November 26, 2006
Cost Benefit of Bikini Waxes
Tim Harford has put online a recent column of Dear Economist not available on the FT site.
Dear Economist, Bikini waxes: boyfriends seem to like the results, but they hurt. What would you say were the costs and benefits? Yours, Sylvia, via email
Related; Cost Benefit of Circumcision
November 12, 2006
Perspectives on “Dark Matter”
Interesting paper-Statistical Issues Related to Global Economic Imbalances: Perspectives on “Dark Matter”;
“There has been a large amount of recent interest in how the U.S. can be the so-called world's largest debtor nation and at the same time have a persistent surplus on income in its balance of payments accounts. Based on BEA's published data, two factors explain the incongruence -- a difference in the composition of U.S.-owned assets abroad compared to foreign-owned assets in the U.S., and a higher rate of return earned by U.S. investors on their overseas assets, particularly on direct investment, than the rate of return that foreign investors earn on similar classes of assets invested in the U.S. In contrast, some others have recently argued that the explanation for the incongruence is that U.S.-owned assets abroad are undervalued, mainly because large exports of intangible assets by U.S. direct investors to their foreign affiliates have gone undetected. This paper reviews the main points of this argument and discusses some of its implications.”
For more on the issue see Econbrowser
Related;
You can not put dark matter in a container …
"Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations", Ricardo Hausmann and Frederico Sturzenegger
America's dark materials-The United States' current-account deficit is a figment of bad accounting. If only;
“Most economists conclude that America earns a higher return on its overseas assets (eg, EuroDisney) than foreigners earn on investments in America (eg, Rockefeller Centre). They don their anoraks, immerse themselves in the data and try to work out why this might be so. Messrs Hausmann and Sturzenegger turn the question on its head. It is not the $36.2 billion of income that is the mystery, they say. The anomaly lies in the $2.5 trillion of debt. If America is still coming out ahead of foreigners, then, contrary to popular belief, it must still be a net creditor. America must have more foreign wealth than we can see.The two authors have borrowed a name for this invisible wealth: dark matter. In theoretical physics, dark matter is the stuff in the universe that we can identify only by its gravitational pull. For the Harvard economists, dark matter is foreign wealth, the existence of which we can infer from the income it provides.”
September 18, 2006
Doing Business in Iraq
A US website maintains an FAQ on doing business in Iraq (last updated 18 May 2005). Some questions and answers below;
“How can a small business pursue business opportunities in Iraq? Prime contractors of the first round of contracts issued under the $18.4 billion U.S. reconstruction funds are required by their contracts to allocate 10 percent and are encouraged through incentives to fulfill 23 percent of a contract to U.S. small, disadvantaged, or minority businesses. Small businesses interested in pursuing business opportunities in Iraq should demonstrate relevant experience, financial capability, capacity to proceed quickly and the aptitude to navigate a complex business environment, in addition to meeting specific contract criteria. The best way to ensure consideration as subcontractors or suppliers on reconstruction contracts is to directly contact the contractors, who are entirely responsible for choosing their own business partners. A listing of prime contractors’ representatives responsible for small business/subcontractor business development is available at http://www.export.gov/iraq/pdf/small_business_reps.pdf (PDF only). Businesses are encouraged to first consult the websites of these prime contractors because most require businesses to register on their websites. For Iraqi Ministries, private sector, and other business opportunities, businesses should monitor Iraqi newspapers www.onlinenewspapers.com/iraq.htm.
Are Iraqi banks participating in commercial transactions? On October 28, 2003, the Central Bank of Iraq authorized Iraq’s private banks to process international payments, remittances and foreign currency letters of credit. All Iraqi private banks participate in the daily currency auctions in U.S. Dollars and Iraqi Dinars conducted by the Central Bank of Iraq. A list of private and public Iraqi banks can be found on The Central Bank of Iraq’s website at: http://www.cbiraq.org/cbs4.htm. The National Bank of Kuwait, the Arab Banking Corporation, HSBC and Standard Chartered Bank have been licensed to commence banking operations in Iraq. Export & Finance Bank of Jordan is acquiring a minority share of the National Bank of Iraq. All these banks will be capable of wiring money into Iraq in the near future. Wiring money to Iraq can be done with any international bank with a correspondent relationship with an Iraqi bank. One bank, the Credit Bank of Iraq has opened an account with National Bank of Kuwait in New York City. Thus, funds can be transferred to Iraq by wiring funds to the Credit Bank's account in New York City. The Credit Bank will receive confirmation of the deposit and can immediately credit an account in Baghdad. Using this method, a prime contractor can wire funds to the Credit Bank of Iraq’s New York City account, upon confirmation the deposit will be credited to its account in Baghdad. In turn, the prime contract can deposit these funds into an Iraqi subcontractor’s account at the Credit Bank of Iraq where the subcontractor can then draw down its funds as required. Iraq’s creditors preclude banks, Rafidain and Rasheed, from international transactions because their offshore assets are subject to attachment.”
Related;
The Unique Situation of the Iraqi Dinar
A backgrounder on the Iraqi dinar, including details on why the Iraqi dinar is positioned for a huge rise in value.
Doing Business Iraq- World Bank
Iraq Business Related Laws
Civil war or not, Iraq's economy faces vast challenge
Jordan expected to sign free trade agreement with Iraq
Iraq's economy is weaker than at any point since the US invasion in 2003
“Rumsfeld’s fake news flop in Iraq”
Some have dictatorship thrust upon them
Documentary slams corporate profits in Iraq war- ‘Iraq for Sale’
August 23, 2006
Carnival of Podcasts
A couple of podcasts mostly from Radio National Australia; please note some of discussions start at the end or middle of the audio. Also if you don’t download now, it might not be available next week.
Why don't Americans like soccer?; Economist Allen R Sanderson says that Americans appreciate competitive market forces and incentives that reward ability, hard work and ingenuity, in sport as well as business, and soccer just doesn't make the grade. John Birmingham reflects on the Australian view of the European game.
Future of trade liberalisation; With the latest GATT attempts to further open up international trade, the DOHA Round, collapsing some weeks ago, Alan Oxley explains what went wrong and what might happen next
The rise of the carbon traders
John Taylor, former undersecretary for international affairs at the U.S. Treasury and now an economics professor at Stanford University, talks with Bloomberg's Tom Keene from Palo Alto, California, about the outlook for the central bankers' annual conference this week in Jackson Hole, Wyoming, and China's economic growth.
Stephen Roach, chief global economist at Morgan Stanley, talks with Bloomberg's Tom Keene in New York about the state of China's economy, banking system and political environment.
The Nature of Belief : Australian Science Festival Debate
Christian Relics and the Historical Jesus
Travel in the Age of Terrorism
Peter Timms reviews How to Look At a Painting, by Justin Paton
Airlines consider legal action against British Airports Authority
George Pell - Islam and Western Democracies
Susan Windybank - Welfare or Defence?
Lady Wisdom, the Desert and the Shell
Sri Lanka: Militant nationalism and the current conflict
Why Foreign Aid Isn't Working in Africa
Postcard: The Democratic Republic of Congo
A Human Rights Act for Australia?
Striking a patriotic chord; Michael Connors on the lyrics of those national anthems most footballers failed to sing before their World Cup matches
America's first dictionary 200 years on
Financial literacy and accountability
Conscription, procurement and the economics of defence
Francis Wheen; Books that Shook the World - Marx's Das Kapital
A philosopher looks at Buddhism
Keeping the Peace: The U.N. Security Council
Virgins, Vampires & Superheroes
Spiritual Classics Pt 7: Sikhism
Women's Sport: Underpaid, underrated and under the radar
The Mystery of the Fluctuating Gas Price, featuring Thomas A. Firey
Save the Coral Reefs?, featuring Patrick J. Michaels
The Future of Medicaid, featuring Jagadeesh Gokhale
Doha Misconceptions
IMF has released a policy discussion paper clarifying what it sees as misconceptions on trade issues; “Trade Issues in the Doha Round: Dispelling Some Misconceptions”- it addresses the following four issues-
- Developing countries would benefit more from liberalization by rich countries than they would from their own liberalization. In fact, research shows that developing countries have much to gain from their own trade reforms.- Tariff reductions on a multilateral basis could wipe out a large portion of trade between rich countries and developing countries as a consequence of preference erosion. On the contrary, research shows that the magnitude of any erosion is small in aggregate and is of concern for only a few countries and products.
- Agricultural subsidies in many Organisation for Economic Co-operation and Development many (OECD) countries are more damaging than other types of policies, such as tariffs. Actually, import tariffs in OECD countries harm developing countries much more than either production or export subsidies, with the exception of subsidies on cotton. Export subsidies in OECD countries actually benefit developing countries that are importers of subsidized products because they reduce the price of imported goods.
-The recipients of agricultural subsidies in rich countries tend to be small, lowincome farmers. The facts, based on data for both the United States and the European Union, are that a disproportionately large share of government support goes to wealthy farmers.
August 17, 2006
Race for the Republican presidential nomination of 1896
Only a Bait; T. C. P. "If this don't fetch trade, then I don't understand the hucksterin' business."
Via HarpWeek, Cartoon of the Day
“Cartoonist W. A. Rogers features presidential hopeful Thomas C. Platt, former and future senator from New York, as a huckster peddling "presidential water-melon" to his rivals for the Republican nomination of 1896. Platt cleverly hopes to make the "boys" sick from eating too much of the sweet fruit, so that he can claim the crown himself. Governor Levi P. Morton ("L.P.M") of New York, former vice president (1889-1893), in lace collar and boater, is already gorging himself; Congressman Thomas Reed of Maine (left), former and future speaker of the house, wearing a clownish polka-dot shirt, looks on curiously; and, Governor William McKinley of Ohio (center), who ordered the National Guard to put down labor unrest in his state, appears concerned, but has his toy sword in case of trouble. In the background, Benjamin Harrison, former president of the United States (1889-1893), emerges from his "Ice Wagon" (a pun on his nickname, "the human iceberg," reflecting his cold personality).With the country in an economic depression, and the Democratic Party deeply divided over monetary policy (stable gold versus inflationary silver), the positive prospects for a GOP victory in 1896 induced a number of Republican candidates to enter the field. By the end of 1895, McKinley had become the leading contender, but serious favorite-son candidacies were advanced by Reed, Morton (who captured support of the New York delegation from Platt), Senator William Allison of Iowa, and Senator Matthew Quay of Pennsylvania. Former president Harrison withdrew his name from consideration in early 1896.
Born in 1843, McKinley fought in the Civil War as a young man, and upon its conclusion, studied and practiced law in Canton, Ohio. In 1876, he won election as a Republican to Congress, where he quickly became a spokesman for high protective tariffs. In 1889, he became chairman of the powerful House Ways and Means Committee, using the position to ensure passage of the McKinley Tariff of 1890, which raised the average levy on imports to 48% (the highest rate in American history to that date). Angry voters turned him and other protectionist Republicans out of office later that year. McKinley, though, remained popular in his party and state, and was elected governor of Ohio in October 1891, and reelected two years later...”
Related;
"Historical Aspects of U.S. Trade Policy "
August 7, 2006
Trade and CGE Models
The Economist a couple of weeks back had a good article on economic models;
“Economic models fall into two broad genres. Macroeconomic models, the distant descendants of Phillips's machine, belong mostly in central banks. They capture the economy's ups and downs, providing a compass for the folks with their hands on the monetary tiller. The second species, known as computable general equilibrium (CGE) models, largely ignore the vagaries of the business cycle. They concentrate instead on the underlying structure of production, shedding light on the long-term repercussions of such things as the Doha trade round, a big tax reform or climate change…Trade's virtuous effects are of two distinct kinds. First, trade helps countries make the most of what they already have. It frees countries to allocate their resources—whether they be cheap labour, fertile land or educated minds—as efficiently as possible. But, secondly, trade can also allow countries to accumulate resources more quickly. Indeed, the biggest prizes lie in faster growth, not heightened efficiency; in accumulation and innovation, not allocation.
By their nature, CGE models are better suited to capturing the first effect than the second. They provide “before and after” snapshots of the economy at two points in time. They are therefore good at capturing the one-off gains that might arrive from a redeployment of the economy's resources. They are much less good at capturing the continuing gains that result from a faster accumulation of capital, or a quickened pace of productivity growth. Most trade models, indeed, hold productivity fixed…”
Oxfam recently had a new paper up critiquing the CGE modelling in trade- Modelling the Impact of Trade Liberalisation; A Critique of Computable General Equilibrium Models, by Lance Taylor and Rudiger von Arnim, New School for Social Research;
The paper presents a review and critique of the most widely used trade models based on computable general equilibrium (or CGE) models. The emphasis throughout is on methodology. The paper provides concise analytical arguments explaining the fundamental weaknesses of CGE models, paying particular attention to the way that CGE models conceptualise and measure welfare. The authors also show that the manner in which the World Bank uses CGE modelling is highly problematic, making implausible assumptions about elasticities, the exchange rate, and macro causality. World Bank models assume that the most central macro-economic indicators do not change in response to any liberalisation scenario. The authors argue that this is negligent, especially in developing countries with historically large trade deficits, significant debt problems, and a large informal economy with underemployment in modern sectors. The authors also identify a particular inconsistency inherent in the use of ‘Armington’ specifications of elasticities in CGE models. They show that, even if the Bank’s welfare measures and macro causal scheme are accepted, the welfare gains that liberalisation is supposed to induce are estimated incorrectly in LINKAGE, GTAP, and other trade models that adopt the popular Armington specification of imperfect competition between trading partners…CGE models can be useful quantitative supplements to experimental thinking about the importance of different potential causal linkages among economic variables at the country or world level. However, mechanically churning out ‘projections’ of welfare gains or any other indicator subject to one single set of causal assumptions and parameter values is a fundamental misuse of a sometimes helpful tool.”
Related;
Economic modeling and trade negotiations
World trade; In the twilight of Doha
Weighed in the balance; The Doha round of world trade negotiations was supposed to lift many millions out of poverty. It looks unlikely to do so
F&D edition focusesd on Trade
Demystifying Modelling Methods for Trade Policy
Assessing World Bank Support for Trade 1987-2004: An IEG Evaluation
The Future of Trade after Doha: What’s in It for Developing Countries?- video presentation
EcoMod has short training courses on CGE
July 27, 2006
Globalization is Working?
Philippe Legrain debates Robert Wade;
“Wade claims that, “If the liberal argument holds, we would expect the global shift towards free markets in the past 25 years to have raised the rate of world economic growth. Instead, there has been a slowdown in developed and developing countries. Between the era of managed capitalism (roughly 1960-78) and the era of globalisation (roughly 1979-2000), the growth rate of world output fell by almost half, from 2.7 per cent to 1.5 per cent.”Not so. According to the latest IMF figures, the world economy grew by 3.3 per cent a year from 1986-95 and by 3.9 per cent a year from 1996-2005. Better still, while in 1986-95 emerging economies grew only fractionally faster than advanced economies (3.7 per cent a year compared with 3 per cent), in 1996-2005 they grew over twice as fast (5.5 per cent a year compared with 2.7 per cent). Far from stagnating, the world economy is booming—and developing countries are outpacing developed ones.
But in any case, Wade’s methodology is shoddy. Even if global growth had slowed since 1979, one could not deduce from such aggregate figures that globalisation wasn’t working. Contrary to what he asserts, there has not been a global shift towards free markets, let alone one that can be dated to 1979. Countries have opened their markets to varying degrees and at different times; some have failed to liberalise at all or have even become more protectionist. What’s more, globalisation is not the only economic change of the past 40 years, and so cannot necessarily be considered responsible for any particular change in economic performance. The right way to judge whether globalisation is working is to look at individual economies’ performance before and after they liberalised, controlling for other changes that might affect the picture—and one finds a mountain of evidence that it is indeed delivering the goods.”
*The picture is from the cover of the latest edition of The Economist
Related;
Philippe Legrain’s Globalization posts
Thomas Palley’s Globalization posts
July 26, 2006
Why are we surprised that Doha Failed?
"The cause of this collapse is not specific countries' unwillingness to concede on particular themes, but growing public opposition in poor and rich countries alike to the very WTO model," said Lori Wallach director of Public Citizen's Global Trade Watch
“Last year, the World Bank estimated that global gains from trade liberalisation would equal roughly $287 billion, of which $86 billion would accrue to developing nations, lifting at least 66m people out of poverty”
-The Economist
At least some people seems happy that Doha trade round has failed. Paul Blustein asks whether Doha failure could lead to more uncertainty about the path of future globalization in this op-ed. Stiglitz refers to as America’s New Trade Hypocrisy.
Related;
Q&A with Pascal Lamy
Doha Talks Break Down
Doha on Life Support
DOHA, R.I.P.????
Doha dead as dodo
The Gamble Fails: Doha talks collapse
Some farmers punch above their weight
Where is the U.S. Leadership on Trade?
No Progress Toward Freer Trade Under Bush
The Doha Failure: Plenty of Blame to Go Around
Ten Observations about WTO’s First Decade
Bhagwati & Ikenson on unilateral liberalization
Bhagwati versus Bhagwati on trade liberalization
Is Doha failure a sign of hegemonic decline?
(Why) Does Free Trade Favour The Rich?
Stationary Bandits, Plunder, and Trade Negotiations
Multimedia
Daniel Ikenson discusses the failure of Doha; a premier on trade talks highly recommend (podcast)
The Future of Trade after Doha: What’s in It for Developing Countries?
Global Economy: International Trade
Michael Moore: Globalization & Development: Its Implications & Institutions
The Case for Open Industrial Policy
Testing the Grandsons of Hecksher and Ohlin
June 1, 2006
Doha Round, Subsidies and Opium
Some statistics and figures from the latest Foreign Exchange show;
- The developed world spends nearly $1 billion a day in subsidies to its farmers.
- A “typical cow” in the European Union receives a government subsidy equivalent to $2.20 a day. That’s more than what 1.2 billion of the world’s poorest people live on every day.
- Afghanistan; Last year farmers in Afghanistan harvested more than 4,500 tons of opium, nearly 90-percent of the world’s market. According to the United Nations, 87-percent of the world’s heroin comes from poppies grown in Afghanistan. In 2005 the UN warned that Afghanistan is in danger of becoming a narco-state, controlled by drug traffickers. In response, the United States put $780 million into Afghanistan’s anti-narcotic efforts for the 2005 harvest season.
A lesson in opportunity cost; more than $7,000 if opium gorwn . If only cotton, could get 320 kilograms (120 dollars); a field of poppies earned 60-times more than a field of cotton. While 7,000-dollars is a huge income for an Afghan farmer, the heroin made from this crop will bring about 4,000,000-dollars in the streets of London.
UN peace keeping costs $5 billion a year for about 90,000 personnel deployed around the world and UN wants more. Currently there are 17 UN peacekeeping operations worldwide. The largest mission is in The Democratic Republic of Congo, with 17,000 UN personnel from 48 countries. The US provides no troops, but 1/3 of the operation’s $746 million annual budget.
Related:
Ben Muse on the Doha Round.
Controversy over World Bank trade & poverty estimates; Three years ago the World Bank said that freeing international trade of all barriers and subsidies would lift 320 million people above the $2 a day poverty line by 2015. But new World Bank projections emphasizing $1 a day poverty and based on new data and methods put the number at just 32 million people.
May 17, 2006
A Very British Dossier on Trade and Poverty
DFID has released a dossier on why trade really matters in the fight against world poverty. Some quotes from the report;
- The EU, for example, underwrites its fishing industry by about £500 million a year, more than a quarter of which goes to support 850 vessels to fish outside EU waters, threatening African fisheries. African countries can get income from allowing European boats to fish African waters, but deals are often badly negotiated, sometimes netting a royalty of less than 1% of the catch value.
- If EU and US cotton subsidies were removed, cotton exports from sub-Saharan Africa could increase by up to 75%.A pound of cotton can be produced for 12 pence in Burkina Faso compared with 42 pence in the US.
- For example, fruit and nuts imported into the US can have a tax of 200% slapped on them, and for meat brought into the EU this can be as much as 300%. People in Japan or Korea buying imported rice may pay a tax of 10 times the original price of the rice.
- Trade may be the single most potent tool in the fight against poverty, but it won’t work in isolation. The Commission for Africa estimated that we need to provide up to £12 billion a year to get developing countries on the road to becoming global trading partners
Some thing not in the report; African Union estimates that corruption costs Africa 148 billion dollars a year.
May 7, 2006
Debate between Solow, Bhagwati and Krugman on Globalization
“Right now we’re engaged in a veritable orgy of regressive re-distribution of income… we have an administration whole-heartedly dedicated toward giving more power to the powerful and more wealth to the wealthy..” - Robert Solow
There is great webcast of a recent discussion between Bhagwati, Solow and Krugman on the globalization and the human cost of trade liberalization.
Sylvia Nasar introduced the professors and commented a little bit on the history of globalization; this lecture by Anne Krueger can be said to be an expanded version of Nasar’s comments.
Solow focused more on the distributional aspect of globalization;
"The scenario begins with the discovery of a giant pool of labor -- much like the discovery of a natural resource -- in a foreign country. This discovery, Solow said, is probably good for the world and even for the United States, where consumers will enjoy lower prices. But it might not benefit all Americans, he noted. Unskilled workers could find themselves without even low-paying jobs. Of course, the country could redistribute the wealth from those who benefit to those who don’t. “The normal answer given by economists is that there will be winners and losers, but the winners will be able to compensate the losers,” he explained."
Bhagwati pointed out that these days every trader all over the world is worried about competition from overseas; even as far as in Ghana they’re are worried about cheap Chinese texttile imports. Bhagwati doubts we could deal with the issue through distribution alone.
Krugman admitting being a “tortured soul” on the subject of globalization and talked about different experiences of trade liberalization outcome in Latin America and East Asia; ‘in Mexico trade liberalization has been associated with increased inequality’.
During the discussion period, one student questioned given the “race to the bottom” that occurs when countries try to produce goods at the lowest possible cost, “I fail to understand why some degree of protectionism is a bad thing”.
Well even in the US the experience is very mixed as Bradford Plumer points out;
“According to a 1999 report, the vast majority of garment shops in San Francisco, despite being mostly non-unionized, still manage to pay the city minimum of $8.15 an hour and comply with labor laws, while in New York unionized workers were making under $5.15 an hour and repeatedly subject to wage and hour violations. The United States, meanwhile, imports billions of dollars of clothes from Northern Italy each year, where garment workers make two or three times what their counterparts in New York make. So it's not clear that globalization always has to create a race to the bottom.”
An earlier related post; Going to Harvard Can Lead to Rising Inequality
April 28, 2006
An Economist Who’s Not Only an Economist
The latest Radio Economics interview is with Jagdish Bhagwati- world renowned trade economist. The discussion touches on topics like immigration, global warming, globalization and future leaders in the world economy. He’s critical of one of his students Jeffery Sachs (for advocating shock therapy in Russia and ignoring the Russian social setting), calls Stiglitz’s book, ‘Globalization and Discontents’, a ‘silly book’, refers to Kyoto Treaty as ‘the most idiotic treaty I’ve come across’. I liked his comments about global warming and immigration issues in the US. I can’t believe that Nicholas Stern, former Chief Economist at the World Bank has never heard of the Super Fund – and he’s been advising Tony Blair on global warming. His advice to budding economists- ‘if you want to have an impact on society- you better be a broad economist’.
Krugman credits Bhagwati’s willingness to see things differently which allowed him to come into prominence with new trade theory.
“It was during those early years that I formulated my summary of the reaction of a lot of people in Economics – presumably in any field but certainly in Economics – to any seriously new idea, which is, “It’s trivial, it’s wrong, and, furthermore, I said it in 1962.” At that point, Jagdish had created a marvelous institution, which was the Journal of International Economics, which could, very easily, in someone else’s hands, have been the bulwark against change, could have been a monument to the field’s orthodoxy at the time. Instead, it became the ground, the place, in which much of the new stuff was published – and with some difficulties. Twenty-six years later – you can still remember all those lousy referee reports and rejections on the first papers, and Jagdish plowed ahead and published it in the JIE, and – not just me, but other people – I remember Jim Brander, that there were some extremely negative reports from other people, but I went to bat for him, and Jagdish did….So I think that Jagdish deserves a lot of the credit for the now quite old, long in the tooth, new trade theory coming into prominence. He really made a tremendous difference – obviously to my life, but I think also to the field of International Economics.”
Bhagwati’s way with words and mastery of metaphors is well known;
“Take, for example, the brother-in-law analogy that he uses to highlight the distinction between rent-seeking behavior and corruption. When you lobby for rents and use up resources, he explains, it is a directly unproductive (DUP) activity. But if there is a brother-in-law to whom the rents are inevitably headed, nobody will bother to lobby. In this case, there is corruption but no DUP activity. Unless, of course, some farsighted crook devotes resources to court the sister in order to become the brother-in-law in order to get the rents. Then we are back to rent-seeking.Commenting on those who argue against free trade because it leads to de-industrialization and destroys linkages between industry (ketchup makers) and agriculture (tomato growers), he observes: "As I read the profound assertion about the tomato farm and the ketchup plant, I was eating my favorite Crabtree and Evelyn vintage marmalade. It surely had not occurred to me that England grew its own oranges."
Related Links:
- In Defense of Globalization- webcast
- Radio Economics podcast- download now, freely available for limited time
April 23, 2006
Stolper-Samuelson is Dead
NBER has a major new book coming up of which Sebastian Mallaby says;
“A formidable team of economists directed by Berkeley's Ann Harrison is about to come out with a volume titled "Globalization and Poverty"; a central message is that free trade works best for countries with labor mobility. For example, India's dramatic trade liberalization in the 1990s produced equally dramatic strides against poverty. But because Indian workers move surprisingly little between industries and regions, people in sectors that contracted as a result of the lifting of tariffs were trapped. Liberals who seek to "soften" trade deals by writing mobility-restricting labor regulations into them need to rethink their strategy.”
The main findings of the book are summarized below;
- The first conclusion of this essay is that such a simple interpretation of general equilibrium trade models is likely to be misleading.
- Second, the evidence suggests that the poor are more likely to share in the gains from globalization when there are complementary policies in place. Such complementary policies include investments in human capital and infrastructure, as well as policies to promote credit and technical assistance to farmers, and policies to promote macroeconomic stability.
- Third, trade and foreign investment reforms have produced benefits for the poor in exporting sectors and sectors that receive foreign investment.
- Fourth, financial crises are very costly to the poor.
- Finally, the collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration underscores the need for carefully targeted safety nets.
The talk of a fairer globalization has become something of fad these days starting with the ILO report , “A fair globalization - Creating opportunities for all”. Stiglitz summarizes the report in this op-ed saying,
“The Commission highlights other issues that have received insufficient global attention - such as tax competition among developing countries, which shifts more of the tax burden from business to workers. In still other areas, the Commission's report argues for more "balanced" perspectives. On exchange rates, for example, it is more sympathetic towards mixed systems - in contrast to the traditional belief that countries must choose between the extremes of a completely flexible system and a hard peg (of the kind that contributed so importantly to Argentina's woes).As this example shows, bringing different voices to the table in discussions of globalization brings new perspectives. Until now, the main worry for most experts on globalization has been excessive government intervention in the economy. The Commission fears just the opposite. It argues that the state has a role to play in cushioning individuals and society from the impact of rapid economic change.”
Go and comment on the NBER book before it is published. I stole the title of the post from one of the chapters of the book.
Related Links:
- Rybczynski Theorem 50th Anniversary
- Heckscher-Ohlin: Flaws, fixes and future
- Glossary and Family Tree of Trade Economics
- Taming Global Capitalism Anew
- TRADE AND DEVELOPMENT REPORT 2005, UNCTAD
- Poverty, inequality & globalization; miscellaneous links
February 7, 2005
More Economic Sanity From the White House?
Big cuts coming in farm subsidies?
Horse-trading and lobby pressure will scale back the cuts, but anything is a move in the right direction after previously sprinting in the wrong one.
January 28, 2005
Coffee Market Pessimism
Prof. Don Boudreaux has an interesting thought about coffee buying over at Cafe Hayek.
Whatever the reason, it’s heartening to see the seeds of commerce sprouting in Rwanda, for no matter who or what planted these seeds and supplied them with their first drops of water, only the sustained growth of commerce will turn Hutus’ and Tutsis’ energies from conflict to cooperation – from predation to production. And sustained growth in commerce won’t happen without secure private property rights, freedom of contract, freedom of trade, and the free market that these blessings generate.
I'll second the notion that seeing Rwanda move out of its gory past is a great thing. It's the choice of products, though, that has me concerned. The good Prof makes mention of the benefits of a growing economic base, but I think he is too light on the "Fair Trade" movement and the role USAID played in sponsoring the coffee growth.
Coffee is currently overproduced on the world market. A glut of coffee has sent prices plummeting (as we'd expect), and has helped spur on the "Fair Trade" movement which advocates setting a floor on the price of coffee beans.
The issue I have is that the Fair Trade price is, by definition, above a more realistic market price for coffee. While this helps some growers increase their profits and provides some with a sense of satisfaction, it also induces more production. And more coffee growers the world does not need. If a glut sent prices falling, why is it a good idea to induce more market entry?
While I don't have a good source for this, I would tend to believe that the USAID people, thoughtwell-intentioned, helped spur on the movement towards coffee production. A choice that would appear decent as Rwanda is a good climate for the crop, and the demand for the product seems robust. The trouble is, more coffee producers in the world will simply extend the glut, keep prices low, and give motivation for the "Fair Trade" notion of setting a price floor on all coffee rather than just that grown with "sustainable methods". As long as the Fair Trade price is set to reflect what growers need to make a living, the less it will be an accurate reflection of the demand for coffee. This sort of process would strike me as one prone towards escalation: the price induces some people into entering who then find they cannot make enough money at the current fixed price, so pressure induces the Fair Trade group to raise the floor, which only induces more people into the market. The only other option would be to have the price floor fall, which would mean all the current growers facing big losses in revenue, and some having to leave the market (something none of them would take well; the reality of some growers being thrown again into unemployment/poverty not being something the Fair Trade folks really appear to want to deal with).
If the Fair Trade price and the urging of USAID moved Rwanda towards expanding coffee production, I'm not sure they've done the country a favor. Of course, if the temporary spurt of growth does have the spillover effects Prof. Boudreaux mentions ("more-secure property rights, on a firmer commitment to long-term integration into the global economy, and on increasing prospects for lasting peace") then it may well be worth getting involved in an unstable industry.
December 30, 2004
Gift Swapping: Reducing the Deadweight Loss of Christmas
Giving a gift at Christmas isn't as good as giving cash, so the idea goes, since the person who receives the gift values it less than something of equal monetary value that they would have preferred more. (That is, the $100 I spend in enrolling you in the Jam-of-the-month-Club is not the same as you spending $100 on buying yourself Halo 2 and Grand Theft Auto: San Andreas. You don't value my gift at a full $100, so there is loss.) This, however, is up to debate.
One of the big stories of this Christmas is the increase in the use of gift cards. They may, retailers hope, the savior of Christmas retail (as opposed to the Savior of Christmas, who I'm sure would be sympathetic to the notion of getting some utility out of giving gifts, agreeing with Tyler Cowen's Point #1).
But this trend faces similar problems. I don't buy much from Pottery Barn, but I do love me some Room & Board. Too bad, then, that I got a gift card to the former. I could force myself to pick up a few things, I suppose, though I wouldn't like it as much as the same amount in cash that I could fork over to my preferred vendor.
Now there's a way around that. SwapAGift.com provides a venue to swap, sell, or buy gift cards. For a fee, of course -- and at $3.99 it seems like a good deal to avoid travel and transaction costs of either buying stuff you didn't really want, or travelling to the store to get the cash value back out of the card (something some stores don't allow).
Markets: now even better for non-secular exchange!
December 1, 2004
New Import Duties
I'm hoping this doesn't affect "all you can eat shrimp" at the Sizzler:
The Bush administration yesterday said Chinese and Vietnamese shrimp are sold at unfairly low prices in the United States, siding with U.S. fishermen as they try to fend off overseas competition.
The decision reaffirms new trade barriers on the country's most popular seafood, though the new duties meant to counter the competition are not as high as requested by the industry.
"Although U.S. shrimpers believe the [Commerce] Department understates the amount of dumping in certain instances, they reaffirm our contention that shrimp is dumped in the U.S. market," said Eddie Gordon, president of the Southern Shrimp Alliance, which represents shrimpers from North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana and Texas.
In all seriousness, these import duties, and all previous, are a black mark on this administration. This is why I'm hoping that for somebody like this to be appointed at Treasury.