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    Solar Panel Problems

    Sep 2 • Businesses, Demand, Supply, and Markets, Economic Debates, Environment, Financial Markets, Government, Innovation, International Trade and Finance, Regulation, Thinking Economically • 564 Views

    We could call it a double pay-off. Subsidized by stimulus spending, Solyndra could create jobs and develop “green” technology. But it did not work out that way.

    According to the Washington Post and the NY Times, solar panel maker Solyndra got a $527 million stimulus-related loan from the US Treasury and an Energy Department loan guarantee. With total sales near $250 million at the end of 2010, the firm employed about 1000 people. Now though, they need bankruptcy protection and are stopping production.

    Inexplicably, a Department of Energy representative said, “The project that we supported succeeded. The facility was producing the product it said it would produce, and consumers were buying the product.”

    Here, an econlife post looks at how government is subsidizing electric car manufacture.

    And here is another post on solar panels.

    The Economic Lesson

    When government subsidizes business, it affects the supply curve. Upward sloping, the supply curve shifts to the right because money from government cheapens the cost of production. As a result, it crosses the downward sloping demand curve at a lower point, and equilibrium price drops.

    Even with the subsidy and supply shifting to the right, U.S. made solar panels are more expensive than China’s.

    An Economic Question: Do you believe that the US government should subsidize an industry and a technology that it wants to encourage or should it let the market system make the decision?

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    Stormy Issues

    Sep 1 • Businesses, Demand, Supply, and Markets, Economic Debates, Government, Households, Macroeconomic Measurement, Regulation, Thinking Economically • 618 Views

    For Hurricane Irene relief, the debate is again about the debt.

    Let’s start with the Congress.

    1. Expressed by Texas Representative Ron Paul, government should not play a role because “intrusive” bureaucracy” hinders local people and volunteers. Instead, private insurance is the key.
    2. At the other extreme is Vermont Senator Bernard Sander’s position. He has said that we should unite as a nation, absorb the cost, and help each other when faced with a disaster.
    3. The third point of view comes from Virginia Representative Eric Cantor. Yes, he says we have a responsibility to help each other. However, emergency spending has to be offset by cuts elsewhere.

    And now, the economists….

    The Economic Lesson

    While Paul Krugman and Steven Landsburg disagree, each relates his position on disaster relief to marginal benefit and marginal cost. Whether discussing corporate profit or disaster relief, the point at which Marginal Cost equals Marginal Benefit (MC=MB or MC = MR..Revenue) is the optimal point beyond which we should not continue a certain activity.

    It makes sense. We do not want to continue most things when the cost of doing something extra exceeds the benefit of that extra amount.

    However, we cannot consider the budget for Irene alone. Then, surely, MB would vastly exceed MC. Krugman and Landsburg point out that we have to look at all federal spending to assess MC and MB.

    An Economic Question: After looking here, do you believe the Landsburg prom example adequately explains why he thinks Krugman is wrong?

    The above post is a revised version of the original which included a summary of Krugman and Landsburg.

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    On Time Again

    Aug 31 • Demand, Supply, and Markets, Developing Economies, Economic History, Economic Thinkers, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 685 Views

    Have you ever thought about the difference that a clock makes? Described in The Geography of Time, a pre-clock world meant you could not say, “I will meet you at 12:30 for lunch” or “Your workday is 9-5.”

    By the 1820s, though, technology had progressed enough that many places in the U.S. had clocks. The next problem though, was deciding the right time. How to measure? Where to measure? And why?

    The reason was the economy.

    During the 1860s, the 70 or so different time zones in the U.S. needed coordinating. Seeing an opportunity to profit, Alexander Langley sold what he called the “right time” to people in the Pittsburgh area. Using Western Union, for an annual fee of $1000, he sent the time to the Pennsylvania Railroad so that they could standardize train schedules. By 1883, the railroads had declared there were 4 time zones in the U.S. And, in 1918, the Congress agreed.

    You might want to read Keeping Watch A History of American Time for some good stories about time conflicts. Also, a previous post about The Geography of Time is here.

    The Economic Lesson

    Railroads facilitated a national market, regional specialization, and maximum productivity because each area of the U.S. could do what it did best. As our national market grew, the need to standardize train schedules became increasingly necessary.

    An Economic Question: Using the concept of a national market, how might you explain why the euro zone was created?

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    Emerging Economies

    Aug 30 • Demand, Supply, and Markets, Developing Economies, Economic History, International Trade and Finance, Macroeconomic Measurement, Thinking Economically • 788 Views

    The world is shifting.

    More than one-half of the world’s car sales, mobile phone subscriptions and oil, copper and steel purchases came from emerging markets during 2010. Here you can see the same story through these export and import, global GDP, and foreign investment charts. Or, you can look at this Forbes slide show to see that half of the world’s self-made female billionaires are Chinese.

    How to remember the emerging economies? Just think BRICs, MIST, and CIVETS. For the developed world, this list includes countries ranging from Australia and Austria to Spain, Sweden, Switzerland and the United States.

    Memorably, in his 20 minute TED talk about the developing world, Hans Rosling asks us to “Let my dataset change your mindset.” 

    The Economic Lesson

    As emerging economies increase their participation in world trade, we can think of Adam Smith (1723-1790) and David Ricardo (1772-1823). In a factory, Adam Smith says specialize through division of labor. When each worker has a specific task, output multiplies. Increasing output requires bigger markets in order to sell what has been produced.  As mass production enables us to move from local markets to regional specialization to free world trade, as David Ricardo explained, the entire world benefits from the efficiencies of comparative advantage.

    An Economic Question: After looking at iPhone component facts here, explain how the global economy has shifted.

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    “Tweetquakes”

    Aug 29 • Behavioral Economics, Economic Humor, Households, Innovation, Thinking Economically • 731 Views

    Sometimes Tweets travel faster than seismic waves. And then, what happens?

    In this wonderful webcomic from April 2010, an earthquake strikes, people Tweet, and within seconds, the news beats the temblor’s spread. Do people run for safety? No. They send new Tweets!

    For the August 23, 2011 East Coast quake, 2 Harvard bloggers proved that truth does copy a cartoon. Calling it a tweetquake, they demonstrated that the 40,000+ Tweets that were sent within 1 minute of the quake radiated outward faster than the quake itself. You can see the Tweet spread here.

    And here is how people were Tweeting about Hurricane Irene.

    The Economic Lesson

    Described in “Thinking Like an Economist,” (Lecture 6) from the Teaching Company, the economics of ignorance involves deciding how much information is optimal. Only when the benefit of an extra piece of information outweighs the cost of being ignorant should we be willing to add to our store of knowledge. While initially new data can be valuable, eventually, diminishing marginal utility starts to kick in and that extra piece of information is no longer worth our time or thought.

    Even for a Tweet, then, we are always thinking at the margin, choosing a little more or less.

    An Economic Question: When researching a topic, when does diminishing marginal utility set in?

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