Monthly Archives: September 2010

Via, this.

From the above problematic modern texts deduce that intersystemic trade is economically beneficial to all concerned (and harmful to none) if, and only if, the laborers of each system specialize in the production of that commodity for which the “relative cost,” given in the commodity-exchange ratios of the respective closed systems, is more favorable.  In the example detailed below, the laborers of system I should specialize in F because F costs half as much as C in system I, given the original (closed system) commodity-exchange ratio (1 F = 1/2 C); while F costs three-fourths as much as C in system II, given system II’s autarky exchange ratio (1/3 F ? 1/4 C, i.e., 1 F ? 3/4 C).  The “comparative advantage” of system I is thus in the production of F.  (The “?” sign stands for “equals” or “exchanges for.”  Under Ricardo’s labor theory of value “exchanges for” signifies equality of labor content only if the exchange transpires within either closed system; intersystemic exchange in accordance with Comparative Advantage proceeds by the calculation of mutual benefit described below.)

From a disproof of Ricardo\’s comparative advantage.

From a site called \”Real World Economics\”.

Sigh.

And he followed up by saying that if the three premises of economics are wrong – there is imperfect information, high transaction costs and irrationality –

But the three premises of economics are not that there is perfect information, low transaction costs and rationality.

There are certain models which assume one or all of these things, sure, just as there are other models which assume their opposites.

Come on, Ackerloff got the Nobel for exploring imperfect information (the market for lemons….but do note that even he ruefully points out that there still is a market for used cars), Coase for exploring business structures with high and low transaction costs (high such lead to the creation of firms!) and so on.

Shouting \”High transaction costs!\” no more overturns \”economics\” than the imminent death of my cat does.

Something which I absolutely do not understand from Dani Rodrik:

The main message of the scatter plot can be summarized easily. Labor has moved from tradable sectors (agriculture and manufacturing) where labor productivity growth has been rapid to non-tradables, especially wholesale and retail trade, where productivity growth has been negative.

This is the explanation for Latin America\’s dismal growth in relation to E Asia\’s.

But here\’s what I don\’t understand at all. Supermarkets have been expanding at a rapid rate across Latin America.

From perhaps 10% of sales in 1990 to 50-60 % in the mid 2000\’s. And India and Vietnam, which have, according to Rodrik, much higher labour productivity growth, have had much lower penetrations of supermarkets (2-20% over the same period).

Now, OK, supermarkets are not the only components of the wholesale and retail trades. But they\’re a useful indicator of them at least.

And yes, there\’s all sorts of things people do complain about supermarkets: like that they put small shops out of business. But that (and it\’s one of the things we think we know about modern retail, isn\’t it?) means that we would expect rising labour productivity in that sector.

Supermarkets are, at least we think they are and certainly see they are in developed economies, (vide nef\’s calculation that £250,000 of spending in local shops creates 5 jobs while the same spending in a supermarket creates 1), users of less labour: the same thing as saying they have higher labour productivity.

So, to the extent that we can use supermarkets as being representative of wholesale and retail trades, we seem to be saying that a technology (and yes, supermarkets are a technology) which we\’re pretty certain increases labour productivity is in fact reducing labour productivity.

Which is, umm, weird.

Now Rodrik is an economist and as we all know I\’m not. So I\’m entirely buggered if I know what\’s going on here.

A couple of ideas occur:

1) The amount of labour previously being used is mismeasured. Given that much would have been in the informal sector, as it becomes formalised we might see the apparent amount of labour being used rise but that is due to our earlier guesses of how much was in fact being used originally.

2) That 1) is nonsense but that the output of the new system is being mismeasured. As an example, to take those UK figures. We might say that £250,000 of sales is the same output, whether delivered by small shops or a supermarket. But is it actually? If the effect on the individual shopper is different then not necessarily. For it might take 45 minutes to do the shopping in a supermarket but 3 hours (entirely made up numbers) in a series of small shops. And if we say that £250k of sales is the same by either method, well, no, it\’s not, is it? We\’ve saved the consumer 2 hours 15 minutes so the consumer experience (umm, the consumer surplus?) of the supermarket is much greater than that of the small shops. Meaning that we\’re not correctly measuring the output of the supermarket labour, because we\’re just measuring it by sales and not the actual product of that labour: ie, the time saved by consumers.

3) Is linked to 2). That this new technology of supermarkets allows consumers access to a much wider range of goods. Chicken, beef, carrots, onions, are all always available while the diet from the small shops was, say, beans and rice only. Again, we\’re underestimating the value to the consumer and thus undercounting the productivity of the retail labour.

4) Supermarkets really do have lower labour productivity than Mom and Pop stores and wholesalers.

5) I dunno….anyone who does have a clue want to weigh in here? For it seems entirely bizarre to conclude that achieving the same result (the distribution of food and goods to the population) through a technology which we\’re pretty sure uses less labour will lead to a reduction in labour productivity.