Saturday, November 6, 2010

Human Development: We've Still Got It Pretty Good

Image source: hdr.undp.org
The United Nations released its annual Human Development Report on November 4th. The report showcases the human development index, which ranks countries along three dimensions: health, education, and living standards. The HDI is not without critics, but it is broadly referenced and discussed because it represents a thoughtful, empirical attempt to analyze and compare human welfare among countries using a broader measure than income alone. In this year's index, Norway was the top performer, followed by Australia and New Zealand.

Times are hard for many Americans, and I share the concerns voiced by many about the future of our country. But I do take a bit of comfort in the HDR's suggestion that the US is still among the best places in the world to be a human being.

Friday, November 5, 2010

U.S. Monetary Policy and Emerging Economies' Capital Controls, or "When a Butterfly at the Fed Flaps Its Wings..."

Image source: Wikimedia Commons/Tropenmuseum
A volcano in Indonesia erupts?

Well, perhaps the Fed's decision to buy $600 billion worth of Treasury bonds and the eruption of Mount Merapi (pictured at left) were not directly linked. But as Howard Schneider reported in today's Washington Post, a lot of people in Indonesia are worried that the Fed's move could have adverse effects on Indonesia's economy. How? If the Fed's punt succeeds in pushing U.S. interest rates even lower, then investors might seek to move their money to places where they can get a better yield -- and emerging economies like Indonesia's are prominent on their radar screens. If investors seek to buy more assets in Indonesia, then they may bid up the price of those assets. Increased demand for Indonesia's currency, the rupiah, could cause it to appreciate (i.e., to become more expensive vis-a-vis other currencies). And this would make Indonesia's exports more expensive.

As Schneider reports, emerging economies' fears are causing them to consider ever more seriously the wisdom of using capital controls. Liberal economists long argued against them (while iconoclasts like Joseph Stiglitz argued in their favor) but now many economists and policymakers acknowledge that they can be useful if applied judiciously. My own, evolving, view: like many regulatory measures, they have ample potential for legitimate use and harmful abuse. It will be interesting to watch in the coming months how and to what extent countries apply them and how their economies perform. Raw material for many interesting empirical investigations (and op-eds) to come...

Thursday, November 4, 2010

An excellent example of clear writing about economic policy

Photo source: Wikimedia Commons/U.S. Federal Reserve
Ben Bernanke, the Chairman of the Federal Reserve Board of Governors, wrote an op-ed in today's Washington Post.   The topic is the Federal Reserve's decision to buy $600 billion of Treasury bonds in hopes of stimulating the sluggish economy.

His piece is a model of clear and concise writing on economic policy--a topic that is subjected all too often to muddled prose. He avoids buzzwords and highly technical jargon, offers straightforward justifications, and effectively addresses counterarguments.

None of us knows whether the Fed's move will work. But we can at least take a bit of inspiration from the clear writing of its Chairman.

Wednesday, November 3, 2010

Industrial policy

Image Source: Wikimedia Commons. Photo by Joshua Rappeneker
Tucked behind the mountains of election coverage in today's Washington Post was a very interesting story about a publicly-funded effort to promote the semiconductor industry in upstate New York. This is an example of industrial policy. The debate on the virtues of industrial policy has grown more lively recently, even among those who typically favor market-determined outcomes. A recent article by the Economist examines the arguments in depth.

My own internal debates on this topic were stirred through the work several colleagues and I did for a recent study into economic integration in the ASEAN region. For example, in Vietnam, we visited the publicly-funded industrial park where Intel built its massive new testing and assembly facility, which recently opened. There were clearly hiccups in the park's operations and some questionable investments in facilities for which there did not seem to be high tenant demand. On other hand, those tenants had voted with their feet by being there. Was it the most efficient expenditure of public funds? Might there have been other ways to attract equal amounts of desirable investment without generous incentives, such as broad-reaching reforms to the business environment? The jury is still out on these questions in my own mind. How about yours?

Tuesday, November 2, 2010

The economics of food retailing in a nutshell

Image source: Wikimedia Commons
This brief article from the Economist about Asda (the UK branch of Wal-Mart) neatly illustrates how regulatory and operational issues influence choices about store location, size, and merchandise selection.

The Effects of Offshoring on U.S. Employment

Several colleagues and I are presently researching the effects on U.S. employment when U.S. service firms expand overseas. Our study touches upon one aspect of a broader debate about the effects of multinational firms' activities outside the United States.

I am often struck by how heated the rhetoric becomes in debates on this issue--and how often this rhetoric is not accompanied by careful consideration of empirical evidence. One of my goals over the coming weeks is to digest what literature I can find on this topic.

As a point of departure, I thought I might recommend National Public Radio's recent story about the issue. The host interviews two well-known economists, Matthew Slaughter and Thea Lee, who bring different perspectives to the discussion. They both make thoughtful observations.

Friday, October 29, 2010

The rapid growth of cross-border trade in retailing services

Gap, Inc. announced today that it is going to expand its online sales presence in Europe, and ultimately to 80 countries around the world. This is an excellent example of retail's emergence as a service that is not just theoretically tradable, but frequently traded. Scholars have often treated retailing as non-tradable, but it is time for this conventional wisdom to change.

Quantifying the Contribution of IT to Productivity

We hear a lot in economics about the role of information technology in increasing the productivity of firms. I stumbled across this paper today in which the authors make an interesting attempt at quantifying that effect. The bottom line: the effect of IT on productivity is real and significant, most notably over time and in combination with other organizational investments.

Thursday, October 28, 2010

India's emerging services sector - request for your comments

Image source: Wikimedia Commons
India's rapid emergence as a powerhouse for services exports is one of the most remarkable trends in the 21st-century global economy. A colleague and I just gave a presentation about it. The presentation summarizes findings from a recent working paper that we completed with seven other colleagues. I would welcome any and all feedback.

Information trade-offs due to choice of shopping medium -- or, misadventures with plush fire trucks

Sometimes with online shopping, you do not buy what you think you are buying. Example: this fuzzy firetruck. Based on its photo on Amazon.com (Exhibit A), my wife and I thought it was relatively large, and excitedly bought it for our little man... only to discover that it was barely bigger than his fist (Exhibit B).

Exhibit A
Exhibit B
There is an interesting lesson here in the economics of retailing. I think it is well understood that online sales are not a perfect substitute for "brick-and-mortar" sales. But I think we are still trying to get a complete handle on what the trade-offs are. There are certain types of information that online sales make it easier for consumers to acquire, such as prices offered by various vendors and consumer reviews. But it can be harder for consumers to grasp information about product attributes such as textures and even size,  even if the product specs are provided online. Reading that something is made of satin is different from touching it; it can be hard to get a feel for the size of a doll photographed in isolation, even if the precise measurements are provided alongside a photo. It is interesting to me to try to think about:

1. How to quantify these information trade-offs, and how they affect consumer behavior and decisions vis-a-vis the medium through which transactions take place.

2. How the trade-offs may evolve as technologies evolve. Will we ever have computers that allow us to feel the texture of satin via our monitor screen?