Friday, May 31, 2013

Number of the Week: Total World Debt Load at 313% of GDP

$223.3 trillion: The total indebtedness of the world, including all parts of the public and private sectors, amounting to 313% of global gross domestic product. Advanced economies tend to draw attention for their debt at the government and household levels. But emerging markets are gathering debt at an increasing pace to drive their economic development.

Wednesday, May 29, 2013

David Warsh on Krugman

This is a very insightful column by an economist journalist who attempts to report in a manner of thoughtful integrity, a characteristic clearly lacking in Krugman. Strongly recommended to understand and contextualize Krugman.

The current dust-up between Paul Krugman and the “austerians,” in which the Princeton University economist, a columnist for The New York Times, cast Carmen Reinhart and Kenneth Rogoff, both of Harvard University, to play the villain opposite himself, is reminiscent of an earlier episode in the same drama. . . .

I have known Krugman for a long time; I admire him. I share many of his convictions. I would even say that we are friends. His career as a journalist, like his career as an economist, has been studded with brilliant coups.

But as in the Little Rock case, he lacks a governor; or, in this situation, even an editor. The earlier episode ensured that Krugman would never again serve in government. (He had done a turn the CEA as a junior staffer under Martin Feldstein in the early 1980s.) This one surely cinches the case that he should never win a Pulitzer Prize. The habitual thumb on the scale has become contempt for the balance itself.

Tuesday, May 28, 2013

Krugman uncivil

This falls under the department of - duh?

I have long wondered about the transformation of Krugman from a nobel worthy scholar to a pundit of the ilk of Brad deLong. There is really nothing wrong with the Rushs, Rachels and Seans of the world. But it seems to me there are plenty of these, a surplus if you will of low brow, cheap shot, non intellectual loud mouths. Krugman has a comparative advantage in economic science, as a pundit he does provide the appearance of intellectual credibility to the left, but I still shake my head, not only at this most recent example, but at a long line of blog and op eds.

I recently attended the Phoenix Comicon with my son. I was reminded of Krugman often as I was subjected to grotesque, inappropriate, self centered costuming and behavior to really no positive end, other that a self congratulatory egotism.

SAN FRANCISCO (MarketWatch) — Harvard academics Carmen Reinhart and Kenneth Rogoff have accused fellow economist Paul Krugman of Princeton of ‘uncivil behavior’ in his criticisms of their work related to the debate over debt and austerity.

Reinhart and Rogoff are known for scholarly work that sought to highlight the negative effects of too much debt. Krugman, who is also a columnist for the New York Times, has been critical of their positions which are seen as endorsing controversial pro-austerity policies.

But Reinhart and Rogoff argue that some Krugman’s counterarguments have been unfair.

“We admire your past scholarly work, which influences us to this day,” a Saturday letter posted on Reinhart’s website said. “So it has been with deep disappointment that we have experienced your spectacularly uncivil behavior the past few weeks.”

The Harvard economists also wrote, “Your characterization of our work and of our policy impact is selective and shallow. It is deeply misleading about where we stand on the issues.”

Monday, May 27, 2013

Phoenix Comicon

Attended Phoenix Comicon with my son.

While this is not my genre, I did enjoy myself. Among the many activities during Comicon, I heard the author Adam Rex speak. Rex grew up in Phoenix and lives in Tucson. My brother in law gave Smekday to my daughter as a gift and what a great gift. I was impressed with the thoughtful, analytical and very humorous take on the process of writing and the intersection of writing with publishing. My children and wife love his work, I have The True Meaning of Smekday on my summer reading list.

To get a sense of Rex's humor and art, click 10 Reasons to Read Smekday.

The book is in development by DreamWorks for a movie to be released in 2014.

A customer review from Amazon:

I find myself wishing I had half of Adam Rex's genius with language so that I could at least come close to describing how much I loved reading this book. Tip and J.Lo are a Huck and Jim for the 21st century, and their adventures are everything adventures should be: dizzying, hilarious (truly, I laughed out loud, and I almost never laugh out loud), dazzlingly brave, and crisscrossed with every possible emotion, including sorrow and the kind of fierce, fearless, loyal love only children and renegade Boov can feel. The illustrations are marvelous, but the language is what really hooked me because the language is quirky and lovely and electric and exquisite. Right word after right word after right word until the very end. Mark Twain would be proud. Mark Twain would be jealous! Everyone, everyone should read this book.

Sunday, May 26, 2013

Adam Rex's blog - follow it.

NY Times Review of The Sleepwalkers

Looks like a great read for those interested in WW1.

The historiography of World War I is immense, more than 25,000 volumes and articles even before next year’s centenary. Still, Clark, offers new perspectives. The distinctive achievement of “The Sleepwalkers” is Clark’s single-volume survey of European history leading up to the war. That may sound dull. Quite the contrary. It is as if a light had been turned on a half-darkened stage of shadowy characters cursing among themselves without reason. He raises the curtain at 2 a.m. on June 11, 1903, 11 years before Sarajevo. We see 28 Serbian army officers shoot their way into the royal palace in Belgrade. King Alexandar and Queen Draga, betrayed and defenseless, huddle in a tiny closet where the maid irons the queen’s clothes. They are butchered, riddled with bullets, stabbed with a bayonet, hacked with an ax and partially disemboweled, their ­faces mutilated beyond recognition and the bloody half-naked remnants tossed from the royal balcony onto the grounds.

Clark argues a direct connection between the assassins of Belgrade and Sarajevo.

Saturday, May 25, 2013

Knowledge Economy Migrating to Intangible Goods and Services

This post echoes the thesis in The New Geography of Jobs.

The speech by Fisher has a great set of charts for teachers exploring globalization, knowledge and the emergent change that accelerates a diffusion of services and job opportunities in the service sector.

(p. 67) Our present economic migration from a material-based industry to a knowledge economy of intangible goods (such as software, design, and media products) is just the latest in a steady move toward the immaterial. (Not that material processing has let up, just that intangible processing is now more economically valuable.) Richard Fisher, president of the Federal Reserve Bank of Dallas, says, "Data from nearly all parts of the world show us that consumers tend to spend relatively less on goods and more on services as their incomes rise. . . . Once people have met their basic needs, they tend to want medical care, transportation and communication, information, recreation, entertainment, financial and legal advice, and the like." The disembodiment of value (more value, less mass) is a steady trend in the technium. In six years the average weight per dollar of U.S. exports (the most valuable things the U.S. produces) (p. 68) dropped by half. Today, 40 percent of U.S. exports are services (intangibles) rather than manufactured goods (atoms). We are steadily substituting intangible design, flexibility, innovation, and smartness for rigid, heavy atoms. In a very real sense our entry into a service- and idea-based economy is a continuation of a trend that began at the big bang.


Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

(Note: ellipsis in original; a graph is omitted that appears in the middle of the paragraph quoted above.)

Posted by Art Diamond on May 12, 2013

Friday, May 24, 2013

From the Forbes review of The New Geography of Jobs

The productive, vital few in the U.S. have put manufacturing in their proverbial rearview mirror, and Moretti chronicles this positive economic evolution. As he so effectively points out with Apple Inc.’s iPhone, the assembly of it (in Shenzhen) is the easy, low-margin aspect of the production process, and as such, “can be done anywhere in the world.” The real money is in the iPhone’s design, that takes place at Apple’s headquarters in Cupertino, but with regard to the innovative phone’s production, American “hands” happily have no role. As Moretti exults, “when it [the iPhone] reaches the American consumer, only one American worker has physically touched the final product; the UPS delivery guy.” Brilliant, and in describing the process Moretti channels Henry Hazlitt who reminded readers that we can only do so much given the limits of a 24-hour day, and because we’re limited, it’s best to farm out low-margin work so that we can paid for pursuing that which the markets value.

Thursday, May 23, 2013

The Chronic Crisis That Is The Euro

Nice blog post on the EURO

Lars Seier Christensen, the co-chief executive of Saxo Bank, thinks it's only a matter of time before the euro passes into history as another failed experiment in the dark art of monetary machinations."It is the renewed reality for traders and investors," he advised at a Bloomberg conference last week in London. "The euro is a doomed currency and a lot of people knew that already when it was introduced. Rationality needs to return to the Eurozone. If it doesn't, recession will turn into depression."

Wednesday, May 22, 2013

Arnold Kling from EconLog - The New Geography of Jobs and The Righteous Mind

My review can be summed up as:


In a very competitive 2012 book market, this vaults to number two on my list (The Righteous Mind is still number one). Without referring to Charles Murray, Moretti blows Coming Apart totally out of the water, replacing Murray's moralistic sociology with solid economics.

I have written some long posts about books, but I could not possibly cover this book in a blog post. I almost don't know where to start. Excerpts and comments below the fold. By the way, there are some flaws, in my view.

Also , Bryan should be worried. Moretti comes down very hard in favor of the benefits of education, notably college education, and those of us who are on the skeptical side of that debate will have to pay attention to his analysis.

Also, the way he goes about illustrating his points is captivating. He takes on Richard Florida's "cultural creatives" theory by describing Berlin, where the culture is avant-garde but the economy does not produce enough exports to sustain itself (it gets by on tourism and government transfers). Moretti describes the change in job structure through the lens of a Philip Roth novel, and this approach works well.

Moretti weaves together many important phenomena--economic growth, education, inequality, and trade. I have not seen any advance hype for it. As far as I am concerned, it deserves plenty. Definitely read it.

Tuesday, May 21, 2013

An excerpt of The New Geography of Jobs from Slate

This article is an excerpt from "The New Geography of Jobs," available May 22 from Houghton Mifflin Harcourt.

Menlo Park is a lively community in the heart of Silicon Valley, just minutes from Stanford University’s manicured campus and many of the Valley’s most dynamic high-tech companies. Surrounded by some of the wealthiest zip codes in California, its streets are lined with an eclectic mix of midcentury ranch houses side by side with newly built mini-mansions and low-rise apartment buildings. In 1969, David Breedlove was a young engineer with a beautiful wife and a house in Menlo Park. They were expecting their first child. Breedlove liked his job and had even turned down an offer from Hewlett-Packard, the iconic high-tech giant in the Valley. Nevertheless, he was considering leaving Menlo Park to move to a medium-sized town called Visalia. About a three-hour drive from Menlo Park, Visalia sits on a flat, dry plain in the heart of the agricultural San Joaquin Valley. Its residential neighborhoods have the typical feel of many Southern California communities, with wide streets lined with one-story houses, lawns with shrubs and palm trees, and the occasional backyard pool. It’s hot in the summer, with a typical maximum temperature in July of ninety-four degrees, and cold in the winter.

Breedlove liked the idea of moving to a more rural community with less pollution, a shorter commute, and safer schools. Menlo Park, like many urban areas at the time, did not seem to be heading in the right direction. In the end, Breedlove quit his job, sold the Silicon Valley house, packed, and moved the family to Visalia. He was not the only one. Many well-educated professionals at the time were leaving cities and moving to smaller communities because they thought those communities were better places to raise families. But things did not turn out exactly as they expected.

. . .

A second reason that the rise of innovation matters to all of us has to do with the almost magical economics of job creation. Innovative industries bring “good jobs” and high salaries to the communities where they cluster, and their impact on the local economy is much deeper than their direct effect. Attracting a scientist or a software engineer to a city triggers a multiplier effect, increasing employment and salaries for those who provide local services. In essence, from the point of view of a city, a high-tech job is more than a job. Indeed, my research shows that for each new high-tech job in a city, five additional jobs are ultimately created outside of the high-tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones (waiters, hairdressers, carpenters). For each new software designer hired at Twitter in San Francisco, there are five new job openings for baristas, personal trainers, doctors, and taxi drivers in the community. While innovation will never be responsible for the majority of jobs in the United States, it has a disproportionate effect on the economy of American communities. Most sectors have a multiplier effect, but the innovation sector has the largest multiplier of all: about three times larger than that of manufacturing.

Excerpted from The New Geography of Jobs, by Enrico Moretti. Copyright © 2012 by Enrico Moretti. Reprinted by permission of Houghton Mifflin Harcourt Publishing Co. All rights reserved.

Enrico Moretti is a professor of economics at the University of California, Berkeley, whose research has been supported by the National Science Foundation, the National Institutes of Health and has been featured in the New York Times, the Wall Street Journal and Slate, among other publications.

Monday, May 20, 2013

Brookings on The New Geography of Jobs

Jonathan Rothwell

Regional Inequality and ‘The New Geography of Jobs’

What explains the wide range of economic growth and prosperity across U.S. regions, and why is it so hard for struggling metro areas to reverse multi-decade trends? These are the questions that urban economist Enrico Moretti addresses in The New Geography of Jobs. In his vision, innovative workers and companies create prosperity that flows broadly, but these gains are mostly metropolitan in scale, meaning that geography substantially determines economic vitality. To start, the book offers a hopeful interpretation of technological change and globalization. Moretti argues that moving low-skilled jobs out of the United States has allowed tech companies to increase productivity and expand employment at home for high-skilled workers, while lowering prices for American consumers. Unless they lose their job as a result, low-income consumers benefit disproportionately because they spend a higher share of their incomes on cheap imported goods.

Sunday, May 19, 2013

Another insight into The New Geography of Jobs

If there’s one current book I’d recommend to leaders in American cities today, it’s Enrico Moretti’s The New Geography of Jobs. It’s not without flaws. However, this book lays out a readable and compelling vision of the innovation economy in the 21st century and what it means to America’s cities. And it should accomplish what is desperately needed in many places, namely lighting a fire under people’s asses to realize that they and their city are likely in a fight for their very economic survival.

Moretti lays out what has happened in America over the past 30-40 years. It’s a trend he labels the “Great Divergence” that is illustrated by the quote at the top of this piece.

Saturday, May 18, 2013

Nolan Chart and survey

I was not familiar with the Nolan Chart:

The Nolan Chart is a political view assessment diagram created by the American politician, David Nolan. The chart divides human political opinions into two vectors – economic opinion and personal opinion – to produce a type of Cartesian chart. The chart illustrates the libertarian view of economic and personal freedom. It expands the "left-right" line which attempted to measure politics along a one-dimensional line into a graph with two dimensions: degrees of economic and social freedom.

Take the survey. I took the quiz and, while an acknowledged simple instrument, seemed to accurately reflect my view of personal and economic freedom and the role of the government.

Friday, May 17, 2013

Reinhart and Rogoff, in Context

Reinhart and Rogoff, in Context
The list of genuine heroes of the financial crisis of 2007-08 is a short one, as opposed to the roll of pretenders, which is as long as my arm. High on the former are Carmen Reinhart, of Harvard’s Kennedy School of Government, and Kenneth Rogoff, of the university’s economics department. The recent controversy about an error in their arithmetic has kicked up a cloud of dust, but, when that dust has settled, will have done little to damage their standing.

Thursday, May 16, 2013

Nate Silver: What Big Data can't predict

I blogged earlier on Silver's book - a wonderful candidate for ASET book club. The writing is crisp (the book short) and who knew an discussion of statistics could be fascinating.

This recent Fortune interview gives a small indication of Silver's approach:

Are there any questions out there that can't be answered using data and analytics?

So I think it all exists along a spectrum. It's important to know, too, that there's a difference between how good we are relative to our potential and how intrinsically predictable something might be. So for example if you look at baseball where analytics have come an awful long way, well it's still the case that the best baseball teams only win two-thirds of their games. The best hitters only get on base about 40% of the time. So it's still intrinsically unpredictable in a sense, but we have a good way of measuring and knowing what we know and what we don't know.

But there are a lot of fields where analytics have not come very far. I discuss earthquake forecasting in my book [] for instance, where people have been trying for centuries. We know something -- there are more earthquakes here in California than in New Jersey -- but the ability to anticipate a particular earthquake with any precision at a particular moment in time has not gone very well at all. Even economics -- when we try to do long-term economic forecasting, it has been pretty poor for the most part.

Wednesday, May 15, 2013

1993 v 2013 - or productivity through innovation

Ritholtz makes a great point in this post. His blog is usually outstanding.

1993: Apple Newton MessagePad, 100, JVC Video Camcorder, Apple PowerBook 160, Motorola DynaTAC cell phone, Polaroid OneStep, Sony Sports Walkman cassette player, pager and a digital watch.

2013: iPhone

Tuesday, May 14, 2013

Heritage Assesses the Ever-Expanding Ever-Centralizing Federal Government Sector

In a graphically interesting discussion of the April employment situation release, James Sherk and Salim Furth write:

State and local governments avoided the massive job losses of 2008 and 2009 that affected the private sector—these governments even grew slightly during the recession. But they have been gradually downsizing ever since. The federal government, by contrast, has expanded rapidly since the recession began. Federal employment, excluding the U.S. Postal Service,[2] peaked in 2011 at 13 percent above 2008 levels. At the same time, the private sector was still mired in the slow recovery, 5.5 percent below 2008 levels. Since 2011, federal expansion has stopped, and a fifth of the recession-era expansion has been reversed.

However, most of the federal employment expansion that took place from 2008 to 2011 remains in place. Despite protestations that the additional employment associated with the stimulus would be temporary, federal employment remains as high as it was three years ago and 10 percent higher than it was before the recession. By contrast, private, state, and local employment are 2 percent to 3 percent below pre-recession levels.

Monday, May 13, 2013

Alternatives to the War on Drugs

Gary Becker writes:

The 40 year-old American “war on drugs” has been a colossal failure. No progress in dealing with drugs can be expected until that basic truth is recognized. Every conceivable approach has been tried to help the war succeed, such as long prison terms for persons convicted of selling or using drugs, trying to prevent drugs from entering the US from Mexico and other countries, and confiscating huge quantities of drugs (remember The French Connection?). At some point all wars that fail are terminated, and alternative approaches explored.

The two main alternatives to the war on drugs are decriminalization and legalization of drugs. Decriminalizing drugs means that using drugs would no longer be a criminal activity, while trafficking in drugs would remain a crime. Legalization of drugs means that trafficking in drugs as well as using drugs would not be a crime.

I concur completely.

Sunday, May 12, 2013

Regulation through Competition

Regulation through Competition

Cafe Hayek again does a nice job of pointing out an important and, to far too many, a non obvious point.

Saturday, May 11, 2013

From, yet another review of The New Geography of Jobs

What I find so interesting and important is Moretti's finding that innovative high wage jobs create opportunities for others.

His work shows that for every new high wage job created in an area’s exporting industries, five additional new jobs are created in that metro area - three of which are for workers who have not attended college.

This multiplier effect happens because these high wage earners spend their money on local goods and services - things like restaurants, movies, nannies and others providing personal services.

Click below to read the full review.

Friday, May 10, 2013

Amazon review of The New Geography of Jobs

From a rising young economist, an examination of innovation and success, and where to find them in America.

An unprecedented redistribution of jobs, population, and wealth is under way in America, and it is likely to accelerate in the years to come. America’s new economic map shows growing differences, not just between people but especially between communities. In this important and persuasive book, U.C. Berkeley economist Enrico Moretti provides a fresh perspective on the tectonic shifts that are reshaping America’s labor market—from globalization and income inequality to immigration and technological progress—and how these shifts are affecting our communities. Drawing on a wealth of stimulating new studies, Moretti uncovers what smart policies may be appropriate to address the social challenges that are arising.

We’re used to thinking of the United States in dichotomous terms: red versus blue, black versus white, haves versus have-nots. But today there are three Americas. At one extreme are the brain hubs—cities like San Francisco, Boston, Austin, and Durham—with a well-educated labor force and a strong innovation sector. Their workers are among the most productive, creative, and best paid on the planet. At the other extreme are cities once dominated by traditional manufacturing, which are declining rapidly, losing jobs and residents. In the middle are a number of cities that could go either way. For the past thirty years, the three Americas have been growing apart at an accelerating rate. This divergence is one the most important recent developments in the United States and is causing growing geographic disparities is all other aspects of our lives, from health and longevity to family stability and political engagement.

But the winners and losers aren’t necessarily who you’d expect. Moretti’s groundbreaking research shows that you don’t have to be a scientist or an engineer to thrive in one of these brain hubs. Among the beneficiaries are the workers who support the "idea-creators"—the carpenters, hair stylists, personal trainers, lawyers, doctors, teachers and the like. In fact, Moretti has shown that for every new innovation job in a city, five additional non-innovation jobs are created, and those workers earn higher salaries than their counterparts in other cities. It wasn’t supposed to be this way. As the global economy shifted from manufacturing to innovation, geography was supposed to matter less. But the pundits were wrong. A new map is being drawn—the inevitable result of deep-seated but rarely discussed economic forces. These trends are reshaping the very fabric of our society. Dealing with this split—supporting growth in the hubs while arresting the decline elsewhere—will be the challenge of the century, and The New Geography of Jobs lights the way.

Thursday, May 9, 2013

Great review of The New Geography of Jobs

From Forbes

Enrico Moretti’s The New Geography of Jobs makes the essential case in support of individual mobility, and for doing so is easily the most important read of 2012. The Cal-Berkeley economic professor’s book is extremely necessary for politicians and commentators alike, and it is despite some conclusions from the author that make very little sense. But before addressing some of the book’s wrongs, it’s worthwhile to address just why it’s so worthwhile.

First up is the worship within the political and economic classes of manufacturing jobs. In a book that artfully slays myriad myths that cloud the economic debate, Moretti makes the very important point that to “remain prosperous, a society needs to keep climbing the innovation ladder.”


In clear and convincing prose, Moretti takes on the myths of protectionism, subsidy and the resulting rent seeking as destructive forces. As I said yesterday, this book evokes The Triumph of the City and the Race between Education and Technology and confronts Coming Apart. I found this an engaging and quick read and a nice extension of our ASET discussions of the three books above. I hope we consider this book for a future book club.

Wednesday, May 8, 2013

The New Geography of Jobs

I just started The New Geography of Jobs and this is a must read for ASET book club. The beginning evokes Ed Glaeser's The Triumph of the City, our April book club selection, the conclusion directly references Goldin and Katz's The Race Between Education and Technology (our less than successful February book club selection) and in between, Paul Krugman is cited - and I bet everyone in our ASET book club would be surprised to find themselves agreeing with Krugman!

The entire book also calls to mind Charles Murray and Coming Apart, a 2012 book club selection.

This crisply written, 250 page non technical book looks at innovation, the tradeable and non tradeable sectors of the economy, immigration and education.

If not an ASET book club section, I would place this on anyone's summer reading list.

About the Author

Enrico Moretti is a professor of economics at the University of California, Berkeley, whose research has been supported by the National Science Foundation, the National Institutes of Health and has been featured in the New York Times, the Wall Street Journal, and Slate, among other publications.

"A persuasive look at why some U.S. cities have prospered in recent decades while others have declined."—Bloomberg Businessweek

“Wow. . . Without referring to Charles Murray, Moretti blows Coming Apart totally out of the water, replacing Murray's moralistic sociology with solid economics.” —Arnold Kling, EconLog

“As Enrico Moretti documents in compelling detail in a recently released book, The New Geography of Jobs, even if we don’t assemble iPhones or sneakers in America, we supply their designs to those who do. And we do still make things—things like precision scientific instruments and jetliners. But the way we’re producing them has changed as well: Even in sectors that have expanded production over the last decade, there are fewer jobs to be had— the so-called productivity paradox. The reason? Production is increasingly automated, requiring more computers and fewer human beings. All this adds up to an economy that generates just as much income, but with profits flowing into far fewer pockets than they did in the previous century. Moretti suggests that the prognosis for the average American worker need not be so gloomy if, as he predicts, America continues to thrive as a hub of knowledge generation and innovation. While the idea creators—those who design iPhones and develop new drugs—will continue to be the drivers of prosperity, more than a few crumbs may fall to the workers who support them. For example, Moretti estimates that Microsoft alone is responsible for adding 120,000 low-skill jobs to the Seattle area, where the company is based. This is because of the support workers required to style the hair, cut the grass, and yes, build the houses, of all those Microsoft engineers and computer scientists. And they earn more doing it—a barber in San Francisco earns about 40 percent more than his counterpart in Detroit or Riverside, Calif. So one way of boosting incomes of the bottom quintile would be to provide incentives for them to pick up and move from the rust belt to innovation hubs like Austin, San Francisco, and Boston.” —Ray Fisman, Slate

“Enrico Moretti’s, The New Geography of Jobs has been exceptionally well received by many of the economic development literati. Some commentators have described New Geography as the best economic development book of 2012. And if you don’t read New Geography, you would also miss reading the best, most readable explanation and defense of innovation, knowledge-based economics and their effects on the location of jobs in the United States. There is a lot going on in New Geography.” —Journal of Applied Research in Economic Development

Monday, May 6, 2013

More on Bangladeash, Rivoli and institutions

Yesterday I referenced Petro's book, The Travels of a T Shirt. She makes a very key point in this Time article:

Many North American and European human-rights groups and labor activists claim that the Western companies who send their production overseas should be held responsible for this disaster, as their relentless demand for cheaper and faster fashion squeezes powerless Asian suppliers. In this scenario, Western consumers also bear some responsibility by buying the garments that support these poor labor conditions.

But Western sourcing practices are not the main factor here. While Western activists protested outside the Gap headquarters in San Francisco last week (Gap’s spokesperson says the company did not have ties to the collapsed factories), in Bangladesh thousands of garment workers also took to the streets and were met by police spraying rubber bullets and teargas. These Bangladeshi protesters were not directing their outrage at the Western brands or cost-conscious consumers, but at their own failed network of governance.

Thus the importance and challenge of institutions, the thesis of Douglass North's difficult but important book - Understanding the Process of Economic Change.

Sunday, May 5, 2013

Pakistan’s Tipping Point

My son asked me the other night about the tragedy in Bangladesh and the "responsibility" of Wal Mart and other multinationals that had offshored to this low cost country. His question took me back to Douglass North and the significance of institutions in development and transition.

An accessible analysis of this question is embedded in The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade.

"Globalization is a hot-button topic that generates strong feelings along with images of boarded-up, independent businesses in America and exploitative sweatshops overseas. But what exactly is it? In The Travels of a T-Shirt in the Global Economy, Georgetown University business professor Pietra Rivoli chronicles the round-the-world odyssey of a T-shirt, from Texas cotton-growers to an African used-clothing bazaar, to reveal how the planetary economy really works. Along the way, we see how entrepreneurial U.S. farmers team with government-sponsored researchers--and take advantage of subsidies and trade barriers--to dominate world cotton production. Migrant workers from Chinese family farms tell why they regard low-wage jobs in Shanghai sewing factories as golden opportunities. And only in that African used-clothing bazaar do we encounter a truly free market where entrepreneurs--perhaps including some future tycoons of the 21st century--utterly rely on pure business skills and instinct. Whether you feel hurt or helped by globalization, you'll certainly understand it better after reading this fascinating account." (Entrepreneur Magazine, May 2005

"T-shirts may not have changed the world; but this story is a useful account of how free trade and protection certainly have." (Financial Times) "The Travels of a T-Shirt in the Global Economy is an excellent piece of work - a thorough, lucid and (best of all) honest examination of how politics and economics intertwine in the real world." (The Philadelphia Inquirer)

"Her nuanced and fair-minded approach is all the more powerful for eschewing the pretense of ideological absolutism, and her telescopic look through a single industry has all the makings of an economics classic." (New York Times)

“…Succeeds admirably… T-shirts may not have changed the world, but this story is a useful account of how free trade and protectionism certainly have.” (Financial Times)

“…a fascinating exploration of the history, economics and politics of world trade…The Travels of a T-Shirt is a thought-provoking yarn that exhibits the ugly, the bad and the good of globalization, and points to the unintended positive consequences of the clash between the proponents and opponents of free trade.” (Dallas-Fort Worth Star-Telegram)

Saturday, May 4, 2013

Friday, May 3, 2013

Galbraith on Inequality

While I don't often agree with this pundit, I think more thoughtful attention to the issue of income inequality would be useful.  Students hear about this in other social science courses - sociology and history and a considered application of the costs and benefits of income inequality might well round out the evolving set of public policy choices that have emerged to address inequality.
Galbraith on Inequality | EconTalk | Library of Economics and Liberty

Thursday, May 2, 2013

The Case Against Grades