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    What’s Cheap? What’s Expensive?

    Sep 10 • Businesses, Demand, Supply, and Markets, Developing Economies, Households, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 801 Views

    Starting with, “…eating and clothing ourselves is getting easier all the time,” an Atlantic article discusses “cheap” and “expensive.”

    Relatively cheap:

    1. computers
    2. media
    3. toasters, washing machines, other manufactured goods
    4. food
    5. internet movies
    6. cell phones
    7. clothing

    Relatively expensive:

    1. home energy: electricity, natural gas, oil
    2. homes and apartments
    3. health care
    4. medical insurance
    5. higher education


    Briefly stated, “productivity divergence.” To be discussed tomorrow.

    The Economic Lesson

    We can define “cheap” and “expensive” by looking at household spending. Cheaper items require an increasingly smaller proportion of our income. Food and clothing are the perfect example.  90 years ago, households used more than one-third of their spending for food and clothing. Now, according to the BLS, the total is closer to 15% for a family earning $62,000 before taxes.

    An Economic Question: How does income relate to what we define as cheap and expensive?



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  • Dutch Disease

    Sep 10 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Government, International Trade and Finance, Macroeconomic Measurement, Thinking Economically • 723 Views

    When Norway discovered it had an oil bonanza, they acted rather surprisingly. According to this NPR Planet Money podcast, they

    The goal was to avoid Dutch disease.





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  • The Congress and the Fiscal Cliff

    Is Government the Solution or the Problem?

    Sep 9 • Businesses, Economic Debates, Economic Thinkers, Gender Issues, Government, Households, Labor, Macroeconomic Measurement, Regulation • 630 Views

    Maybe everyone got something from President Obama’s jobs plan. According to the Washington Post’s Ezra Klein, the “right” got tax cuts, the “left” got help for the unemployed and infrastructure spending, and everyone will get deficit reduction. For a quick summary, this graphic is ideal.

    On the other hand, each side might believe it did not get enough.

    Representing a left of center view, here is what Paul Krugman has been saying:

    • With residential construction plunging and consumer saving soaring, there has been a massive decline in spending. So far, the amount spent by the federal government has insufficiently compensated for the decrease.

    Dr. Krugman’s conclusion? The stimulus “wasn’t big enough to do the job.”

    For the right of center perspective, Stanford economist John Taylor said this during his congressional testimony on the 2009 stimulus package:

    • Referring to federal government purchases of goods and services, he said it had a minimal impact on GDP because a “tiny slice” of dollars were allocated to federal direct spending.
    • For the grants that states and local governments got, they mainly used the money they got to reduce their borrowing rather than spend it on GDP related goods and services.
    • Similarly, payments and tax benefits targeted for increasing households’ disposable personal income were not reflected by expenditure statistics.

    Dr. Taylor’s conclusion? “Increased debt…is likely a drag on economic growth.”

    The Economic Lesson

    People who agree with Dr. Krugman believe, as did John Maynard Keynes, that government can jumpstart the economy

    Those who support Dr. Taylor’s view would take us to Adam Smith, Friedrich Hayek, and Milton Friedman who said that government inhibits individual productivity and initiative.

    An Economic Question: Do you believe that government is the solution or the problem? Explain.

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    Environmental Dilemmas

    Sep 8 • Businesses, Demand, Supply, and Markets, Economic Debates, Environment, Government, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 732 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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