Overview:
• The big four mechanisms of economic integration and failures of these mechanisms
• The biggest failure: TFP convergence? Why?
• Ricardian trade (productivity differences)
• Intra-industry trade and considering both gains and losses of product market integration
• Scale economies of nations: Externalities, common
regulatory standards, rule of law
by Prof. Burda
#macroeconomics #europe #integration #globalization #TFP #technology #markets #institutions #trade
further helpful content:
Macroeconomics I: https://www.youtube.com/watchv=g4GV3vY1iDg&list=PLJZlW3ik4xiz6Jd1IOtMgKTKviyu1CUO_
Macroeconomics II:
https://www.youtube.com/watchv=aOZq9GDIopw&list=PLJZlW3ik4xiwwiQ6pfAHY9kUMOxpvNxiy
MacroNotes:
Good to see you all this is the last the last lecture that we’ll deal with um the microeconomics of European integration and it’s kind of an important summary of a lot of things we’ve talked about until now and I’ll give you the chance to ask questions if
You want because uh this as of next week we’ll start talking about the macroeconomics of European integration we’ll talk about the um the the um the idea of a common currency and and the predecessor of that was the floating exchange rate system with some pegging and further backwards we started
With the gold standard so Europe was basically dealing with uh itself using gold as money and that’s an interesting starting point for us so we’ll begin with that next week before we go into that subject we’ll review some of the principles of macroeconomics so we’ll just be able to review lecture
So I need to get warmed up we’ve been doing a lot of microeconomics and I will do some macroeconomics next week okay so today we want to talk about the last dimension of European integration I want to make it clear to you that we’ve we’ve talked about trade in the past few
Lectures and you’ve talked to you ‘ve dealt with this topic with barefine um this course is a bit unusual in the fact that it tries to to get European integration from the factor market side as well as the trade and good side so it’s not just about trading Goods with
Other countries and regions it’s also about people moving and capital moving and and that’s important to remember as we move to the end of this this um this segment of the course so I’ll review these um the role of trade and how it it usually works um to bring European regions
In some sort of harmony with each other in terms of Factor prices uh possibly avoiding the need for lots of Mobility sometimes it doesn’t work and that’s the failure of of economic integration and we’ll talk a little bit in detail about total Factor productivity which is not just
Technology it’s about the the level of the production function in a region compared to another and sometimes for reasons that have little to do with technology it may be the case that some regions are just more productive than others they have better infrastructure we learned that in the in the growth
Segment they may have better educated workers they may have a government that works the absence of bribe taking and Corruption it’s also important that tends to scare away economic activity if someone starts a business and then someone comes and asks for a handout or for a tries to strong-arm the
Business that kind of deters people’s desires to start businesses so these all these things matter as well and now that could be one of the largest problems in Europe and that’s the reason we have the European social uh Charter and the the chapters of that that European countries are
Required to fulfill before they can actually be a candidate to join and this may lead to to some sort of structural problems within the country so you can have structural change even in advance before the the European Union becomes and large you can have adjustment processes that that cause unemployment
And discontent so the end of the the this lecture is about trying to motivate why there’s a lot of discontent with the European integration process and we’ll talk about other types of of trade um you know we’ve talked about mostly hexual lean trade that’s the factor proportions idea countries with capital
Um Rich endowments will tend to trade and produce and export goods that are capital intensive and vice versa for countries with labor abundance but there are other ways of thinking about trade and the last one I’d like to talk about is called intra-industry trade it’s when
You trade in Goods both ways in the same type of product so Germany exports beer to France that’s kind of clear but France also exports beer to Germany and the only reason I can see that these products are different is they have different labels on them they have different reputations people have
Affinity for for certain colors of tennis shoes and others not maybe not so much and this type of preference for variety can also lead to trade okay and that’s something we have to deal with because about half of the trade we observe is really intra-industry in nature
Okay so again we’ll come back to that and then we’ll finish talking about this notion of what tfp is again an open question you know Germany and France are very similar now if you look at productivity data for hours worked um in a comment in a in an industry in the
Same industry they’re almost identical so Germany and France are like they’ve almost become a single um you know economic unit there’s very little difference across I mean maybe the French use a bit more nuclear energy and the Germans are into wind but intent in terms of the GDP per capita and wages
Per hour in for skilled workers they’re very very similar and they have similar tax systems they have similar they have there’s a lot of similarities so that’s kind of the end point of integration and you look to the East and you see countries like Poland and Romania things are still at the
Beginning of this process and the question is whether they’ll converge or not has also to do with whether we can raise the total Factor productivity in the broad sense in those places like Bulgaria Romania Hungary Poland to the Western European level that’s the final the final step in in the integration process
I’ll review quickly what we did last time we talked about rivchinsky we talked about Factor price Equalization ruchinski’s quantities Factor price Equalization is about prices obviously and Factor prices and we talked about the the way you can apply hextroline uh creatively to think about European integration
There are a lot of reasons why this doesn’t work okay so that’s important to talk about so in my view hex rolling trade Theory can explain trade integration between Germany and Poland quite well Finland and Poland but if you look at a country like Albania or Bosnia there’s just not enough Capital there
The production function may look very different there are all sorts of reasons why this may not work and if you it doesn’t work you’re going to have pressure to migrate and that pressure to migrate leads to other issues in Europe it it’s it’s causing them right now we
Know about the political discussion how many migrants how many refugees can Germany take and continue to function and pay for it so these are all the things that have led to political resistance I talked about that last time and we’ll do go into detail again let’s remind ourselves what are the mechanisms
These are the things that you know you want you want to know for the exam the four engines the four Motors of integration um again we’re making a lot of assumptions to make this work but the idea is simply you don’t have to move the factors to
Get wages and rates of return on Capital to converge and you can achieve the efficient remember the efficiency definition of integration allocation of production patterns without moving a single unit of capital assuming a single moving a single worker and that’s kind of what we’ve spent the last two two weeks talking about
The failure of this to happen and these are small regions trading in the world economy taking prices as given so this is an easy version of trade for you guys we don’t force balance trade between Germany and Poland right it’s just the German and the Polish
Firms and uh are taking prices on the world markets is given and producing efficiently to do so you can still have failures okay we can have failure of trade integration we can also have Factor Mobility may also not work and that would be in the case of putting up
Borders and preventing people from moving or investment from occurring not the case in European integration we can also have different levels of total Factor productivity let’s let’s remind ourselves what we talked about last week about why trade integration may not work you know one would be that um
Remember what this diagram is supposed to be about it’s supposed to be about sectoral mobility within a region so workers can choose between the capital intensive and the labor-intensive sectors and as a result there’s a common wage and a common weight of return on Capital in those two sectors and that
Enforces by the intersection of the two isocost curves basically two different capital capital labor ratios and those Capital labor ratios can be projected back onto the um the Edgeworth box and we can see that in this particular case e is inside the inside the parallelogram so that means that e could be achieved
An achievable point we could have Factor price Equalization relative specialization not complete specialization so you can see already looking at Point e it’s not on the edge of the parallelogram so the capital poor country will produce some Capital intensive output but it’ll produce mostly labor-intensive output and vice
Versa for the for the capital intensive region uh in this case call it call it Finland would produce mostly the capital intensive output and a little bit of the labor-intensive output okay and that if you don’t get that please study the the slides of the past couple of lectures
Because that’s that’s kind of interesting to help us understand the rest of this of this mechanism if you’re at Point e Prime this is not going to happen Okay so this is not a candidate for that type of equity you know integration so you’re going to have
Basically wages much lower in the in the labor-rich region and the rate of return on Capital Below in the capital Rich region and these factors will tend to move towards regions where the rate of return is higher okay and we can also see that that if you think about the still present
Theorem a change in the price of goods on World Markets can actually cause the shape of that parallelogram to change so in other words an adverse in terms of trade movement meaning one that affects negatively the price of one of the goods that uses one of the factors more intensively will automatically change
The angle of those two those two lines in the parallelogram so here’s a case of where um the capital intensive good becomes cheaper on World Markets the stopper Sanderson theorem explains that the effects of that by looking at an inward shift of the iso cost curve and you can see that both
Capital labor ratios will increase in equilibrium okay this causes the shape of of that parallelogram which was the sort of the Shaded area now it’s the red the red rays to be shaped differently so e was in the region before if you go back if you look carefully you can see that
He is it’s kind of the shading is not so great but if you get the slides on your computer you can see more clearly that shift causes e to be outside the parallelogram or the zone of incomplete specialization so therefore we have a failure of trade integration
Okay so then at that point you can see those little green arrows basically point to the direction of factor Mobility which will kick in in that moment when when wages and effector capital returns are different so Capital moved to the to the capital pool region and labor will move to the labor-rich region
Okay and it can also happen that technical change causes the the capital labor ratios that are implied by Factor price Equalization to be more similar so one of the neat things about this this hexrolline trade Integrations that you know the the parallelogram is not trivial it’s not like a diagonal it actually has
There are two different possible uses of capital and labor that have very different capital intensities there’s no reason that has to be true it might be the case that Capital labor ratios in both sectors are very similar and therefore we’re talking about the old-fashioned uh moving to the diagonal
Idea that we had at the very beginning of the course okay so you can you can think about you know this dot this parallelogram getting thinner and thinner and less likely to Encompass the endowment point and then you have a failure of trade integration we talked about non-traded Goods so this
Is an in this model and remember models are supposed to help us think abstractly the reason we do economics is to help us think outside the box right but to do the world is so complex that um sometimes it we really need um maybe someday we won’t have to just
Ask ask Chet gbt but in the meantime we really have to think and one way of thinking is just to say okay let’s suppose they’re just two types of goods one’s more one’s less Capital intensive and now we’re going to say okay what if there really aren’t just two types of
Goods there’s another a third good that is not traded okay and we need it in the sense that we need to get a haircut we need to get a taxi we need to get public transport we need to pay for people to clean this building and those are not tradable
Okay so that means those factors that are used for that output are not available for international trade so the the effect of that is to shrink the the relevant Edgeworth box for trade integration okay and if that’s the case you can see that it’s it’s obvious that a lot more
Points of endowment like f and E are no longer in the parallelogram of incomplete specialization in this new setup okay again this is a bachelor course we’re not going to prove this mathematically but it’s really easy to establish the general conditions you need for that to happen all you need is
Use your head obviously we go to restaurants you know we go to clubs these are non-traded goods and as long as people in capital are used in those activities it’s not going to be available for the achievement of trade um hexual lean type of trade integration I also talked about wage rigidities I’ll
Go very quickly through this the idea was simply that um if you if you’re talking about World prices that are affected by what’s going on in the region so now we move from Germany Poland or Finland Poland to a situation EU versus the US so policies
In the EU and the U.S can actually affect World prices then this would actually have a feedback and the idea was simply use your head and think about Capital as being human capital think about simple labor as being labor you can use the same theorem
Again to say that a price in in the a price decrease or an increase will affect uh directly in the same direction the factor that used that is used more intensively in the production of that particular good so in the case of of European minimum wages for example the
Idea was Europe is a big place you know we’re talking about like 400 million 500 million depending on your perspective if all those countries impose a minimum wage that’s going to raise the price of low skill intensive output that’s going to raise the price in world markets and this will affect
The United States as well if the United States doesn’t have those wage rigidities that we talked about that would lead to sort of almost like a boomerang the U.S would actually export its unemployment wouldn’t have any to Europe and Europe would have the the burden of of having
Um a lot of low-skilled unemployment so again an old old model that makes that clear okay so that’s a an idea that one has to be aware of now the U.S has minimum wages too but they’re just a lot lower so again we’ve always thought about market clearing
There’s no unemployment in the in the Benchmark model but as soon as you start thinking about unemployment you might want to get a little bit nervous all these things are going to come back to to haunt us when we talk about European integration okay so that’s just a review of what we
Did then so if you if you really insist on using the the the Paradigm sort of of this um extra lean trade uh it’s like it’s like basically moving the relevant parallelogram uh in to the light blue which would create some unemployment in the European uh Union a lot of people
Thought this was a great characterization of what happened in Europe in the past 25 years after unification for example there’s a lot of there’s a lot of unemployment in Germany a lot of unemployment in France things have gotten better of course over time we’ve got demographics kicking in and
There’s a lot less of this but it’s an interesting perspective okay any questions about that okay a long review sorry um but it’s uh it’s worth it it’s worth it and now I’d like to talk about um globalization again and we talked about this picture with the with the um and
The notion of uh what’s what’s the sense of trade international trade is supposed to make us better off we’ve noticed a big decline in tram in uh in uh cost of moving Goods back and forth adjustment uh um sorry um coordination costs have gone down because of the internet we don’t use
Telex we don’t use fax anymore we use internet we use uh I mean we use all sorts of we use the blockchain to do trade so this has made it a lot cheaper to trade so the cost of trade has gone down which means of course that a lot of
Goods that weren’t traded before now becoming tradable and it also means that sexual Mobility for those sectors that are supposed to shrink versus those that are supposed to grow will increase and then people will have to become unemployed we’ll have to change sectors or maybe young people who would normally go into
Sector a would go into sector B so this type of sectoral Mobility we’ve assumed from the very beginning the intersection of the P the um the iso cost curves is nothing but an assumption of factor Mobility because the weight if the wage is higher in the one sector people will go there
And in the equilibrium sectoral wages and rates of return on Capital are the same but if that doesn’t happen instantly you’re going to have some you’re going to have some unemployment okay so we I mean think about it think about Germany after reunification how much unemployment there was in East
Germany and how much over employment there was in West Germany okay and then after 20 years we’ve we’ve seemed to solve that problem for 30 years we’ve solved that problem but it means that for the in the moment where we have unemployment you’re going to have some unpopularity of trade
And shrinking sectors and we can think about the lausets right now in in Eastern Germany see one of the best paying sectors in the new German states was the coal industry so now all of a sudden we’re coming along and saying no we’re not going to do this anymore
You’re creating a lot of of discomfort so the point of showing this picture before was to say okay now we’ve we’ve got this situation we’re declining um transport costs container shipping international Courier Services the internet all this is made trade very cheap and you know people who who just love the idea of
Free trade would say well let’s let’s specialize completely let’s let’s just make only cars in Germany and Export them all over the world okay so this is the the limit the limit case of a world where we had ricardian trade not not actual lean trade that doesn’t make any sense but um
And if you look at the data you clear and Germany is really the the poster child of a globalizing country for its size for 82 million people 84 million however many you want to count uh it is incredibly open at the middle of Europe that’s a like
The foot mat of Europe and if you look at this you know C plus I plus G Plus x minus Z equals GDP right so you can look at the look at the shares I mean if you add those curves together you get GDP and you have to net out ex Imports okay
So you don’t have to have much of imagination to see that Germany has grown over the past 30 years consumption has grown okay but not as fast as exports not as fast as Imports so Germany is moving in the direction of integration most of this is within Europe but also with
China with the United States Etc so just to give you an idea of those those curves the big curves of movement are x and z and these are gross numbers okay so Germany’s exporting a lot export veg Meister now it’s number two but you know China is a really big country
Germany’s uh you know 80s so the Germans are real proud of that but they’re also imported Meister right so a lot of the Z is intermediate inputs that we put into stuff that gets exported again that’s part of this game and that’s part of the the shrimp I showed you last time
Remember I showed you the women peeling the shrimp in Morocco it’s the same kind of thing I mean how much of that is actually welfare improving does it have a carbon footprint you know and how many jobs are being created how many jobs are being destroyed and what’s the path
So I’ll talk about that because I think one of the most important factors that will conclude this part of the course is how much how much trade integration and how much factor market integration can Europeans take now there’s got there’s probably some limit to to what can be
Born you know economists often say okay let’s just maximize efficiency let’s just let’s just make all the cars here know but that’s probably not going to work for various reasons and one of the reasons is that Europe has chosen a way so-called social market economy to make it more
Livable to live in a market economy the fact that you’re changing jobs changing sectors Mobility is important means the government is going to step in and support you because there’s no private Market institution that will insure you against the losses that you could face if your industry collapses
Right that’s the idea behind a social market economy so it’s the island because Mobility is part of the it goes part and parcel with globalization it’s part of the story and I’m mostly talking about intersectoral okay but even with within a sector you know getting retrained to do more complicated tasks
Means you may be out of work for a while or maybe you have to go take a course or something okay all these things are part of what we call Mobility and Mobility is painful so one half of all East German Workers in the first decade after unification
Had to change in some way change their job change their their occupation and that was painful right so social policies and that’s part of the European Charter is to is to cushion that to make it easier to to accept those changes you don’t have this in the United States now the United
States gets along pretty well without it but that’s the American way you know and and if you don’t have to claim that one system is better or worse than the other you can certainly claim that the systems have an effect on the way people behave and the way people deal with change
Right so do I can I count on the government helping me if I lose my job and to what extent so Americans have social insurance but it’s a it’s a lot leaner than it is in Europe okay so you have unemployment benefits if you lose your job it’s like an
Insurance but some people think of it as a piggy bank you know I’ve paid into the system I have the right to be unemployed for six months or for a year okay it’s not the case in in the United States you have a you have people who cannot get a
Job for whatever reasons can get help from the government people consider their job a property right if you’ve worked for an employer long enough it’s it’s your job and therefore the employer cannot just fire you that’s not the case in the United States it’s also not the case in Denmark
Okay but it’s the case in Germany and France in Italy it’s kind of a tradition that well the workers put brought in something into the pot and this is an asset uh that the worker also owns to some extent and employment protection um sorry is kind of a as an effort to
Protect that that’s what it’s called but you can’t make job protection absolute because you’ll never have structural change if you do that right so you have this this incred incredible tension so there are ways to close a company if you have to it makes it hard to be an
Entrepreneur in Germany but if you if you have to you can close a company you have to pay your workers you know like a some sort of a a payout or a severance pay and some of this is actually regulated at the European level so you know the guy actually some
Condition of of getting some severance pay if you’ve worked long enough for your employer okay this is something you could also bargain with your employer a lot of people of the more liberal Traditions they want to just have to cut a deal with your with your boss it’s
Hard if you’re a single guy and you’re working in a company with a thousand workers your boss is going to cut a special deal with you you need to organize okay so I’m not a I’m not pleading for for um work for unions but that’s the reason unions exist
Because workers are always at a disadvantage with respect to the employer that’s the way I feel with the Humboldt University right so in a year they’re going to kick me out right so I’m trying very hard to fight back but I don’t have a union all I can do is
Maybe go on strike because no one will notice right so that’s the idea this is a European tradition I mean the trade unions came from Europe even though the Americans uh the us Americans had their their Heyday when unions were actually quite strong um but this is uh this is a European
Tradition so we have collective bargaining institutions right we have the government gives the workers a right to not be fired if they try to organize at least try to talk to the boss and say look you’ve you’ve paid us badly we know these these other companies are paying
More we’re more productive we see your profits you know again this is not neoclassical economics this is uh this is trying to look through the um cut through the the reality and get to neoclassical economics because we know that in the end productivity does matter it’s the reason you get paid so
Workers have to respect that can’t just go on strike because you want more money because we all want more money the government also imposes a minimum wage okay minimum wage is is an interference in the market and there must be some reason for that so one reason might be
That employers have too much power right it’s one option another might be you feel like you feel sorry for the workers who who don’t have much productivity but that’s that’s not efficient that’s not the efficient way to do it you probably just want to give workers money in that
Case but if you think employers have some Market power that you want to counteract then you might want to think about the minimum wage so these are all things that Europe has thought about a long time and this is fine print but this is the kind of stuff that countries have to
To deal with if they want to join the EU because the idea behind the EU is a Level Playing Field because globalization or trade integration factor market integration will cause dislocation okay and these when you when you’re home at in your in your in your apartment tonight look at the just read through
What’s in the European uh social chapter okay there’s a lot of a lot of detail in there so you have you have the the access to this right okay whether the countries actually give you the right fulfill it is another question but it’s also true that for me The
Hard-nosed Economist we know that these measures have an effect on labor markets okay we know that I just showed you the the Davis paper High minimum wage in Europe will cause unemployment in Europe and it will be magnified by trade with the United States okay but you know
Don’t listen to me look at the data the data show that anytime a country applies to join the EU or actually joins the EU unemployment Rises okay so this is just this is this is like the burns Mitchell diagram from macro remember that you have a peak of
The of the business cycle what happened before what happened after this is what happens before what happens after you join or apply okay here we’ve got application to entry so why would that be the case why would application start having a negative effect on unemployment what do you think just applying
I mean if you pli if you apply that means you have to have a good shot at getting in and then it takes a few years for the European commission to figure out whether you’re a viable candidate we have to start reforming your labor markets to make them look like European
EU labor markets you have to adopt those those elements of the social chapter so the discomfort starts already when you apply when you by the time you join you should be ready for for joining so that the distance the time between joining and applying is about five years
Okay so this is based on the history up until Eastern European uh accession so it doesn’t even include Eastern European exception this is no exception so you can see that when it’s about accession unemployment has already risen it’s already started Rising five years in advance
So when Poland tried to get get fit for the EU they had to do the things that the European Union Demands a lot of people resent that because it made them already unemployed before they joined the EU unemployment started rising in the in Polish industry because a lot of
Their industry was not competitive right the Polish watch industry so in the Communist times there was a serious watch industry in Poland making you know okay it’s gone it’s completely gone like a lot like a lot of other Industries in Poland but for that you know in return the polls have expanding
Um Furniture industry steel chemicals whatever all the things we talked about before okay so it turns out this is a fairly regular thing you can correct it for the business cycle Etc it still shows up so it’s there is this discomfort not just of joining but getting ready to join
Getting your economy ready so not surprising a lot of countries are not so happy about being a member of the EU okay so I’m going to show you some really interesting statistics this is this is the Euro barometer which is a survey of Europeans all you know Europe is a huge place
I mean it’s not a country yet but it’s if it does become one it’ll be bigger than the United States in terms of population obviously right 400 million plus so this is um this is basically 2007 I’m going to give you the the timeline this
Is 2007. each one of those bars is a country and if you take the slides home tonight and look at them you’ll see which ones they are the question is in German which of the following statements um reflects accurately your opinion about globalization okay in the blue bar is globalization offers a chance
Thanks to the opening of markets for my own countries Enterprises companies okay the Red Bar is agreement with globalization means a threat a threat for my employment and from our firms in my country okay so who wants to guess I don’t know if you can see this but which country is
On the right on the farthest right you all know license plate identification right and this is I’ll show you in the next 20 years this hasn’t changed or 15 years okay next to France is Cyprus and Greece these are all countries that have had some issues in adapting to the opening
Even though France has done very well we’ve seen the data they haven’t done as well as others go to the far left Denmark small open economy the Danes are pretty cool about a lot of stuff but they’re also really cool about free trade because they see it they see it as a
Chance and it’s a small country between five million people right they do have some issues with immigration but in terms of trade they’re okay and then we’ve got Sweden Netherlands Estonia Slovakia Poland UK so smaller countries UK is a is open Britain but open Britain eventually left right and
You’ll see that when you look at the next the next seven years okay this is the same question more or less but slightly different representation because a lot of people didn’t have an opinion so you have to put those up as well so you can see the identity of the
Country hasn’t changed much Scandinavian countries the Baltic countries on the left and on the right you’ve got Greece you’ve got France Cyprus interestingly Czech Republic shows up so we’ll have to explain that to me in the middle you’ve got Germany so Germany’s kind of torn you’d think Germany opened economy globalized
Exported Meister they would be really in favor of of all this stuff ain’t that ain’t so the people feel threatened they feel like their country companies are being threatened their jobs being threatened okay we can update it to 17 and of course things can change like the financial crisis in Greece which we’ll
Talk about in in the next few weeks was a big negative for the Greeks and they really this is an outstanding example of how Negative they were thinking about it and Greece is not an open economy in comparison if you take the fraction of exports plus Imports divided by two of
GDP and compare that with Denmark it’s like night and day is it because the Greeks were spoiled by tourism they used to have an export industry in the 60s and 70s so maybe you joining the EU was part of that negative effect I don’t know anyway The Story Goes On so my
Research assistant actually got the most recent data nothing has changed the rent correlation the way people feel about Europe and and when I say globalization I mean trade integration factor market integration with our neighbors mostly Europe but also China Africa United States over time it’s clear that Europe has understood it
Overall this is the average this is the EU bar over time so every year you see the the fraction of people who find globalization opportunity for economic growth they seem to be getting it because it’s gone from 47 to 67 but you still have this hardcore of people who just
Don’t like it and we see this in political debates now even today in Germany right so this is the European reality this integration has led to this picture which is basically many countries think the EU is the greatest thing that ever happened we’ve benefited from it interestingly Poland
Is also very high even though you hear this Euro skeptic noise but then you look at France only 63 percent Germany’s only 73 percent it’s just a snapshot from 2021. okay so you know integration Works um we’ve seen this and I’m going to show you some really interesting data convergence has occurred
Within Europe there’s no question about it there is no case of a even in Greece things have gotten better okay because they’ve had some serious setbacks but you have to pay at the price so let me just give you an example of how much structural change Germany has gone
Through in the past 30 years okay so this is a an example of the share of GDP and Manufacturing so Germany Prides itself as being in manufacturing Nation it always was in the 1920s Germany was exporting Machine Tools to the United States and they still are okay but the
Fraction of workers in and the fraction of GDP in manufacturing has shrunk a lot and it’s shrunk everywhere even Spain I mean Spain is a newcomer to the EU built up a lot of auto manufacturing seat was taken over by Volkswagen grew very fast but overall what’s happening is we
Have growth and services and I’m not just talking about tourism or cutting here I’m talking about business Consulting I’m talking about you know accounting services I’m talking about restaurants all all the sectors that are labor intensive okay and you know even within Germany after unification you saw this so this is an
Example of of West Germany so this is a study that I did looking at just West Germany after unification so you see this slow structural change going on over the over the um over the years before 1990 1989 see that manufacturing is kind of a production manufacturing plus mining
And energy is kind of slightly declining there’s a slight rise in construction slight rise in in services and then after unification things change really dramatically because suddenly West Germany was competing with East Germany competing with Eastern Europe and you can see that the manufacturing shrank quite a bit
Those people are are now working in other sectors or they’ve retired and you can see this in as a measure of entropy so the if you go across sectors which sectors are growing which sectors are shrinking um the real world is very chaotic if you
Look at the micro micro you see some you know right now the energy sector is is booming if you’re if you’re making heat pumps and it’s shrinking if you’re making coal mining equipment both of those things are being made in Germany right so this measure of entropy also went up after unification so
Sectors that were growing in absolute terms While others were falling that measure of of of of chaos was increasing so German unification was not just an event for the East Germans it was also an event for the for West German uh industry as well so this is why Germany had a crisis I
Don’t know if you you’re maybe a bit too young to remember this but the hearts reforms were response to exploding unemployment in West Germany and also in East Germany the government kind of realized we cannot continue to pay for this we have to generate enough value added to share
It with the people who are less fortunate and can’t get work we have to make sure the structural change occurs so you can think of the hearts reforms as being an effort Chancellor Schroeder at the time did this not because he’s an evil man but
Because he he was advised by a lot of economists look if we keep going on this path we’ll end up in a very bad place okay in the meantime unemployment in Germany is so low uh you you have the fantastic opportunity when you go in the job
Market you can probably get three or four offers and decide when I dealt with students 20 30 years ago talking about this I was saying please apply to as many people as many jobs as you can because there’s a it’s really hard out there it’s a tough tough world
Okay so things have changed a lot and Germany has managed to deal with that crisis so let’s talk about you know again we’re looking at convergence this is a great way of doing this I mean if you write your Bachelor thesis on on some measure of convergence you can you
Can do this very quickly this is taking um International price Data International constant dollars night of 2011. and basically using the us as a benchmark not Germany but the US so you can see how Germany also kind of um stumbles this is 1995. this is during the exuberant years of post-unification
And you can see that what’s happened in these two in these intervening 10 years is that Bulgaria Croatia Czech Republic Latvia especially Poland increased relative to Germany Germany falls back because they’re adjusting all those unemployed people were not working in 2005 that’s when the hearts reforms were implemented okay
The world doesn’t stand still the UK was growing okay this is 2010 so Germany’s starting to move a bit closer to the United States moving from 70 80 to 84 percent this is per capita so it’s a race everything everyone’s moving at the same time but the most
Interesting thing is looking at the Baltic countries and the Eastern European countries in general how much they caught up okay because I mean we all think you know I mean when I first started thinking about Bulgaria and I went to Bulgaria in Romania in in 1992 it was a very
Different place than it is now and they’re still not done so here’s 2016. um The Gap is closing and Germany is also in some sense doing better and the most recent years we see that the UK as a consequence of brexit actually falls back with respect to the U.S and Eastern
Europe continues to close okay so it’s a it’s a it’s a very interesting convergence process but it’s not uniform there can be setbacks and if you look at Greece you see a huge setback in in 2009 2010 and they’re still recovering we’ll talk about that next uh in the next few weeks
Okay I’ll skip this overall we still have to deal with this issue that Europe may not actually be able to make regions look like the European average so I mean we’re kind of assuming that it is possible for Albania to adopt something that looks like the aggregate production
Function in France or Germany that may not be feasible for whatever reasons if it’s because of corruption or it’s because of of bad governance or ethnic Strife we can’t do anything about it but you can also just say you can’t join right so Bosnia would like to join um
Kosovo would like to join it’s not clear that they had the conditions the preconditions and if they don’t have the preconditions and you let them join you’re going to have a situation like this imagine if you have a world where you have the Edgeworth box but you have fundamentally different productivities
So the diagonal is no longer a relevant point of of efficiency the efficient allocation is to move everybody and every unit of capital to the productive region so if you you know if you want to think about this in terms of Berlin and Brandenburg this means like emptying
Brandenburg of people and capital and moving it to Berlin that’s the efficient solution now you’re going to say man what it’s a crazy idea but it is The Logical consequence of these permanent efficiency differences and you don’t want to do that with a country you don’t want to have everybody and
Everything over here so think about that their congestion costs obviously if you move all this stuff from Brandenburg to Berlin and by the way there are some nice parts of Brandenburg brandenburg’s like a donut around Berlin for those of you who don’t know and some parts of the
Donut are quite good and some parts are pretty empty I mean about half of Brandenburg is a national park or a wildlife preserve now you know it makes sense because there are lots of you know storks you want to take care of you want to protect
But in the limit you don’t want to you don’t want to go all the way so it’s about tfp convergence and I really wanted to get that on the table okay so let’s let’s talk about trade now go back to trade and this is the the last um
Cut will do on this the last take we’ll do on trade because there’s an element of trade that we haven’t talked about we’ve talked about this is you know relevant for the for the exam there are three types of trade ricardian is the one that we all learned about in
High school comparative advantage right not absolute advantage and we we’ve kind of understood that if you if you take ricardian trade too seriously you should completely specialize and we know that’s not feasible either so it’s just a it’s showing some of the tension uh between highly productive um regions and less productive regions
You want to have some sort of diversification and that’s what hex rolling would tell us because as soon as you have capital and labor in the story then you’re going to have the ability to produce more or less of the capital Labor uh Capital intensive or labor intensive good
The final type of trade which I alluded to already was that we might be doing two-way trade so Germany exports beer to Poland and Poland exports beer to Germany why would they do that why would the French export um beer to Germany or why would the Germans import or export bicycles to France
Because the French do it better French bicycles are better just just assert that maybe it’s not true anymore okay they were quite good at it why would why would the Germans import Machine Tools from France it’s not just because they’re cheaper maybe they do something very special maybe they’re specialized maybe there’s
Product differentiation all right so maybe on even days of the week I like to drink less beer on odd days of the week I drink Steinberg okay maybe I like that maybe it makes me happier I don’t want to I don’t want to have the same stuff every day
Right so variety is the spice of life or productivity is different certain types of screws you know may work better for certain applications of course I can always use a nail but maybe I want to use something specialized so this type of specialization is what makes trade between countries and regions actually
Happen even though they have identical Factor endowments so France and Germany have huge export flows import flows fascinating half of German French trade has been attributed to intra-industry trade intra not inter intra-industry trade so how do we think about that how do you explain that well we I
Already tried to explain it there’s maybe a preference for differentiation there’s something else going on Something Else Matters for that what do you think what do you need to create variety what do you need to make your product different from the others what would that be what would that be
Specialized inputs it’s very sophisticated just think about the example I gave you what do you need to to make Steinberg up his special yeah you need to convince people like us that it’s different what do we call that what’s it called one of the business people call that
Marketing right so you have to convince people maybe it’s a maybe it’s a big fat lie you know maybe they are identical but you need to convince people that there’s a there’s a willingness for them to pay for it and it’s different product differentiation marketing maybe it’s maybe it’s real I mean I
Particularly I like to run in New Balance shoes and I’ve been using New Balance shoes for 35 years and this is not an ad for New Balance because I like them I’ve tried other shoes and I don’t like them right that’s just me and it’s a good brand and if
They don’t work if they fall apart I can take them back and they’ll replace them Etc so New Balance this company in Massachusetts has invested you know years and years and years and trying to convince people not just convince them but actually make a product that’s
Different so they have to do a little bit of Special Sauce to make that shoe better that’s true of a lot of products so you had a question did you have a question exactly right so like some some of this differentiation could be natural like you know just exogenous because
You know Germany passed a law in 1516 I think said that you can only have four ingredients in beer and a lot of people think that was just to protect the beer producers or prevent people from putting strange weeds in the in the beer uh in
The end it has made German beer is kind of special so if you go to the United States you can see that then Americans know what the reinheit’s kaboot is thing yeah can’t exactly pronounce it but I know what it is all right so that’s this this investing resources or
Some natural reason that resources are different and if that’s the case you’re going to have scale economies because to invest in a reputation you have to spend a certain fixed amount of money and then you create this image whether it’s true or not it may be true
Like I said New Balance they’ve invested a lot uh Microsoft computer why does Microsoft make computers well they’ve got a reputation and it’s pretty reliable and I’m willing to pay a little bit more for that as opposed to Adele just because I like it and they’ve convinced me so it’s kind
Of a mixture of Truth and and uh and clever marketing okay but that involves scalar companies because you have to expend a certain amount of money in any case no matter how many you sell I got to spend a certain amount of money marketing it’s a fixed cost
Okay and if there’s scale economies and you have free trade then you can expand your Market and what do we know about fixed costs the more you sell the lower the average cost and if the price doesn’t change the higher your margin because you’ve already paid the fixed
Cost and now you can just produce lots and lots and lots uh depending how the marginal costs are looking you can make lots of money okay so fixed costs induce what we call local scale economies so when leche starts to export to Germany some Germans know about Lesh because
They’ve been to been to to Breslow wherever they’ve seen it before um yeah plus none um and that means that this reputation um expanding the volume means an increase in profits because the fixed costs have already been paid this means that when you open to trade
You kind of your you can go into the other Market so the German companies that are engaging in Poland can sell into Poland and they don’t have to pay those fixed costs again and the Polish companies can do the same thing so that’s the the logic of imperfect competition with local scale economies
So you know this hex rolling doesn’t capture this at all so we have to throw textural lean out the window because we now have increasing returns we have to think hard about this this is the case of intra industry trade because I get to go in their Market they
Get to go in my market we can expand but maybe profitability will be threatened so some some Brands may not make it so the fact is there’s a preference for variety and there’s also production variety so again I talked about different types of tools the more specialized they are the more productive
They may be these are all kind of uh similar ways of looking at the same thing okay so if you have scale economies free trade means I can expand my market in the other region but I’m going to have to have incursion I’m going to have to accept incursion from the other guys
So we have competition competition in the case of imperfect competition not perfect competition with a price taking Behavior okay so you have this gains of trade look a little bit different it’s not just me getting a cheaper loaf of bread it’s about It’s about price reductions because the price of beer on average of all these different brands even though I have different willingness to pay will go down okay there’ll be more variety so I don’t have to drink the same beer every night I can every day of the week I can try something different
This is the this is why French French import German wine they kind of get tired of their own stuff right it’s why Germans import French cars incredibly interesting because it’s not in our hex rolling model actually model is very homogeneous type of good now the downside is that some
Companies will go out of business and my colleague and co-author Charles wipplow’s always told me that um the downside of globalization for the French is that they have less French cheese brands okay so you all know what Charles de Gaulle said how can you have agreement in the country whether 450 different
Types of cheese the French love cheese and they like the variety and if a little local producer of cheese goes out of the business because the Danes are importing exporting into into France that’s going to cause some tension and that’s one reason why the French are not so crazy about globalization okay so
It’s a little bit like survival of the fittest some com some companies will not make it when I first came to Berlin there was a beer brand called Poison pivots does anybody remember poison pills it was probably it went out of business before you were born it was like 1993 or something
This is a and you know a lot of these Brands were bought up by other West German beer brands producers you think you’re still getting you’re getting uh an East German brand but you’re actually getting a Westerner brand that’s brewed in East Germany okay but in this case poison pills
Disappeared gone next Pier is in Potsdam another brand that disappeared so a lot of people in Potsdam probably miss old Rex pills maybe if there’s enough enough demand it’ll come back but it won’t come back in the guise of The Old Company okay so let’s talk about these in detail
Why do we have price reductions obviously I expand my market by moving into the other region fixed costs get amortized over larger volumes prices go down I’m going to have a picture in a second to show you that think about your model of imperfect competition from micro economic uh price setting
You got to have those fixed costs and you’ve got to have fairly flat marginal costs and that’s probably a good characterization of a lot of the products we’re talking about you also have an increase in variety okay so you have more entry you have larger markets fixed costs Don’t Change by definition so
Basically more Brands can be sustained but if you add n and n you may not get 2N so if there’s n brands in France and N brands in Germany and you integrate some will go out of business so you’ll have 2N minus something so that’s the part I was talking about
The culling of firms the fact that the most inefficient firms will disappear so the little goat cheese producer in Charles whitlow’s Village went out of business they just couldn’t compete with the larger cheese producer down the down the road now you might say well so that’s Market
That’s that’s the market economy but if you value diversity and you think this is your national identity then it may not be so easy right because the Danish make blue cheese the French make blue cheese and last time I was in Copenhagen a few months ago you can actually get to talk
Far and it’s it’s there so the Danes have accepted it um question would be how much Danish cheese can you will people buy and be willing to pay for in France okay because just allowing for free trade does not automatically mean that it’s going to happen so let’s just remind ourselves
The theory the theory is really easy if you did micro you remember this stuff you got a negatively slope demand curve the willingness to pay for any brand is not constant okay so basically the idea is a the seller of this particular brand this this product has is facing a negatively
Sloped Supply demand curve which means that if I raise the price I’m going to have fewer units that are demanded but it might be the case that my prophets could be higher it depends on how my costs look and this is from Baldwin wipplow’s flat marginal costs so just make it as
Easy as possible so produce an extra bottle of beer I just have to put in a certain number of uh of euros and that’s and that’s it and no matter what volume I have but I have to pay these fixed costs so in terms of the margin you can see that the
If the marginal revenue is the additional Revenue I get by increasing my volume of one unit I have two effects one is I get more in the sale but I also push my price down okay and that marginal revenue curve is always below the marginal willingness to pay which is the demand curve
Okay so you optimize you maximize profits when you set marginal revenue equals marginal cost and you choose Q star that’s the theory now suddenly you have another competitor so you thought you had a monopoly and suddenly someone comes into the market so what’s going to happen well it
Depends on what the other guys are doing so if both if both firms are behaving symmetrically you can think of this as kind of a an increase in the elasticity of demand for your product give them what the other guys are doing but also um you’ll choose a different volume you’ll
Choose to to sell less okay and in in a dual a duopoly case these have to be constituted with each other we can generalize this to a to a larger set of firms the idea is simply the markup the markup will decline the more competition you have
So more firms are out there the less you’re going to be able to exploit under very robust conditions there’s a particular uh industrial organization concept being applied in this case but it’s a generalizable idea the more firms the higher the elasticity of demand and the lower the marginal cost marginal revenue
Markup that you can have okay because remember the you choose the price that sets marginal revenue equals marginal cost and then you have a resulting profit after you subtract the fixed costs and that’s what we call the markup okay there’s a there’s a markup on marginal cost and there’s a markup on
Average costs you can calculate both of them European integration has an effect on that situation so you’re going to increase the the elasticity of demand for your product because you’re competing with the other guys but your volume potential volume will go up that is the amount of units you can sell
In the other region will go up so it’s a race between those two possibilities so a lot of firms will benefit from open trade and some less efficient ones will not okay so here’s the diagram you’re going to have to learn and barfing is an expert on this
She was she did her master’s degree in industrial organization she knows this stuff called this is going to be basically the the model that we’re going to think of and this is in the book as well so instead of the price on the vertical axis we have the markup
How much can I mark up over my costs okay and like I said The more competition you have the harder it is for me to to put a markup on my costs because I’m competing with all these other similar Brands um that may not be as good as mine but
There’s certainly some price elasticity involved it’s break even curve which says the the larger the number of firms are the larger the markup has to be to cover the costs because you have to cover marginal and fixed costs to stay in business right if you do if you have negative
Profits You’re Going to exit the industry if you have positive profits you’re going to be happy and they’re talking about economic profits now okay so the break-even curve says that the more firms I have the higher the mo the markup is going to have to be to sustain and pay for those
Fixed costs okay so this is the diagram I’d like you to use to think about European integration this is totally different maybe you’ve never seen this kind of stuff before but it’s really super interesting this breakdown we’re now thinking about imperfect competition we we deal with it
Every day every day we deal with you know imperfectly competing firms what is the effect of opening up Germany uh to the Polish market letting Polish people come over here polish firms sell their stuff here and let German firms sell their stuff in Poland which one of these curves is gonna is
Gonna shift the most or shift at all if you think of each firm having a very similar cost situation in terms of fixed costs and in terms of marginal costs the be curve will shift because we’ve you’ve doubled the size of the market if Poland and Germany are the same size
Opening up to trade will mean that German firms can sell in Poland and vice versa the competition curve the sensitivity of the of the markup depending on the number of firms won’t change you just got more firms there are more polish firms in Germany competing so that that curve won’t shift what will
Shift is the break even Curve will shift when you integrate markets you end up having a larger number of firms that have to be sustained at a given markup okay so you can see what’s going to happen if you think about the intersection of those two curves as being the equilibrium markup
And the equilibrium number of firms the the old equilibrium was in the upper left and the new equilibrium is in the lower right so opening up to Poland means that potentially a large number of firms could be supported but they won’t make it because the markup will go down and
They won’t be able to cover their costs and therefore what is the outcome we move to a lower markup prices are lower so we should be happy as consumers we’ve we don’t have two n firms we have less than two n firms so exit occurs the French cheese
Producer that didn’t that had two high costs or or just you know randomly just went out of business because you can’t sustain uh two end firms so that’s the that’s the what we call the downside of opening up to trade in a world with imperfect competition okay so that’s the that’s the conundrum
You know you’re going to have losers I said this in the very beginning you can have losers and winners in trade consumers will benefit globally because of the prices of all the products go down we will miss some products because they disappear so it will be some loss of variety
Relative to to 2N but we’ll have more variety you’ll just have to consume other regions variety okay so poison pills disappears but as a result okay sorry I was talking about beer too much but it’s just always on my mind so um let’s finish by talking about foreign direct investment in conjunction with
That so one of the things that fascinates me whenever I go to Poland look at in industrial facilities is a lot of what the Germans are investing in is output that they’ll sell back into into Germany so You observe a lot of investors buying um buying stuff that ultimately gets
Re-exported so these things are not separated FDI is part of the story kafua famous French retail outlet one of the largest in in uh in Europe actually was very active in Poland very beginning from the very beginning they invested in lots of stores right um FDI is part of that differentiation process
And of course it’s also having all the other effects we talked about it increases Capital intensity it’s not just about creating differentiation so all these things are happening at the same time it’s not just Factor intensive factor intensities that matter it’s also the the product differentiation and re-export so don’t be surprised when
German investors go into Poland and buy food production and re-export it a great example of that I showed you at the very beginning was Dairy production so a lot of Brandenburg Dairy Capital moved to Poland and that those dairy products are being re-exported to Germany that would only have been possible with the
EU so your milk is cheaper if you drink milk it’s cheaper as a result okay so I’m about to finish now I’m going to talk about the final the final summary tfp differences we talked about this already um think of tfp as not just technology it’s not just
You know it’s the height of the production function how much can we produce with labor and capital but it’s not just because of Technology you can have similar technology available but for some reason that the economy just doesn’t cut it okay so maybe maybe workers are less well-educated because we don’t
Have education this production function is just k l it could also be because there’s not enough roads and infrastructure there’s not enough hospitals so people can stay healthy all these things can affect productivity it could also be corruption I’ve mentioned that a lot right if you’re in a country
Where there’s a rule by a bunch of um of gangsters it’s going to be very difficult for you to do business there it’s going to be very difficult for you to attain the same level of productivity as other regions so all this means that um you have a a barrier to to integration
So Europe has this problem but it has other problems as well okay European integration has taken a long time so it tells me that even with trade integration even with Mobility there are certain things that are preventing uh convergence of some regions and I think of southern Italy for example
Okay I think of parts of of Germany right and every country is willing to support with their tax revenues certain regions even though they’re not never going to make it so this is part of the this is part of the the formula for a country but what
Happens when you move to a region from a region to to Europe now how much how much obligation does Europe have to take care of parts of Greece that have never developed there are parts of Romania that will take another five decades to develop probably
You know it’s going to take a long time and the Metro Giorno has been around for many many decades some people say that parts of East Germany will not not make it in terms of so you know can Europe actually sustain that type of outcome how much how much willingness to pay uh
Is there in Germany to pay for developing areas of Bulgaria or how much willingness of Bulgaria is there to pay for parts of Germany right so this is this is a question about solidarity where does this stop so you’ve got you’ve got this you know um you’ve got this tribalness of Europe
Which you don’t have in other countries you don’t have it in China you don’t have the United States and you can say you have something like that but it’s not the same right there’s a certain amount of common identity people still don’t identify as Europeans this is always going to be a problem
And yet we we know and this is the last Point externalities are important so what are externalities by the way I had a I had a fantastic meeting yesterday with cookies he’s the he’s the the consulate I should I can say this freely fascinating economic analysis like he
Took all the economics course he was talking about extra nowadays just about public goods he was talking about uh you know competition policy it was fascinating so the abundance council is getting advised by a really really smart guy so what’s an externality and why are externalities important for Europe
Again that’s something we learned in economics of Market does not always solve everything right unless you unless you figure out a way to establish property rights for an externality yeah right it’s outside the market all right so if I if I put a big solar panel on my roof and it reflects
Light into your window and you live next door in your apartment you know I should actually pay you because I’m blinding you every time you look out the window you got the solar panel reflecting I’m doing something good but at the same time I’m creating this negative effect on you so there’s no
Market for that you know I could come over and ask you can I can I pay you to tilt your solar panel and you say no no I’m maximizing my my electricity production uh and there’s so many examples of like that think about the the the wind power parks
And that are being refused by the bavarians because they don’t want to soil their beautiful countryside but the northern Europeans the northern Germans are doing it you know beautiful Mecklenburg football and it’s turning into this big wind Park um these are externalities but also there’s having a border policy is involves externalities
Okay if I push people back I push them into other other neighboring country that’s kind of an external externality Germany doesn’t have to deal with with the with the Turkish migration problem so it’s easy to say whatever you want right um environmental regulation if the French put nuclear power plants
On the German border their good right to do that isn’t it creates a lot of externalities there’s all sorts of other so every country dealing in in this trading Union Customs Union exerts a little externality on the others and Europe is about trying to conquer those externalities trying to try to
Harness them right have a common energy policy if you’ve got a way to have a common electricity grid instead of Germany just doing its own thing why don’t you coordinate and by coordination you can actually achieve a more efficient outcome it’s not in a production function we’ve talked about it’s really
About externalities my action affects your productivity your well-being so that’s what Europe is really about on the trade side on the migration side on the capital Mobility side all these little countries interacting with each other you got to put the national identity aside if you don’t do that
You’re going to have to you’re going to pay a lot a pretty high price in the future so think about think about what happened with brexit it’s going to require some some imagination I don’t know if you’re pregnant remember brexit but I certainly did I was teaching this course when it happened
It happened about this time in 2015 okay the the vote for 2016. um the um the English were the British were very mad because Chancellor Merkel said let them in and a lot of them didn’t go to Germany a lot of them went went to went to the
UK and that’s an externality you know no one asked the UK they didn’t have a conference how to deal with this this crisis and I have no problem with migration but I think every country’s migration policies has external effects on the others and if you feel like you’ve been
Ignored and your concerns have not been taken seriously then of course you’re going to get upset so I’m not saying that brexit was a terrible idea for the UK but it was provoked by external effects of policies on the continent especially in Germany okay so these are things that you know you
Really need to have a governance structure and you have to figure out some way to prevent uh this from getting out of out of hand this applies to other things as well tax policies we talked about Ireland already Ireland you know for a long time they had really low tax
Rates and they got lots of American FDI and lots of German FDI and UK FDI and we’re able to develop their country almost in a in an exploitative state but I mean you can praise it because it was economic growth but you could also criticize it uh should we somehow regulate that
Behavior is that a good thing well now Ireland has moved back into into line with the other countries but we need to do better at figuring out the challenges challenges of regulation of prop products you know what good does it do for Germany to control plastic production if the rest of Europe doesn’t
Do it right this is the it’s absurd that you know these these it makes to me it makes so much sense to have glass bottles recyclable glass bottles when I was growing up we had them milk came in glass bottles right now everything’s thrown away okay but if Germany adopts
That policy without coordinating with the others it’s not going to help especially with open borders same thing is true for aluminum cans of beer same thing that’s right and so you have to have the the cost of standardization so this is this is about labor law consumer law Environmental
Protection Law climate change global warming and public health I wrote that just in response to the pandemic because every country’s individual pandemic policy has externalities especially if you have open borders protecting public health is a huge externality and thank goodness Europe was able to figure that out okay so I’m I’m
Basically trying to summarize the most important um issues will Europe ever become like the United States I mean is that something you want I don’t know what do you think so you talk to most Europeans they like their identity it’s their language their history culture America is like a Melting Pot it’s not
An accident but they call it that because you can move anywhere do anything and the uh so the European Mobility immobility that we that we seem to treasure um and willing to pay for doesn’t exist in the United States so again something you have to think about um right Okay so
Flaming the Raider this is the end of the microeconomic part of the course so next week we start talking about macro because there’s a there’s a obviously a level difference between the two um well we like to think that macroeconomics has just applied microeconomics and maybe in some level
It is but you have to take shortcuts and that’s what we will be doing next starting next week okay so these are the concepts you want to remember for next time there are a lot of them and please go to the section this week with Bethany because she’ll talk about this be comp
Model in detail all right okay so have a great week see you