Take a look at this article from the International Herald Tribune. It is a discussion about the loss of manufacturing jobs in the U.S. The author points out that in terms of value (number of dollars) manufacturing has actually been growing in this country.
Rather than making simple consumer goods, U.S. factories are producing more complex heavy machinery and electronics components. These items cost more, and are more profitable for the companies that produce them.
These products also require a higher level of expertise to produce. This means that companies benefit from making them in the U.S. since this gives them access to better-educated workers.
However, this is little consolation to the workers who have lost their jobs and been forced to take lower-wage jobs to make ends meet.
What do you think of the article? Should we be comfortable with this change in production patterns? What about all the jobs that have been created to replace the manufacturing lost jobs? Most of them require far more education than the jobs they replaced. Is this acceptable?
Sunday, February 22, 2009
Monday, February 9, 2009
How Bad is it Really?
If you've been anywhere near a television or newspaper in the past nine months or so you know that we're currently in a pretty deep recession. One of the most visible effects of any recession is a rise in unemployment, people losing jobs and not being able to find new ones quickly.
Take a look at this article from the blog The Curious Capitalist, which is part of Time. Study the graph a bit. The vertical (y) axis shows the rise in unemployment as a percentage of the workforce and the horizontal (x) axis shows the number of months from the beginning of the recession. The different lines show the different recessions the US has experienced since the 1970s.
For instance, take a look at the green line. This shows the recession that began in July 1974. This was a big recession. If you follow the line from left to right you can see that the worst part of the recession was roughly nine months into it (March, 1975) and at that point around 2.75% of people had lost their jobs. You can see that the recession ended after about 18 months when the unemployment rate went back to what it had been before the start of the recession.
Now, take a look at the light-blue line (the current recession). The author notes that things are not yet as bad as they were in the 1974 and 1981 recessions, at least in terms of unemployment. The author also notes that if the current recession behaves similarly to those recessions things should start getting better in a couple months.
However, he also notes that it took four years to recover from the 2001 recession:
For some background information you might check out the Wikipedia articles on unemployment and recession.
Take a look at this article from the blog The Curious Capitalist, which is part of Time. Study the graph a bit. The vertical (y) axis shows the rise in unemployment as a percentage of the workforce and the horizontal (x) axis shows the number of months from the beginning of the recession. The different lines show the different recessions the US has experienced since the 1970s.
For instance, take a look at the green line. This shows the recession that began in July 1974. This was a big recession. If you follow the line from left to right you can see that the worst part of the recession was roughly nine months into it (March, 1975) and at that point around 2.75% of people had lost their jobs. You can see that the recession ended after about 18 months when the unemployment rate went back to what it had been before the start of the recession.
Now, take a look at the light-blue line (the current recession). The author notes that things are not yet as bad as they were in the 1974 and 1981 recessions, at least in terms of unemployment. The author also notes that if the current recession behaves similarly to those recessions things should start getting better in a couple months.
However, he also notes that it took four years to recover from the 2001 recession:
"Another lesson brought home by the chart is how weak the recovery from the 2001 recession was. It was a mild recession, but it took four years for employment to return to its February 2001 peak."Make sure you understand the chart and then write a few paragraphs about why the recovery from this recession might be short like the 1974 or 1981 recessions and why it might be long like the 2001 recovery.
For some background information you might check out the Wikipedia articles on unemployment and recession.
Friday, December 5, 2008
Mortgage Bail Outs: Fair?
Read this article at CNN.com and decide whether you think it is fair for the government to assist people who can't make their mortgage payments because they borrowed more than they could afford.
Is reckless borrowing to blame in every case? Or are there other reasons that people are in trouble? Were these people acting irrationally when they signed up for these mortgages?
Make sure you understand what an ARM and a fixed rate mortgage are.
Is reckless borrowing to blame in every case? Or are there other reasons that people are in trouble? Were these people acting irrationally when they signed up for these mortgages?
Make sure you understand what an ARM and a fixed rate mortgage are.
Wednesday, October 8, 2008
Intellectual Property Fact and Fiction
Check out this article posted on Ars Technica.
The article discusses two figures that are frequently used to advocate increased "Intellectual Property" enforcement. They find that neither figure is reliable or well-sourced and they point out that both are probably gross exaggerations.
"Intellectual Property" (IP) is a broad category that usually includes copyrights, trademarks and patents. The idea behind IP is that individuals who create new inventions or art should be granted a temporary monopoly on their creations. This allows them to earn profits from these creations as a sort of repayment in return for their ingenuity.
IP protections also encourage individuals to invent and produce art since they are assured of the opportunity to receive compensation for their ideas.
However, the proper level of protection for intellectual property is a controversial subject. For example, how long should protections last? Should there be exceptions for teachers so that they can use the most current IP in their lessons? Who should be responsible for enforcing IP rights and, if the government is partially responsible, how much taxpayer money should be spent on enforcement?
The importance of these questions has, understandably, caused them to become highly controversial. This has led to a number of somewhat exaggerated claims about the impact of "piracy" on the economy.
Can you explain, taking into account what you know about economics, why, say, a music album downloaded from the internet does not equate to a lost sale for its producer? Also, why is it that lost revenue from piracy does not directly translate into lost jobs? How long do you think patents and copyrights should last? Find out how long copyrights and patents last in the U.S. Is the current government policy reasonable or unreasonable? Why?
The article discusses two figures that are frequently used to advocate increased "Intellectual Property" enforcement. They find that neither figure is reliable or well-sourced and they point out that both are probably gross exaggerations.
"Intellectual Property" (IP) is a broad category that usually includes copyrights, trademarks and patents. The idea behind IP is that individuals who create new inventions or art should be granted a temporary monopoly on their creations. This allows them to earn profits from these creations as a sort of repayment in return for their ingenuity.
IP protections also encourage individuals to invent and produce art since they are assured of the opportunity to receive compensation for their ideas.
However, the proper level of protection for intellectual property is a controversial subject. For example, how long should protections last? Should there be exceptions for teachers so that they can use the most current IP in their lessons? Who should be responsible for enforcing IP rights and, if the government is partially responsible, how much taxpayer money should be spent on enforcement?
The importance of these questions has, understandably, caused them to become highly controversial. This has led to a number of somewhat exaggerated claims about the impact of "piracy" on the economy.
Can you explain, taking into account what you know about economics, why, say, a music album downloaded from the internet does not equate to a lost sale for its producer? Also, why is it that lost revenue from piracy does not directly translate into lost jobs? How long do you think patents and copyrights should last? Find out how long copyrights and patents last in the U.S. Is the current government policy reasonable or unreasonable? Why?
Friday, October 3, 2008
Much Ado About Credit
Take a look at this article from Reuters about the fact that the California state government may need a loan from the U.S. treasury to continue its operations.
This article illustrates one of the key reasons the current "financial crisis" is so worrisome to so many people.
Due to uncertainty, investors are unwilling to tie up their cash in bonds and other assets that are uncertain or illiquid. This is essentially what members of the media are talking about when they say credit markets are "frozen". Basically, no one will lend money because either they don't have any to lend, they can't afford to lend what they have or they are afraid to make loans for various reasons.
So why does it matter?
According to the article, California was planning to issue what are essentially bonds to fund short-term state spending. In other words, they were going to borrow money so they they would have cash (much like you might use a credit card to avoid going to the bank).
California is far from alone. In many ways, our economic system relies on credit, especially short-term credit, to fund its operations.
Imagine a business that earns a particular profit margin (return on its investment). The firm can choose to re-invest those profits, save them, or pay them out to shareholders. If the company wishes to maximize its future profits, the best move is often to re-invest.
However, re-investment requires that the firm spend its cash profits. However, this reduces its liquidity (its ability to use its assets to purchase other goods). In other words, if a company chooses to re-invest, it may not have enough cash left over to fund its ongoing operations, such as buying supplies and paying workers.
This can be solved by borrowing.
As long as the expected returns on the re-investment (expected profits) are greater than the interest the company must pay in order to borrow money, this strategy will still increase profits. At the same time, it will increase national output (GDP or GNP), increase overall wealth and (potentially) decrease unemployment.
But it all relies on a firm's ability to get credit. Without the ability to borrow money, firms can't engage in as much re-investment since they need to keep their cash available to meet their expenses.
So, can you think of some examples of situations where re-investment is extremely important for a company? Can you think of any examples of firms that depend on re-investment to survive? What about companies that borrow money to invest in their businesses? How much borrowing is too much? What does this depend on?
Finally, what do you think about California financing its operations in this way. Should the treasury loan the state money if they ask for it?
This article illustrates one of the key reasons the current "financial crisis" is so worrisome to so many people.
Due to uncertainty, investors are unwilling to tie up their cash in bonds and other assets that are uncertain or illiquid. This is essentially what members of the media are talking about when they say credit markets are "frozen". Basically, no one will lend money because either they don't have any to lend, they can't afford to lend what they have or they are afraid to make loans for various reasons.
So why does it matter?
According to the article, California was planning to issue what are essentially bonds to fund short-term state spending. In other words, they were going to borrow money so they they would have cash (much like you might use a credit card to avoid going to the bank).
California is far from alone. In many ways, our economic system relies on credit, especially short-term credit, to fund its operations.
Imagine a business that earns a particular profit margin (return on its investment). The firm can choose to re-invest those profits, save them, or pay them out to shareholders. If the company wishes to maximize its future profits, the best move is often to re-invest.
However, re-investment requires that the firm spend its cash profits. However, this reduces its liquidity (its ability to use its assets to purchase other goods). In other words, if a company chooses to re-invest, it may not have enough cash left over to fund its ongoing operations, such as buying supplies and paying workers.
This can be solved by borrowing.
As long as the expected returns on the re-investment (expected profits) are greater than the interest the company must pay in order to borrow money, this strategy will still increase profits. At the same time, it will increase national output (GDP or GNP), increase overall wealth and (potentially) decrease unemployment.
But it all relies on a firm's ability to get credit. Without the ability to borrow money, firms can't engage in as much re-investment since they need to keep their cash available to meet their expenses.
So, can you think of some examples of situations where re-investment is extremely important for a company? Can you think of any examples of firms that depend on re-investment to survive? What about companies that borrow money to invest in their businesses? How much borrowing is too much? What does this depend on?
Finally, what do you think about California financing its operations in this way. Should the treasury loan the state money if they ask for it?
Wednesday, September 10, 2008
Progress and Growth: But at What Cost?
I don't need to tell you that there are problems in Africa. One of the major problems plaguing African nations is food production and undernourishment. Browse through this report (PDF) compiled by the Food and Agriculture Organization, a United Nations agency, and note that Africa is still suffering from these problems.
Some, including Britain's former Chief Scientist believe that modern technology could revolutionize farming in Africa. This would allow the continent to provide its own stable food supply and free up labor (remember the factor markets?) to move into other areas of the economy and produce greater prosperity.
But why isn't Africa already using these modern techniques? According to the article, David King believes that western policy toward Africa seeks to preserve traditional farming methods at the expense of efficiency.
So, could new genetically modified crops and other technology solve the problems?
Not necessarily. It has been pointed out that the use of genetically modified crops can have a devastating impact on environmental quality, which might hinder economic growth further or, at the very least, create a host of new problems.
How do you think policymakers should balance environmental concerns against the need to increase agricultural efficiency in Africa? Do we even need to increase efficiency? Is there value is preserving traditional ways of life? Would you want to live more traditionally if it were an option for you? What kinds of things would you have to sacrifice to do so? (hint: think iPods, remember, it's all about iPods, but why?)
Bonus question: Genetically modified crops can be patented by their inventors. This means that seeds can only be sold by the company that owns the patent. Additionally, many of these crops can be designed not to produce fertile seeds when they grow. Does this raise any issues? What are they? How might this be a problem for African nations? Do you think these types of patents should be allowed?
Some, including Britain's former Chief Scientist believe that modern technology could revolutionize farming in Africa. This would allow the continent to provide its own stable food supply and free up labor (remember the factor markets?) to move into other areas of the economy and produce greater prosperity.
But why isn't Africa already using these modern techniques? According to the article, David King believes that western policy toward Africa seeks to preserve traditional farming methods at the expense of efficiency.
So, could new genetically modified crops and other technology solve the problems?
Not necessarily. It has been pointed out that the use of genetically modified crops can have a devastating impact on environmental quality, which might hinder economic growth further or, at the very least, create a host of new problems.
How do you think policymakers should balance environmental concerns against the need to increase agricultural efficiency in Africa? Do we even need to increase efficiency? Is there value is preserving traditional ways of life? Would you want to live more traditionally if it were an option for you? What kinds of things would you have to sacrifice to do so? (hint: think iPods, remember, it's all about iPods, but why?)
Bonus question: Genetically modified crops can be patented by their inventors. This means that seeds can only be sold by the company that owns the patent. Additionally, many of these crops can be designed not to produce fertile seeds when they grow. Does this raise any issues? What are they? How might this be a problem for African nations? Do you think these types of patents should be allowed?
The Adventures of Officer Overtime
Another appearance for the Mises Institute web site. This article talks about the incentives police officers have to give "bogus" tickets (tickets for extremely minor offenses) that people are likely to fight in court.
The author discusses the fact that many officers receive overtime pay for going to court since it is in addition to their patrol duties. This situation is created by federal labor laws, which is certainly an interesting area to explore, but the more interesting part of the article deals with the incentives faced by law enforcement officials.
When you have a good reason to do something (or not do something) you are facing a particular incentive to do or not do that thing. For example, I have an incentive to show up for class because the college pays me to do so. You have an incentive to study because otherwise you will get a failing grade. All of us face complex sets of incentives in every part of our lives. Economics is really the study of the incentives people face and how those incentives can be best put to use for society.
In the case of the police officers who get overtime (time and a half or 150% of their normal wage) for going to court over a disputed traffic violation the incentives are clear: more tickets leads to more money.
On the other hand, take a look at this article linked to by the author. If you read the comments at the bottom you will notice that several police officers pointed out that while they do in fact receive additional money for going to court, in many cases they would prefer to forgo the money and spend more time with their families or on leisure activities.
So the incentives are a bit less clear now. Surely some officers (as detailed in the second article) give as many tickets as they can to earn extra money (possibly acting against the public interest in the process) but at the same time many officers dread going to court and therefore have an incentive to give as few tickets as they can (possibly endangering public safety in the process).
So, can you think of anything that could be done to eliminate these counter-productive incentives? Also, read the section of the original article about police and crime-prevention again and decide whether you agree with the author that we perhaps have too many police and too many laws. Remember to make your arguments logical, not emotional.
The author discusses the fact that many officers receive overtime pay for going to court since it is in addition to their patrol duties. This situation is created by federal labor laws, which is certainly an interesting area to explore, but the more interesting part of the article deals with the incentives faced by law enforcement officials.
When you have a good reason to do something (or not do something) you are facing a particular incentive to do or not do that thing. For example, I have an incentive to show up for class because the college pays me to do so. You have an incentive to study because otherwise you will get a failing grade. All of us face complex sets of incentives in every part of our lives. Economics is really the study of the incentives people face and how those incentives can be best put to use for society.
In the case of the police officers who get overtime (time and a half or 150% of their normal wage) for going to court over a disputed traffic violation the incentives are clear: more tickets leads to more money.
On the other hand, take a look at this article linked to by the author. If you read the comments at the bottom you will notice that several police officers pointed out that while they do in fact receive additional money for going to court, in many cases they would prefer to forgo the money and spend more time with their families or on leisure activities.
So the incentives are a bit less clear now. Surely some officers (as detailed in the second article) give as many tickets as they can to earn extra money (possibly acting against the public interest in the process) but at the same time many officers dread going to court and therefore have an incentive to give as few tickets as they can (possibly endangering public safety in the process).
So, can you think of anything that could be done to eliminate these counter-productive incentives? Also, read the section of the original article about police and crime-prevention again and decide whether you agree with the author that we perhaps have too many police and too many laws. Remember to make your arguments logical, not emotional.
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