Week 8: Critical Reading

The three readings from Paul Krugman this week brought up what is widely seen as the conservative side of economics, with the general topic of them being the positives that result from cheap, third-world labor.  I found it very interesting that, despite being a liberal when it comes to the economy and a devout enemy of slave labor, I was able to generally agree with Krugman and now believe that cheap foreign labor is needed for me to maintain the lifestyle I desire.  Krugman, though, seems counterintuitive in the way he insults opponents of his opinions, an example being when he calls them uneducated and dishonest in section 5 “Ricardo’s Difficult Idea.”  By insulting his opponents both directly – and on many occasions in between the lines of his writing – Krugman acts against himself and makes his writing less amiable to readers.

The first discussion question I would like to ask concerns his article “In Praise of Cheap Labor,” for I was puzzled on one of the central aspects of the article:  why does Krugman counter the argument for improving labor standards by discussing how peasants would not have improved living conditions.  Wouldn’t the higher wages of the sweatshop workers lead to more people desiring to work there, decreasing the population of scavengers while at the same time causing a greater demand for food, driving up food prices and making it easier for farmers? 

The second discussion question on these articles concerns the article “A Raspberry for Free Trade.”  Is there an alternative for all the people working in sweatshop circumstances besides the cheap labor, such as a agrarian-based society, that would do the same for the economy that a competitive, low-wage manufacturing economy would?

The final question I would like to ask concerns the final section in “Ricardo’s Difficult Idea.”  After such a well-written and thought out piece, why doesn’t Krugman actually state how to argue for Ricardo’s theory, rather than simply call them ignorant?  Wouldn’t it have been a better idea to mention counter-arguments concerning the necessity of tariffs or the ability to create jobs with them?

The articles are able to excellently point out the same concepts that Professor Rizzo discussed in class this week.  Rizzo’s arguments during week 8 were eerily similar to those proposed by Krugman, but are reformed from Krugman’s state to be more suitable for the classroom and less one-dimensional.  Almost every page (and in “A Raspberry for Free Trade,” every paragraph) contained an example of what we had studied in class this week.  The readings even applied in some ways to this week’s recitation, for they referenced the effect prices of goods have on demand in the market.  The readings overall had the effect of allowing us to understand to a fuller extent the intricacies of the global economy and how better working conditions and better jobs could be counterintuitive for economic growth.

Week 6: Late Critical Reading Assignment

                Kwame Appiah’s “The Case for Contamination,” along with being one of the most interesting things I have read thus far in Economics 108, offers a unique look into each perspective in the argument for, against, and ambivalent to globalization of culture.  The most interesting thing about the article to me was how easily Appiah deduced the argument against the cultural preservationists.  Even better, he did so by using simple economic ideas we had learned in class over the previous few weeks.  Some of these ideas included supply and demand (in terms of the expansion of the Western good market),  the tradeoffs we face in buying local or imported goods, and the opportunity costs of embracing ancient culture when it is cheaper or more advantageous to embrace Western culture, jobs, and goods.

                The first discussion question I would ask concerning the reading concerns the entire idea of universalism: if we have one universalist global society, what would happen to the supply and diversity of goods in a market, and would it help or hurt the world economy more to make a transition that favors a universalist society?

                On a second note, I would also ask what the problem is with “contamination” stated toward the end of the article, when it is earlier stated by the author that it is ok for people to adapt and change cultures if they so desire?  It simply seemed a bit inconsistent to the writing of the article.

                A final question I would like to ask concerns the ideas of contamination in terms of nature.  With the idea of contamination being proposed as good in terms of economics and culture, should the same argument be used in the case against preserving the environment?  Along the same lines, would our “contamination” have a greater overall utility than conserving the environment?

                The world is getting smaller due to globalization, but also growing bigger.  Through the scope of Appiah’s article we can see that many multi-cultural cities are growing more diverse – a great example  being Kumasi – and how at the same time they are becoming more universalist, such as in many Islamic Middle-Eastern cities.  After the last couple of weeks of classes, where we have used examples from several countries on how basic economic principles work, it was interesting to read how the economics that apply to America also applies in Ghana and has affected the world for centuries.  The article, more or less, gave an example of the economic systems we use today and applied it to the global market and how this acts as proof that contamination can actually be good for society.

Week 8: Friday Blog Post

·         If you worry about trade causing us to lose jobs, then you need to worry about everything causing us to lose jobs (technology, robots, more efficient techniques

·         Wages in China have actually more than doubled in the last 8 years

o   Why? Because value of trade is increasing and the workers are desired more

·         Comparative and Absolute advantage of jobs

o   Wages/marginal product of labor =

§  China: $8 an hour/ 4 units per hour = $2 a unit

§  America: $30 an hour / 20 units per hour = $1.50 a unit

o   Marginal product of labor:

§  How much you can produce in each additional hour

§  Can become negative

·         China

o   Only 2.7% of consumer spending is for “Made in China” goods

o   If we put tariffs on Chinese goods (as Congress wants), it would not increase manufacturing but hurt it because our inputs disappear

·         Regulations matter a great deal

o    America did not join Kyoto Protocol in 1990’s because it would have taxed American businesses heavily

o   Forcing people to hire workers decreases incentive

·         Trade Surpluses do not necessarily increase employment

o   Agricultural industry is an example

§  Trade surplus has been high since 1963, but the number of workers has decreased exponentially

§  Made possible because farming of land has become more efficient

·         Because of specialization, we have become richer

o   Able to produce more goods using less land

o   Employment may decrease, but we become richer overall

o   A Gift Economy

§  Would devastate the economy

§  Would lead to infinitely large trade deficits between countries/people and no technical employment

§  Instead of Gift Economy, we buy and sell stuff to one another to create economy

·         Jobs

o   EPI reported  that after NAFTA, cost of everything to Americans fell but displaced 1,252,000 jobs

§  Also hurt Canada

o   Technology has displaced jobs in outdated industries

o   Jobs are a cost, so saying that jobs were lost is not a reason to hate NAFTA

o   The total number of jobs is higher, but the percentage has fallen due to NAFTA and cheap labor outside of the United States

o   Gifts from Korea (24,000$ car every 4 years)

§  Would lead to increase in living standards

o   Farm jobs make up 1.7% of the economy today after at one point being 90%, but this has made America richer

§  Food exports to China actually are leading to Food Trade surplus with them

·         Trade Deficit

o   Based on US Capital Account Balance

§  People invested in American economy

§  Allows us to consume more than we produce

§  There was nothing unsustainable about the concept

§  Trade deficit with China

·         Expert said that cheap Chinese labor will force investors to invest in them instead of US

·         Foreign Direct Investment (FDI) received by China was 686 billion dollars, while ours was 1.8 trillion dollars, and per capita the US had a ten times larger FDI than China

§  Rizzo buys $10 of toys from Chinese and we pay $5 for classes

·         Rizzo runs a total of a $5 deficit

·         With the $5, the Chinese then invest in treasury bonds, brining money back into America

§  America’s total trade balance is zero

·         Currency account balance is negative

·         Capital account is positive

·         They cancel each other out ^^

Week 8: Wednesday Blog Post

Trade, Technology and the Job Market:

• The “U.S.” is importing more GOODS than it is exporting…this has sharpened.
• Has led to a serious trade deficit
• How to increase wealth:
• Give property rights
• Get more people in an economy to work
•  Use resources more efficiently
•  In the present day, service sector jobs are higher paid than manufacturing jobs.
•  Technology is advancing faster today than ever before 
•  Past: Democratic technological change. Suited everyone in basic functions.
• Today: Make specific people technologically savvy. This proves to be an advantage to people with unique skills.
• •Nobody predicted technological advances of modern day
•  Likewise, we do not know what kind of advancements/jobs there will be over the next decade
•  Trade indeed does make us richer.
•  Trade although good, increases risks.
•  However, trade also increases opportunities – opportunities in terms of jobs etc.
• Trade does NOT lead to overall unemployment 
•  Jobs are a cost, not a benefit – Jobs are a mean to the end.
• Exports – Imports → “Trade Balance”
• “Trade Balance” – Goods/Services.
•  Positive exports/imports – Positive trade balance.
•  Negative exports/imports – Negative trade balance

Week 8 EWOT

Yesterday, while entertaining some seniors from my high school alma matter who were visiting campus, one of them told me about a poll they conducted in their AP Economics class concerning our relationship with China.  Out of the 85 students enrolled in the course, 47 had voted that the best action for America to take was to boycott Chinese goods.  Two of the seniors who were in the class had voted for it and I was astounded from their lack of logic concerning the situation.  According to Professor Rizzo’s lectures this week, the supposed “trade deficit” with China is actually helpful to America for a multitude of reasons.  These include the fact that we consume a large amount of Chinese goods and that China invests much of its trade surplus back into the American economy, helping to keep our FDI so high.  With this knowledge, I now know that the arguments given by those 47 students is essentially bogus, and I can give a better informed answer if ever I am asked about our trade relations with China.

Week 8: Monday Blog post

o   Comparative Advantage

§  Rochester Grads or Cornell Grads

§  Can produce either wine or cameras

§  Rochester: 10 bottles of wine max or 5 cameras for year max

§  Cornell: 5 bottles of wine max or 4 cameras for year max

·         For Rochester: 1 camera costs 2 bottles of wine

·         For Cornell: 1 camera equals 1.25 bottles of wine

o   Absolute vs. Comparative

§  Computers vs. Grass cutting

§  Person A: 3 computers and 10 lawns of grass cutting

§  Person B : 1 computer and 5 lawns of grass cutting

§  Person A has absolute advantage in both, but comparative advantage in computers

§  Person B has comparative advantage in lawns of grass cutting

o   No individual can have a comparative advantage at producing everything

§  Comparative advantage is relative

§  Just because they are a manufacturing powerhouse does not mean that you can have comparative advantage with multiple goods

§  Cornell v. Rochester

·         Cornell has comparative advantage in making cameras

·         Rochester has comparative advantage in making wine (but absolute advantage in making both)

§  Through trade, comparative advantage can get two individuals/countries the goods they desire

·         By trading, the PPF graph shifts to allow countries to have a better advantage in achieving its production of goods

Week 5: Late Critical Reading assignment

Bastiat: Week 5

            The essay by Bastiat addresses dozens of topics that were almost ahead of their time when written, and are still a major part of economic debate today.  Within his section “Theater and the Fine Arts,” the most interesting aspect of this article that I found was how so many arguments from the essay are used by the United States Congress today, but with less articulation and less support than Bastiat was able to fit into the five pages of the section.  The opening two paragraphs themselves highlight the liberal and conservative arguments, respectively, for the increase and decrease of funding for the arts.  Under the same logic of paragraph 1.61, though, is the conservative argument for the decrease in government funding for any social programs, including the arts in high schools.   Later in the article, during the analysis of Lamartine, Bastiat uses an argument common in the Reagan and Bush administrations when they cut funding for arts programs: the best arts programs are the self-sufficient ones. 

            From the above paragraph comes the first of my discussion questions: using solely the arguments provided by Bastiat in this essay, should the United States increase or decrease funding for school arts programs?  If no, would education be served as a self-subsidized enterprise rather than by a government agency?  

            The second discussion comes from the vote Bastiat discusses in paragraphs 1.74 onwards: how are Lamartine’s arguments for the subsidy to the arts a “childish illusion” (1.78) and how does Bastiat’s counter that it reallocates wealth completely validate his opinion when he admits earlier in the essay that the arts are meant for the taxpayers and to help increase French pride and culture?

            A third discussion question, in a similar manner to question 1, revolves around Bastiat in the modern world:  in the modern day, when taxes are relatively lower than his era and people have more money to spend on leisure activities, could Bastiat’s arguments, specifically the idea in paragraph 1.61 that taxing to subsidize the arts hurts essential industries?

            This reading is meant to give a laissez-faire argument concerning government support for the arts and culture.  The opening paragraphs are the only ones where Bastiat’s obvious conservative opinions are not stated, for he merely points out each side of the argument concerning the arts.  From paragraph 1.62 onwards, though, he begins dissecting the arguments for support of the arts by  stating that taxing for the arts hurts the people by using their wealth to finance an industry that creates minimal wealth.  He goes on to further suggest that the public does not intrinsically value the arts over their own well-being enough to want the government to subsidize the arts.  The article was likely meant to supplement the class notes we took on government spending and the function of taxes, while also being meant to give proof that sometimes government subsidies are more negative than positive.  Finally, in the final paragraph, Bastiat states one of Professor Rizzo’s favorite ideas: that public spending only replaces private spending, but does so less efficiently. From this theory, it is clear where Rizzo gets his main ideas for Econ 108 and that Bastiat's essays still apply to modern economics both inside and outside of the classroom.

EWOT: Week 7

EWOT Week 7

                The recent week’s classes taught me a lot about how trade and exchange functions to create more wealth.  When I sat down to write this post, I immediately thought of the way stocks/shares in companies function to create wealth by selling off portions of companies, creating wealth for the companies and the shareholders through trades in the stock market.  It reminded me of a conversation I had with my dad earlier this week about the possibility of me getting an ETrade account for stock market investment instead of keeping my money in a bank.  Her argument was that the banks would use my money to create wealth, helping the economy while increasing my own wealth, and that I shouldn’t risk my savings.  I responded by saying that investing in the stock market does the same, for trading stocks also increases the wealth of the companies by giving them the money directly from the consumer instead of through a bank and that the reward would outweigh the risk.   After sitting through Wednesday’s Econ class, I realized that both of our arguments were right, for both created wealth.  Furthermore, the recitation on Friday featured graphs concerning the argument of risk.  Though the graph with greater risk involved gaining more wealth, the whole class agreed that the graph showing fewer gains and no risk was more favorable than the graph with several massive gains but with a lot of risk.  Since I agreed with the class, I realized that my mom was at least right on this regard concerning investing in the stock market, and I therefore decided not to begin investing in the stock market until I could guarantee little risk in my investment.

Week 7: Friday Blog

·         How Trade Creates Wealth

o   Trade: a non-technical form of production

o   Trade also makes it possible for many types of production

o   A reshuffling of stuff between people who value it more may make society “richer”

o   Example: Time to do yardwork

·         Production Possibilities Frontier

o   Properties:

§  1) All points on or inside of graph are achievable

§  2) Absolute Advantage

§  3) All points to right of graph are not achievable

§  4) Points on the PPF are the most  “productively efficient”

§  5) The slope of the PPF curve has meaning

§  6) The Change in slope has meaning

o   Country A can produce either 1000 guns or 2000 units of butter

o   However, if he budgets his time in between, he can produce a maximum of total goods along a curve

o   Any point to the left of the curve is possible to manufactured  by Country B

o   However, Country B can produce 500 guns or 3000 units of butter

o   Conclusion: Country B has an absolute advantage in producing butter while Country A has an absolute advantage in producing guns

o   Along the PPF: there are combinations of producing goods which are the best possible output

§  At one point on the curve is at the point where you produce the most advantageous number of goods

o   Law of Diminishing Returns/Law of Increasing Opportunity Costs: Tradeoffs for good get worse over time as you work towards the x- or y-axis of graph because with each additional good given up to produce the other good, there is a decrease in marginal returns

o   PPF takes into factor three things:

§  1) Resources

§  2) Technology

§  3) Trade

o   Effect Economic Growth has on PPF:

§  Can move curve totally outward or inward

§  Can move parts of curve farther right or left based on

o   Comparative Advantage

§  Rochester Grads or Cornell Grads

§  Can produce either wine or cameras

§  Rochester: 10 bottles of wine max or 5 cameras for year max

§  Cornell: 5 bottles of wine max or 4 cameras for year max

o   Absolute vs. Comparative

§  Computers vs. Grass cutting

§  Person A: 3 computers and 10 lawns of grass cutting

§  Person B : 1 computer and 5 lawns of grass cutting

§  Person A has absolute advantage in both, but comparative advantage in computers

§  Person B has comparative advantage in lawns of grass cutting

·         Normative vs. Positive Statement

o   Normative statements: Describes what the world ought to be

o   Positive Statements: Describes how the world is

o   Europeans say we live in a “Coca-Cola” civilization

§  Our society is incredibly consumerist

o   Example:

o   Normative: Universal Health Care spreads resources out over a larger population  -à Positive: More people will receive health care at a lower quality

o   Normative:  Universal Health Care needs to be paid for à Positive: We need to increase taxes to pay for UHC

·         Efficiency

o   Getting the most out of life

§  Or

o   Making the “pie” as big as possible

o   Includes use of resources, what we produce, and relative costs

o   All voluntary exchanges are efficient

§  Applies to individual choices

§  If we act in the best way our knowledge allows us to

·         Equity (not equality)

o   Economic outcomes cannot be

o   Vertical vs. Horizontal (in terms of taxes)

§  Horizontal Equity: the idea that people with a similar ability to pay taxes should pay the same or similar amounts

§  Vertical Equity: the idea that people with a greater ability to pay taxes should pay more

o   Most people think that everyone should be treated the same

§  Almost never followed

·         Y = C + I

o   C = consumption

o   I = investment

o   Y= Gross Economy

o   What’s more important, consumption or investment?

·         Output equals Income according to the circular flow model

Week 7: Wednesday blog post

Mike Pascutoi

Trade and Exhange

• ·         Law of Large Numbers
• Large numbers are needed for any study to succeed
• ·         Feedback loops only work well when people actually care
• o   People need to feel guilty about doing a bad job
• o   People must have incentive
• ·         All important economic analysis involves trade and exchange in some way
• ·         Trade and Exchange assumes
• o   A sense of personal property
• o   Property rights
• o   Silver Rule
• ·         Three basic questions of Economics:
• o   What should be produced?
• o   How do we produce it?
• o   How do we allocate the goods from the producers to the consumers?
• ·         Inputs===èBlack Box======è Goods
• ·         Factors of production
• o   Land
• §  Any physical object that was pre-existing as a part of nature
• §  Example: Iron
• o   Labor
• §  The number of people (or mammals) working on the project
• §  Example: Iron miners
• o   Capital
• §  Definition: Something that needs to be produced in order to produced one or more other goods
• ·         Example: An iron crowbar
• §  1) Physical Capital
• ·        
• §  2) Human Capital
• ·         All the skills one learns in order to produce a certain good (multiplied by every possible person available in the economy)
• ·         Economic Activity
• o   Government proposes it to be overall spending
• o   However, it also includes PSST
• §  Patterns of
• §  Sustainable
• §  Specialization and
• §  Training
• o   Technology is changing fast enough that the Factors of Production are forced to adjust almost too fast
• ·         Why Do People produce?
• o   To acquire wealth
• ·         What is wealth?
• o   One form of wealth: actual goods which are produced
• ·         In an ideal trade situation:
• o   All people get equal value in the exchange, but they value what they receive more
• o   Example: Rizzo had two Kirby Puckett baseball cards, and one summer he traded one for Buddy Biancalana (trade was mutual)
• o   KP: $200.00
• o   BB: @0.02
• o   Both people got a relatively same amount of value, though Rizzo lost actual wealth