Archive for April, 2010

The Division of Labour

April 25, 2010 Leave a comment

Why is it that Henry Ford’s assembly line was able to be produce more cars in a day than any other car manufacturer at the time. The answer is to be found in the concept of division of labour and it is this that necessitates the existence of the subject of economics. However, division of labour does not function automatically and its functioning critically depends on the laws and institutions countries adopt. At our seminar next Tuesday we will examine this concept from an historical perspective and look at what barriers to division of labour exist, and continue to exist.

Don’t miss this opportunity to examine an idea which is at the foundation of the subject of economics. This free seminar is brought to you by the Auckland Economics Group.

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The Parable of the Sooty Window

April 21, 2010 Leave a comment

Here is another take on the Broken Window fallacy from Steven Horwitz, Professor of Economics at St. Lawrence University.

Steven Horwitz

The economic consequences of the volcanic ash cloud covering Europe have been the topic of much discussion in the last few days. The doom and gloom set has been totaling up the economic costs of disrupted travel and commerce and the media are reporting the various lengths to which people have gone to get where they need to go. I think they have missed the simple economics of it all. The ash cloud has been great for the economy. Let me swiftly explain.

Think of the stranded travelers in Europe who are now spending money on food and lodging that they would not have spent otherwise. What a boon to the hotel and restaurant industry at the airports and elsewhere! Think of the people like John Cleese who took a $5100 cab ride from Oslo to Brussels. What a glorious time for the taxicab industry! When is the last time cabbies got fares like that? Rental cars, trains, and even boats are rolling in the profits the last few days.

Now consider the layer of ash that is covering much of Iceland and northern Europe. What at first seems like a real mess is in fact a one-in-a-lifetime economic opportunity: think of all the jobs that will be created in cleaning up that ash! Given the double-digit rates of unemployment that affect much of Western Europe, the ash is something of a gift as it could conceivably create clean-up jobs for millions. Think of the new demand for brooms and vacuum cleaners and cleaning supplies that will be necessitated. Those folks will make nice profits and probably hire more workers as well. The volcano might be the best thing that ever happened to these industries.

Finally, to the extent that the ash cloud obliterates the sun and produces cooler and darker days, the electricity providers will benefit as might those who make blankets and sweaters. The economic benefits of the volcano are surely broad and deep!

So given all of this, I’m a bit confused as to why so many people think this ash cloud is so bad for the economy. It seems to me that it will cause increases in GDP in all of these areas. In fact, rather than looking for ways to prevent a recurrence, I think we should be encouraging more volcanic eruptions, earthquakes, hurricanes, urban riots, terrorist attacks, and window breakingbecause each and every one of them create all kinds of job and profit opportunities for different parts of the economy when we have to clean up from the mess they make.

Of course if you think that makes sense as good economics, you probably think a second stimulus package makes sense too. And you definitely need to read Bastiat.

Steven Horwitz is Charles A. Dana Professor of Economics at St. Lawrence University.

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The Visitor

April 21, 2010 Leave a comment

Saw an interesting Dvd the other day.  It was called ‘The Visitor’   Basic Story is that Richard Jenkins plays a directionless college economics professor, Walter Vale, plodding away in suburban Conneticut in the latest from the team who brought us The Station Agent. Reluctantly agreeing to stand in for a colleague at a New York City conference, Vale discovers a young couple named Tarek and Zainab have been scammed into illegally renting out his NY flat.  After initially turfing them out, he rescinds when he realizes the pair have nowhere to go.  Tarek warms to Walter and the pair form a friendship which is based in the first place on music.

So much so that Walter accompanies Tarek on one of his many drumming sessions.  However, on returning home, Tarek is stopped by the subway police and arrested under the flimsiest of reasons.  Matters are made worse when it becomes clear Tarek is an illegal immigrant and is taken to a detention centre – Walter is the only one who can visit him during his time inside – and along with Tarek’s mother, they struggle to deal with the reality of the immigration system in America.

It is often argued on economic grounds that immigration is either a good or a bad thing.  While this might not be the most most amazing movie that I have ever seen it did touch on some important economic issues that are worth thinking about.

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