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    Euro-Zone Rates

    Jun 17 • Demand, Supply, and Markets, Financial Markets, Government, International Trade and Finance, Money and Monetary Policy • 520 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?


    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 • 453 Views


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    Happy 100th Birthday IBM!

    Jun 16 • Businesses, Economic History, Government, Innovation • 728 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 • 503 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 • 606 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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