While crossing Bali’s central mountain range, we stopped at a produce market where local fruits, vegetables, coffee and nuts were brought in from the surrounding hills to be sold. As I strolled the market snapping pictures, I caught out of the corner of my eye a flash of a familiar shade of red. Upon closer inspection, I was surprised to find a “Blue Chelan” apple from Washington state (my home state!).

Discussion Questions:

1. How did a ripe apple grown 9,000 miles away in the United States end up fresh and shiny in a market 1500 meters up in the mountains of Bali?
2. The apple cost 2,000 rupiah (that’s about 22 cents). Does this represent the true cost of the Washington apple? Describe the environmental implications of that apple appearing in the mountains of Bali.

More thoughts on Bali’s economy to come

In a later post, I hope to tackle some of the other economic issues I casually observe in Bali. These include:

• Sustainable food production and overfishing on Bali’s north coast.
• Knock offs vs authentic luxury goods
• Diminishing marginal utility and the price of ice cream on Kuta Beach

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One of the joys of summer for teachers is that we get to forget about stacks of student work and read whatever we want. One of the books I read during my Bali trip was one about food called The Omnivore’s Dilemma, by Michael Pollan (the other was the classic and utterly cheesy mystery in which a Harvard professor uses economic theory to solve crimes, Murder at the Margins).

While The Omnivore’s Dilemma warrants several blog posts itself, one section stood out to me as relevant to what I was seeing in Bali firsthand. In discussing the different food chains humans participate in, Pollan discusses a concept called “artisinal economics”, which he describes as a system in which “the competitive strategy is based on selling something special rather than being the least-cost producer of a commodity.” Pollan goes on to point out that “this artisinal model works only so long as it doesn’t attempt to imitate the industrial model in any respect. It must not try to replace
skilled labor with capital; it shouldn’t invest capital to reach national markets but rather should focus on local markets, relying on reputation and word of mouth rather than on advertising…”

Touring around Bali, one cannot help but be awed by the seemingly endless selection of arts and crafts available not only to tourists but to Balinese for their houses, businesses and temples. Around the town of Ubud (famous as a center of artisanship),wood and stone carving workshops and painters studios stretch for kilometers in which truly talented artists can be observed creating unique (and some not so unique) pieces of traditional art (and some not so traditional, such as the Thai Buddhist monk paintings I’ve seen on sale in places like Bangkok and Phuket). It would seem that a large percentage of the island’s population is involved in the art business, and although I did see some African patterns such as giraffes and of course the Thai monk paintings, the majority of the art appeared to be in traditional Balinese styles and for the local market.

The market for art and crafts seems to fit Pollan’s description of an “artisanal economy” where quality and individuality are the goal of the economy’s output, as opposed to maximizing output and minimizing costs. To see young men and women working with their own hands and tools that haven’t changed in centuries was refreshing, representing a hope that I and I would guess many of you share regarding the desire to hold on to something from our society’s past even as the modern economy pushes us ever forward into a world of homogenization, increased output, increased mechanization and inevitably less and less beauty and quality defining and differentiating unique cultures from one another.

Discussion Questions:

1. Why do firms in developed and developing countries tend to replace workers with machines as their economies grow?
2. If the craftsmanship and artisanship of Bali belongs to an “artisanal economy”, what kind of economy do the factories, superhighways and giant container ships of the rich world belong to?
3. Do you think the artistic, labor intensive industries that employ so many Balinese will survive in the modern economy, or can artists be replaced by machines as easily as seamstresses and auto workers were in
   the 20th century?
4. Based on Pollan’s description of “artisinal economics” quoted above, what chances do you think exist that such an economy will reemerge and thrive sometime in the 21st century? What would it take for such an economy to thrive today?

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For six of our 16 days, my wife Liz and our friend Leah rented a jeep and circumnavigated the island. Our first stop was for two days of scuba diving in the northeast region of Ahmed. As we drove along the seven or so beaches near Ahmed, we observed there were around ten dive operators offering packages for the local dive spots (including one of Asia’s most famous dives, the WWII-era USS Liberty wreck). Based on our Lonely Planet recommendation, we settled on Eco-Dive, where we paid $60 a day for two dives and all our gear rental. We felt good about this rate and agreed that $60 was a fair and competitive price for a day of diving.

Our next stop, Pemuteran, a remote and relatively undeveloped area on the northwest coast just across the straits from Java, is also known for its great diving. Our first morning in Pemuteran, my wife and I strolled along the beach and found that there were only three dive operators to choose from! And guess what, they all charged between $95-$105 for a two-dive day with gear included! That’s around 60% more than the operators in Ahmed charged! In the end, we decided to do only one day of diving in Pemuteran, and elected to spend our second day there reading by the pool.

Discussion Questions:

1. What was the difference between the scuba diving markets in Ahmed and Pemuteran? Which market was more competitive?
2. What allowed operators in Pemuteran to charge 60% more than the operators in Ahmed? What kind of market structure best describes the diving market in Pemuteran?
3. What do you think is keeping one of the three dive operators in Pemuteran from lowering their price to, say, $60 for a day of diving? How would the other two operators respond? Would this be good or bad for the dive operators of Pemuteran? Would it be good or bad for scuba divers?
4. Assuming that the cost of opening a dive operation was relatively low, and there were no government or other barriers to doing so in Pemuteran, what do you suspect will happen in the Scuba diving market as the tourism industry continues to develop in the remote town of Pemuteran? Explain.

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IF you’ve visited this blog in the last two weeks, you’ve probably seen the picture below of a beautiful sunset, a distant island and a wispy palm. Turns out I stayed two nights on the beach that picture was taken from, Ahmed in Bali’s remote northwest corner! What a beautiful island Bali is! Unlike many touristy places in Southeast Asia such as Phuket and Samui in Thailand, Bali is an island paradise that has managed to develop a thriving tourist industry while simultaneously maintaining its distinct Hindu culture and traditions that awe visitors and help them understand why it’s called the “island of the gods”. Not only do most Balinese outside the one or two major cities still live in the traditional style houses, but they actively practice their unique form of Hinduism (imported from India via Java in the 11th century), maintain the traditional forms of dance and religious ritual, and sustain themselves by practicing any number of artistic trades rooted in the island’s rich and colorful history. Indeed, in most villages we passed through, it was hard to tell which buildings were temples and which were houses. As much of Indonesia and the rest of Asia have rushed head-on into the age of globalization (often meaning westernization), Bali has thankfully held on to and even fostered one very precious and all too rare commodity: its own history.

Certainly after a year in Shanghai, where the closest thing to religion among urban Chinese is the pursuit of wealth, a couple of weeks in the rich spiritual heart of an ancient Hindu island culture was just what I needed to remind myself what was important in life. But alas, once an economist always an economist, and even with a thousand years of rich cultural heritage to turn my attention from school and economics, I could not help but notice the intricacies of Bali’s economy and how tourism and globalization have affected this remote island culture. My next few posts will cover casual observations made during my 16 day trip to Bali about its local economy and how it has been shaped by the global economy and tourism.

A dismal introduction I know, but my first posting will have to be about exams, since I have been almost wholly occupied with grading both AP and IB papers over the past month. While I prefer teaching (economics and math), I have to admit that I am always thrilled to have the chance to mark external tests. I open each paper expectantly—never knowing what might be inside—and it’s interesting to compare and contrast responses.

Indeed I always learn a lot while I’m grading; at the risk of boring you, may I pass on the following few points:

1. Every word in a question is significant; nothing should be ignored.
2. Keep your answers straightforward: 1.If in doubt confine yourself to the short run (unless it’s an economic growth question); otherwise you are likely to end up with a convoluted response, which could go on for ever! 2. Don’t ever contradict yourself; the examiner will think that you’re hedging your bets. It’s preferable just to pursue a consistent line of reasoning.
3. Don’t use vague terms or statements that are unsupported. Words such as “productivity”, “profits” and “efficiency” are often used glibly and inappropriately. The test taker consequently appears to be gabbling. Make sure to cite actual policy tools, not just general strategies, such as “expansionary”.
4. When drawing graphs: a) Every axis and curve must be labeled. (If in doubt put P on the vertical axis and Q on the horizontal). b) Never indulge in double shifts of demand and supply unless two events have happened. c) Clearly show the old and new equilibrium points with the use of dotted lines to the axes.

I really should have waited until next year to write the above, but by then I might have forgotten what seemed most important while marking. In the meantime I will take to heart what I have learnt from reading many student responses to AP and IB question; in particular I will try not to gabble myself while teaching.

As those of you who are teachers know, summer is a time to detach yourself from school and learning, at least for a while, to rejuvenate in a place of beauty. My wife and I are off to Bali for two and a half weeks before we head home to Seattle and Idaho for the rest of the summer. It will probably be a few weeks before my next post, so please check back towards the end of June. Have a nice summer, wherever the wind and waves happen to take you! -Jason

Cuba libre | Free exchange | Economist.com

Here’s a piece from the Economist’s blog about whether America removing its embargoes on trade with Cuba would have all that big an impact on the lives of the average Cuban.

Trade is, it goes without saying, wonderful stuff. But trade with America isn’t that marvelous. Cuba is, right now, free to trade with just about every other country in the world, yet it’s still a pit of economic misery for most of its citizens. Yes, shipping costs would be higher, stopping some trade from happening. But China is much farther from America than Cuba is from Europe; it still manages to run an enormous trade surplus with that country.

According to the CIA World Factbook, Cuba exports roughly $3 billion a year. Even assuming that the American embargo is so effective that it has slashed Cuba’s exports in half, that would give Cuba new gains from trade of only another $3 billion, or $272 for each of its 11 million citizens. (We assume for the sake of argument that Cuba is so true to the Socialist Revolution that elites will not appropriate a single extra dollar of the surplus to themselves, or to wastefully showy political projects.) It should be obvious from descriptions of Cuba that this will not be enough to lift Cubans out of the grinding poverty in which they currently live.

Trade can only make countries better off if they make something worth selling; Cuba largely doesn’t. Opening up trade with America, but not opening up the sclerotic state owned economy to internal change, would result i a little extra income on the margin, but it has no prospect of transforming the economy. Without little things like relative changes in price signals to allow inputs to flow to their highest valued uses, free movement of capital to profit opportunity, and incentives for higher quality work, trade cannot work any economic miracles.

Discussion Questions:

1. Based on what you read above, how much freedom do you think exists in Cuba’s economy? What type of economic system does Cuba have?
2. Besides free trade, what else must Cuba do to help its citizens to escape poverty?
3. Explain and discuss the following passage: “Without little things like relative changes in price signals to allow inputs to flow to their highest valued uses, free movement of capital to profit opportunity, and incentives for higher quality work, trade cannot work any economic miracles.”

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Natural gas in Wyoming | Boom and doom | Economist.com

From the latest Economist: an article about the booming natural gas industry in rural Wyoming (as if there’s such a thing as urban Wyoming) and the impact it’s having on the economy of one small town.

You’d think a booming industry offering high wages for low-skilled workers would be a godsend for a remote Western town like Pinedale, Wyoming. Think again; this article points out some of the downsides resulting from the natural gas boom since 2000, when oil shortages led to an increase in the price of gas and lots of new drilling in Wyoming, America’s least populated state.

Pinedale is at the centre of a Rocky Mountain gas boom that began in 2000 and accelerated five years later after Hurricane Katrina knocked out Gulf supplies, forcing up prices. On a mesa south of Pinedale, Wyoming’s busiest field is laced with dirt roads and pock-marked with well-heads and drilling rigs.

The influx of gas workers has increased the population of the area by 40% since 2000. The new business has meant more tax revenues for the county, “In 2001 Sublette county raised $16m in sales and other taxes. Last year it took in $53m.” What does all this mean for residents of Pinedale and the surrounding county? Higher wages and low unemployment.

Next year Pinedale’s school district will pay newly qualified teachers a base salary of $43,000—about the same as in Chicago.Teachers nonetheless earn less than rig hands, most of whom have no more than a high-school education. They are paid at least $49,000 plus overtime, according to a survey last year. The ready availability of well-paid work, albeit hard and dangerous, means that unemployment has almost disappeared (see chart). So have seasonal fluctuations. Jobs used to disappear when the snow fell. But the gas rigs now keep going through the winter.

The wage hikes enjoyed by government employees and gas workers, while good for some, means doom for local businesses not directly linked to the gas business, for whom the tight labor market makes it increasingly difficult to operate. The housing market has also experienced a shock since the gas boom, as properties away from the gas fields have barely increased or even decreased in value.

The interesting connection I see in this article to our Economics course lies in the affect of low unemployment and high wages on the business environment. See if you can identify the connection through the questions below.

Discussion Questions:

1. What led to the increased drilling for natural gas in 2000? Which determinants of demand and supply led to the changes experienced in the oil and natural gas industries?
2. What kind of labor market is the Wyoming gas industry most like, perfectly competitive or monopsonistic? How do you know?
3. Are gas companies in Wyoming wage takers or wage makers? What’s the difference?
4. If low unemployment and high wages are assumed to be good, then why does the article indicate that they are actually bad for some in Pinedale?
5. Why has “the number of retail and entertainment outfits in Sublette county” fallen “even as disposable income soared”?

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Made in China - The Atlantic Monthly

Here’s a great slide show and narrative about the manufacturing industry in the industrial city of Shenzen. After viewing the slideshow, discuss some of the questions below.

Discussion Questions:

1. What does the narrator mean when he says “Shenzhen is more or less an invented city?”
2. Why does the word “scale” come to the narrator’s mind as he explores Shenzhen? What key concept from our economics class includes the world “scale”? How does the growth of Shenzhen relate to this concept?
3. What is exported from Shenzhen to the US? What is being sent back to Shenzhen from the US? What does this suggest about the Chinese/US balance of trade? Why do you think this is happening?
4. Where do Shenzhen’s factory workers come from? Why do you think young women make up such a large percentage of factories’ workforces? Are the wages paid factory workers in Shenzhen “fair” wages? Why or why not?
5. Is manufacturing in Shenzhen labor intensive or capital intensive? What’s the difference?
6. What’s the significance of the last line about how Liam Casey, whose office overlooks the headquarters of the Shenzen communist party, has never “met anybody who was in there”. What does this say about communism in China today?

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