• economic news summary and China's five year plan

    Do You “Wanna Know What China’s Gonna Do?”

    Oct 28 • Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic Humor, Entertainment, Thinking Economically • 150 Views

    At the end of this week, China’s leaders will have approved their thirteenth five-year economic plan.

    For now though in a rather perky sing-along animated video, they suggest “If you wanna know what China’s gonna do, best pay attention to the Shí sān wǔ (十三五).” (Pronounced Shí sān wǔ, the Chinese characters refer to the numbers you see in the video, 13 for the plan number and 5 for its duration,)


    Our Bottom Line: A Top Down Development Plan

    Thinking of the three basic economic systems–tradition, command and the market–you can see at the end of the video how command still characterizes the Chinese economy:

    “When the plan comes out the work’s not done,

    In fact it’s really just begun,

    Because every province county, city too,

    Have got to figure out what they’re gonna do,

    As the plan goes from high to low,

    The government’s experience continues to grow,

    They had to work hard and deliberate,

    Because a billion lives are all at stake…”

    Very much “top down,” their 2016-2020 development plan contrasts with the bottom up dynamic of the market.



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  • economic news summary and unemployment

    Solving the Mystery of the Disappearing Workers

    Oct 27 • Behavioral Economics, Demand, Supply, and Markets, Economic History, Education, fiscal policy, Gender Issues, Government, Health Care, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 124 Views

    We might be able to solve a mystery today.

    During January, we said that millions of workers were “missing” from the labor force.

    Limited to people who are 16 or older and have a job or are looking for one, the labor force numbers approximately 156 million. But the civilian population includes another 94 million individuals who are also older than 16 who could be in the labor force but are not.

    So where are they?

    Finding the Missing Workers

    Let’s start with a chart of the working status of the civilian population that is 16 or older. If we combined the five green rectangles under “Don’t Want a Job” and the single red box labeled “Not in labor force but wants a job,” we would get a total of 94 million workers.

    The labor force and the participation rate

    From: The Atlanta Fed


    Next, looking at the (above) rectangles as a (below) graph, we can picture some of the numbers. The retired group is a whopping 41 million people. Add to that 15 million individuals who are in school, 20 million who care for the aged and children and then those who are disabled and you get a total of 76 million. I suspect that with “other” and “want a job but not in the labor force,” we have found many of our missing workers.

    Labor force and participation rate


    Our Bottom Line: the Participation Rate

    In our January post, we said we had a mystery. If we divide the size of the labor force by the potential labor force (which includes everyone who could be and is in the labor force) and then multiply by 100, we get a September 2015 labor force participation rate of 62.4 percent. That 38.6 percent–the “non-participation” rate- is the 94 million people we thought were missing.

    the labor force and the participation rate mystery

    And yes, that is a lot of people for the employed population to support. But we can save that for another day.

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  • econoic news summary and property rights in outer space

    It’s Time for Outer Space Lawyers

    Oct 26 • Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Government, Innovation, Regulation, Tech, Thinking Economically • 151 Views

    Space rocks are chock full of raw materials we can use on earth. But if you figure out how to mine an asteroid, will you own what you get?

    Where are we going? To outer space property rights.

    Space Property Rights

    Congress has decided it is time to describe our property rights in space. The last cosmos related legal document that they approved was the 1967 UN Outer Space Treaty. At the time, because military proliferation was the concern, the document emphasized no weapons in outer space, international cooperation and “free access to celestial bodies.” They did not detail economic issues because, as they expressed it, the possibility was too remote.

    Not anymore.

    Congress has proposed the Space Resource Exploration and Resource Act of 2015. Specifically dealing with asteroids, the law says that any entity that obtains asteroid resources has the same property rights as federal and international law guarantees it on earth.

    According to space lawyer and University of Mississippi Law School professor Joanne Gabrynowicz, the proposed law has huge gaps. Congress mentioned no regulatory bodies to license and regulate asteroid mining and ignored the need for international agreements.

    Asteroid Mining

    Meanwhile, among the firms with an asteroid mining agenda, Planetary Resources lists James Cameron and Google’s Larry Page and Eric Schmidt as investors. Its plans? Stated very simply, they hope to profit from resources in outer space. As a beginning, this year they successfully launched a satellite and, in 2016, their Arkyd-100 scope is supposed to analyze a selected asteroid as it orbits the earth.

    In this captivating 2 minute video, Planetary Resources redefines the traditional image of an asteroid as they explain what they hope to do.


    Our Bottom Line: Property Rights

    Secretary of the Treasury Alexander Hamilton realized that the sanctity of contracts was essential for U.S. economic development. As a result, when he had to decide who owned Revolutionary War bonds, the benevolent patriots who had sold the bonds at a discount or the ruthless speculators who bought them, he chose the speculators. Why? Government has to enforce a legal contract.

    So, whether on earth or in outer space, economic development requires secure property rights. After all, if we invest the time and money to secure water and platinum from an asteroid, we need to know that contract law guarantees our ownership rights.

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  • Splitting the Check

    The Diner’s Dilemma: Should You Divide the Check Equally With Friends?

    Oct 25 • Behavioral Economics, Economic Debates, Entertainment, Environment, Government, Lifestyle, Thinking Economically • 227 Views

    Imagine an evening with friends at an upscale restaurant. The menu arrives and you have to choose between a pricey lobster with several glasses of Champagne or an inexpensive pasta dish and the house wine. You know that the check will be divided equally.

    Where are we going? To the unscrupulous diner’s dilemma.

    The Diner’s Dilemma

    Behavioral economists have looked at how diners resolve the ordering dilemma when they are with a group. They know that splitting the check will diminish the cost for the person who orders the most expensive menu items. As a result, they expect that when we each pay for ourselves, we will order more prudently than when we share the cost with others.

    In one experiment, researchers created ten groups, each composed of three men and three women who did not know each other. During different time slots at a popular restaurant, each group of six ate together. Four groups were told the individual would pay for his or her own check. A different four groups in a second set of time slots were expected to divide the check equally. And a third cohort of two groups believed that someone else would pay for everything. (There was a fourth control group but we need not be concerned with it.)

    You can see in the graph that the results were predictable. We do indeed spend less when someone else pays:

    The diner's dilemma and the tragedy of the commons

    From: “the Inefficiency of Splitting the Bill”

    But it might not be that simple. With friends altruism can play a role. Also, women sometimes display more concern for the group than men. Furthermore, when they tried to test the same hypotheses in the lab, there was more cooperation.

    Our Bottom Line: Tragedy of the Commons

    Still though, when looking at the restaurant groups, an economist would say that we will increase our consumption as long as our marginal benefit–the extra benefit we get–exceeds our marginal cost–the extra it will cost us when we pay for that meal. Explained with marginal reasoning, of course we order more when the check is equally shared.

    The problem is the impact on the group. Again using marginal analysis, the behavioral economist shows that the marginal or extra utility the diner gets from the meal is less than the marginal social cost to the group. Consequently, the diner has the incentive to order more but the group suffers from an outcome that would have been more efficient if everyone paid individually.

    And that takes us straight to the environment. Called the tragedy of the commons, shared resources are overused because individuals experience less of the cost for their behavior. As with the shared check, the entire group disproportionately suffers.

    So, do you order the lobster and the Champagne or pasta and the house wine?

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  • The econlife.com economics news summary

    Weekly Roundup: From Aging in China to Smiling in Denmark

    Oct 24 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Gender Issues, Government, Health Care, Innovation, International Trade and Finance, Labor, Money and Monetary Policy, Regulation, Thinking Economically • 124 Views

    Posts Roundup

    economic news summary and Denmark Legos Sunday 10.18.15

    Deciding if we want to be like Denmark…more

    Economic news summary, astronaut innovation and contests Monday 10.19.15

    The contest that brought us margarine…more

    Economic news summary and currency images Tuesday 10.20.15

    The pictures of women that we don’t want on money…more

    Economic News Summary and Debt Ceiling Wednesday 10.21.15

    When the debt ceiling will be too low…more

    Economic News Summary and the Lobster Market: On a Roll Thursday 10.22.15

    Why lobsters are on a roll…more


    Economic News Summary and China's Aging Populations Friday 10.23.15

    How China is worried about aging…more

    Ideas Roundup

    • opportunity cost
    • social welfare
    • tradeoffs
    • crowdsourcing
    • creative destruction
    • innovation
    • intellectual property
    • gender issues
    • money
    • debt ceiling
    • sovereign debt
    • demand and supply
    • dependency ratios
    • entitlements


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