• Pleasing Ricardo

    Dec 24 • Thinking Economically • 247 Views

    During the 1990s, ignoring the protests of horrified Italian cheesemakers, the US placed a tariff on Pecorino cheese. The reason was bananas. Favoring their former colonies, the EU taxed bananas coming from all other Latin American countries that were grown primarily by US firms like Chiquita and Dole. The Pecorino tax was a retaliatory policy.
    Finally the (banana) warring countries have agreed on a solution and all bananas will be treated equally. An article about the banana war is at:
    http://uk.news.yahoo.com/18/20091215/tbs-latin-americans-eu-strike-historic-d-5268574.html

    David Ricardo, a nineteenth century British economist, was the first to defend free trade through the idea of comparative advantage.
    Comparative advantage: When each nation produces goods and services that have a low opportunity cost (less sacrifice) and trade them for what they do not produce, production is more efficient throughout the world.

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  • Who Should Get A Kidney?

    Dec 23 • Behavioral Economics, Demand, Supply, and Markets, Households, Regulation, Thinking Economically • 263 Views

    Some say that it is unethical to pay someone for a kidney while others say it is unethical to use a method (a government list) that makes fewer donor organs available.
    As always, choosing is refusing.
    The debate continues in a recent NY Times article:
    http://www.nytimes.com/2009/12/22/health/22essa.html

    opportunity cost: the alternative that was sacrificed when making a choice; e.g. if pizza is sacrificed when I eat yogurt for lunch then pizza is my opportunity cost.

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  • Congestion Pricing in Israel

    Dec 22 • Thinking Economically • 257 Views

    Run privately, guaranteeing 70kph (43.5 mph), a toll lane will be created on a busy Israeli road. More traffic–price up; less traffic, price drops. Another solution to the tragedy of the commons.
    To read more, go to http://www.jpost.com/servlet/Satellite?cid=1260930882954&pagename=JPost/JPArticle/ShowFull

    Should we be concerned that a toll road is regressive?
    Regressive: those who are less affluent pay a higher percent of their income than those that earn more.

    Tragedy of the Commons: When a resource is shared by many rather than privately owned, it tends to be “misused” or “overused”. For a pasture, “misuse” is over grazing; in the ocean, fish populations are depleted; in the air, factories pollute.

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  • Con and Pro Thoughts of Paul Samuelson

    Dec 21 • Thinking Economically • 279 Views

    in this week’s Barron’s, commentator Gene Epstein shares a rather different view of Paul Samuelson from most who eulogized his life. Epstein perceived the economist who has been elevated for bringing math to his discipline as the scholar who needed more so to recognize human unpredictability. Commenting on Samuelson’s analysis of the Soviet Union, he saw a naive individual who failed to see the reality of their false statistics.
    Because Epstein sounds rather harsh (although his basic opinions can be defended), I add here a link to a textbook inscription to Greg Mankiw from Paul Samuelson that is special.
    http://gregmankiw.blogspot.com/2009/12/memories-of-paul.html

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  • A New Kind of Misery Index?

    Dec 20 • Thinking Economically • 288 Views

    11.84 is the current level of our “misery index” if we use what Arthur Okun (economic advisor to Lyndon Johnson) created. November unemployment + inflation rates = 11.84.
    However, according to Floyd Norris, a new index might be more appropriate. Suggested by Pierre Chilleteau, it combines a nation’s budget deficit as a percent of GDP with its unemployment rate.

    The Economic Lesson

    A misery index reflects an economic dilemma. Each has a different opportunity cost for less unemployment. Each requires a tradeoff. For Okun, if we solve unemployment, we get more inflation (or the opposite). For Chilleteau, a Keynesian solution to unemployment means an even higher budget deficit or less spending means (Keynes again) more unemployment.

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