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    Europe Day

    May 9 • Demand, Supply, and Markets, Economic Debates, Economic History, Financial Markets, Government, International Trade and Finance, Money and Monetary Policy • 731 Views

    Can you imagine if every time someone from Brooklyn went to Manhattan, she had to use a different currency?  

    In an excellent NY Times Magazine article, economist Paul Krugman explains the euro zone. He tells how it began, describes the problems that have always existed, and presents 4 scenarios for the future. He also tells us why Iceland is better suited to having its own currency than Brooklyn, although Brooklyn has 8 times as many people.

    His point? Currency union can be helpful.

    His second point? Currency union can create big problems when nations need to deal with their own economic problems.

    Commemorating, the first steps taken toward a European Union on May 9, 1950, Europe Day is celebrated today. Euro zone members can smile on Europe Day because they have been able to enjoy the benefits of a larger market. Dr. Krugman wonders though, whether it can last. 

    The Economic Lesson  

    Monetary policy and fiscal policy are the two basic ways that nations guide an economy. Monetary policy targets the supply of money and credit. Fiscal policy involves spending, taxing, and borrowing.

    The euro zone facilitated a monetary authority but no fiscal unity. And therein lies the problem.

    An Economic Question:  During the recession in the U.S., using which tools did monetary policy and fiscal policy target the same goals? 

    Here, you can listen to a wonderful Teaching Company lecture from Dr. Timothy Taylor (Lecture 6, “America and the New Global Economy”) on the euro zone.

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  • For most economists, historians, social scientists, it is tough to avoid research bias

    Fictitious Billionaires

    May 8 • Economic Debates, Economic Humor, Gender Issues, Households • 702 Views

    Having amassed her fortune as CEO of an electronics empire and through her inheritance, The Office’s Jolene “Jo” Bennett is ranked #11 on this year’s Forbes Fictional 15. You might enjoy this (fictitious) Forbes interview of Ms. Bennett.

    Dominated by men, the list includes Carlisle Cullen (#2 ), who made his fortune primarily through a blood reagent manufacturer and Bruce Wayne (#3), affluent because of his shares of Wayne Enterprises.  The Simpsons’ C. Montgomery Burns (#12), Gossip Girls’ Chuck Bass (#13) and “investor” Gordon Gekko (#14) are also on the list. 

    The Economic Lesson

    With Jo Bennett the only woman in the Fictional 15, Walmart’s Christy Walton & Family (#4) and Alice Walton (#8) were the two women in the top 15 for Forbes richest in America. (4 Waltons were in the top 10.)

    Electronics, energy, security, and investing were among the industries that provided the fortunes of the Fictional 15. For Forbes Richest in America, Microsoft’s Bill Gates (#1) and investor Warren Buffett (#2) topped the list.

    An Economic Question: The conclusions from the following studies could be contradictory. Your opinion?

    Saying that education is crucial for income mobility, a 2010 study from the OECD concludes that U.S. intergenerational mobility is relatively low. In other words, fathers and sons, mothers and daughters remain close to the same rung on a social mobility ladder.

    By contrast, this 2007 report from the U.S. Treasury indicates that there is considerable income mobility in the U.S. Describing a hotel with luxurious rooms and shabby rooms, they say that, “…those in small rooms have an opportunity to move to a better one, and that the luxurious rooms are not always occupied by the same people. The frequency with which people move between rooms is a crucial aspect of the trend in income inequality in the United States.”


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    Grade Redistribution

    May 7 • Behavioral Economics, Economic Debates, Government, Macroeconomic Measurement, Thinking Economically • 808 Views

    In this video, college students approve of proposals to “tax the rich.” However, when asked if those in the top 10% of GPAs should have their grades redistributed, they emphatically say, “No.”

    But, is income redistribution really that different from grade redistribution?

    Students were told that a 4.0 could be considered excessive. They were reminded that some of their peers had lower GPAs because they had to work. Others with less ability were struggling and might not graduate. All of the high grade earners just had to give a little of their GPA to others. They refused.

    I know, grades and income feel different. But no one could come up with really good reasons that explicitly distinguished the two.

    In an Atlantic commentary, economics editor Megan McArdle concludes that, “…most of us just want to redistribute income because, well, we wanna…not because we have any particularly good reason…”

    You might want to refer to this econlife for some tax insights.

    The Economic Lesson 

    Contemplating taxes takes us to three approaches: Progressive taxation takes a higher percent from those who have higher incomes.  Regressive taxation takes a higher percent from those with lower incomes.  Proportional taxation takes the same percent from all.  Our current individual income tax approach is progressive while a sales tax is regressive.

    An Economic Question: In a debate, how would you support a progressive approach to grade redistribution? Could any of your arguments apply to a progressive approach to income redistribution?

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    The Story of a Candle Tax

    May 6 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Government, International Trade and Finance, Labor • 1309 Views

    Our story begins with one 1986 tax, an “antidumping duty,” on Chinese candles. Responding to very low Chinese candle prices, the U.S. decided to protect domestic candle producers.

    By 2004, the tax was huge. More than 100%.  Also, candle makers received some of the tax revenue. According to one government document, they received almost $52 million during 2004.

    So where are we?

    We have Chinese candle dumping, a U.S. tariff and a U.S. subsidy. But that was only the beginning. In the U.S., candle makers could charge more and make more. Not subject to the tax, Vietnam and India exported additional candles to U.S. In China, candle makers started exporting “blended” candles because the tax targeted petroleum candles.

    And now, during 2011, with transport costs up, and labor more expensive in the developing world, we have come full circle. Some Asian factories want to relocate in the U.S. And here, the story takes a new twist. It is not that easy. According to a WSJ article, local ordinances are delaying and increasing the cost of Chesapeake Bay Candle’s domestic construction project.

    The Economic Lesson

    A tax on imports, tariffs increase domestic prices. By contrast, a subsidy, a payment from the government (usually) to a domestic producer, diminishes price. Each approach, the tariff and the subsidy, enable domestic manufacturers to compete more effectively against foreign producers.

    An Economic Question:  Saying that worldwide efficiency is jeopardized and market decisions are distorted, believers in free trade oppose tariffs and subsidies. Using candles as an example, your opinion?

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    34 Million Different Pizzas

    May 5 • Businesses, Demand, Supply, and Markets, Economic Debates, Regulation, Thinking Economically • 629 Views

    Expressing concern about a proposed FDA calorie-posting rule, Domino’s says it would have to list 34 million different kinds of pizzas. Really.

    This Bloomberg video explains their position. Using Domino’s “Cal-O-Meter” as a source, they show an image of a plain cheese 14″ pizza (2,320 calories) that is accompanied by a yellow “sausage” arrow (480 calories) and a gray Mushroom arrow (40 calories). You get the picture. Peppers? Pineapple? Onions? Veggies? There are a lot of possibilities.

    The Food and Drug Administration’s (FDA) proposed mandate applies to restaurants, bakeries, coffee shops, grocery stores, and convenience stores that are chains. Defining a chain as 20 stores or more, the FDA has not yet implemented its rule. Vending machines are included but not movie theaters and airlines.

    The Economic Lesson

    The menu-labeling rule was mandated by The Affordable Care Act that was passed during March 2010.  Assessing its wisdom, you could use an opportunity cost approach. The opportunity cost of a decision is the alternative that you rejected. (Choosing is refusing.) Just decide what alternative choice you are sacrificing and then list the benefits of that alternative that you would forgo. Is your choice worth the sacrifice?

    An Economic Question: Using cost/benefit analysis as your approach, with which of the following do you agree?

    a. This article in the Sacramento Examiner says the FDA has not gone far enough. They believe ingredients should also be listed.

    b. The FDA has gone too far. The new rule will negatively affect corporate productivity.

    If you would like to submit an opinion to the FDA, go to regulations.gov.


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