Monday, December 31, 2007
extremism and social learning
Glaeser and Sunstein on Credulous Bayesian learning.
http://www.economics.harvard.edu/faculty/glaeser/files/socproof19.pdf
Sunday, December 30, 2007
Econ 311 Greg Mankiw's Blog: A Homework Problem from China
A Homework Problem from China
Chapter 9 of my favorite textbook presents the standard analysis of a tariff (a tax on imports) and shows that it reduces economic welfare as measured by the sum of producer surplus, consumer surplus, and tax revenue. Even though the tariff makes domestic producers better off and raises some revenue for the government, these gains are more than offset by losses to consumers, leading to a deadweight loss.
This news story suggests a good homework problem extending the analysis:
This news story suggests a good homework problem extending the analysis:
China, the world's biggest grain producer, will tax exports of wheat, corn and rice to increase domestic supply and control rising food prices. Exporters of wheat will start paying a 20 percent tax on Jan. 1, while the tax for corn and rice was set at 5 percent, the Finance Ministry said.Draw the graph that describes the market for grain in an exporting country (assume that with respect to these grains China is a small country). Use your graph to answer the following questions.
- How does an export tax affect domestic grain prices?
- How does it affect the welfare of domestic consumers?
- How does it affect the welfare of domestic producers?
- How does it affect government revenue?
- What happens to total welfare in China, as measured by the sum of consumer surplus, producer surplus, and tax revenue?
- How does the analysis change in the five parts above if China is a large country with respect to these grains?
Saturday, December 29, 2007
Friday, December 28, 2007
Thursday, December 27, 2007
Newegg.com - Computer Parts, PC Components, Laptop Computers, Digital Cameras and more!
Dad's computer has a max of 2GB of memory. Currently it is running on 1GB total.
http://www.newegg.com/Product/ProductList.aspx?Submit=ENE&N=1052308477&Configurator=MemoryConfigurator&CFG=CFG003Dimension+2400+Series&name=2GB+(2+x+1GB)
Newegg.com - Computer Parts, PC Components, Laptop Computers, Digital Cameras and more!
Dad's computer has a max of 2GB of memory. It currently is using 1GB in two slots.
Wednesday, December 26, 2007
Roger's Rules: Will Smith, Hitler, and the perils of benevolence
Benevolence is a curious creature. Its operation tends to be more beneficent the more specific it is. This was a point that James Fitzjames Stephen, the great nineteenth-century critic of John Stuart Mill, made in his book Liberty, Equality, Fraternity:
The man who works from himself outwards, [Stephen wrote] whose conduct is governed by ordinary motives, and who acts with a view to his own advantage and the advantage of those who are connected with himself in definite, assignable ways, produces in the ordinary course of things much more happiness to others … than a moral Don Quixote who is always liable to sacrifice himself and his neighbors. On the other hand, a man who has a disinterested love of the human race—that is to say, who has got a fixed idea about some way of providing for the management of the concerns of mankind—is an unaccountable person … who is capable of making his love for men in general the ground of all sorts of violence against men in particular.
Political correctness tends to breed the sort of unaccountability that Stephen warns against. At its center is a union of abstract benevolence, which takes mankind as a whole for its object, with rigid moralism. It is a toxic, misery-producing brew.
Tuesday, December 25, 2007
Monday, December 24, 2007
» Keep your cool when cleaning a glossy-screen Mac | The Apple Core | ZDNet.com
Sunday, December 23, 2007
Saturday, December 22, 2007
Thursday, December 20, 2007
Wednesday, December 19, 2007
Tuesday, December 18, 2007
The Adversarial Campus (Originals)
December 17, 2007
The Adversarial Campus
By Mark Bauerlein
Against repeated accusations of leftwing bias on campus, professors have mounted many rejoinders disputing one or another item in the indictment. They claim that the disproportion isn't as high as reports say. Or that reports focus on small pockets (women's studies, etc.). Or that party registration is a crude indicator. Or that conservatives are too greedy and obtuse to undergo academic training.
The denials go on, and sometimes it's hard to tell whether professors really believe in their own neutrality or whether they just hope to brazen out the attacks. One response, however, stands apart, precisely because it doesn't deny a darn thing in the bias charge. Indeed, it concedes every empirical point - "Yes, left-wing people, left-wing ideas, and left-wing texts dominate," but it adds, "And that's exactly as it should be."
It's a refreshingly straightforward assertion. I heard it at an MLA Convention session awhile back when a young man in the audience talked about getting shot down by his professor when he voiced in class a conservative opinion. One of the panelists replied by telling him to quit complaining, then enlarged the rebuke to all conservative critics. "Look," he grumbled, "conservatives have taken over every where else [this was before the 2006 election], and now they want the campus, too, the one place where liberal values can still prevail."
I'm paraphrasing from memory, but the implication was unmistakable. We need the campus to remain solidly liberal to keep conservatism from swamping the entire present. We might call this the Adversarial Campus Argument. It says that the campus must contest the mainstream, that higher education must critique U.S. culture and society because they have drifted rightward. For the intellectual and moral health of the nation, the professoriate must drift leftward. Kids come into college awash in the three idols that, in the eyes of the teaching liberal, make up the American trinity: God, country, and family. Instruction meets its mind-opening duty by dislodging their acculturation, dismantling the dangerous corollaries of each one, namely, fundamentalism, patriotism, and patriarchy/homophobia.
Several points against the Adversarial Campus Argumetn spring to mind, but a single question explodes it. If Democrats won the White House in 08 and enlarged their majorities in Congress, and if a liberal replaced Scalia on the Supreme Court, would adversarial professors adjust their turf accordingly? Would Hillary in the White House bring Bill Kristol a professorship or Larry Summers a presidency again?
Hardly, and it goes to show that the Adversarial Campus Argument isn't really an argument. It's an attitude. And attitudes aren't overcome by evidence, especially when they do so much for people who bear them. For, think of what the Adversarial Campus does for professors. It flatters the ego, ennobling teachers into dissidents and gadflies. They feel underpaid and overworked, mentally superior but underappreciated, and any notion that compensates is attractive. It gives their isolation from zones of power, money, and fame a functional value. Yes, they're marginal, but that's because they impart threatening ideas. The powerlessness they feel rises into a meaningful political condition.
This is why professors get so upset over the bias issue. It touches a delicate formation. And so, when conservatives enter bias debates with professors, they should realize that not only do they argue over political opinions and campus turf. The academic personality is at stake, and the figures who threaten it can only appear downright offensive.
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Mark Baulerlein is a Professor of English at Emory University and former Director
Monday, December 17, 2007
Sunday, December 16, 2007
Saturday, December 15, 2007
Friday, December 14, 2007
Thursday, December 13, 2007
Wednesday, December 12, 2007
Tuesday, December 11, 2007
Monday, December 10, 2007
Sunday, December 09, 2007
Saturday, December 08, 2007
Friday, December 07, 2007
Thursday, December 06, 2007
Wednesday, December 05, 2007
Tuesday, December 04, 2007
FW: Motorola RAZR V3 + Bluetooth + Powerbook = Bad Ass
------ Forwarded Message
From: Gerald McIntyre <mcintyre@oxy.edu>
Date: Tue, 04 Dec 2007 23:30:15 -0800
To: Gerald McIntyre <mcintyre@oxy.edu>
Conversation: Motorola RAZR V3 + Bluetooth + Powerbook = Bad Ass
Subject: Motorola RAZR V3 + Bluetooth + Powerbook = Bad Ass
From: Gerald McIntyre <mcintyre@oxy.edu>
Date: Tue, 04 Dec 2007 23:30:15 -0800
To: Gerald McIntyre <mcintyre@oxy.edu>
Conversation: Motorola RAZR V3 + Bluetooth + Powerbook = Bad Ass
Subject: Motorola RAZR V3 + Bluetooth + Powerbook = Bad Ass
http://www.shawnhogan.com/2004/12/motorola-razr-v3-bluetooth-powerbook.html
------ End of Forwarded Message
Monday, December 03, 2007
Sunday, December 02, 2007
Saturday, December 01, 2007
Friday, November 30, 2007
Thursday, November 29, 2007
Wednesday, November 28, 2007
NYTimes.com: Recipe: Spiced Nuts With Sugared Bacon
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Tuesday, November 27, 2007
Monday, November 26, 2007
Sunday, November 25, 2007
Saturday, November 24, 2007
Friday, November 23, 2007
Thursday, November 22, 2007
Wednesday, November 21, 2007
NYTimes.com: Recipe: Simple Crusty Bread
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Tuesday, November 20, 2007
Tuesday, November 13, 2007
All They Are Saying Is Give Happiness a Chance - New York Times
The framers of the Declaration of Independence evidently believed that happiness could be achieved, putting its pursuit up there alongside the unalienable rights to life and liberty. Though governments since then have seen life and liberty as deserving of vigorous protection, for all the public policies aimed at increasing economic growth, people have been left to sort out their happiness.
This is an unfortunate omission. Despite all the wealth we have accumulated — increased life expectancy, central heating, plasma TVs and venti-white-chocolate-mocha Frappuccinos — true happiness has lagged our prosperity. As Bobby Kennedy said in a speech at the University of Kansas in March 1968, the nation's gross national product measures everything "except that which makes life worthwhile."
The era of laissez-faire happiness might be coming to an end. Some prominent economists and psychologists are looking into ways to measure happiness to draw it into the public policy realm. Thirty years from now, reducing unhappiness could become another target of policy, like cutting poverty.
"This is another outcome that we should be concerned about," said Alan Krueger, a professor of economics at Princeton who is working to develop a measure of happiness that could be used with other economic indicators. "Just like G.D.P."
It might be a bit of a political challenge to define happiness as a legitimate policy objective. Imagine the Republican outrage when the umpteenth tax cut didn't do the trick. Democrats would likely slam the effort as regressive, distracting from efforts to improve the lot of the less fortunate by more conventional measures — like income.
Happiness is clearly real, related to objective measures of well-being. Happier people have lower blood pressure and get fewer colds. But using it to guide policy could be tricky. Not least because we don't quite understand why it behaves the way it does. Men are unhappiest at almost 50, and women at just after 45. Paraplegics are not unhappier than healthy people. People who live with teenagers are the unhappiest of all.
Happiness seems fairly cheap to manipulate. In one experiment, subjects were asked to answer a questionnaire about personal satisfaction after Xeroxing a sheet of paper. Those who found a dime lying on the Xerox machine reported substantially higher satisfaction with their lives.
Most disconcerting, happiness seems to have little relation to economic achievement, which we have historically understood as the driver of well-being. A notorious study in 1974 found that despite some 30 years worth of stellar economic growth, Americans were no happier than they were at the end of World War II. A more recent study found that life satisfaction in China declined between 1994 and 2007, a period in which average real incomes grew by 250 percent.
Monday, November 12, 2007
Free Econometric Softward: Gretl = Gnu Regression, Econometrics and Time-series Library
Is a cross-platform software package for econometric analysis, written in the C programming language. It is is free, open-source software. You may redistribute it and/or modify it under the terms of the GNU General Public License (GPL) as published by the Free Software Foundation.
Features
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Easy intuitive interface (now in French, Italian, Spanish, Polish, German and Portuguese as well as English)
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A wide variety of estimators: least squares, maximum likelihood, GMM; single-equation and system methods
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Time series methods: ARMA, GARCH, VARs and VECMs, unit-root and cointegration tests, etc.
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Output models as LaTeX files, in tabular or equation format
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Integrated scripting language: enter commands either via the gui or via script
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Command loop structure for Monte Carlo simulations and iterative estimation procedures
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GUI controller for fine-tuning Gnuplot graphs
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Link to GNU R for further data analysis
Data formats
Reads own format XML data files, Comma Separated Values files, Excel and Gnumeric worksheets, Stata .dta files, Eviews workfiles, JMulTi data files, own format binary databases (allowing mixed data frequencies and series lengths) RATS 4 databases and PC-Give databases. Includes a sample US macro database. See also the gretl data page.
...
Gretl for MS Windows can be found here, and gretl for Mac OS X here.
Sunday, November 11, 2007
Musings on Edward Said
Bruce S. Thornton's review of Warraq's book at City Journal is especially insightful in regards to overturning Said's prejudicial attitude towards the West. As he puts it:Warraq then turns to Said's misrepresentation of the West as a xenophobic culture, fearful of the "Other" and cultural difference. Warraq explodes this canard by identifying what he calls the "three golden threads" woven through Western culture since the time of the Greeks: rationalism, universalism, and self-criticism. As Warraq argues, Western intellectual curiosity has driven an interest in other cultures and peoples and created a magnificent edifice of scholarship formalizing that interest. The Western notion of a universal human nature reinforced this intellectual openness to other cultures. And self-criticism has been the engine of the West's improvement, leading to the rejection of traditional practices that were unjust or inefficient, as Warraq shows with his discussion of the British Empire's war on slavery. In fact, the West's most trenchant critics, Said included, have always been Westerners.
Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal
Brad DeLong writes:
I think that Rubin is implicitly working in a different model than the NIPA-based monetarist workhorse that Krugman (and I!) instinctively reach for first. I think that in Rubin's mind the chain of causation looks something like this:
- A government establishes a sane, balanced long-run fiscal policy.
- Businesses conclude that the country is a safe one in which to invest to build export capacity: since they do not fear future random and confiscatory taxation or inflation, factories making internationally-traded goods that would have been built abroad are built here at home instead.
- With more export capacity at home and less abroad, exports rise and imports shrink at the current exchange rate.
- Supply and demand leads the domestic currency to appreciate in order to balance trade.
Rubin's channel is: good fiscal policy --> expanded export supply --> export surplus --> higher currency value.
By contrast, Krugman's channel is: good fiscal policy --> lower domestic interest rates --> reduced currency value --> export surplus.
Which side am I on? I tell my undergraduates:
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At a time horizon of 0-3 years, be a Keynesian: the most important things are the fluctuations in unemployment, in real demand, and in capacity utilization.
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At a time horizon of 3-8 years, be a demand-side monetarist: you can assume (provisionally) that fluctuations in employment, real demand, and capacity utilization die out; the most important things are the fluctuations in the composition of real demand (investment vs. consumption vs. government vs. net exports) and in inflation- and deflation-causing nominal demand assuming (provisionally) stable growth of the economy's productive capacity.
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At a time horizon of 8 years or greater, be a sane supply-sider: the most important things are the processes of investment in physical, human, and organizational capital that raise the economy's productive capacity.
Thus I was happy telling my undergraduates in 1985 that the reason the dollar was strong was because of the five years of Reagan deficits--high domestic interest rates, you see, pushing up the value of the dollar (and raising the trade deficit). And I was happy in 1992 telling my undergraduates that the reason the dollar was weak was because of the twelve years of Reagan-Bush deficits--large budget deficits starving the economy of capital that made us less productive than in some counterfactual in which we had elected some Eisenhower Republican in 1981.
Saturday, November 10, 2007
How large are the distributional Effects of Increased Trade?
November 09, 2007
Brad DeLong writes:
How Large Are the Distributional Effects of Increased Trade?
Dani Rodrik suspects that they are small than Josh Bivens thinks they are:
Dani Rodrik's weblog: The pains from trade: The workhorse model of international trade (the 2x2 Heckscher-Ohlin model) has very stark implications for the effect of trade with poor, labor-abundant countries. Low-skilled workers in rich countries (read the U.S.) must end up as losers--not in relative terms, but in absolute terms. Moreover, the larger the overall gains from trade, the bigger must this adverse distributional effect be. In that world, it is inconsistent to claim there are large gains from globalization while downplaying the distributional impacts. Which is why many economists teach the model in their classrooms, but shift to other, more complicated models when they engage in the public debate about the effect of trade on wages.
A recent paper by Josh Bivens carries out a quantitative simulation of the basic 2x2 model which suggests that the increase in U.S. trade with the developing countries between 1995 and 2006 would have reduced labor earnings by 4 percent while increasing the payment for skills by 3 percent, for a 7% increase in the differential altogether. This is an interesting exercise, to be compared to that undertaken by my colleague Robert Lawrence. The latter gives much less of a role to trade, in large part because it finds there is little reduction in real earnings once adjustments for productivity, prices and benefits are made.
One clear difference between the two perspectives is the extent to which one thinks of trade with developing countries as competing directly with U.S. production. Lawrence says that developing country exports hardly displace any domestic production anymore because much of that activity has already shut down. So whatever adverse impact may have existed in the 1980s, the current situation is much more benign. (But of course, less impact on productive re-allocation means fewer overall gains from trade too!). In Bivens' world (and that of the standard 2x2 model), by contrast, head-to-head competition is critical in driving the distributional effects.
I am on Dani's side, only more so. Two additional points are important, I think:
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For competition to be head-to-head, the two countries have to be making very similar goods with similar production processes. Hand-spinners in Pakistan don't compete with labor here in the United States but with the capital embodied in our large automated spinning mills.
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What trade does to our distribution of income can be undone by normal domestic redistributionist policies. The right way to deal with the issue is to (a) maximize the third world's ability to take advantage of our demand to spur its own growth, and (b) use domestic redistribution here to compensate for any adverse distributional
Marginal Revolution: The economic consequences of Mr. Bush? or When Economicst Forget their Economics
Tyler Cowen writes:
Joseph Stiglitz writes:
You'll still hear some -- and, loudly, the president himself -- argue that the administration's tax cuts were meant to stimulate the economy, but this was never true. The bang for the buck -- the amount of stimulus per dollar of deficit -- was astonishingly low. Therefore, the job of economic stimulation fell to the Federal Reserve Board, which stepped on the accelerator in a historically unprecedented way, driving interest rates down to 1 percent. In real terms, taking inflation into account, interest rates actually dropped to negative 2 percent. The predictable result was a consumer spending spree. Looked at another way, Bush's own fiscal irresponsibility fostered irresponsibility in everyone else.
Stiglitz seems to claim that Bush will go down with a lower reputation, in economic terms, than Herbert Hoover. I have not been a huge fan of Bush's fiscal policy, but I can add: a) Bush is not to blame for loose Fed policy, b) it remains debatable among honest Democratic economists whether loose Fed policy was bad, c) U.S. consumption has been robust for a long time, and d) changes in real interest rates do not explain much of the variation in private consumption, and that's even assuming you manipulate the ex ante vs. ex post distinction to suit your convenience. The first two sentences of this paragraph are plausibly true but then the text deteriorates rapidly and is determined to blame as many things on Bush as possible. The paragraph ends up attacking Bush for promoting a "consumer spending spree" when Stiglitz had started by arguing for traditional Keynesian fiscal stimulus, the purpose of which is to promote...a consumer spending spree.
Stiglitz also argues that Bush is in large part (he won't say how large) to blame for high oil prices. In his view the war in Iraq led to political instability and stifled investment in the region, I say that Saudi oil wells are running dry anyway and increased demand -- most of all from China -- is the fundamental issue. Note also that for many plausible parameter values, political instability leads to more pumping today and thus lower prices; the counterweighing cycle of less exploration and exploitation can take a long time to kick in.
It's also worth noting how much the arguments run counter to Stiglitz's own (earlier) writings on macroeconomics. He used to preach that a) banks are excessively reluctant to lend to risky borrowers (compare to his discussion of the subprime crisis), b) changes in real interest rates generally don't matter much, c) adverse selection makes it hard to sell non-transparent assets for a reasonable price (compare to his discussion of securitization), and d) we cannot expect monetary policy to be especially effective but rather we must focus on the extent of credit rationing. Stiglitz of course has the right to change his mind, but if the shift is so big surely this is news.
There are many good arguments against many of Bush's economic policies, and many other arguments which are maybe wrong but at least plausible or possibly true. But essays such as this are not promoting the public's understanding of economics.
The pointer is from Mark Thoma.
Friday, November 09, 2007
Topics for Economic Naturalist
Topics for Economic Naturalist
- People face tradeoffs
- People respond to incentives
- Assortative matching
- Moral hazard
- Adverse selection
- Free rider problem
- Externalities
- Time inconsistency of policy
- Strategic interaction
- Tragedy of the commons
- Comparative advantage
- Signaling and screening
- Reasoning on the margin
- Fixed cost barriers
- Social or deadweight loss
- Principle – agent problem
- Arrow's impossibility theorem
- Coase theorem
- Compensating differentials
- Cost-benefit analysis
- Crowding out (or in)
- Fallacy of composition
- Correlation is not causation
- Economies of scale
- Market efficiency hypothesis
- Public goods
- Information efficiency
- Search and matching
- Lump sum vs. distortionary
- Median voter (buyer) theorem
- Menu costs (or small costs) preventing large gains
- Dutch disease
- Prisoners' dilemma
- Random walk
- Rational expectations
- Risk aversion
- Prospect theory
- Endowment effect
- Stock vs. flow reasoning
- Sunk costs
- Tax incidence or (cost shifting)
- Transaction costs
- Equity: vertical vs. horizontal
- Willingness to pay
Thursday, November 08, 2007
Cafe Hayek: Trade Promotes Prosperity
Don Boudreaux
In this op-ed, the Cato Institute's Dan Griswold explains -- contra, for example, the mistaken fears of Harold Meyerson -- that freer trade is helping to make an ever-greater percentage of Americans richer than ever before. Here are some key paragraphs from Dan's fine essay:
Like so many assumptions about trade, the belief that more global competition has somehow lowered the living standards of the average American worker and family is just a myth.
The critics have it all wrong: The middle class isn't disappearing - it's moving up.
The Census reports that the share of U.S. households earning $35,000 to $75,000 a year (in '06 dollars) - roughly, the middle class - has indeed shrunk slightly over the last decade, from 34 percent to 33 percent. But so, too, has the share earning less than $35,000 - from 40 percent to 37 percent.
It's the share of households earning more than $75,000 that's jumped - from 26 percent to 30 percent.
Trade has helped America transform itself into a middle-class service economy. Yes, the country's lost a net 3.3 million manufacturing jobs in the past decade - but it's added a net 11.6 million jobs in service and other sectors where average wages are higher than in manufacturing. Most of these new jobs are in better-paying categories, like professional and business services, finance and education and health services.
Trade and globalization have also helped bolster the balance sheets of American households by delivering higher incomes, lower interest rates and wider investment opportunities. From 1995 to 2004, the real median net worth of U.S. households jumped by 31 percent, boosted by rising home values and stock prices. (Even with the recent housing slump, average home values remain more than 2.5 times what they were a decade ago, according to the S&P/Case-Shiller index.)
Cafe Hayek: Made in ? iPod Example at Link
Russell Roberts writes,
Where a product is made has no informational content. It is simply a way for some people to pretend that their well-being and yours is the same thing. Kristyn Birrell of the Foundation for Research on Economics and the Environment has a very nice essay on labels in the Bozeman Daily Chronicle. It opens this way:
If you had a label, where would you be made? I would be "Made in Valencia" or "Made in California," or, if we took a broader perspective, I could have one of those little flag logos on my sticker and it would say "Made in the USA." But would either of these identifiers tell the whole story? Yes, I was born in the U.S., as were my parents and grandparents, but what about more distant ancestors? My father's grandparents were born in Scotland, Italy, England, and Germany, while my mother's were born in Denmark and the United States. Look back only three generations, and already my label has gotten quite complicated—"Made in Scotland (1/8), Italy (1/8), England (1/8), Germany (1/8), Denmark (1/4), AND the USA (1/4)." My label is not an anomaly; most Americans have similarly complex histories. Given this mosaic of hominal origins, what should we make of products whose label proclaims simply "Made in Mexico" or "Made in China?"
Read the whole thing. It's excellent.
Hal Varian made a similar point citing a study by Greg Linden, Kenneth L. Kraemer and Jason Dedrick. The iPod is "made in China." But what does that really mean? It's assembled in China. But the value comes from all over the world:
...let us look at the production process as a sequence of steps, each possibly performed by a different company operating in a different country. At each step, inputs like computer chips and a bare circuit board are converted into outputs like an assembled circuit board. The difference between the cost of the inputs and the value of the outputs is the "value added" at that step, which can then be attributed to the country where that value was added.
The profit margin on generic parts like nuts and bolts is very low, since these items are produced in intensely competitive industries and can be manufactured anywhere. Hence, they add little to the final value of the iPod. More specialized parts, like the hard drives and controller chips, have much higher value added.
According to the authors' estimates, the $73 Toshiba hard drive in the iPod contains about $54 in parts and labor. So the value that Toshiba added to the hard drive was $19 plus its own direct labor costs. This $19 is attributed to Japan since Toshiba is a Japanese company.
Continuing in this way, the researchers examined the major components of the iPod and tried to calculate the value added at different stages of the production process and then assigned that value added to the country where the value was created. This isn't an easy task, but even based on their initial examination, it is quite clear that the largest share of the value added in the iPod goes to enterprises in the United States, particularly for units sold here.
The researchers estimated that $163 of the iPod's $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Japan contributed about $26 to the value added (mostly via the Toshiba disk drive), while Korea contributed less than $1.
The unaccounted-for parts and labor costs involved in making the iPod came to about $110. The authors hope to assign those labor costs to the appropriate countries, but as the hard drive example illustrates, that's not so easy to do.
This value added calculation illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics. Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.
I love that last line. As loyal readers know, Don and I don't put much stock in the trade deficit as an economic indicator. That last sentence from the Varian excerpt is one more reason to ignore the trade deficit.
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