Workers and firms

September 3, 2015

From Alex Tabarrok (edited slightly for continuity):

Many people look at big firms and little workers and they see an imbalance and can’t imagine how the firms are not in control. [But] buyers don’t compete against sellers, buyers compete against other buyers. Firms buy labor and they are competing primarily not against workers but against other firms. When firms are thinking about wages what they are thinking about is the threat from other firms. When a firm is hiring it knows it must pay the worker at least as much as other firms are willing to pay.

Your goal, then, is to have a skill set that someone else values. In our world, the cliche is: Deans don’t set salaries, they simply determine where we work.


Dealing with market volatility in China

August 31, 2015

From today’s FT:

A leading journalist at one of China’s top financial publications has admitted to causing “panic and disorder” in the stock market, in a public confession carried on state television.

The detention of Wang Xiaolu, a reporter for Caijing magazine, comes amid a broad crackdown on the role of the media in the slump in China’s stock market, which is down about 40 per cent from its June 12 peak. Nearly 200 people have been punished for online rumour-mongering, state news agency Xinhua reported at the weekend.


Venezuela joins the hyperinflation club

August 28, 2015

Hyperinflations — annual inflation above 100 percent — have the same appeal as car accidents, it’s hard to look away. Even better, we know how they work: government deficits financed by printing money. The more money you print, the less it’s worth. It’s not complicated.

Venezuela is the latest to join the club. Hyperinflation expert Steve Hanke estimates the inflation rate at 700 percent, which means currency loses one third of its value every month. Price controls have led to widespread shortages of food, medicine, and toilet paper — there’s even a Wikipedia page on the subject.

All of this reflects poor governance: the Venezuelan government simply doesn’t work for most of its citizens.


Abandoned houses in Japan

August 24, 2015

That’s what happens when the population shrinks. Diapers too, of course, as the population ages.


Why stock markets crash

August 22, 2015

Stock markets around the world crashed yesterday — but why? That’s a tough one, but here’s what we know about stock prices in general:  Read the rest of this entry »


Sneaker arbitrage

August 10, 2015

Stan Zin passes on this wonderful example, in which Converse puts lint on the bottoms of its Chinese-made sneakers to reduce its tariff.  And files a patent on the result.  From the link:

Since my shoes were made in China, they were subject to an import tariff when they were shipped to the United States. And the import tariff is much lower for shoes with fuzzy fabric soles than it is for shoes with rubber soles. According to the inventors [of sneakers with fuzzy soles], changing the shoe material can lower the duty from 37.5% down to just 3%.


Greece sentence of the day

July 18, 2015

From Tom Warner:

It will be interesting to see how long [Greek Prime Minister] Tsipras can last in this situation. …  His resounding victory in the July 5 referendum has proven that he is skilled at channeling the public mood into support for himself. The fact that he won the referendum completely dishonestly, by urging Greeks to vote for an anti-austerity option that he knew didn’t exist, doesn’t seem to have cost him much in Greek domestic politics, at least not yet.

No one likes this situation, but they don’t have any money. That’s true even if we wiped out all their debt today. See: primary deficit (government deficit excluding interest payments on debt).


All Greece, all the time

July 5, 2015

Our students are thinking: “At least it’s not Argentina again.” We’re thinking: “This is great, a real-world experiment we can talk about for years.”

Some things to think about as the Greeks vote “no”:

  • Anil Kashyap on how we got here, the best thing we’ve read on the topic. It’s like “Murder on the Orient Express,” everyone’s guilty. Here’s another one if you like this kind of thing.
  • This likely means more austerity not less. Without support from the IMF and EU, Greece will have to finance government spending with its own tax revenue. That’s true even if it pays nothing on its debt.
  • Kim Schoenholtz on the difference between Greece and Puerto Rico: PR’s banks aren’t supported by local deposit insurance, Greece’s are. If the banks go under, that’s bad for everyone. It will be interesting to see if the European Central Bank reverses its longstanding policy and supports the Greek banking system — or not.
  • Does a “no” vote give Greece more leverage, or is it a painful self-inflicted wound?
  • Can we drag this out until fall so we can use it in class again?

Stay tuned.

Soccer update: Pay attention, this is important to your education in things people care about in the rest of the world. Chile beat Argentina in the Copa America, the soccer championship of Latin America, when Alexis Sanchez converted a Panenka. If you can use the word Panenka in a sentence, you’ll be welcome in most of the world.


The Greek crisis for dummies

June 28, 2015

The drama is more complex than the economics. Our summary:  Read the rest of this entry »


Good news!

June 16, 2015

Bad news makes a better headline, but Bill Watson reminds us that things have been getting steadily better for 200 years or so:

Between 1820 and 2010, GDP per capita increased 17-fold in Western Europe, 23-fold in the “Western offshoots” (Canada, the US, and Australia), 17-fold in East Asia, 12-fold in Latin American, 10-fold in the Middle East, and 13-fold for the world on average. … If you don’t like GDP, how about the dramatic increase in life expectancy? From 33.4 years in Western Europe in the 1830s to 79.7 years in the twenty-first century. For the world as a whole, life expectancy is two and a half times higher now than it was in the 1880s.

So if you don’t think life is good, keep it mind it used to be a lot worse!

The quotation comes from a book — The Inequality Trap — due out in the fall. The numbers come from the OECD. My favorite version of the same thing is Gapminder World — click on the link and press play.


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