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Trivia Tidbit Of The Day: Part 512 - Big Government Big Macs.

Costs Tied To Regulations-

The Dallas Fed has a really informative piece on its website that imparts some great lessons about trade, tariffs, regulations, labor laws, and the impact of other economic and fiscal policies on simple items:

The Big Mac itself isn’t tradable, but many of its ingredients are. Transportation costs for frozen beef patties, cooking oil, special sauce, sesame-seed buns and other tradable Big Mac ingredients can create price gaps across countries. The added costs aren’t trivial. A 2001 study, for example, found that transportation raised import prices 7 percent for meat, 6 percent for dairy products and 16 percent for vegetables.

The costs imposed by tariffs, quotas and other trade barriers can contribute to price disparities between countries. Tariffs directly affect import prices but only indirectly affect import quantities through price increases’ dampening impact on consumer demand. Quotas, on the other hand, directly restrict import quantities but only indirectly affect import prices by creating artificial scarcity.

And here's a neat chart showing how Big Mac prices increasingly vary as more borders are crossed:

While trade is definitely a significant component of Big Mac prices, so are labor laws, including pro-union regulations, raising the minimum wage, and even certain OSHA requirements. Interference in the free enterprise system harms the buying power of real people.

To quickly digress from this post, have you noticed that the unemployment rate for those in their teens suddenly shot up after Democrats came in and caused the minimum wage to shoot up? It's now at one of its highest levels in many years. Or that inflation not related to energy suddenly ticked up at the same time, after remaining tame for many years?

Right now, it appears that people are misinterpreting this financial turmoil. We may end up with the most pro-labor union government since FDR, the most anti-trade government since Herbert Hoover, the most ardently high tax administration since Jimmy Carter, and the administration that is the most favorable to increased government regulation since LBJ.

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Posted by Will Franklin · 2 October 2008 10:04 AM

Comments

Posted by: Ironman at October 2, 2008 12:01 PM