Category Archives: Economics

3 Blogs in 3 Minutes: Greg Mankiw’s Blog!

Who? -“Hey it’s that guy from the book!” is usually the first reaction by economics majors upon hearing the name Mankiw. Everyone else will simply say “Who?” And thats where this category steps in. Besides being “that guy from the book” Greg Mankiw is also an American macroeconomist, professor at Harvard University and the chairman of the Council of Economic Advisors during the most recent Bush administration. He is one of the most influential economists next to the likes of Paul Krugman. That’s not bad at all for “that guy from the book”, now is it?

What? -On his blog Mankiw talks about, of course, the economy. But it is not only financial crisis this, bail-out that (the old game that we never get tired of) he adresses also various subjects that we might not find in every day news like the disappearing money multiplier for instance. Other than that he wants you the reader to understand what he is writing about, therefore he takes time to explain different topics a bit more thoroughly than other macroeconomic blogs do. With all it’s frequent updates, this site is a “must bookmark” for everyone who is interested in the economy beyond rants about bankers and managers (the other old game that which we never get tired of).

My personal upshot! -This blog is why I love economics, it is passionate, sometimes funny, always witty and mostly challenging! Read this blog and you will definitely learn a little bit more about life and maybe, just maybe be able to impress and subsequently pick up hot girl at a bar with your new found knowledge. Especially if she is a hooker, because hookers are all about money – and in the end, so is the economy!

Greg Mankiw’s Blog

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Fair Trade & Free Trade

In my last post I wrote “that all of this (i.e. Fair Trade) is just a load of bullshit” this might need some additional clarification.

First of all I am not against “Fair Trade” per se. It is a (free market) way to increase the living standards of farmers and more importantly laborers. Consumers in Europe and elsewhere seem to have accepted the system; otherwise you wouldn’t find a staggering amount of Fair Trade products in supermarkets.
There clearly is a demand for social responsible consumption, regardless if one might perceive it as BoBo or not.

On Pickled Politics you find an interesting and somewhat controversial stance regarding Fair Trade (I do not happen to agree with all of the points raised).

Fairtrade arose from the coffee crisis of the 1990s. This was not a free market failure.
Governments tried to rig the market through the International Coffee Agreement and subsidized over-plantation with the encouragement of well-meaning but misguided aid agencies. The crash in prices was the inevitable result of this government intervention, but coffee prices have largely recovered since then.

Quite interesting look at the root of all these Fair Trade measures, if I had the time I would definitely love to go deeper into that particular subject.

Regarding the effects of Fair Trade, the author summarizes a study by the Adam Smith Institute, stating that pricing floors and other measures worsen the conditions for laborers because farmers are not willing to employ permanent workers. To me this argument seems a little bit far fetched since most laborers in the agrarian sector are and always have been seasonal workers, thus not permanent. He also states that Fair Trade was counterproductive to modernization of facilities, with the purchase of machines. I agree in general because NGOs that hand out the Fair Trade badges do prefer to support farms that are intensive on labor rather than capital. But especially coffee harvest suffices a great deal of man power. Experts (coffee aficionados and farmers that is) do have ambiguous views on the employment of machines for the harvest of coffee beans (according to what I’ve read so far).  They say the marginal increase in economies of scale achieved by machines would not always justify the capital expenditures. Furthermore, that is the coffee aficionado speaking, they claim that the taste would suffer.

All in all I think that coffee is a special good that has to be looked at in a different way. However one statement on Pickled Politics I do agree with wholeheartedly is the following:

Free trade is the most effective poverty reduction strategy the world has ever seen. If we really want to aid international development we should abolish barriers to trade in the rich world, and persuade the developing world to do the same.

As I often argue, peasants in third world countries do produce competitive products. Their climatic and environmental settings are beneficiary for the product. But European Trade barriers and subsidies take away their chance to prove themselves and their produce to the world. If we have had Free Trade with African or Latin American countries, the recent food crisis would not have been as severe. Furthermore increasing prices would have been beneficial to the people who produce corn and other crops. Food shortage would not have occurred and not caused the death of people.

Unfair Trade -Adam Smith Institute, 2008

FJF

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The economics of presence

Or why movie stars and singers decrease in value if they are too present in the media and why Angelina Jolie is overvalued.

Within the field of economics in general, I have two passions: One is for everything that is related to finance, the other is macroeconomics. This post, even though it might not seem obvious at first, is about the latter.

Today I want to talk about fame as a derivative. Imagine that the worth of fame would increase or decrease in relation to the demand for the underlying, the actor or singer, by the respective audience. Now imagine that when a studio hires a star, they pay a portion for the performance of the person but in fact the majority is being paid for derivative value, the actors fame. Hence the higher the demand for the actor, the bigger his fame and therefore the bigger the current market price of the actor.

If offer exists in the market and keeps on being existing than naturally there also has to be demand, the question is what do the consumers demand – the actors fame or his persona? This question is quite interesting and can be discussed on different layers; this blog author however believes that there is no demand for the persona but in fact only for the public image of the actor represented in his fame. Every consumer has a certain demand for other peoples fame but more importantly every consumer has a demand for the fame of a specific person (e.g. fandom). The consumption of fame can happen through various medias, it is not mandatory that fame is consumed through the key media of the famous person (for an actor – movies; for a singer – music). Now let us come to my controversial theory:

The more an actor will appear in the media for instance due to gossip that surrounds him or her, the higher will be the extent the consumer will be exposed to the actors or singers fame (his public image). That will result in a saturation of consumers demand for the celebrity, decrease of the marginal value of another unit of output of the actor which will inevitably lead to an unwillingness to spend 9 € for a movie ticket to consume the actor once more. Consumption of an actor, or rather his fame, doesn’t necessarily have to happen through movies, the more he is present in every day medias such as the internet or news, the stronger the shift in consumption from movies to the mentioned media, the weaker the sales for a movie. Why should you pay to see an actor in a movie if you can also consume him on the news, or gossip pages on the web?

Examples? Jennifer Lopez and Ben Affleck – during their relationship a media shift happened from their core businesses, music and acting, to gossip pages and news coverage. A result was that the need for both of them was saturated. Their careers have yet to recover. Other examples: Tom Cruise and very soon Angelina Jolie too (however her value has now become a derivative of Brad Pitts value and Brad Pitt is not going anywhere in the near future), David Beckham, Collin Farrell.

More to come very soon.

FJF

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German ridicule for UK policies

I found this article on the BBC website.

 

 

‘Debt generation’

Criticising the UK government’s decision to cut VAT from 17.5% to 15%, Mr Steinbruck questioned how effective this will be.

“Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?” he said.

“All this will do is raise Britain’s debt to a level that will take a whole generation to work off.”

Saying the UK government was now “tossing around billions”, Mr Steinbruck questioned why Britain was now closely following the high public spending model put forward by 20th Century economist John Maynard Keynes.

“The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking,” he said.

“When I ask about the origins of the [financial] crisis, economists I respect tell me it is the credit-financed growth of recent years and decades.

“Isn’t this the same mistake everyone is suddenly making again, under all the public pressure?”

 

I think Mr. Steinbrück is making  some very good points here. First of all the Brits departure from their lassez faire, deregulating approach (that I generally approve of) to a heavy state intervention (that I heavily disapprove of) is ridiculous.  Secondly this kind of deficit spending is quite comparable to what happened in Britain over the last few years: You got one credit card in order to pay off the momentary debt, whereas you don’t realize that by doing so you accumulate an even bigger amount of debt that you have to pay off later. This principle works of course until there is no more credit card company willing to hand out new debt to you.

Britain didn’t really use its period of solid growth to re balance their budget – admittedly it is quite hard to get in balance if all your growth stems from encumberance in the first place.

My two cents : I am just a small timer in the big economist game, but I know exactly what is going to happen because I’ve been there, done that: You are partying and drinking like a sailor on shore leave and feel the effects of your excessive alcohol consumption the next morning. Because that nasty hangover stings like a bitch you have another drink, since more alcohol will ease the pain. However you are in for a surprise the same night, when you realize that the hangover has come back and this time it brought friends! We’re in for some happy-go-lucky times.

You see what I am getting at? Tossing around big bucks right now will just strain the coming generation (in other words: us!) later.

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