Monday, May 26, 2008

Frank on the Invisible Hand stuff

Higher gas prices is good, irrespective of what Smith implied with the "invisible hand"!:

The production and consumption of many other goods, however, generate costs or benefits that fall on people besides buyers and sellers. Producing an extra gallon of gasoline, for example, generates not just additional costs to producers, but also pollution costs that fall on others. As before, market forces cause production to expand until the seller’s direct cost for the last unit sold is exactly the value of that unit to the buyer. But because each gallon of gasoline also generates external pollution costs, the total cost of that last gallon produced is higher than its value to consumers.

The upshot is that gasoline consumption is inefficiently high. Suppose that pollution costs are $2 for the last gallon consumed, but that its $4 price at the pump is just enough to cover its direct production costs. Reducing production and consumption by a gallon would then cause consumers to lose fuel that they value at $4, which would be exactly offset by the $4 in reduced production costs. The $2 in reduced pollution costs would thus be a net gain for society.

That simple example captures the classic breakdown in the invisible hand when a product’s market price doesn’t reflect all its relevant social costs and benefits. In such cases, the simplest solution is to discourage consumption by taxing it.

Doing so would not only raise revenue to pay for public services; it would also make the allocation of society’s resources more efficient — hence economists’ almost universal dismay when Senators John McCain and Hillary Rodham Clinton recently proposed eliminating the federal tax on gasoline for the summer.

The stated aim of their proposal was to ease the financial burden of sharply higher gasoline prices. But adopting inefficient policies is never the best way to help people in financial distress.

Efficiency is important because any policy that enlarges the economic pie necessarily lets everyone have a bigger slice than before. Economists opposed suspending the gas tax because doing so would make the economic pie smaller.

Robert Frank explains more here.

Free and Shared Wireless

Free and shared wireless:

Three years ago, aiming to create a global wireless network, he founded FON, a company based in Madrid that wants to unlock the potential power of the social Internet. FON’s gamble is that Internet users will share a portion of their wireless connection with strangers in exchange for access to wireless hotspots controlled by others.

The swaps, in theory, would allow “Foneros” to have ubiquitous, global wireless access while traveling for business or pleasure. But despite $55.2 million in backing from such corporate heavyweights as Google and BT, the former British Telecom, as well as newer enterprises like Skype and a handful of venture capital firms, FON and Mr. Varsavsky are still missing a crucial ingredient: scale.

At the moment, there are just 830,000 registered Foneros around the world, and only 340,000 active Wi-Fi hotspots run FON software. Because it’s built upon the concept of sharing Wi-Fi access, FON works well only if there are Foneros everywhere.

More here.

Bad summer for job seekers!

This is not a good news:

As the forces of economic downturn ripple widely across the United States, the job market of 2008 is shaping up as the weakest in more than half a century for teenagers looking for summer work, according to labor economists, government data and companies that hire young people.

This deterioration is jeopardizing what many experts consider a crucial beginning stage of working life, one that gives young people experience and confidence along with pocket money.

More here ( "Toughest Summer Job This Year Is Finding One")

Japan opens borders to Nepali workers

Good news for Nepali labor force:

...Japanese officials have agreed to accept Nepali semi-skilled and skilled trainee workers for employment with different business enterprises in Japan, said a top Nepali official.

...Japan is expected to absorb Nepali workers mainly in the industrial and agriculture sectors.

... workers having knowledge of Japanese language and culture, good work experience and the skills that can be capitalized by the home country in future will be favored while selecting them for jobs.

...Under the understanding, the trainee workers will get two years of training and one year of internship at work places in Japan, with handsome pay. He said during their trainee period the workers can earn between Rs 80,000 and Rs100,000 per month as allowance, excluding overtime, depending on the status of the employing companies.

More here.