Economics

Why Wal-Mart would be good for Europeans (really!)

Brad Delong, responding to a misleading FT article by John Kay, brilliantly points out why it is both illiberal and immoral to prevent superstores like Wal-Mart from saving money for Europeans like they do for Americans:

But there are lots of guys living in western Europe for whom the lack of an opportunity to shop at a WalMart equivalent–and thus to shave 50% off the retail margins they pay while shopping in the picturesque march municipal–is a real loss. True, they would miss out on their “pleasant excursion[s] to pick up some produce in Menton’s march municipal and browse the FT over an espresso in the place Clemenceau.” But if they paid less for produce and staples, they might use the money to pay for a better vacation of their own, or perhaps a dishwasher. They are more than picturesque background figures to entertain John Kay’s eye: they are people with limited incomes, but with lives and plans of their own.

Economics

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Lighthouses and public goods

In most economics textbooks, lighthouses are considered the canonical nonrival, nonexcludable goods — i.e., pure public goods. I use them as an example in my essay on the death of copyright,
Steal This Essay 1: Content Is a Pure Public Good”, arguing that content is beginning to resemble lighthouses in being nonrival and nonexcludable.

However, if lighthouses are supposed to be a public good, it’s quite confusing that a number of them in the 18th century were privately owned. Public goods are regularly used as an example of when government intervention is necessary, because private suppliers will provide too few (in the case of lighthouses) or too many (in the case of commons grazing). As a result, conservatives hate public goods and would prefer that they didn’t exist, and liberals would like to see them everywhere, making for quite the idelogical debate. (On a side note, in “Steal This Essay 3: How to Finance Content Creation”, I show government action as just one of four potential ways to fund content as a public good.)

In the case of lighthouses, Daniel Davies (quoted by Brad DeLong) makes the critical point to understand why some lighthouses can be private and why some (even if they’re privately administered), must be funded as a non-excludable public good:

Lighthouses which are built in order to guide ships into a port are not problematic in the slightest. They are a service used only by users of the port, they are paid for by the port authority, and one collects revenue for their upkeep by going round to the ship when it docks and asking for it, bundled with the rest of the services which the port fee buys you…. However… if you want a lighthouse to warn ships away from a hazard of some sort, rather than to draw them toward a port, then you do have a problem in collecting your revenue; if you’re manning the lighthouse on Eddystone Rock, then if you’re in a position to walk over to a captain to deliver your bill, he’s most likely not in a position to pay you, because he’s crashed…. “Lighthouses” don’t form a homogeneous class of capital assets.

Davies goes on to ridicule the idea that “lighthouse services” are not a public good because they were administered by a private entity:

Private lighthouse operators would not negotiate a market price for “lighthouse services” with passing ships. The King gave lighthouse operators the power to demand payment from passing ships. And “…a system under which the government of the day gives you the authority to demand a payment from every ship that enters a port, and which states that failure to recognise this authority is treason (at the time, punishable by death), does not really look to me to be very much like a free market exchange. In fact, in giving the producer of a product the authority to demand on pain of death or imprisonment that everyone in a particular market has to buy their product, would seem to me to be… government involvement…”

So, we should all (even Coase and Samuelson) be able to agree that the textbooks should be updated to say “hazard-avoidance lighthouses are pure public goods”.

Economics

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Tipping points in the news

The WSJ has an article on Sun’s victory against MSFT today that explicitly mentions “tipping”, the concept Malcolm Gladwell made popular in his book The Tipping Point:

Sun Microsystems Inc. won a huge victory Monday when a federal judge ordered archrival Microsoft Corp. to distribute Sun’s Java programming language while a private antitrust suit is pending. Sun earlier in December told Judge J. Frederick Motz that the market for software capable of supporting mobile Internet and other Web-based services was in danger of “tipping” toward Microsoft’s product, the .NET Framework.

Of course, “Tipping Point” is heading toward common usage. (Google News has 64 this month.)

However, I found the WSJ article interesting because it’s rare for such large economic value to be determined based on a popularization of theory.

Or, as Keynes said:

“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct theory. Madman in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

Economics

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It cracks me up that

It cracks me up that Grey Davis’s campaign commercial, to show that California is doing well, points out that California has gone from the 7th to 5th largest economy. This is a hilariously impressive claim for a state campaign commercial. It also looks like we’ll pass the UK this year.

Economics

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Not an oxymoron: Here is

Not an oxymoron: Here is a fascinating piece on demographics from the Economist. “Higher fertility rates and immigration produce not only a larger population but a society that is younger, more mixed ethnically and, on balance, more dynamic…. The contrast between youthful, exuberant, multi-coloured America and ageing, decrepit, inward-looking Europe goes back almost to the foundation of the United States.”

Economics

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Arnold Kling argues that “bond

Arnold Kling argues that “bond market vigilantes” may be more powerful than the Fed. This seems true, but I’m not sure that the relative influence is changing over time.

Economics

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Paul Krugman on CEO’s being

Paul Krugman on CEO’s being overpaid (note the great phrase “outrage constraint”). Jeff Bezos gave a fantastic closing speech at the PFF Aspen conference Tuesday where he pointed out that the markets are way too effective at processing information to be deceived by whether stock options are expensed or not. So, one might as well expense them. Here’s the paper Krugman refers to.

Economics

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The opposition leader on how

The opposition leader on how Mugabe is destroying their country: “Zimbabwe is now a country where everything is in short supply except misery, starvation and death.”

Economics

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The Economist talks about Africa’s

The Economist talks about Africa’s wars in a juxtaposition of the ancient and the modern:

The outlook is best in Angola, where the government has won convincingly. After years in the bush, the rebels are sick of fighting, horribly malnourished and surrendering in their thousands in the hope of a few bowls of maize porridge and a pay packet in the regular army. The government is still corrupt and incompetent, but the absence of war has allowed trade to flow once more along Angola’s potholed roads, and thousands of families divided for decades by the fighting tearfully to reunite, sometimes on what is now Angola’s most popular reality-television show.

US backing of Savimbi’s UNITA may win out slightly over our backing of Mobutu in Congo as the most corrupt, evil, horrendous dictatorship we have ever supported. Of course, you’d also need to consider Saudi Arabia, and Egypt.

Economics

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Inspiring WSJ story on automation

Inspiring WSJ story on automation improving women’s lives in rural Mali.

Not only is the peanut butter better — and Mrs. Doumbia’s selling easier — so is the quality of life in the 300 Mali villages that have the machine. Girls who were kept home to help with the domestic work from dawn to dusk are now going to school. Mothers and grandmothers who would have spent a lifetime pounding and grinding now have the free time to take literacy courses and start up small businesses, or to expand family farming plots and nurture a cash crop such as rice.
They have dubbed the durable, uncomplaining machine “the daughter-in-law who doesn’t speak.”

This is the simplest, best description I’ve ever seen on explaining why productivity improvements (which can often be socially wrenching) are the only way to improve the standard of living.

Economics

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