Daily Archives: 03/11/2011

Another economic illiteracy alert, this one from Larry Summers, Ph.D.

Larry Summers is being roundly condemned for suggesting that economic activity in Japan could be given a boost by the earthquake.

I’m not sure but I think that national income accounting could also suggest a boost from the earthquake, but a more complete measure of all the impacts would never show earthquake’s as good thing.  An additional point may be that with unemployed resources Summer’s statement isn’t so of the wall.

Lynne Kiesling

What horrific events in Japan. I was very sorry to awaken to hear of such devastation, and the videos I’ve seen and the fact that the aftershocks and waves have been almost continuous for the past 12 hours sound completely terrifying.

As the tsunami waves rippled out, though, it didn’t take long for someone to commit the broken window fallacy; from a news story from Hawaii:

The natural disaster of a tsunami could actually provide a temporary boost to the global economy.

Larry Summers, former director of President Obama’s economic council and a former head of the World Bank, said rebuilding could temporarily boost the Japanese economy.

Summers suggested this in an interview Friday on CNBC. He added that the global economy is more resilient than most people think.

In Hawaii, disruptive weather events are good for some businesses but bad for others.

Stores that sell generators and hardware supplies experience a run on these items when a tsunami or bad weather approach; other retailers find their usual sales interrupted as people focus on evacuating and stockpiling essential supplies instead of their usual shopping.

This time it’s a “credentialed” economist who has been involved in policymaking for much of the past two decades. Larry Summers should be embarrassed to argue that the destruction of real resources can provide economic benefit, even temporarily. Even my intro macro students, who are studying for next week’s final exam, could tell Dr. Summers that the earthquake and tsunami are a negative productivity shock, shifting the long-run Solow growth curve to the left, and that any rebuilding consumption and investment will shift the aggregate demand curve out in the short run … but those resources have been destroyed and the lives of people have been devastated. That’s irreversible, although I hope that new productive activity in Japan leads to the kind of new knowledge and innovation that will shift that long-run growth potential back outward.

HT to Steve Horwitz on Facebook

UPDATE: Steve’s written more extensively about this, with some discussion of Bastiat’s articulation of the broken window fallacy, at the Nightly Business Report blog.

UPDATE 2: Here’s one from Fox Business, a news outlet whose writers should know better. HT: Radley Balko on Facebook.

Another economic illiteracy alert, this one from Larry Summers, Ph.D.
Fri, 11 Mar 2011 16:40:17 GMT


Sharing network infrastructure – way forward for telecommunications?

Sharing network infrastructure – way forward for telecommunications?
gulzar.natarajan@gmail.com (gulzar)
Sat, 12 Mar 2011 02:09:00 GMT

South East Asian countries like Hong Kong and South Korea are leaders in the provision of ultra-high speed (in the range of giga bit) broadband services, and that too offered at exceptionally cheap rates. In fact, South Korea has a plan to connect every home in the country to the Internet at one gigabit per second by the end of 2012. This is in stark contrast to elsewhere even in developed economies, where broad band services are limited to a few megabits and exorbitantly expensive.

In the US, the fastest service of Verizon, the leading provider of fiber-to-the-home service, is only 50 megabits a second and it costs $144.99 a month. In contrast, Hong Kong Broadband Network offers one gigabit per second service for less than $26 a month, and it operates profitably. Similarly, a pilot gigabit project initiated by the South Korean government with 1,500 households in five South Korean cities costs 30,000 won a month, or less than $27, for a connection.

Broadband service providers in Hong Kong and South Korea undoubtedly enjoy the benefits of high population density of these countries. They also have a critical mass of consumers for these services.

A NYT article argues that in the United States, "costs would come down if several companies shared the financial burden of putting fiber into the ground and then competed on the basis of services built on top of the shared assets. That would bring multiple competitors into the picture, pushing down prices." Most broadband markets in the US have one dominant cable and phone company each.

Another reason for the lack of interest in ultra-broadband services in the US is the absence of services that require such high speeds. Uncompressed, broadcast-quality HD video, for example, uses 23 megabits a second. High speed services include those requiring two-way video-feeds like those used for tele-medicine and other services requiring video-conferencing, require software applications and service providers, apart from customers.

I am not upto speed with the latest regulatory provisions in telecom sector in India. However, the same approach could be adopted in India too where several telecom operators have already laid vast fibre optic backbone networks. In fact, fibre optic networks are today available across the length and breadth of the country, even in rural interiors. In many places, these are adequate to deliver even utlra-broadband services.
With appropriate regulatory changes, similar to the open access arrangements in electricity, telecom service providers can share their networks. The electricity distribution and transmission utilities are obliged to permit anyone to transfer electricity using their networks for payment of a fee.
In the absence of such regulatory enablers, telecom companies would be get locked up in an expensive and inefficient battle to lay competing network lines. This would crowd-out investments in content development and prevent the realization of the full potential of broadband-based service delivery. This is all the more unfortunate since unlike South Korea and other smaller developed countries, distances and problems posed by it are stumbling blocks to India’s development. Education, health care, employment skills development and many other areas could be transformed if the infrastructure and softare platform to deliver broadband-based services is available.

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