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    The Vitamin Police

    Jun 18 • Businesses, Demand, Supply, and Markets, Economic Debates, Regulation, Thinking Economically • 399 Views

    Most of the corn flakes that we eat in the U.S. are illegal in Denmark because they have vitamin supplements. Consequently, the NY Times tells us that large food companies like Kellogg’s and small stores stocking Marmite, have to undergo an expensive and time consuming approval process if they want to sell a food with added vitamins and minerals.

    Why do the Danes disapprove of supplements? Because they believe their diets are sufficiently healthy.

    As economists, Danish vitamin regulation takes us to the role of government. Should government be able to tell Kellogg’s that they cannot sell corn flakes with Vitamin D?

    Or, in the U.S., knowing that we have an obesity epidemic, should government tax unhealthy food? Especially because unhealthy calories are cheaper than the good ones, maybe a McDouble should be taxed. One academic study indicates that a tax on less healthy food discourages people from buying it. By contrast, making healthy food cheaper did not have the same beneficial impact.

    The Economic Lesson

    Concerned that government could not possibly know what is best for each of us, economic philosopher Adam Smith (1723-1790) suggested that a “just” society required less government involvement. By contrast, contemporary Nobel laureate Paul Krugman believes that more government leads to a better world.

    An Economic Question: Citing cost and benefit, explain why you approve or disapprove of Denmark’s ban on vitamin supplements.

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    Euro-Zone Rates

    Jun 17 • Demand, Supply, and Markets, Financial Markets, Government, International Trade and Finance, Money and Monetary Policy • 494 Views

    Please match each of the following countries with its unemployment rate and borrowing rate:

    Countries: Germany, Greece, Ireland; and the U.S. and the U.K.

    Unemployment rates: 9.1%, 7.7%, 7%, 15.9%, 14.8%

    2-year bond rates: .5%, 4.5%, 1.75%, 29.69%, 12.95%

    The answers are below.

    The Economic Lesson

    As an I.O.U., a bond is a loan. If a loan is risky, it pays a higher rate of interest to entice people to make their money available. By contrast, investors looking for safety and security are happy to accept a low return–less interest–when they purchase a bond.

    An Economic Question: What story do the unemployment rate and 2-year bond numbers tell?

    Answers:

    Unemployment: Germany: 7%; Greece: 15.9%; Ireland: 14.8%; U.S. 9.1%; U.K. 7.7%

    2-year bond: Germany: 1.75%; Greece 29.69%; Ireland: 12.95; U.S. .5%; U.K. 4.5%

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  • Ethanol’s Unintended Consequences

    Jun 17 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Environment, Regulation • 432 Views

    http://online.wsj.com/article/SB10001424052702304432304576369933829499132.html?mod=WSJ_newsreel_opinion

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    Happy 100th Birthday IBM!

    Jun 16 • Businesses, Economic History, Government, Innovation • 674 Views

    Imagine the challenge of implementing the first Social Security system in 1937. 27 million employees and their employers had to be taxed. The basic idea was to collect the money and then redistribute it to current retirees. So everyone got an ID number. However, there were no computers. How to process so huge a quantity of data? The best that existed was the punched card tabulating machine.

    This is where IBM enters the picture. The U.S. government used IBM’s data processing tabulator equipment and knowhow to implement the system.

    Processing data, IBM evolved during 100 years. Described by The Economist, they, moved from punch card tabulators to magnetic tape systems, mainframe computers, PCs, and now, business services and consulting.

    Their accomplishment is unusual. Many firms stick with the people, the organization, the equipment, the supply network that fuels their success. As a result, newcomers with better ideas replace them. The Economist says that because IBM adhered to a flexible concept–data processing for businesses and government–they could innovate, survive and thrive.

    The Economic Lesson

    Economist Joseph Schumpeter (1883-1950) tells us that innovation leads to a “paradox of progress” that he called “creative destruction. The word to associate with Schumpeter is entrepreneur. For Schumpeter, the entrepreneur is the innovator whom we find in small and large businesses. Increasingly, though, bureaucracy takes over and kills creativity. As a result, new firms replace outdated industries. (In this Teaching Company/History of Economic Thought course from Dr. Timothy Taylor, Lecture 8 on Schumpeter is excellent.)

    It is surprising that IBM was not eliminated by creative destruction.

    An Economic Question: Predicting that they will exist in 100 years, The Economist names Apple and Amazon as firms that will avoid creative destruction. Do you agree?

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    Deja View

    Jun 15 • Economic Debates, Environment, Regulation, Thinking Economically • 479 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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