Archive for the 'Economic systems' Category

Jul 04 2007

2,250 Sandpoints = 1 Shanghai

Sandpoint Skyline

One week ago I left Shanghai behind and my wife and I began our annual migration back to our summer stomping grounds, the Pacific Northwest. After 10 months living and working in a city of 18 million people with an industrial sector that ensures 365 days a year of a thick haze blank over the Shanghai, nothing is more refreshing than returning to the nearly empty mountains of North Idaho (“It’s a state of mind” is what they say around here).

Some of the highlights of life in Northern Idaho include the excessively blue skies, the sparkling Lake Pend O’reille, the ever green slopes of the Selkirk mountains, the bears, moose and deer with whom we share our beautiful trails, and finally the intimate sense of community that infuses the local economy of Sandpoint, our home town of 8,000 (you’d need 2,250 Sandpoints to make one Shanghai!).

In Shanghai, foreigners mostly shop at one or two boutique foreign grocery stores, packed full of processed foods imported from Europe, North America, Japan, Australia and other far corners of the earth. About the only things you’ll find that are “local” in these markets is the produce, which itself is of suspect quality given the large quantities of chemicals banned in most western countries used by Chinese farmers (not to mention the continued use of human feces as a fertilizer).

To eat like a foreigner in Shanghai is to be an active participant in the global, industrial food chain. The manufacture of the processed foods imported from the West involved industrial processes far beyond the comprehension of most consumers. The use of petro-chemicals infuses every step of this process, from the chemical fertilizers, herbicides, fungicides, pesticides and insecticides to the chemical preservatives to the petroleum burned getting the food from field to factory to warehouse to container ship to grocery store thousands of miles away. To eat like a foreigner in Shanghai is to contribute to the degradation of our environment, the warming of our atmosphere, and the destruction of a traditional way of life for local family farmers all over the West, as factory farms proliferate across the West’s fertile lands. Despite all this, my wife and I still eat like foreigners in Shanghai, and attempt to suspend our conscience while we participate in the industrial food chain we so despise.

For my wife, Liz, and I, returning to Sandpoint, Idaho is an act not only of spiritual and physical rejuvenation, but also of economic emancipation. We are freed from the destructive global industrial food chain on which we depend as foreigners living in China. To eat in Sandpoint is to participate in a sustainable, local, environmentally friendly food chain where organic, locally grown foods are available in every grocery store.

Our first stop when returning to Sandpoint is always Winter Ridge Organics, followed by a trip to Woods Ranch Meat Processing Plant (for me, as my wife is a vegetarian). Woods Ranch presents an interesting study in local foods. All of the meat processed at this small plant nestled in between Idaho’s Selkirk Mountains and the Cabinet Mountains of Western Montana is raised in the rich grasslands of the Pack and Kootenai river valleys. In addition to grass fed beef, this plant processes and sells direct to the consumer pork, buffalo, and game meat such as elk and venison. During the hunting seasons it is not unusual to find bear and moose in their freezers, as the region’s mountains present local hunters with a plethora of wild game.

Shanghai Skyline

When I compare the intricate and energy intensive food chain of the foreign eater in Shanghai with the short, direct food chain of the local eater in Sandpoint (along the dirt road to Woods Ranch you pass the very cattle that are processed therein), I begin to wonder how our economy has woven such a tangled web of international trade and commerce. I am also thankful that I am in a position where I get to observe and participate in both extremes of the modern economy, both the local and the global. As a teacher of economics, this perspective may prove valuable as my students and I strive to put the complex web of today’s economy into focus.

Ultimately, I can say I wish I could have the best of both worlds. I wish I could take my wonderful job and school and classroom and students of my life in Shanghai and “import” them all to Sandpoint, Idaho. I wish we could all enjoy a more l

ocal existence; but the prospects of this way of life surviving seem weaker every year I return. A couple of summers ago the town just north of Sandpoint opened the first Wal-Mart in Northern Idaho. Reality check: globalization is everywhere! China haunts my idyllic summer paradise; I cannot escape it! At least the haze of Shanghai has not stretched its ugly reach to the Selkirk mountains, not yet, at least…

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Jun 26 2007

Artisanal economics: alive and well in Bali

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…”Wood carving

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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Jun 26 2007

Bali economics: “thinking like an economist” on the Island of the Gods!

Legong: a traditional dance practice in the artisan community of UbudIF 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.Art is everywhere in Bali. These statues look over Ahmed's fishing fleet and protect fishermen on their risky voyages to sea.

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.

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Jun 07 2007

Would trade with the US make Cuba rich? Probably not

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.CUBA LIBRE!!

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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Jun 03 2007

What don’t you know about yourself?

What I didn’t know about myself was that I was a “libertarian leftist”. I had always considered myself a liberal, which I had been told meant I was so-called “left of center”. Where the terms left and right came from, I really didn’t know before now. It’s always bothered me that we describe our politicians, our economists, our professors, our teachers, our historic figures as either “left wing” or “right wing”; is the socioeconomic spectrum really only one dimension? Turns out it’s not, and now there’s a new tool for measuring your social/economic position in two dimensions.

Welcome to the Political Compass

According to the homepage of the Political Compass:

The old one-dimensional categories of ‘right’ and ‘left’, established for the seating arrangement of the French National Assembly of 1789, are overly simplistic for today’s complex political landscape. For example, who are the ‘conservatives’ in today’s Russia? Are they the unreconstructed Stalinists, or the reformers who have adopted the right-wing views of conservatives like Margaret Thatcher?

On the standard left-right scale, how do you distinguish leftists like Stalin and Gandhi? It’s not sufficient to say that Stalin was simply more left than Gandhi. There are fundamental political differences between them that the old categories on their own can’t explain. Similarly, we generally describe social reactionaries as ‘right-wingers’, yet that leaves left-wing reactionaries like Robert Mugabe and Pol Pot off the hook.

Take this test, see where you fall in the social and economic spectra. Personally, I thought that as a teacher of Economics, a science dominated by a neo-classical, free market perspective, that I would have ended up in the quadrant of the libertarian right. I guess those old left-wing ideals of my college years are more ingrained than I thought!

Hat tip to Gregory Mankiw for the link!

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