Professor [David] Teece doesn’t dispute estimates that his career earnings from expert consulting amount to at least $50 million.

That is from today’s WSJ, it is a fascinating article about economic consulting.  Teece estimates that sixty people at his firm earned $500,000 or more last year.  Here is Teece’s home page.  Here is another article on Teece.

Tyler suggests that dollarization raises prices.  I am in Panama investigating.  It´s true that the price of goods here, with the exception of some labor intensive goods like food preparation and taxi service, is similar to the U.S.  Despite Tyler´s recondite arguments, however, I think dollarization lowers not raises real prices.

The argument to the contrary is mostly an illusion.  When there is an exchange rate the nominal exchange rate can depart far from the real exchange rate.  Over a matter of months a country can become very cheap or very expensive for tourists.  The real exchange rate, however, is much more stable than the nominal exchange rate.  So when dollarization fixes the nominal exchange rate a country is unlikely to become either very cheap or very expensive.  Add in the selection argument that tourists visit when the country is cheap and its easy to see why it might appear that dollarization raises prices.  (and for residents there is a selection effect also, dollarization happens when the country has been pushed to the wall.)

Overall, however, currency is mostly neutral and in the case of dollarization the effects if anything will be positive.  For a country like El Salvador or Panama dollarization brings lower transaction costs and higher quality money which lowers real prices.

Addendum:  Tyler, however, is correct about numero 6.

Most unions are found in manufacturing, but the new pro-union arguments emphasize the creation of unions in service industries.  I can think of a few differences between manufacturing and services:

1. Labor costs are more important in service industries, so unions have less scope to raise wages.  This is Megan McArdle’s argument.

2. There is more long-term fixed capital in manufacturing, and that gives unions greater scope to confiscate those quasi-rents.  This is related to #1.  (In a service industry, would the transfer be taken away from the return to brand name capital?)

3. On average there is more market power in manufacturing, which again gives unions greater room to raise wages in those sectors.  In a perfectly competitive industries, extra wage demands will bankrupt the firm. 

4. Many service sector firms face less foreign competition, but I believe they nonetheless face more competition overall.  Lower fixed costs mean a more competitive industry, which brings us back to #3.

5. Jobs have shorter duration in service industries, which tightens the link between wages and the current state of the labor market.  That also means a smaller role for unions.

6. We have a mental model of service sector companies such as Wal-Mart, which try to get by on the cheap in labor markets.  It is harder to make the same claim about General Motors.

The bottom line: Except for #6, most of the effects imply that unions will be less effective in the service sector.  You’ll all think of some mechanisms I didn’t, but my tentative conclusion is that unions bring both lower costs and lower benefits in service industries.

I might add I once belonged to a service sector union, in a supermarket as a teen.  It was not a pretty picture.  I paid high dues and received no apparent benefit, relative to the workers in non-unionized supermarkets.  I even heard rumors of corruption.

A loyal MR reader asks:

Are the markets adapting to the warmer world?…

# Are the prices of real estate in cooler areas of the world going up at the expense of the prices in warmer areas of the world?
# Is R&D money being invested in cheaper and more efficient cooling systems for buildings, cars, individual people?
# Are the shares of wine producers in the UK or Germany going up?  As the south of the UK gets warmer, the quality of the wine should increase.  What is happening to wines from regions where grapes won’t grow in the future?
# How about ski resorts? Would you start a new one now?

It is hard to specify the relevant comparison or "event study" (what should the price of a UK winery be?), but I haven’t heard of significant market price adjustments in secondary assets.  This NYT article, about real estate price effects, is mostly speculative.  Corn and ethanol prices are way up, so why not Canadian real estate?  Most of all, the time horizon of many pending global climate changes might be thirty years or more, maybe a century.  The claim of Nicholas Stern is that "we," standing in for the social welfare function, should care about the future more than markets do; evaluating that view, here are my posts on the social discount rate.

A few of you asked for posts on carbon taxes but that has been covered already.  A carbon tax will work only with some probability, mostly because international cooperation may not be forthcoming.  That means it is best to sub in a carbon tax for some other tax, in balanced budget fashion.  Here is a more general post on global warming.

#This counts for at least two more in a series of 50.  I’ll say I’m up to 30.

Addendum: Glen Whitman links to David Friedman.

English economist Andrew Oswald
has shown that across European countries, and across U.S. states, high
levels of home ownership are correlated with high levels of
unemployment.  More conventional factors such as generous welfare
benefits or high levels of unionization don’t explain unemployment
nearly as well as the tendency to own houses.  Renting your home and
staying flexible do wonders for your chances of always finding an
interesting job to do.

Tim Harford has more.

Latin America’s Monopolies.  Are they necessary?  Why?

So asks an MR reader, how loyal he is I cannot say.  No, they are not necessary.  They just aren’t, that’s why.

#27 in a series of 50.