Category Archives: The dismal science

‘National Competitiveness: A Crowbar for Corporate and Financial Interests

We’ve regularly derided the notion of “national competitiveness” as a an inevitable accompaniment to the oversold notion of “free trade”. Economists are aware of, yet choose to ignore, the Lipsey-Lancaster theorem, which says when an idealized state cannot be attained, moving closer to it may not be an improvement; it can often produce worse outcomes. You need to evaluate the “second best” options specifically and not go on faith.

But economists and policy makers treat “free trade” as an article of faith, and with that comes the idea that countries must compete to find customers overseas. There is too little consideration of the fallacy of expecting countries to be competitive and by implication, seek to be exporters. It is impossible for all countries to be net exporters. Moreover, countries are often better served to design their policies primarily for the benefit of domestic workers and markets, and to promote export-oriented programs only to the extent that they do not undermine conditions at home, or will clearly produce a net benefit.

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Why Did Commodity Prices Move Together?

As strange as it may seem, most economists loudly disputed the notion that the rise in commodity prices, particularly in the first half of 2008, was in large measure due to financial speculation. More and more analytical work (such as comparisons of price action in commodities trades on futures exchanges with ones that have large markets but are not exchange-traded, like eggplant, a staple in India, and cooking oil) have dented the orthodox view.

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Uncertainty and Morality in a Dynamic Economics

This post makes some very good observations about the nature of uncertainty and the value, as well as the cost, of additional information. But it uses a personal pet peeve as the point of departure for the article, that of the so-called Trolley Problem. The people who pose it argue that the two options (saving four lives by throwing a lever that results in five people being saved at the cost of another person dying, versus saving four lives by throwing a fat man off a bridge) are morally equivalent, yet the fact that most people say they will throw the lever but will reject throwing the fat person off the bridge is a cognitive bias.

Hogwash. They aren’t comparable. The throwing a fat person off a bridge (to stop a train) is presumably meant to eliminate the “what about me jumping off the bridge” option. Second, I’d wonder if I could in fact succeed in shoving someone over. And third and potentially the most important, if you do succeed in pushing the fat person in front of the train, you are unquestionably guilty of first degree murder. Tell me how you talk your way out of it if you are caught. You were knowingly planning to have the man serve as a human brake to the train and that that would be fatal. By contrast, if you flip the lever, you can say “I was trying to save five people” and profess uncertainty as to what would happen to the other person who winds up getting killed.

In fairness, the article does treat the two cases as representing more differences from an informational perspective than most who use it as an device do, but not as pointedly as I’d like. So please try to take the horrible Trolley Problem in stride and focus on the meat of the article.

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Rajiv Sethi: Store Stickers and Indiana’s Law – A Separating Equilibrium

The intent of the “open for everyone” stickers is presumably to signal protest against the law. It’s telling that they appear to be springing up quickly in the face of a barrage of negative national press coverage as well as social media criticism.  Most retailers have thin margins, which means all things being equal, their margins are best served by not annoying possible shoppers. So one would assume rectitude on this issue would be the wisest commercial decision. Thus, aside from those owners who favor gay rights, the reaction also appears to signal where many store owners think their community’s opinion lies, as in fence sitting is more costly than saying they aren’t on the side of the new law (or what it might mean in a worst-case scenario). In other words, are we seeing that the heartlands are more liberal than the religious bloc (which punches above its weight politically due to its effectiveness in getting out the vote) would have the public believe?

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