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Archive for March, 2013

Who Doesn’t Get Protected?

March 28, 2013 9 comments

When a government steps in to impose tariffs to protect a particular industry, like the Alabama catfish industry, why doesn’t anyone counter with moves to protect all the losses that are imposed on catfish consumers and ultimately, the rest of society?

The traditional answer has to do with concentrated benefits and diffuse costs. But what if consumers were more aware of the costs? What if, like ingredient labeling, consumer goods had to bear a label if they were covered by protective trade legislation? “The price of this item is approximately 46% higher than it would otherwise be, because of a law Congress passed to protect the XYZ industry from lower-cost non-domestic sources of supply.”

After all, the proponents of fair trade are pretty confident that what they are doing is “worth it” to society as a whole. They admit they are imposing costs on consumers but say the alternative is harm to a domestic industry. Why not let consumers know so they can feel good about paying the extra amount to protect that industry? Is it because making the diffuse costs explicit would make it easier for the losers to organize themselves? That would be more possible than ever in the age of Facebook, Twitter and Weibo.

March 27, 2013 Leave a comment
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1000 Years of European History in Five Minuutes

March 26, 2013 Leave a comment
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BP’s Statistical Review of World Energy 2011

March 26, 2013 Leave a comment
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Smart Stuff

March 26, 2013 Leave a comment

I’m always encouraging my students to read better on the internet. Avoid the wackos and conspiracy nuts. Learn from smart people. It’s like having lunch with someone who really knows what they are talking about–you leave better for the conversation.

Here are some suggestions of people you could have lunch with:

 

 

Li Keqiang Speaks

March 19, 2013 2 comments

Entirely by coincidence my Chinese given name is the same as that of China’s new Premier, Li Keqiang. A friend helped me choose the name five years ago, before I knew who Li Keqiang was, or that he was expected to be China’s Premier one day.

Mr. Li also studied economics, though his education in economics is way beyond mine: he received a doctorate in the subject from Peking University.

So, I have a natural affinity and respect for many of the things he shared at a speech this past Sunday in Beijing:

Reforming is about curbing government power.

Poverty and backwardness in the midst of clear waters and verdant mountains is no good…nor is it to have prosperity and wealth while the environment deteriorates.

Nowadays moving against these interests [i.e. those who oppose market-oriented reforms–kh] is often harder than laying a hand on a soul.

I encourage my students to try to map Mr. Li’s comments to three of the “ten principles of economics” in Mankiw. Bonus points to students who comment intelligently below! (If you can’t access the blog to comment, you can submit comments by paper in class.)

Free Trade or Fair Trade?

March 11, 2013 Leave a comment

A student e-mails:

Dear Mr. Kelcy,

I was reading somewhere about a concept known as Fair Trade. Organizations trying to get “fairer” prices for producers of certain¬†commodities¬†and this didn’t make sense to me because I assume that once there is trade, then it most likely fair because if it wasn’t, there would not be trade in the first place. I think that prices reflect the value of commodities and trying to get “fairer” prices, etc for them would end up rather hurting them.

I just wanted to know if I’m thinking in the right direction?

I think you are headed in the right direction. There can certainly be unfair business practices, as well as illegal and unethical business practices, that hurt people who trade. Usually unfair, unethical and illegal trade practices hurt the poor the most, so I applaud any organization that tries to prevent these things.
However, it’s hard for me to imagine a price itself being unfair. That’s a little bit like saying a price is happy or naughty. Prices are determined. They don’t have their own ethical system. I suspect people who talk about getting a “fair” price really mean that they don’t think the process for determining the price is fair, so instead of trying to correct the process failure, they are trying to improve the result.
As you intuit, trying to improve the result of a free process of voluntary trade, while possible, isn’t easy. History is full of discarded economic experiments designed to do just that. The best results seem to come from making the process free and fair, not the result.