• Econlife.com Weekly Roundup

    Our Weekly Roundup: From the Invisible Hand to Invisible People

    Jul 26 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Government, Labor, Regulation, Tech, Thinking Economically • 283 Views

    Our Econlife roundup for the week

    Globalization and problems with a shrinking kilogram 7.21 All kilograms might not be the same weight…more

     

    Adam Smith's invisible hand makes the market system work. 7.22 Why the invisible hand was an idea that “stuck”…more

     

    The behind-the-scenes jobs that we ignore from highly skilled human capital can be called invisible. 7.23 From wayfinders to fact checkers, some jobs are almost invisible…more

     

    Everyday Economics and a wider and deeper Panama Canal will change the invisible lines that show the world's supply chains. 7.24 The Panama Canal is the reason for a line that slices the U.S into 2 pieces…more

     

    Everyday economics and the tire tariff had a visible benefit and a much greater invisible cost. 7.25 The cost of the tire tariff is everywhere but tough to see…more

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  • Everyday economics and the tire tariff had a visible benefit and a much greater invisible cost.

    The Inflated Cost of Car Tires

    Jul 25 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Economic Thinkers, Government, International Trade and Finance, Labor, Regulation, Thinking Economically • 424 Views

    Starting at $14 a week, you can walk out of Rent-N-Roll with a complete set of tires for your van, truck or car. The catch? By the time you have finished your weekly payments and the tires are yours, you probably will have given them more than twice the retail price. But, because Rent-N-Roll’s customers do not have the credit nor the cash to pay for 4 tires, renting is their only option.

    Rent-N-Roll says that during the past several years their tire rental business has grown. Because the recession eroded credit ratings and increased joblessness, fewer people had the $800 or so they needed for 4 tires. Also though, the price of tires was inflated.

    And that takes us to the tire tariff.

    5 years ago, the Obama administration said US jobs could be saved with a 35% tax on tires from China. The tax achieved what US tire workers wanted. It made imported tires that had been subsidized by the Chinese government so expensive that many fewer entered the US. As a result, the US tire industry added 1200 jobs and placed an extra $48 million in workers’ pockets.

    Elsewhere, though, the tariff took money out of our pockets. With tires costing us $1.1 billion more in 2011 because of the tariff, we could say that each additional job cost $900,000. Furthermore, other industries lost revenue and jobs—a 2,431 job loss total according to a Peterson Institute study—because spending on tires meant we had less to spend on other goods and services. Even Tyson and Purdue were affected because the Chinese retaliated with a tax on US chicken paw exports. (I have read that our chicken paws are unusually juicy—a fascinating tale we told at econlife.)

    This is where the tire tariff created a ripple of costs:

    The cost of a tariff exceeds its benefits.

    From: Peterson Institute for International Economics “U.S. Tire Tariffs: Saving Few Jobs at High Cost”

    Using an economic lens, we would see that tariffs increase price by crossing the domestic supply curve at a higher point:

    The impact of a tariff on supply

    Our bottom line: So very charmingly, below, Nobel laureate Milton Friedman explains that tariffs can appear attractive because the job numbers they boost are visible while the costs to consumers and other industries are invisible. However, that concentrated benefit is far less than the diffuse cost.

    Do watch the full 6 minutes. Dr. Friedman presents a wonderful banana example at the end.

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  • Everyday Economics and a wider and deeper Panama Canal will change the invisible lines that show the world's supply chains.

    How the New Panama Canal Affects Us

    Jul 24 • Businesses, Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor, Tech, Thinking Economically • 342 Views

    When a desk destined for Ohio leaves China on a super-sized container ship, should it enter the United States in Los Angeles or New York?

    The Panama Canal could determine the answer.

    Imagine a jagged north south line dividing the US. Located somewhere between the East and West Coast, this invisible line determines where supertankers carrying Asian cargo will dock. All places to the east of the line will receive goods from NY/NJ or maybe Savannah or Charleston. On the west side of the line, maybe Los Angeles or Oakland.

    But here is where it gets interesting. When the Panama Canal’s renovation is completed, perhaps during the beginning of 2016, a newer, larger generation of Panamax container ships will be able to use it. As a result, some of the cargo heading for congested West Coast ports like Los Angeles will have a cost-effective alternative. By choosing a new destination, shippers will nudge that jagged north south demarcation line westward. One article I read suggests the line could shift from Memphis to Dallas.

    Pictured below in canal locks are the New Panamax and its predecessor, the Panamax. There is a Post Panamax that a deeper, wider Panama Canal will not be large enough to accommodate.

    New Panamax ships create economies of scale.

    From: MaritimeConnector.com

    New Panamaxes will also change the incentives that shape worldwide supply chains. Midwestern corn, sorghum and soybean growers who send their crops down the Mississippi River to Gulf Coast ports will be able to connect with much larger vessels that, for the first time, can reach Asia through the Panama Canal. Meanwhile, South American port cities will be able to send coal and iron ore to Asia more easily. It is even possible that more trade will evolve between the Western US and Eastern Brazil.

    Our bottom line: The more I read, the more I concluded that no one is positive about how a wider, deeper Panama Canal will affect international trade. So we really do not know where that desk from China will enter the United States. However, we can be sure that bigger vessels create economies of scale. Representing cheaper shipping costs, these new economies of scale will shift the invisible lines that represent the world’s supply chains.

    An excellent movie, Captain Phillips with Tom Hanks is the story of a container ship hijacking. From what I could discover, the ship, the Maersk Alabama, is smaller than a Panamax. The ship is in the trailer for the movie, below. (Please do note that there is some violence.):

     

     

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  • The behind-the-scenes jobs that we ignore from highly skilled human capital can be called invisible.

    The Invisible People in Your Life

    Jul 23 • Behavioral Economics, Businesses, Economic Debates, Entertainment, Labor, Lifestyle • 222 Views

    During the Nantucket film festival I saw Font Men. A mini-documentary, it was all about a business firm that specialized in letters.

    Font specialist might be the quintessential example of an invisible job. When we see Delta on the wing of a plane, few of us ponder who decided the width of the “A.” And yet, through the film, the significance of selecting fonts became increasingly clear as did the role of the market in validating a design.

    I guess we all ignore some human capital. Take a New Yorker Magazine fact checker. Few people pay attention until a fact is incorrect. Or a structural engineer who is only noticed when a skyscraper falls down. Or even an anesthesiologist, until a catastrophe occurs.

    One of my favorite invisible jobs is the wayfinder. Described in David Zweig’s Invisibles, wayfinders enable us to…yes… find our way. Hired by airport designers, they are the individuals who use architecture, signage, lighting and color to lead us from Terminal A to Terminal D or to the baggage carousel or maybe an arcade of stores. All types of buildings employ them to create paths for us.

    Debating what the universal restroom image should look like, airport wayfinders in Abu Dhabi considered but then vetoed dressing the male in a traditional Middle Eastern Robe (a dishdasha).

    wHuman capital wayfinders debatedthe images on the universal restroom sign.

    In his book, Zweig said that people who like invisible jobs are a diverse group that includes rock band guitar techs, UN interpreters and product namers (few of us know that Michael Cronan named the Kindle.). All of them, though, tend to be meticulous individuals who enjoy shouldering responsibility and care little about recognition,

    Our bottom line: Because I always seem to be talking about entrepreneurs, I wanted to look at a different human capital group that the market values.

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  • Adam Smith's invisible hand makes the market system work.

    Has the Invisible Hand Given You a Nudge Recently?

    Jul 22 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Government, Labor, Thinking Economically • 265 Views

    Since this week’s posts all will relate to “invisibles,” I wanted to admit that I have an invisible hand in my classroom. Given to me by a student, it is made of paper mache.

    In both of his major books, Adam Smith referred to an invisible hand. His invisible hand contradicted the seemingly haphazard nature of human behavior. Instead, Smith tells us that, pushed by an invisible hand, consumers and businesses predictably and productively interact.

    Adam Smith created his image of the invisible hand just as it was just starting to touch eighteenth century Europe. For centuries, medieval England’s economy had been agricultural until, because of the Crusades, the industrial revolution, exploration, and many other large and small events, countless peasants said, “Let’s leave the farm. Let’s go to the city.” Hired by factory owners, this newly created work force could use a division of labor to mass produce.

    Meanwhile, as the word spread about price and quantity, a variety of incentives started to motivate consumers and businesses. Consumers started to think, “What am I willing and able to buy?” If price is lower and quality is good, then I will purchase more.  Meanwhile, on the supply side, higher prices fueled production. With enough demand, division of labor, regional specialization and all of those ideas explained by Adam Smith were able to develop.

    The result? Many buyers and sellers agree on price and quantity (although each acts independently) and you know the price of, let’s say… your cookie. On a demand and supply graph, economists call that meeting point “equilibrium.”

    One contemporary called Adam Smith, “the most Absent Man that ever was. Another told how he moved his lips, talked to himself and smiled “in the midst of large Company’s…” At Edinburgh University, apparently deep in thought, he smiled at inappropriate moments during religious services. Probably pondering the fundamentals of virtue, he strolled the roads near his home attired only in his dressing gown. During tea with friends, he unconsciously placed his bread and jam in his teapot and then asked why the tea tasted fowl. Once, while walking with Charles Townshend, excitedly describing the division of labor, Smith fell into a tanning pit filled with gasses and fat. As someone who was diagnosed as having “hypochondriasis,” the event must have terrified Smith. (Once his doctor prescribed 500 miles on horseback to cure his affliction.)

    Our bottom line: I liked New Yorker writer James Surowieki’s description of a market in his The Wisdom of Crowds. He said that a market “aggregates” a decentralized group of people with diverse opinions who function independently. Together, they create a network of information and produce desirable results. Why? I could add that they are nudged by an invisible hand.

     

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