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Brooks Wilson's Economics Blog: Glaeser on Austan Goolsbee

Thursday, September 16, 2010

Glaeser on Austan Goolsbee

Principle 6 in Manikiw’s Principles of Economics is “markets are usually a good way to organize economic activity.”  This is not a point of contention in the economics profession.  Economists on the political right and left tend to trust markets more than non-economists.  Edward Glaeser offers evidence that a politically left of center economists like Austan Goolsbee, President Obama’s new chairman of the White House Council of Economic Advisers, finds markets a good mechanism for organizing economic activity in “Sizing Up Obama’s Nominee as Chief Economist.”
While his abundant practical talents brought him to Washington,…he was known for research that used new innovations — like the Internet — to answer old questions.

His most cited paper, which he wrote with Jeffrey Brown, looks at the value of the economic competition created by the Internet. Comparing groups with more and less Internet usage, the authors find that “a 10 percent increase in the share of individuals in a group using the Internet reduces average insurance prices for the group by as much as 5 percent.” On one level, the paper produced an interesting new fact about an emerging technology, but on a more basic level, it illustrates a timeless economic truth: competition is better for consumers than monopoly.

Professor Goolsbee’s work on direct-broadcast satellite television pushes further along this line. Using elegant econometrics, he concludes that “without DBS, entry cable prices would be about 15 percent higher and cable quality would fall.”

He also illustrated the power of competition in the airline industry, where he found that Southwest didn’t even need to fly somewhere to lower fares. Just the threat of the low-cost airline’s entry into a market spurred incumbent airlines to cut their prices…

Professor Goolsbee’s pregovernmental career was technically sophisticated but still grounded in the real world. His research shows a nuanced understanding of public policy that exaggerates neither the upside nor the downside of public action. He can apply the logic of economics in settings far from his core areas of scholarship – and on top of that, he is very, very funny.

1 comment:

  1. I would certainly have to agree that "competition is better for consumers than monopoly". Consumers should never feel like they have been taken advantage of, like by a bad furniture salesman who wants only to fill their quota. It's important to make households feel like firms need their business and visa versa. Competition draws the lines of respect, making it a contest for the prize, honor, or advantage of a consumers purchase. And anytime this concept is lost, exclusive control over commodities is what drives manipulation of prices and mistrust between the consumer and the seller. This is what ultimately makes market economy more effective than centrally planned economies. It focuses on allocation of these resources between firms and households and their interaction so that their is a promotion of overall well being for society.