state owned enterprises) become dominant. Yes, he says, the GDP still grew but a closer look reveals that the impact on the population was harmful with education and income suffering.

    Now, with China 2030, we see how important it will be for the Chinese economy again to “rebalance” the role of government in order to sustain economic growth. There are 3 versions of the report: an executive summary with 3 pages, a longer summary with 73, and then the entire 438 page report. All take us to the 6 strategic policy areas that need to change.

    Here, econlife looks at China’s SOEs.

    The Economic Lesson

    In Good Capitalism Bad Capitalism, economists Baumol, Litan and Schramm name 4 categories (pp. 60-61) of capitalism:

    • “state-guided” where government dominates
    • “oligarchic” where small groups have power and affluence
    • “big-firm capitalism” dominated by giant enterprise
    • “entrepreneurial capitalism” with innovation from small firms the dominant force

    When China 2030 talks about rebalancing the Chinese economy, they are referring to a state-guided capitalism that needs more so to emphasize entrepreneurial capitalism.

    An Economic Question: Thinking of Adam Smith, is state-guided capitalism really a market economy?

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    High and Low Gas Prices

    Mar 16 • Demand, Supply, and Markets, Households, Macroeconomic Measurement, Regulation, Uncategorized • 673 Views

    Why is the average price of a gallon of regular gasoline in Wyoming close to $3.36 and New York, $4.00?

    Location and regulation.

    Wyoming produces oil, it refines it, and, its taxes are among the lowest in the country. Also because of good location and less regulation,  Texas, Oklahoma, Louisiana and Alaska have cheap gas.

    By contrast, as a non-producer and high taxer, New York has relatively expensive gas. Sharing the #1 spot, California has high gas taxes while Indiana, Illinois, West Virginia and Michigan are close behind.

    Here are some handy maps to see taxes, prices, and a list of producing states.

    The Economic Lesson

    Typically, when the world price of a commodity is higher than the domestic price, a country prefers to be an exporter. Using Brent Crude as a benchmark, the world price is higher than domestically produced West Texas Intermediate (WTI). However, logistics make exporting WTI at a competitive price relatively tough.

    Today’s prices are approximately $125 for Brent and $105 for WTI. This explanation explains oil prices further and names other types including Nigerian Bonny Light and Algerian Saharan Blend.

    An Economic Question: How might the price at the pump affect retail sales?

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    Winning the Olympics

    Mar 15 • Behavioral Economics, Economic History, Macroeconomic Measurement, Uncategorized • 611 Views

    How to predict Olympic medal winners?

    Economics.

    It takes money to train a world class athlete. The most economically fit countries can afford to train their athletes. Also, the “host bounce” helps. In the past, host countries have enjoyed a 3 medal boost for the Winter Games and 25 medals for the Summer Games.

    Predicting the big medal winners at the 2012 Olympics, a Colorado College economist focuses on per capita income, population, the “home court” advantage and any “nation specific” effects. For London 2012, he says the U.S. will win 34 gold medals,  China will leave with 33, and Russia, 25.  Dr. Johnson has averaged 93% accuracy.

    Here, econlife looks at the GDP/Olympic connection to Greece’s economic woes.

    The Economic Lesson

    Called anthropometric history, the history of human height has become an economic field of study. Economists use height data to form hypotheses about GDP, national affluence, food consumption, real family income, wages and prices.

    Making Olympic predictions, economists are flipping the approach. Instead of using height data to predict GDP, GDP data is used to make predictions about the capability of human capital. For example, might growth in U.S. GDP between 1939 and 1999 relate to the 7 inch increase, from 6’1″ to 6’8″, for an average forward on the University of Wisconsin’s basketball team?

    An Economic Question: Knowing that certain Communist countries have targeted resources toward supporting Olympic athletes, what GDP connection might you hypothesize?

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    Unconventional Jobs

    Mar 14 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Households, Labor, Macroeconomic Measurement, Thinking Economically • 620 Views

    By Mira Korber, guest blogger.

    Repairing the US employment situation will prove a long battle. As you read yesterday, at current growth rates, it could take eight years for American employment to fully recover.

    Out of this labor morass, an unusual employment opportunity arose for 13 homeless people. BBH marketing company hired them as human 4G wi-fi hotspots at the South by Southwest technology conference this March. The company called its project a “charitable experiment.”

    The job description? Go to densely packed places at the conference, and offer relief to overburdened cellular data networks. The pay? $20 per day, plus donations and the opportunity to share their homeless stories with conference attendees.

    Controversy surrounds the program, with some critics calling it exploitative and inhumane. By contrast, homeless Shelter director Mitchell Gibbs noted that the “homeless hotspots” employment program had actually fostered an “entrepreneurial spirit” among homeless residents.  The participants themselves offer their (positive) feedback on the program here.

    The Economic Lesson

    Homeless people have long sold “street newspapers” as an avenue for advancement into permanent housing. Content of the papers usually pertains to poverty and homelessness; the price is usually $1.

    The human wireless transmitter is a 21st century street newspaper model. Because the digital age has pressurized hard copy information sales, the street newspaper model faces a changing landscape.

    Joseph Schumpeter’s theory of creative destruction applies. As technology minimizes newspaper sales, it maximizes the need for more Internet availability. Correspondingly, the “street newspaper” model is evolving into the “street wi-fi” model.

    An Economic Question: Do you think BBH’s “homeless hotspots” program is exploitative or entrepreneurial?

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    Employment’s Bottomless Pit

    Mar 13 • Businesses, Demand, Supply, and Markets, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 698 Views

    By Mira Korber, guest blogger.

    The U.S. economy added 227,000 jobs in February. That’s more than the 210,000 jobs economists forecast for the month, though the current unemployment rate is still high: 8.3%. (For a different take on the issue, read here.)

    This analysis of the jobs report determines that with sustained growth of 250,000 jobs/month by November, election time employment will clock in at 8%.

    Sunny news, right? Yes, but maintaining this growth rate would only bring employment back to pre-recession rates after a whopping eight years, according Michael Greenstone and Adam Looney of the Hamilton Project. Find their study on the “jobs gap,” including demographics, immigration, and generational variables, here.

    Though slightly dated, this study shows why the average American may not “feel” as though things are getting better. The higher the GDP, the more quickly employment will increase, but the gap between what the US could produce and what it actually produces is ever broadening. Until the actual production catches up with potential production, employment cannot fully recover. Unfortunately, if growth hovers around 2%, employment won’t catch up at all.

    And with a growing labor force, that proves a challenge.

    The Economic Lesson

    In the past decade we’ve experienced “jobless recoveries.” By contrast, we’re adding jobs right now, but can it last with a sluggish GDP? Read here for financial journalist David Leonhardt’s opinion.

    An Economic Question: Do you think high unemployment is a positive incentive for young people to start their own business ventures, as this TIME article suggests?

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