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    The Ties That Bind Us

    Apr 23 • Economic Thinkers, International Trade and Finance • 224 Views

    Although Nairobi and London are 4228 miles apart, they actually are closely connected. The NY Times described the tie that was cut by volcanic ash.

    Kenyans supply gourmet vegetables and cut flowers to European supermarkets. When planes were grounded, so too were sugar snap peas, onions, and corn. Roses began to wilt and corn started to spoil. Daily shipments of two million pounds of produce were affected as were unneeded Kenyan packers and washers.

    Other trade connections we might not know? Please comment.

    The Economic Life

    Perhaps here we have a connection between Adam Smith, David Ricardo, the U.K. and Kenya. In his Wealth of Nations, Adam Smith explains the virtues of mass production and the need for “distant sale” which can only be achieved through a transport infrastructure and many buyers. Kenya developed so large a horticultural export sector because cargo planes could connect it with large affluent markets. And here is where Ricardo enters the picture. Markets that interconnect nations facilitate even more efficiencies through economies of scale and comparative advantage. 

     

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    Another Unregulated Market

    Apr 22 • Environment, Regulation, Thinking Economically • 318 Views

    Carbon offset markets are about thinking at the margin. Hoping to become the first carbon neutral state in the world, the Vatican bought carbon offsets. The U.S. House of Representatives funded an $89,000 purchase of carbon offsets. Before boarding, you can buy a carbon offset to compensate for emissions during a plane flight. In each example, someone was paying to create an “extra” environmental benefit (a forest that “inhales carbon dioxide”) in order to compensate for the marginal cost of environmental harm (airplane emissions). 

    Yes?

    Maybe.

    The market in which carbon offsets are sold is unregulated. Consequently, government is not directly checking whether sellers are actually creating the offsets that are purchased nor whether cost and benefit are connected. For example, in a recent Christian Science Monitor article, investigative reporter Phillip Martin found major deficiencies in the carbon offset market. Essentially he discovered that certain offsets never were created. 

    The Economic Life

    A market is a process through which demand and supply determine price and quantity of a good or a service. A recent paper from the Pew Center on Global Climate Change suggests that oversight of carbon markets should accompany current financial reform.

     

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    A (Mind Boggling) Entitlement

    Apr 21 • Government • 270 Views

    I guess we can all agree that citizens have basic rights. But vacations? “Traveling for tourism today is a right. The way we spend our holidays is a formidable indicator of our quality of life,” according to Antonio Tajani, the European Union commissioner for enterprise and industry. 

    During a recent meeting in Brussels, the EU proclaimed that government should subsidize tourism and travel for those who cannot afford it. Available “to pensioners and anyone over 65, young people between 18 and 25, families facing ‘difficult social, financial or personal’ circumstances and disabled people,” the program will be piloted until 2013.

    You might want to look at this WSJ.com article for a reality check about the tough fiscal choices facing EU members.

    Your opinion? Please comment.

    The Economic Life

    An entitlement is a government program that citizens believe government should provide.  In the U.S. Medicare and Social Security are our largest entitlement programs. If we return to our government involvement scale, with more government to the left and less to the right, where do you believe the U.S. should be? With a travel subsidy mandate, where have the EU nations moved? 

     

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    (Fictitious) Billionaire Facts

    Apr 20 • Macroeconomic Measurement • 343 Views

    Did you ever wonder how rich Jed Clampett (the Beverly Billbillies) would be? According to Forbes Fictional 15, because of oil, gas, and banking investments, Clampett, worth $7.2 billion, is #5 on the list.

    C. Montgomery Burns, hometown Springfield, U.S.A., and graduate of Yale, is #12 because of the money he made as owner of the Springfield Power Plant and Jay Gatsby is #14 with $1 billion. #1 was Carlisle Cullen from Twilight’s Billionaire Vampire.

    The Economic Life

    A very real issue that concerns economists is income distribution.  In the U.S., our national income comes from wages and salaries, rent, interest, dividends and profits from businesses that are not incorporated. To picture our income distribution, please think of a pie as the total national income and then individual slices as the proportion that different groups receive. That would mean that if total national income were $1,000 and a society had only five households (people living together), then if every household earned $200, distribution was equal. By contrast, if one family earned $800, then, because $200 remained for everyone else, there would be considerable inequality. Recently, the top quintile of households in the U.S. earned close to 50% of all income. This quintile approach for representing income distribution was developed by statistician Max Lorenz. 

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    A $5,000.00 Taxi Ride

    Apr 19 • Environment • 333 Views

    Hearing that actor John Cleese took a Mercedes taxi from Oslo to Brussels for about $5,000 because the Icelandic volcano eruption prevented him from flying, an economist would say, “That is a positive externality.”

    Economists see positive externalities wherever a transaction between two parties affects a third individual or group in some beneficial way. For Mr. Cleese, the transaction was between him and his airline while the taxi service experienced the positive externality.

    Primarily, though, news articles are emphasizing the negative externalities where unrelated third parties are harmed by airline cancellations. Because cyclists destined for the Amstel Gold race in the Netherlands, runners in the Boston Marathon, and wrestlers who were supposed to be in Rutherford , N.J., are stranded, those events will lose some of their stars. Similarly, audiences are disappointed by musicians who missed a concert and businesses are compensating for absent workers. 

    Other positive externalities are being felt by: ferries, NYC hotels, German trains.

    Other negative externalities include: the money lost by merchants awaiting food and pharmaceutical shipments, vacation cancellations, missed FedEx shipments, delayed military supplies to Afghanistan.

    Your additions?

    The Economic Life

    Traditionally, pollution is cited as a negative externality because the “cost” is experienced by anyone breathing nearby air. Some say that the recent recession was the negative externality created by the banking sector’s transactions (and again, Iceland?).

    For a positive externality, a vaccine is a good example. Here, the transaction is between the physician and the patient. Then, though we all benefit when fewer people become ill. 

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