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    Environmental Dilemmas

    Sep 8 • Businesses, Demand, Supply, and Markets, Economic Debates, Environment, Government, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 567 Views

    The environment or employment?

    Smart meters:

    • Environmentally superior, they automatically transmit data about electricity usage. As a result, we can better manage our demand for energy.
    • The tradeoff? Even including smart meter R & D, IT services, manufacture and installation, we would have a net job loss. 
    • The 2009 Stimulus Act’s $4 billion allocation to a smart grid was primarily for smart meters. According to recovery.gov, more than 5 million smart meters have been installed.

    Emissions reduction:

    • Reducing CO2 emissions could have a substantial long-term impact on the well-being of millions of people.
    • The Tradeoff? In the short-term, faced with new emissions control regulations, businesses tend to diminish investment and job creation. Discussed in this CBO report, emissions reduction from cap-and-trade tends to increase government spending, reduce government revenue, increase energy prices, and diminish jobs in industries that are high carbon emitters.
    • President Obama reversed an EPA directive that sought to reduce ground level ozone levels.

    You see where this is going. Discussed by NY Times columnist David Brooks here, environmental initiatives create dilemmas.

    The Economic Lesson

    You might want to listen to a good discussion of environmental dilemmas from a panel with diverse perspectives during this NPR Diane Rehm show podcast. As the discussion unfolds, it becomes increasingly evident that our environmental positions depend on our own incentives. For politicians is it votes? For industry, is it profits? For labor, jobs? And, you can see in this post, that during the recession, consumers bought fewer environmentally superior products because they were more expensive.

    An Economic Question: For smart meter and current ground ozone level reduction, explain why you agree or disagree with the Obama administration.

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    Economic Humor

    Sep 7 • Economic Debates, Economic Humor, Macroeconomic Measurement • 1066 Views

    For laughter and economic insight, the following are wonderful.

    A Cartoon: From gocomics.com, a very hypothetical illustration of “The First Economist.”

    A Daily Show Excerpt: Treasury Secretary Tim Geithner’s problems with selling his house.

    The Economic Lesson

    Some serious reading that relates to this economic humor might include Paul Krugman’s excellent NY Times Magazine article about saltwater and freshwater economists. As the cartoon says, “Um…It didn’t work…again…But the theory is still sound.”

    And, for more background about the housing crisis, here, through their purchase of “toxie,” NPR’s Planet Money reporters tell the whole story.

    An Economic Question: How would you interpret “the first economist” cartoon?

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    Should We Buy American?

    Sep 6 • Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 510 Views

    How to diminish unemployment? The NY Times tells us about a Montana general contractor who plans to use only American-made goods for building his homes. Explaining, he said,  “I think we could solve this recession if everyone shifted just 5% of their purchases to U.S.-made products.”

    Is he right?

    Here, Nobel Laureate Milton Friedman (1912-2006) replies to a similar question during a 1977-78 lecture series. Competing against subsidized Japanese steel, US sales sunk, Japan’s market grew and we lost steel industry jobs. Asked about the loss of jobs, Dr. Friedman was not concerned. Yes, steel workers’ jobs would be lost. However, many of the dollars used to buy the steel would find their way back here through purchases of our exports. The result? U.S. job creation. And furthermore, Japanese steel is a bargain for U.S. businesses and consumers.

    Why then do people worry about the steel industry? They belong to a visible group. As steel workers they can be identified. By contrast, if exporting industries lost business because of a buy-American policy, they would be invisible. Located in disparate places across the country, exporters and consumers are anonymous and scattered.

    The Economic Lesson

    Purchasing imports creates more American jobs than people realize. Correspondingly, buying American can retard economic growth and job creation. Expressed by David Ricardo (1772-18230), by trading, at home and abroad, everyone benefits.

    An Economic Question: Milton Friedman explained his position by saying that we could place a high tariff on imported bananas and instead grow them in Utah hot houses.  Is this a good way to create jobs? Explain.

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    Looking at Labor

    Sep 5 • Behavioral Economics, Businesses, Economic Debates, Government, Households, Labor, Macroeconomic Measurement, Thinking Economically • 495 Views

    What if a physical trait meant you will earn $230,000 less during a lifetime?  

    According to one study, a person who was in the bottom one-seventh for looks earned 10% to 15% less than people who were in the top one-third. In a NY Times column, a University of Texas econ professor focuses on how a worker’s looks can affect his or her earnings.

    Here, in a New Yorker article, you can see how height also affects income. One researcher concluded that during 30 years at work, an average six-footer earns $165,000 more than someone who is 5’5″.

    The Economic Lesson

    Economist Alan Kreuger, President Obama’s nominee to chair the Council of Economic Advisers, has researched labor issues ranging from the minimum wage to job search time by the unemployed to the jobs market for graduates of Ivy League schools.

    A leading labor economist, if confirmed by the Senate, he will chair a council composed of 2 appointees and himself. Their responsibilities include the creation of the annual President’s Economic Report as well as policy recommendations and assessment.  This Washington Post article provides an ideal summary of his academic work.

    An Economic Question: To gain insight about lowering the current unemployment rate, what labor-related research topics might be important?

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    Government Failure or Market Failure?

    Sep 4 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Thinkers, Financial Markets, Government, Households, Labor, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 469 Views

    The illness? High unemployment and sluggish growth. The patient? The U.S. economy. And sometimes, according to Nobel Laureate Gary Becker, a stimulus pill just won’t work.

    In a WSJ opinion piece, Dr. Becker first explains that government misdiagnosed the illness. Rather than “market failure,” the problem is “government failure.” Before the recession began, the Fed’s rates were too low, Fannie Mae and Freddie Mac were quasi-government institutions that facilitated subprime mortgage lending, and regulators were ineffectual.

    The misdiagnosis led to the wrong cure. Adding to the deficit and debt, stimulus spending did not work out as predicted and Dodd-Frank became another layer of regulation when existing laws were not adequately enforced. According to Dr. Becker, because the “imperfections in government behavior were greater than those in the market” only the market is the cure.

    With Nobel Laureate Paul Krugman their leading spokesman, a second group of economists responds that the diagnosis was correct and the dose of the stimulus medicine needs to be increased.

    The Economic Lesson

    Seemingly chaotic, a market actually has an invisible hand guiding all participants. Consumers demand quality goods and services that are priced low. Proft-seeking businesses produce the goods and services that consumers, businesses, and government want. When markets function well, reasonable prices and appropriate quantities are the result. In addition, competition tends to prevent individual abuse and control individual power.

    An Economic Question: Your choice–Becker’s position or Krugman’s?

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