Glass Half Full

The U.S. is experiencing an energy boom. More gas and oil are being recovered, making it possible that the U.S. will become the world’s largest energy producer.

Is that a good thing for the U.S. economy? Well, of course it is, as the value of all that additional production goes to increasing GDP.

But the glass is always half-empty for those who think carefully about economics.

The US manufacturing sector, for example, may improve its competitiveness because of the new energy environment, but this sector accounts for less than a sixth of overall US employment. In addition, a declining energy trade deficit could put upward pressure on the US dollar, which could erode the competitiveness of other manufacturing industries where energy input costs are less important (such as automobiles, electronics, and aviation).

I can think of a couple of other, perhaps counter-intuitive effects of the energy boom on the U.S. economy:

1) More production means somewhat lower prices for all energy produced. There was already some energy production in the U.S. Plentiful gas, for example, is going to lower the relative value of other domestically produced energy.

2) Factors of production consumed by the booming energy industry (think of all the labor, for example, that will go to producing the additional energy instead of to retail or manufacturing) will become more expensive for everything else, making the production of everything else somewhat less efficient.

It’s certainly better to have more energy than less, but “thinking like an economist” means imagining trade-offs like this.

How to Help the Working Poor

Prof. Mankiw’s argument isn’t new, but the way he explains it is creative and well-written, as usual.

I wish I could write this clearly about economics!

 

Funny, If Applied Correctly

 

Hopefully, we all can agree that this applies to macroeconomics, not micro.

7.5%, Again!

Chinese economists predict another year of 7.5% growth.

To put this in perspective:

1) 7.5% annual GDP growth is about 3 times the long-term, normal growth rate of a robust, advanced economy.

2) This would represent an additional production of goods and services valued (nominally) at over $600 billion. That’s the entire annual economic output of Thailand and Malaysia combined.

3) This is an expansion of the pie, so it benefits everyone. The fact that China is become ever-more productive is good news, not just for China but also for the rest of the world. There will be more for everyone in the world.

Watch This Space

I’ll start posting final exam raw scores here in a few minutes, about 10 at a time.