Trade deficit and the economy

Trade deficit and the economy
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First Published: Thu, Mar 15 2007. 11 57 PM IST
Updated: Thu, Mar 15 2007. 11 57 PM IST
Cato’s Dan Griswold amasses further evidence against the myth...that the US trade deficit is a drag on American economic growth: “In fact, data show the opposite correlation...economic growth has been more than twice as fast, on average, in years in which the current account deficit grew sharply compared to those years in which it actually declined. If trade deficits drag down growth, somebody forgot to tell the economy.”–Don Boudreaux
Abolish GDP
http://stumblingandmumbling.typepad.com
Imagine...average incomes in 3007 would be 398 million times higher than they are now. But can you imagine the average person being 398 million times happier? ...if long-run connection between GDP and well-being is weak, GDP must be a bad measure of well-being in the short run. In (his) new paper, Jeroen van den Bergh argues...measures of GDP are worse than useless, as they cause people to panic about recessions or falling behind other countries.
Perhaps we don’t need any aggregate measure of well-being at all. Say, there’s just the two of us. We’d agree to do things that make us both better off, and...not do things that’ll make us worse off. If something benefits you but harms me, we can negotiate a side-payment that either compensates you for not doing it, or compensates me for the harm... we don’t need any measure of aggregate well-being of the two of us. So, governments should focus on moving us nearer to this Coasean world. This means: clearly assigned property rights, individual power to walk away from repressive bargains; cuts in transactions costs that prevent mutually beneficial trades; and mechanisms to ensure that externalities get internalized.
–Chris Dillow
The restaurant puzzl
http://daviddfriedman.blogspot.com
A restaurant provides me with two different products: Food and a place to eat it... Yet restaurants price only the food... To see the puzzle, consider how a restaurant designed by an economist might operate. At each table a clock starts running when...the waiter shows up to take your order. When you get your bill, one of the items is table rental, proportional to the number of seats at the table and the length of time for which you used them. ...Diners who want to spend an hour and a half in conversation are free to do so, but they will pay for the privilege. Under current circumstances they are imposing a cost on the restaurant and the patrons waiting to be served and, social pressure aside, have no incentive to take account of that cost... Since the restaurant is recovering part of its cost from table rentals, the price of its food can be correspondingly lower... It is the usual argument in favour of using prices as incentives... I have, of course, oversimplified. When a restaurant is half empty, the marginal cost to it of my sitting at the table is essentially zero. So a restaurant should run its table clocks only during the hours when it expects to be operating at capacity... Yet, so far as I know, no restaurant follows what I argue is the most obvious pricing strategy, separately pricing food and table rental.
Which is the puzzle.
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First Published: Thu, Mar 15 2007. 11 57 PM IST
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