The lesson of economics most often forgotten

Factors affecting a free labor market ultimately are reflected in wages, not in unemployment. Persistently high unemployment is due exclusively to minimum wages.

Recent evolution of Costa Rican public finance

I was just reviewing data on the statement of operations of the central government of Costa Rica and I thought that maybe some of you can find interesting findings.


Data are for the central government of Costa Rica. Although Costa Rica is a unitary republic, the central government is somewhat similar to the "federal government". It excludes municipalities and state owned companies. Data are for the period Dec-06 through Jan-12 and are measured in multiples of real colones of Dec-06. The source is www.bccr.fi.cr.

As you see, there was a surplus since Dec-07 through Dec-08. Basically, the deficit has been increasing since then. The maximum deficit occurred in Oct-11. A first interesting finding is that the deficit was due more to income reduction than to expenditure expansion.














Reviewing sources of income, one finds that, on average, collection of customs taxes account for 28% of income and earnings taxes for 27%.
Customs diminished 24% in the period Oct-08 through Nov-09. This occurred mainly due to the international financial crisis and consequent shrinkage of international trade.

This diminution accounts for the main source of deficit increase.

On the side of expenditure, the main findings are these: on average, payrolls account for 37% of expenditure and current transfers for 36%. They constitute by and large the main source of expenditure. However, they didn’t increase meaningfully; i.e. their growth didn't accelerate.

However, if you see total expenditure you may notice a hump in for Dec-10 through Dec-11. This was due to a 50% increase in transfer of capital to other public sector institutions. All over the period Dec-06 through Jan-12, this item alone accounts for 7% of expenditure.

Protectionism and Krugman

Imagine you begin to sell some good you produce. People buy a lot of product. You just can't cope with so much demand. You invest an important share of your wealth in a very specific machine only useful for manufacture the good you sell. You invest because you expect demand for your good to continue growing. But once you have made the investment, that by the way nobody commanded you to make, you realize that people are beginning to buy from a foreign firm which is selling cheaper than you can, even after the investment of your machine. Yes, you get hurt. But you get hurt because the expectations you built disappointed you, not because the owners of that foreign firm are violating any right you were previously entitled to on the budgets of the potential buyers of your good. However, if in order to avoid competition by the foreign competition you coerce either buyers or other sellers or both so that they cannot make transactions among themselves, it is you the violator. Aren't you?

It is tragicomic to me when noble Krugman et al, in their "International Economics", 9/e, page 51 et seq., say some people get hurt because of trade. Yes, they get hurt, but they get hurt as I get hurt when somebody informs me that my plan to travel to your farm on next Saturday accompanied by Angela Lansbury and by Mr. Obama in order to enjoy a Jim Carrey's play with live music by the original Sepultura's lineup is not going to be possible. It is just a correction on my expectations, precisely the damn thing which markets do, so that we can keep as coordinated as possible in a world sometimes less than ideal.

But if the situation is explained so that it looks that I got hurt because somebody else's "fault", consequently implying a violation of a right of mine (to fullfill my expectations even at expense of violating a true right of others), I guess the analysis is not the best, to say the least.

Not everybody wins with trade? Some people get hurt with trade? In the devious sense setted out by Krugman et al... Well, dah! Because, yes, according to my plan I get hurt when cruel Mr. Obama prefers to be in political meetings than to enjoy Max Cavalera's twist and shout, but this is very different than violating a presumed right of mine. You cannot avoid feeling some hideous taste to deception in Krugman exposure.

And this is what our children are learning in their international trade courses. So primitive a stage, we still are in.