Ec101: Links for 4th July, 2019

  1. “I’m more worried about the part where the cost of basic human needs goes up faster than wages do. Even if you’re making twice as much money, if your health care and education and so on cost ten times as much, you’re going to start falling behind. Right now the standard of living isn’t just stagnant, it’s at risk of declining, and a lot of that is student loans and health insurance costs and so on.What’s happening? I don’t know and I find it really scary.”
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    An article that spanned an entire book (about which more below). But do read this article very, very carefully, especially if you think you really understand microeconomics.
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  2. “Here, for example, are two figures which did not make the book. The first shows car prices versus car repair prices. The second shows shoe and clothing prices versus shoe repair, tailors, dry cleaners and hair styling. In both cases, the goods price is way down and the service price is up. The Baumol effect offers a unifying account of trends such as this across many different industries. Other theories tend to be ad hoc, false, or unfalsifiable.”
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    A short excerpt from an article on the book that materialized from the article on Slate Star Codex above (and by the way, you might want to start following Slate Star Codex). I have linked to some of them already, but do scroll through to click on “Other posts in this series” to read them all.
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  3. “The 23 times increase in the relative price of the string quartet is the driving force of Baumol’s cost disease. The focus on relative prices tells us that the cost disease is misnamed. The cost disease is not a disease but a blessing. To be sure, it would be better if productivity increased in all industries, but that is just to say that more is better. There is nothing negative about productivity growth, even if it is unbalanced.”
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    An excerpt from an excerpt, admittedly, but still well worth your time, to help you understand why the cost disease isn’t really a disease. It’s all about productivity, and how it grows unevenly (and hey, that’s a good thing!)
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  4. “State intervention to fix market failures that preclude the emergence of domestic producers in sophisticated industries early on, beyond the initial comparative advantage.
    Export orientation, in contrast to the typical failed industrial policy of the 1960s–1970s, which was mostly import substitution industrialisation (ISI).
    The pursuit of fierce competition both abroad and domestically with strict accountability. ”
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    You really should be reading How Asia Works by Joe Studwell – everybody should read that book, and multiple times. But that being said, here is the TL;DR version.
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  5. “There doesn’t seem to be evidence that hiring from outside is better. What evidence does exist seems to be that internal hires get up the learning curve faster, and often don’t need as much of an immediate pay bump. If you persuade someone to leave their current employer by offering more money, what you get is a worker whose top priority is “more money,” rather than on work challenges and career opportunities. (“As the economist Harold Demsetz said when asked by a competing university if he was happy working where he was: `Make me unhappy.’”)”
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    Tim Taylor on the difficulty of hiring (and retaining) right.
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Author: Ashish

Prof at Gokhale Institute, Pune, Blogger at econforeverybody.com, Podcaster at anchor.fm/backtocollege

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