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    The Real Cost of a Car

    May 23 • Demand, Supply, and Markets, Environment, Government, Households, Regulation, Thinking Economically • 529 Views

    To see how much a car costs, just add up the purchase price, insurance, gas and a yearly service. Yes? According to one group of researchers, a car that is driven 100,000 miles costs $19,000 more than you might think.

    The $19,000 relates to external costs. Pollution from autos creates health spending. Congestion generates delays, alternative plans, noise. Accidents means fatalities, days lost at work, medical expenses, property damage. In addition, more gas takes us to oil dependency and carbon emissions. Not included in the $19,000 total but also a cost is bridge and road maintenance and construction.

    What does that extra $19,000 mean? It says that the cost of driving is both private and social.

    Citing the private and social cost of driving as one of many examples, a new paper from the Hamilton Project, “Strategy For America’s Energy Future: Illuminating Energy’s Full Costs.” suggests we need to rethink public policy in 4 areas: 1) Changing the incentives that shape consumer and business energy use; 2) Enabling innovators to capture more of the profit of new technology; 3) Using more accurate cost benefit analysis for regulatory policy; 4) Pursuing global solutions to environmental and climate concerns.

    The Economic Lesson

    Economists see positive externalities wherever a transaction between two parties affects a third individual or group in some beneficial way. They see negative externalities when the impact on a third party is harmful. Vaccines usually have positive externalities while pollution is the typical example of a negative externality.

    Taking externalities an economic step further, we can look at cost. On a demand and supply graph, the equilibrium price of a decision that has a positive externality is too high because of the benefits experienced by society. Correspondingly, the equilibrium price of a decision with negative externalities is too cheap because of the associated costs that result.

    An Economic Question: Which business or individual decisions have a social benefit that (theoretically) offsets the private cost? Which business or individual decisions have a social cost that (theoretically) adds to the private cost?

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    Will Power and Wealth

    May 22 • Behavioral Economics, Households, Labor, Regulation • 617 Views

    Observing young children, scientists believe they can predict certain adult outcomes. One classic study from the 1960s involved delayed gratification.  A child and a single marshmallow were left in a room. The child could have one marshmallow now or two later.  When interviewed 40 years later, those who resisted temptation as children had better jobs as adults. In New Zealand, a group observed 1037 children from birth to 32. Those with more self-control were more affluent. Also, they were healthier.

    The Economic Lesson

    If one segment of the population generates excess costs to society in health care, financial dependency and crime, then should schools provide early childhood self-control programs? The New Zealand team says yes if the cost/benefit ratio is good (p. 5).

    An Economic Question:  Which variables might you identify if asked to compare the cost and benefit of early childhood programs that develop self-control?

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    Trade Deals

    May 21 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 485 Views

    What if Mr. Jones, an assembly line worker, lost his job because of low cost imports? And, what if Mrs. Smith, a travel agent, also is unemployed but the reason is online firms like Expedia? 

    Princeton economist Uwe Reinhardt asks us why Congress is likely to express more concern for Mr. Jones than Mrs. Smith. Instead, he suggests that whether the reason is global or domestic job disruption, perhaps all who gain should compensate those who have lost.

    Dr. Reinhardt’s perspective takes us to the current debate in Congress and the size of our safety net. Should a yes vote for free trade agreements with Panama, South Korea, and Colombia include more assistance to people who, as a result, lose their jobs? The NY Times tells us that a group of Democrats say, “Yes” while a group of Republicans say, “No.”

    The Economic Lesson

    The 4 basic causes of unemployment are 1) structural (technological change), 2) cyclical (recession) 3) seasonal 4) frictional (everyday reasons like quitting and moving).

    An Economic Question: If government provides a safety net of retraining and payments to the unemployed, what are the tradeoffs? ( Here and here, you can access facts about government aid to workers who lost jobs because of trade agreements.)


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    Population Pyramids

    May 20 • Demand, Supply, and Markets, Developing Economies, Gender Issues, Households, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 633 Views

    These graphics are wonderful!

    Shaped sort of like a triangle because the elderly population is so small, this population pyramid for Egypt illustrates a youth bulge of men and women who are 15 to 29. The “bulge” represents 28% of the population–maybe 23 million people. For Jordan, Algeria, Iran, Yemen, Saudi Arabia and Bahrain the demographic picture is similar.

    But the U.S. is different. Our graph has a baby boomer bulge. As you might expect, population pyramids for other developed nations resemble the U.S. graph. (You can open “Demographic Indicators” at this OECD site to compare.)

    The Economic Lesson

    What does a youth bulge imply? It takes us to jobs. The Washington Post reminds us that when freedom is limited, unemployment among so many young people fuels instability.

    By contrast, for the U.S. and other nations with an aging population, entitlement support for the elderly is the challenge.

    An Economic Question: We know that population matters…but how? How might the size of a country’s population and the relative size of its different age groups affect GDP growth (the value of a country’s production of goods and services during one year)?



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    Econ Fun

    May 19 • Economic Debates, Economic Humor, Economic Thinkers, Government • 615 Views

    The second Keynes/Hayek rap video, “The Fight of the Century” just arrived. Like the first one, it focuses on the never ending debate between economists who want more government and those who believe in less. In this Econtalk discussion, the writers discuss their content decisions. And here, during a Marketplace segment, a briefer background description of the video is presented.

    Also, you might enjoy looking at Merle Hazard’s songs which now include “The Greek Debt Song” and “Inflation or Deflation.”

    Explaining interest rates in the U.S., this Paul Solman PBS report takes us to Zimbabwe, Japan and Merle Hazard.

    Finally, here is the Freakonomics movie trailer with several economic insights.

    The Economic Lesson

    Perhaps economics need not be the dismal science as described by Thomas Carlyle in 1849. 

    An Economic Question: In “The Fight of the Century,” Hayek says, “We brought out the shovels and we’re still in a ditch… still digging, don’t you think it’s time for a switch…”

    Saying the Great Recession ended in 2009, Keynes replies, ” I deserve credit. Things could have been worse. All the estimates prove it-I’ll quote chapter and verse.

    Your economic policy preference? Bottom up (Hayek) or top down (Keynes)? 


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