Economists Do It With Models

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On the Importance of General Equilibrium Analysis…

January 10th, 2008 · 1 Comment
Econ 101

Okay, I have to admit it: I love the Fug Girls. They are hilariously mean, and I am always up for a good celebrity fashion train wreck. I never would have guessed, however, that they would stumble upon a real-world example of the importance of general equilibrium models to analyze economic welfare. They show pretty convincingly in their New York Magazine blog post that the Writers’ Guild strike has far-reaching consequences that are both economic and non-economic in nature. For example, I’ll bet no one took into consideration the loss of economic surplus by seamstresses who aren’t getting paid because there are no Golden Globe gowns to sew. What did they ever do to the writers of America to deserve this?

What exactly is my point here? you may ask…well, my economics textbook tells me that, when externalities are present, the government can actually raise surplus by intervening in a market. In a way, there is a positive externality associated with showbiz writing, apparently, since it keeps other (non-showbiz) people in business. Neither the writers nor the producers seem to care about this, which isn’t terribly surprising since they don’t have an incentive to care. Historically, if the product at hand were cars rather than scripts, the government would likely be stepping in to bring an end to/mitigate the effects of this nonsense. At what point does that become justified in this case? If I have to go too long without new episodes of Gossip Girl I am going to be very cranky…

(Let it be known that I am not against the idea of collective bargaining in general, but I find it hard to believe that the current situation is profit-maximizing for anyone.)

Tags: Econ 101

1 response so far ↓

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