• The econlife.com Weekly Roundup

    Weekly Roundup: From Greek Games to Tennis Matches

    Jun 13 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic Humor, Economic Thinkers, fiscal policy, Gender Issues, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Money and Monetary Policy, Regulation • 94 Views

    Our Posts Roundup

    Everyday economics and tennis externaities Sunday 6.07.15

    Why tennis is changing…more

    Everyday economics and the apple's monopolistic competition. Monday 6.08.15

    How apples and horses are similar…more

    Everyday economic and game theory Tuesday 6.09.15

    The games we play during debt talks…more

    everyday economics and tax impact Wednesday 6.10.15

    How scientists respond to taxes…more

    everyday economics and glass ceiling cracks Thursday 6.11.15

    Who looks down through the glass ceiling… more


    China's market economy Friday 6.12.15

    Trading dilemmas with China… more

    Ideas Roundup

    • market economy
    • labor
    • externalities
    • salaries
    • branding
    • monopolistic competition
    • perfect competition
    • supply and demand
    • sovereign debt,game theory
    • prisoner’s dilemma
    • elasticity
    • human capital
    • taxation
    • gender issues
    • glass ceiling

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  • China's market economy

    Why China Wants to be Called a Market Economy

    Jun 12 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Thinkers, Fashion, Financial Markets, fiscal policy, Government, International Trade and Finance, Regulation, Thinking Economically • 101 Views

    Dumping has just become the “mother of all trade issues.”

    Our story begins in 2001 when China joined the World Trade Organization. Agreeing that higher tariffs could be placed on goods from NMEs (Non-Market Economies) with unusually low prices, China was tacitly admitting that it has subsidized those exports. In other words, China was “dumping” and the EU was taxing.

    But here’s the catch.

    Because the clause in China’s WTO agreement says the EU’s tariff walls that apply to a Non-Market Economy will crumble in 2016, China might automatically shift from Non-Market Economy to Market Economy status. With China a market economy, anti-dumping tariffs become illegal since prices (theoretically) are “normally” determined by supply and demand. (I know…a bit convoluted.)

    So, China might be treated like a market economy. But is it a market economy?

    Our Bottom Line: A Market Economy

    EU Regulations

    Deciding whether China is in fact a market economy, we can look at the EU’s anti-dumping regulations that sound a lot like market requisites. They say that firms should…

    • respond to market signals.
    • be minimally affected by the legacy of the command economy.
    • use acceptable accounting standards.
    • have a convertible currency that recognizes market rates.

    Index of Economic Freedom

    You can tell from this heat map based on the Index of Economic Freedom that China’s compliance with EU regulations would be inadequate. On the map a green color and a high number designate a free economy while the rusts and reds label economies with more government control.

    Ranked as somewhat unfree, Chinese does not have a market economy.

    Not a market, China's economy is somewhat unfree.

    From: The Heritage Foundation

    World Bank

    Again displaying more government intervention, at the World Bank’s Ease of Doing Business Index, China is ranked 90 out of 183 countries.

    So, seemingly related to whether China is a market economy, “the mother of all trade issues” really is a debate about cheap exports.

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  • everyday economics and glass ceiling cracks

    Finding the Cracks in the Glass Ceiling

    Jun 11 • Businesses, Demand, Supply, and Markets, Economic History, Gender Issues, Households, Labor, Macroeconomic Measurement • 101 Views

    At $15.9 million, the median pay for top female CEOs exceeded the median for their male counterparts by $5.5. million. Sounds good?

    Not necessarily.

    The survey was based on 340 large firms. And there were only 17 women.

    Where are we going? To deciding whether the glass ceiling has begun to shatter.

    The Cracks in the Glass Ceiling

    1. Starting with the big picture, let’s look at average earnings for men and women.

    Between 1981 and 2012, average earnings for the top .1 percent ascended pretty steadily to a $2.841 million peak 15 years ago and then declined somewhat. (All figures are adjusted for inflation and stated in 2012 dollars.)

    Average earnings for the top .1 percent:

    Looking at the Glass Ceiling through top earners

    From: NBER Working Paper 20560

    Below, for the next .9 percent, you can see that the average came close to doubling.

    Average earnings for the second .9 percent:

    Looking at the glass ceiling through top earners

    From: NBER Working Paper 20560


    2. Now let’s see where women fit into the picture.

    For the top .1 percent, moving from 1.9 percent to 10.5 percent, the share of women at the top quintupled. Somewhat similarly, for the next .9 percent, the number increased from 3.3 percent to 17 percent.

    The share of women among top earners:

    Glass ceiling and share of women who are top earners

    From: NBER Working Paper 2060


    Moving from people to dollars, we also see a big relative increase.

    The share of earnings going to women who are at the top:

    Looking at glass ceiling through share of earnings at the top

    From: NBER Working Paper 20560

    Our Bottom Line: Half Full or Half Empty?

    Sounding like economists, we have to say that on the one hand the glass could be half full, but on the other it is half empty. Yes, we have come a long way. But, just like the CEO earnings numbers for 340 large firms, there are still relatively few women at the top.

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  • everyday economics and tax impact

    How We Respond to Higher Taxes

    Jun 10 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, fiscal policy, Government, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 102 Views

    Targeting a sweet spot, Kansas lowered taxes three years ago. Texas and South Dakota had no individual income tax while Iowa’s top rate was 9% and Minnesota’s, 7.85%. By lowering her top rate to 4.9% and eliminating the tax on non-wage income for small businesses, Kansas could become known as a low tax state. Her goal was to attract new businesses and new residents.

    You can see below that Kansas was not among the lower tax states in 2010:

    Tax Policy map

    From: Moretti and Wilson

    Where are we going? To the impact of tax cuts.

    Moving to Kansas

    Hoping to uncover the influence of personal and business taxes on star scientists’ migration patterns, scholars from UC Berkeley and the San Francisco Fed looked at patent data that included locations and implied a high income from 1976 to 2010. Their conclusion? Yes, taxes make a statistically significant number of high earners want to move.

    When New York lowered its top income tax rate from 7.5% to 6.85% in 2006, the likely result was 12 scientists who remained and 12 who migrated there. At a total of 24, it was a 2.1% increase that unfolded over time. In the short run, the change would have been much less.

    Like New York, will Kansas’s tax cuts attract star scientists and other innovators?

    Our Bottom Line: Elasticity

    Looking at the connection between mobility and tax rates takes us to elasticity. A number that compares the percent change in one item to a percent change in another, elasticity focuses on the relative size of a response. So we can say that star scientists have an elastic migration response to state tax changes.

    Right now, the Kansas legislature is debating whether to raise taxes because of a calamitous shortfall in tax revenue. I wonder if they need to be more patient.

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  • Everyday economic and game theory

    Greek and German Games

    Jun 9 • Behavioral Economics, Businesses, Economic Debates, Economic Thinkers, fiscal policy, Government, International Trade and Finance, Money and Monetary Policy, Thinking Economically • 139 Views

    Knowing how Greeks and Germans order dinner and how they feel about the EU could help us understand their game theory dilemmas.

    First, dinner:

    Opinion on the EU from a year ago:

    The prisoner's dilemma affects Greek debt negotiations.

    So where are we? Although culturally different, Greece and Germany each want to preserve their economic integration.

    And that is what game theory is all about. We have two parties who will benefit from a positive outcome from negotiations. BUT…their individual goals differ. Consequently, each has to decide how much to sacrifice for a mutually sought outcome.

    Our Bottom Line: The Prisoner’s Dilemma

    Categorized as game theory, the prisoner’s dilemma explains how negotiation involves what one party expects the other will offer.

    Please imagine for a moment two recently arrested burglars who were separated at the police station. Because each knew what his partner said would affect the response to his own interrogation, each had a dilemma about whether or not to confess. Below you can see that denial could bring the longest jail time if the other person confesses. On the other hand, confessing could be a ticket out the door if the other burglar denies the crime.

    Prisoner's dilemma for Greece and Germany

    Yes, both prisoners want to minimize their jail time and both Greece and Germany want Greece to remain in the euro zone. And like the prisoners, neither Greece nor Germany can be sure of what the other one is willing to sacrifice. Expecting less from one means the other has to give more.

    Last week, Greece took advantage of an obscure clause in its loan agreement and delayed payment. As the co-author of Game Theory: a Critical Introduction, their finance chief’s grasp of the prisoner’s dilemma might explain their strategy.

    And finally, for some smiles, do enjoy this Monty Python Greek/German philosopher football match.


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