Archive for March, 2011

Mar 29 2011

Resource market case study: New York’s manhole covers forged with human sweat and blood…

New York Manhole Covers, Forged Barefoot in India – New York Times

In the revealing story above, the NYT reports on the manufacture of the New York’s thousands of manhole covers, which it turns out come primarily from a foundry in the Indian state of West Bengal. An NYT photographer discovered the Indian factory, and his photos prompted the report here:

Eight thousand miles from Manhattan, barefoot, shirtless, whip-thin men rippled with muscle were forging prosaic pieces of the urban jigsaw puzzle: manhole covers.

Seemingly impervious to the heat from the metal, the workers at one of West Bengal’s many foundries relied on strength and bare hands rather than machinery. Safety precautions were barely in evidence; just a few pairs of eye goggles were seen in use on a recent visit.

In AP Economics, we have begun learning about resource markets, where firms hire the productive resources needed to produce their output. Land, labor, and capital are all needed to produce any output; the combination of these resources a firm will use depends on several factors, including the productivity and the prices of the resources. When the price of labor is low, firms tend to use more labor and less capital. In developing countries, especially those with a large, unskilled workforce (like India), firms are likely to specialize in the production of labor-intensive products, such as the manholes found in American cities like New York.

The scene at the Indian foundry sounds like something from the Middle Ages:

The temperature outside the factory yard was more than 100 degrees on a September visit. Several feet from where the metal was being poured, the area felt like an oven, and the workers were slick with sweat.

Often, sparks flew from pots of the molten metal. In one instance they ignited a worker’s lungi, a skirtlike cloth wrap that is common men’s wear in India. He quickly, reflexively, doused the flames by rubbing the burning part of the cloth against the rest of it with his hand, then continued to cart the metal to a nearby mold.

Once the metal solidified and cooled, workers removed the manhole cover casting from the mold and then, in the last step in the production process, ground and polished the rough edges. Finally, the men stacked the covers and bolted them together for shipping.

Why are New York’s manhole covers being made over 8,000 miles away, anyway? Wouldn’t it make more sense for American cities to buy such items from firms making them right here in the United States? To understand this question, we need to consider the principle of comparative advantage, which says that a nation should specialize in the production of the products for which it has the lowest opportunity costs.

Manhole covers manufactured in India can be anywhere from 20 to 60 percent cheaper than those made in the United States, said Alfred Spada, the editor and publisher of Modern Casting magazine and the spokesman for the American Foundry Society. Workers at foundries in India are paid the equivalent of a few dollars a day, while foundry workers in the United States earn about $25 an hour.

Bengali laborers working in India’s foundries most likely face the trade off of an agrarian existence or maybe another factory job in the pre-industrial economy of the impoverished region, alternatives presenting a much low opportunity cost than American workers whose alternatives include jobs offering much higher productivity. The productivity of a worker depends on the quality and quantity of capital available, the level of training and education of the worker himself. Clearly, Indian workers have less access to capital, lower quality capital, and much less training and education than their American counterparts.

The result is that jobs that require large inputs of low-skilled labor, such as the manufacture of manhole covers, end up being “off-shored” to remote corners of South Asia. The added cost of shipping thousands of ton of iron around the world is more than made up for by the lower resource prices (thus costs of production) in the West Bengali foundries.

Discussion Questions:

  1. Why do the Indian foundries use such large inputs of labor, and relatively little machinery?
  2. What factors might reduce the demand for labor in the Indian foundries?
  3. How does a firm know if it’s using the right combination of capital and labor in its production?

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Mar 10 2011

The economic benefits of bike commuting

I feel like I’ve been here before. Gas prices are rising, approaching $4 per gallon. American drivers are freaking out, demanding the government “does something” to halt rising fuel costs. The next thing you know, people start buying bikes and riding them to work. Just like that, Americans change their lifestyles, abandon their cars, and reinvent themselves as bike commuters!

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The economics of this phenomenon barely requires explanation, but since this is an Economics teacher’s blog, I suppose I should explain it. A major determinant of the demand for a product is the price of related goods. In the US right now, fuel and cars are related goods; in economics terms, they are complementary goods. “You can’t have one without the other”. As gas prices rise, demand for driving cars begins to fall, since it becomes more costly to drive. The other good related to cars in this picture is a substitute mode of transportation, bicycles. The more expensive it becomes to drive a car, the greater the demand for bicycles.

Now, allow me to take my econ teacher hat off and put my avid cyclist hat (or helmet?) on. Bikes are way more than just a substitute for cars. The fact that every time gas prices approach $4 per gallon bicycle sales start to spike is bewildering to me. Do consumers really not know that riding a bike is always cheaper than driving a car? Why does it take slightly more expensive gas to motivate consumers to think about buying a bike?!

Okay, economist had back on now: You see, operating a car involves monetary costs that far exceed the price of gas. When I last had a car in the US, I paid nearly $200 per month in insurance (young males always pay the most), far exceeding my expenditures on fuel. In addition, there’s the fixed cost of the car itself, which once spent is a “sunk cost”, so should not affect an individual’s decision to drive or not to drive when the price of gas changes.

In addition to these explicit, monetary costs, however, there are also external, invisible costs of operating cars that make them an even less perfect substitutes for bicycles. More traffic on the roads, more accidents, more air and noise pollution, greenhouse gas emissions, environmental impact of the production and ultimate disposal of the car itself: these external costs are not even born by the driver when he or she decides to drive to work every day, rather they are born by society, taxpayers, and the environment.

My point is, making the decision to switch to commuting by bicycle should not require a 25% spike in fuel prices. The cost of filling your tank is in fact the least significant cost associated with driving a car when you look at the whole picture, and include not only those explicit, monetary costs paid by the driver, but include the external, social and environmental costs born by society as a whole.

Maybe I’m just on a bike high right now, since I got my new 29 inch wheeled fully two weeks ago and have ridden the 30 km round trip to work nearly every day since! Then again, maybe it really would make more economic, environmental, physical, spiritual and social sense if more people would park their cars and hop on a bike tomorrow morning!

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Mar 02 2011

Welker’s Wikinomics turns FOUR!

That’s right, February 2007 marked the beginning of this great experiment in “learning the wiki way”. If all you’ve ever known is this blog, then you probably don’t know why it’s called “Wikinomics”. Before the blog was born, this project consisted only of a Wiki where my AP Economics students shared their understanding of the subjects we studied. Not long after the wiki got started, I created this blog, where in the last four years I, along with several guest authors, have written countless posts covering every topic from introductory Economics course imaginable!

Now on our fourth anniversary, I thought I’d take a moment to look back at where Welker’s Wikinomics has come from and then give you a brief idea of where it will go in the future.

First, as an Econ teacher, I love stats, so I thought I’d share some here.

The wiki, which eventually gave birth to this blog, has actually had more visits over the last four years than the blog has, and continues to turn up near the top in Google search results for countless economics terms.

Where Welker’s Wikinomics has come from:

Here’s the latest data on the wiki:

  • Total visits since February, 2007: 545,468
  • Average number of visits per day over the last four years: 944
  • Number of subscribed users: 1092

And for the blog:

  • Total visits since February, 2007: 388,207
  • Most visitors on a single day ( March 1, 2011!): 1,013
  • Number of posts: 550
  • Number of reader comments: 6,275
  • Number of categories: 193
  • Number of registered users: 1,369
  • Number of people subscribed to the weekly email newsletter: 298

All told, the eyes of nearly 1 million economics students, teachers, and others interested in the subject have have scanned the content posted on this blog and on the accompanying wiki!

What the future holds for Welker’s Wikinomics

For those of you who visit this site regularly, you will have noticed that over the last year, I have written far less frequently than I did in the past. I do have a good excuse for this, however, as I have been consumed with writing my soon to be released IB Economics textbook for Pearson. But as that project winds down, I plan to once again turn my attention to the resources offered by Welker’s Wikinomics. Some of the projects I plan to embark on in the next year include:

  • A complete re-design of this blog
  • Updating the “brand image” of all of Welker’s Wikinomics resources (wiki, universe, etc…)
  • Re-designing and updating Welker’s Wikinomics Lecture Notes and Study Guides for use with the new IB Economic syllabus (to begin in August 2011)
  • Designing and releasing in the iTunes Store a digital, iPhone ready study guide for AP and IB Economic students

This last goal is one I have had in the back of my mind for quite some time. It has gotten the thumbs up from my tech-equipped students here in Zurich, and once I have the time, it is something I seriously want to pursue. Don’t worry Android users, I myself have switched to the Google platform, and any app I develop for the iPhone will be made available for the Android as well!

Thanks to all you loyal readers and contributors who have kept coming back to the blog, wiki and other resources offered by Welker’s Wikinomics over the last four years! I will always remember how excited I was the day so long ago I got my 1,000th visitor on this blog! (I am pretty sure it took about three months to reach 1,000 visitors). Now, four years and almost one million visitors later, I am still as passionate as ever about creating and sharing great content for the high school economics student and teacher.

As always, if you like what you read here, and think you have something to contribute, add your comments or contact me at welkerswikinomics@gmail.com if you wish to become a contributing author!

So, thanks to you all for everything!

-Jason

 


 

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