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Why I love economics April 15, 2006

Posted by Sharath Rao in economics, people.

“Imagine that there are two countries – Japan and the United States. Japan sits on the top of a hill and the United States sits at the bottom. To get US goods to Japan, one has to hire porters to carry the goods up the hill. But the Japanese can put their products in a chute and let gravity do the work – costlessly transporting Japanese goods down the hill to the US market. Not a level playing field, you should be thinking. Japan is clearly in the advantageous position. Not so fast, I caution the students. Who pays for lugging the US products up the hill? Why do you presume it is the US and not the Japanese? This should get them thinking about elasticities of supply and demand. If US goods are in short supply and are desperately desired by the Japanese, while Japanese goods are
abundant and not much desired by Americans, then it is the US at the bottom of the hill that is in the advantageous position and it is the Japanese who pay for the lugging of the goods up the hill. If the Japanese build their mountain artificially with trade barriers that make it difficult to ship Washington apples to Japanese consumers, and if the Japanese consumers would pay any price for those apples while Americans could care less about the latest Sony gadget, then it is the Japanese who pay for the barriers, not the Americans. So be careful when you put rocks in your harbor. And be sure to wear the right kind of glasses when you are viewing the playing field. What looks tilted one way with your regular glasses may be tilted the other way with econ-oculars.”

Thats an interesting thought there.

This comes as a part of the a detailed book review of Friedman’s book – The World is Flat. Now, I have quoted another ‘review’ of Friedman ( not just his book ) before here, but this is no parody – this is written by a UCLA economist. I dont think any serious economist has found this book anywhere near making sense – now, that its in the NYTimes best-sellers says something about –

a. how Pulitzer Prize winners can get away with producing dubious works or plain trash.

b. how NYTimes best-sellers’ list mustnt be take on the face value

c. how readers are just too overwhelmed by the India-China story. Yes, we know its happening – but its not as easy as Friedman thinks its happening

d. readers can be fooled by his metaphors that he himself promotes so much that I ( and am sure many more ) have sworn never to use them again.



1. Deepak Krishnan - April 17, 2006

friedman at times seems irritating. so much so, that i hardly see his articles in the hindu op-ed. the battle of the Op-eds is regarding the Narmada. The Indian Express supports the dams, the Hindu opposes them.Wonderful array of writers on both sides.

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