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    A New Year’s Resolution

    Jan 1 • Thinking Economically • 350 Views

    If one of your New Year’s resolutions is to “think economically,” please remember this top ten list:

    10. Whatever the question, always answer, “There’s no such thing as a free lunch.”

     9. Defend a decision by declaring, “It was worth the opportunity cost.”

     8. Whether you like or dislike government, point to, “The power of the market.”

     7. Explain a love of low prices with, “It’s the law of demand.”

     6. Explain high prices with, “It’s the law of supply.”

     5. Preface a position with, “on the one hand…but on the other…”

     4. Justify your Thai T-shirt, Japanese camera, and Sumatran coffee beans by repeating, “comparative advantage, comparative advantage…”

     3. When asked, “How are we doing?” just cite the GDP, CPI, and S&P.

     2. Know that the size of the pie has nothing to do with food.

     1. And finally, the most dependable way to “think economically” is to remember that, no matter what the topic, “It’s about the economy…”


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    Austerity and Harry Truman

    Dec 31 • Behavioral Economics, Businesses, Economic Debates, Economic History, Economic Thinkers, Government, Households, International Trade and Finance, Labor, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 447 Views

    What are people saying about austerity, the 2010 word of the year?

    According to Dr. Econ at the San Francisco Federal Reserve, households are demonstrating austerity by saving more and borrowing less. On the one hand, living within our means is good. But on the other, called the paradox of thrift, when everyone spends less, the economy tends to contract.

    Characterized by small businesses borrowing less, banks lending less, and multinationals hiring abroad rather than at home, austerity helped businesses buoy profits. On the other hand, though, we need the Keynesian “animal spirits”  that are starting to surface for economic growth and less joblessness.

    Finally, just mention government borrowing and the word austerity pops up. Greece needs to cut back. Ireland needs to cut back. German austerity should be copied. As for the U.S., though, austerity was synonymous with debate. On the one hand, continuing to increase the deficit can mean unmanageable debt and future inflation. But on the other hand, cutting back too much, too soon, could reverse our economic recovery.

    The Economic Lesson

    Our last economic lesson of 2010 returns us to Harry Truman saying, “Give me a one-handed economist. All my economists say, “On the one hand…on the other…”


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    Women and Competition

    Dec 30 • Developing Economies, Economic Debates, Gender Issues, Labor, Thinking Economically • 422 Views

    Just a comment today on a study about females and competition. Comparing a matrilineal society in India to a patriarchal society in Tanzania, a 2007 study revealed a huge difference in how much women compete.

    These quotes are wonderfully representative:

    From a Khasi man in India where women dominate:

    “We are sick of playing the roles of breeding bulls and baby-sitters.”

    From a Maasai woman in Tanzania where men dominate:

    “Men treat us like donkeys.”

    Empirically, the study concluded that Maasai men and Khasi women were more likely to compete.

    The Economic Lesson

    Other studies we have cited focus on the conflict between the workplace and the family as a primary source of the gender gap in salary and promotion. Similarly, this 2010 paper for OECD nations sums up gender gap data in traditional categories. Now, we should add the culturally nurtured disinclination to compete as another factor that determines a woman’s success at work.  



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    Different Kinds of Capitalism

    Dec 29 • Developing Economies, Economic Debates, Economic History, Economic Thinkers, International Trade and Finance, Regulation • 481 Views

    How much does Chinese capitalism resemble U.S. capitalism?

    In a New Yorker article, journalist John Cassidy suggests that China’s combination of authoritarianism and capitalism is somewhat similar to our own history. Reminding us of our government’s economic intervention during the past several centuries, Cassidy cites free trade, Pentagon spending, and the bailout. In 1791, for example, Alexander Hamilton’s “Report on the Subject of Manufactures” recommended protective tariffs and subsidies to encourage domestic industry. As for the bailout, you know about the 2009 Recovery Act and TARP. Cassidy even suggests that “market authoritarianism” might be a transitional state for the Chinese and Russian economies, with democracy not that far behind. There is a good New Yorker podcast on this article.

    I have difficulty agreeing with John Cassidy. Yes, we might mislead ourselves if we claim the past was entirely laissez-faire. However, the Heritage Foundation/WSJ’s Index of Economic Freedom and the World Bank’s Doing Business index reveal a huge divide between contemporary China and where a past U.S would have ranked. 

    Your opinion?

    The Economic Lesson

    Ever since Hamilton and Jefferson, we have been debating more or less central government. Always though, the decision has not been one or the other. We have had to decide how much. You might look back on this post about David Brooks and Paul Krugman for a perfect recent example of the debate. Also, this Hayek/Keynes rap is excellent.

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    Regulatory “Pay-Go”

    Dec 28 • Behavioral Economics, Regulation, Thinking Economically • 435 Views

    Too much regulation? Senator Mark Warner’s proposed legislation is an interesting approach.

    Concerned that regulation is “stifling fresh investment and discouraging innovation,” Senator Mark Warner says the incentives have to change. Currently, when federal agencies create new rules, their power expands, their budget grows, and their work force balloons. Burgeoning regulation, he says, pushed us down from #4 to #5 on the World Bank’s “Ease of Doing Business” rankings.

    Instead, Warner suggests that agencies create “a credible, quantifiable estimate of the economic impact” for every regulation. Calling it “regulatory pay-go,” his proposed legislation would require eliminating old rules when new ones are added. The net result? The regulatory impact remains constant.

    It sounds good to me. Your opinion?

    The Economic Lesson

    Pay-go refers to pay-as-you-go, a legislative approach that involves budgetary neutrality. New legislation is characterized as pay-as-you-go when it replaces existing spending instead of adding to the federal budget. Social Security is called a pay-as-you-go program because the money collected from current workers is paid to current Social Security recipients.

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