Ideas and Vested Interests

This blog is a journal of my ever evolving understanding of economics. Currently I am a Masters student but intend on pursuing a PhD.

A thought on unionization, space, and market structure

Are unions only sustainable with firms/industries where there is a monopoly/oligopoly?  In these scenarios the firm has breathing room for costs to increase without becoming unprofitable.  However the larger the competition becomes the pressure to keep costs down becomes larger.  However, as competition increases (assuming this original firm’s production stays constant) this may also act to push wages not just down but also up.  While the firm now has stronger bargaining power in wage negotiations, laborers now also have a hand up as the demand for their labor has increased due to an increase in market size of the product they produce.  I suppose this then becomes a question of transportation costs and distance.  Using Paul Krugman’s 1991 article on transit costs as a foundation:  If the original industry was far away from the market it is selling in, and then local companies begin to produce geographically closer to the markets then the transit costs of the original industry will act as a negative push on the wages required to maintain profitability.  However, if the original monopolistic/oligopolistic industry is located near the markets it sells in, and the new firms open elsewhere, then their transit costs will put upward pressure on the wages of the original industry.  Finally in the (much more likely) scenario where the expanded industry is all in the same location then the increase in competition will have little to no effect on wages.

Quarter Life Crisis: DEAR MITT

cubicmetaphysics:

I’m voting for Barack Obama because your plans for the economic, social, and environmental well being are extremely subpar. Despite having two of the best economic advisors that money can buy your economic plan moves to repeal the modest regulations imposed on the financial services sector, the…

Programming Note

For the 8 people that actually follow this:

Winter quarter was crazy busy so I didn’t have much time to write.  I’m planning on doing a few posts based off of projects I did for class.  Expected topics include:

  • Knowledge Production and Spillover Effects
  • Economic Clusters
  • The Social, Economic, and Ecological Aspects of the Food Industry

And probably some more just for fun.  I have a running list of topic ideas somewhere in my notebook that I’ll probably try to crack.

feetasleep:

“The decline in young home owners is a puzzling trend. Interest rates have steadily declined over the last 30 years. Mortgage lending has loosened. Women have ascended in the workplace and supplemented their spouse’s earnings. How in the face of all of these positive developments did home ownership among the young keep falling?”

—

Derek Thompson, “The End of Ownership: Why Aren’t Young People Buying More Houses?” (via theatlantic)

Stagnating wages, high unemployment in younger people, while rates are low banks aren’t lending, student loan debt, the areas young people would want to own homes are actually experiencing rising prices, changing cultural norms ie postponement of marriage and parenthood so houses are unnecessary. I could go on

theatlantic: Where Did All the Workers Go? 60 Years of Economic Change in 1 Graph President Obama’s State of the Union speech was surprisingly bullish on reviving manufacturing, prompting one very clever person on Twitter to say something along the lines of: “Democrats want the economy of the 1950s, while Republicans just want to live there.” It got me thinking: What did the economy look like in the 1950s? If you could organize all the jobs into buckets and compare the paper-shuffling professional services bucket to the manufacturing bucket, what would they look like around 1950, and how has the picture changed in the last 60 years? Read more. [Image: Brian McGill and Peter Bell/National Journal] As far as manufacturing goes: I think a lot of the drop in manufacturing is that it’s both a rise in efficiency (manufacturing has become more capital intensive and less labor intensive, in turn there just aren’t really as many jobs in manufacturing) combined with a decline the US supply chain.  Additionally, in 1947 the rest of the world’s capital stock was decimated, as were their labor force, so there was a long period where America was producing for the world because they simply couldn’t produce for themselves.  It only makes sense that as their capital stock replenished and populations grew again that demand for American manufactured goods would decline.

theatlantic:

Where Did All the Workers Go? 60 Years of Economic Change in 1 Graph

President Obama’s State of the Union speech was surprisingly bullish on reviving manufacturing, prompting one very clever person on Twitter to say something along the lines of: “Democrats want the economy of the 1950s, while Republicans just want to live there.”

It got me thinking: What did the economy look like in the 1950s? If you could organize all the jobs into buckets and compare the paper-shuffling professional services bucket to the manufacturing bucket, what would they look like around 1950, and how has the picture changed in the last 60 years? Read more.

[Image: Brian McGill and Peter Bell/National Journal]

As far as manufacturing goes:

I think a lot of the drop in manufacturing is that it’s both a rise in efficiency (manufacturing has become more capital intensive and less labor intensive, in turn there just aren’t really as many jobs in manufacturing) combined with a decline the US supply chain.  Additionally, in 1947 the rest of the world’s capital stock was decimated, as were their labor force, so there was a long period where America was producing for the world because they simply couldn’t produce for themselves.  It only makes sense that as their capital stock replenished and populations grew again that demand for American manufactured goods would decline.

(via nationaljournal)

think-progress: Check this out: “Progressive” is viewed more positively than “conservative” and every other political label in America. I think these results only reinforce Kenneth Arrow’s Impossibility Theorem.

think-progress:

Check this out: “Progressive” is viewed more positively than “conservative” and every other political label in America.

I think these results only reinforce Kenneth Arrow’s Impossibility Theorem.

The great irony and tragedy of “intro econ” is that it is at its introductory level that economic theory is both most broadly consumed and most malignantly simplistic. In a recent study, economists at the University of Washington found there to be an “indoctrination effect” for non-majors who take an economics course: on average, they behave more selfishly and hold less regard for others after taking such a course.

Generations of the world’s business people and public policy makers have been nursed on such courses. To gain some insight into why our economies and institutions are crumbling beneath us, then, imagine an engineer equipped with a rudimentary understanding of physics that omits gravity, and a certain above-average disregard for human life not his own. Now imagine him building all the major bridges in the world.

—

The Trouble with Principles: Or, How to Not Lose Friends and Alienate People When Learning Economics (#OccupyWallStreet, #OWS)

Perhaps the most interesting bit, 

To casually label economics a science is at best aspirational, at worst manipulative, at a minimum misleading. At the introductory level, the issue at stake is less one of methodology than of how deferential the layperson or novice should be to the authority of expert or policy entrepreneur appeal to economic theory. Skepticism is always a virtue. When evaluating claims based on simple economic models, it’s self-defense.

I feel like this should be read alongside What We Learn When We Learn Econ by Christopher Hayes. It basically discusses his experience in an intro to econ course at the University of Chicago. To save you some time, it was not an overwhelmingly positive experience.

Meanwhile at Berkeley, the into to econ course is being taught by Brad DeLong during the spring. 

(via thenoobyorker)

(via theatlantic)

Marcus Im: Business & Economics Are Not The Same

marcusim:

I was reading the New York Times Magazine and there was this long article about Mitt Romney… and a thought had come into mind: Does Mitt Romney know that an understanding the needs of a business is not the same as understanding the needs of an economy?

You see, the article states that Mitt Romney…

(Source: The New York Times)

On Joseph Stiglitz’s explanation of recessions and depressions:

I’ve read a lot of criticism recently for Stiglitz’s account of the great depression/recession.  Stiglitz takes what is arguably a Post-Keynesian view, where as most of the criticism is coming from a New Keynesian or Monetarist view.  Stiglitz is arguing that increases in productivity in the agrarian sector (or manufacturing sector) caused the price level to decrease, which caused incomes to decrease, which caused investment to drop due to a drop in demand, which in turn caused financial collapse.  Stiglitz claims that the economy couldn’t have been fixed with solely monetary functions (I personally think he’s sort of right sort of wrong here), and that the only thing that did fix the economy was government spending to prop up demand and moving farmers to manufacturing.  They argue that the things that Stiglitz is proposing don’t make any sense in the Aggregate Demand-Aggregate Supply model, and therefore it’s bad macro.  I think there are a few problems with this view.

The assumption that the simple AD-AS model accurately tells the whole story of what is going on in the macro-economy.  But let’s look at what the AD-AS model actually measures.  It’s measuring the intersection of the aggregate demand of an economy (the demand for consumption, investment, government expenditure, and net exports) with the aggregate supply of output in an economy (The supply of labor and the supply of capital, and the level of technology/efficiency).  According to Stiglitz’s critics, the rise in productivity on the farm was a rightward shift in the AS curve, because it raised output and also decreased the price level.  But what they ignore is that it also caused the AD curve to have a large shift to the left due to a drop in incomes and a drop in expected incomes.  At the time farms made up a much larger portion of our economy, if their incomes dropped there would be a huge hit to aggregate demand.  What the critics then argue is that well wouldn’t the other consumers be able to makeup for it, since they’re now paying less for food?  Not necessarily, and this is the shortfall in most AD-AS models, is that they assume a uniform MPC, and they assume that it’s static.  But the lower the price level gets the lower the MPC should become, because at a certain point consumers will save the surplus they gain from cheaper goods.  So no, it’s not necessarily true that a lower price level will leave the economy unaffected.  This is Keynes’s “Wage Price Spiral”, as real wages drop, the price level drops, which in turn causes investment to drop, which causes wages to drop, and the price level to drop more.

Some of the criticism claims that Stiglitz is suggesting we prop up wages no matter what, but that misses the point that Stiglitz is saying that while rigid wages are a good thing (an argument of Keynes that the New Keynesians have mostly dropped save the more liberal wing of New Keynesians) the other problem is a structural problem in the economy that poor economic policy is only exascerbating.  Stiglitz believes that the majority of the manufacturing sector needs to move to the service sector.

As for his dismissiveness of monetary policy, I think that he’s right in saying that monetary policy can’t fix structural problems in the labor force, but monetary policy can help stop the collateral damage caused by these structural problems until a sufficient solution to the structural problem can be found.