The economic isolationists are winning

A new poll from NBC News/Wall Street Journal (conducted Dec. 14-17, 2007):

"Do you think the fact that the American economy has become increasingly global is good because it has opened up new markets for American products and resulted in more jobs, or bad because it has subjected American companies and employees to unfair competition and cheap labor?"

28 % of the American public said globalization is good, while 58 % said it is bad.

Note that even the pro-trade part of the question presumes a mercantilist approach to the issue. In actuality, trade is not primarily about more or fewer jobs but about allocating labor among industries toward those in which we have a comparative advantage. I doubt, however, that a more economically literate rewording of the question would have found the American public sympathetic to globalization.

REYKJAVIK - on the moon, 101, 12/30/07

Career Advice from David Brooks

NY Times columnist David Brooks writes:

One of the best pieces of career advice I ever got is: Interview three people every day. If you try to write about politics without interviewing policy makers, you�ll wind up spewing all sorts of nonsense.

Brooks was not talking about economists in particular, but this piece of wisdom can be taken as a critique of much of the economics profession. Many economists who write about policy rarely, if ever, encounter actual policymakers. Instead, they prefer to sit in the comfort of their ivory tower offices. (I know I do.)

I wonder how different the economics profession would be if economists were expected to do a year of service outside of academia or, at the very least, if university hiring committees rewarded a year of real-world experience as the equivalent of, say, a couple of academic publications. My conjecture is that the profession would be less creative but more useful.

REYKJAVIK - gus gus ultimate gig, nasa + on the street, laugavegur, 12/29/07

A Homework Problem from China

Chapter 9 of my favorite textbook presents the standard analysis of a tariff (a tax on imports) and shows that it reduces economic welfare as measured by the sum of producer surplus, consumer surplus, and tax revenue. Even though the tariff makes domestic producers better off and raises some revenue for the government, these gains are more than offset by losses to consumers, leading to a deadweight loss.

This news story suggests a good homework problem extending the analysis:

China, the world's biggest grain producer, will tax exports of wheat, corn and rice to increase domestic supply and control rising food prices. Exporters of wheat will start paying a 20 percent tax on Jan. 1, while the tax for corn and rice was set at 5 percent, the Finance Ministry said.

Draw the graph that describes the market for grain in an exporting country. Use your graph to answer the following questions.

1. How does an export tax affect domestic grain prices?
2. How does it affect the welfare of domestic consumers?
3. How does it affect the welfare of domestic producers?
4. How does it affect government revenue?
5. What happens to total welfare in China, as measured by the sum of consumer surplus, producer surplus, and tax revenue?

REYKJAVIK - the colors of the night, 12/28/07

ART BASEL MIAMI BEACH - brown & black

Krugman on Trade

Together with Larry Summers and Doug Elmendorf, I have recently become an editor of the Brookings Papers on Economic Activity. Our first conference will be held in the spring of 2008, and we have a blockbuster lineup. One of the papers is by Paul Krugman, who will be writing about trade and inequality. I was delighted to get Paul thinking about economics again, hoping the project might distract him from his compulsion to tell the world how much he hates Republicans. (In case you missed it, the answer is, A LOT.)

In today's Times, Paul gives us a hint about what his paper will be about. The column is well worth reading. He suggests that trade makes the United States richer overall but reduces the incomes of a majority of workers. In essence, he is saying that the gains from trade are concentrated at the top of the income distribution. That is certainly a theoretical possibility. The Times column, however, leaves that conclusion more as an assertion than as an established fact. Presumably, the Brookings Paper will give the numbers to back up the claim.

It seems to me that Paul is still struggling with the implications of this view. He concludes the column by saying, twice, that he is not a protectionist, but he also says that we should respect "those who are worried about trade." But what if those who are worried about trade are protectionists? Should we still respect them?

GENEVA - on the street, old town + cornavin, 12/27/07

ART BASEL MIAMI BEACH - white

Housing becomes more affordable

Source: WSJ.

LAUSANNE - le no�l des tilleuls, 12/25/07

ART BASEL MIAMI BEACH - with a touch of yellow

The Default Mortgage

My Harvard colleague Sendhil Mullainathan and his coauthors opine on how to fix the mortgage market.

ART BASEL MIAMI BEACH

These next days, I'm gonna post a selection of pictures from Art Basel that haven't been showed here yet...

What my kids got for Christmas

Comic books from the New York Fed (plus a few other things).

HAVE A SWEET CHRISTMAS!

LONDON - underage boombox, hoxton square bar and kitchen, 12/23/07