econlife - A Simple Look at the World’s Most Complex Economies by Elaine Schwartz

Harvard’s Atlas of Economic Complexity is very aware that toothpaste isn’t just toothpaste. It represents knowledge about sodium fluoride, the germs that create bad breath, and how to fill 180 tubes a minute:

The Atlas of Economic Complexity

At Harvard’s Growth Lab, a group of scholars developed the Atlas of Economic Complexity. Their goal was to display the “knowledge intensity” of a country’s exports. They were really just looking at land, labor, and capital. Asking if the nation’s goods and services came from factors of production that required lots of knowhow, they created a metric that compared 133 nations’ exports.

Their algorithm relates to complexity and connectedness. Calling an economy a “collection of capabilities,” they believed that complexity reflected the past innovation and the potential for future invention that fuels economic growth. But also they said you need “connectedness” so that one innovation leads to another one. Making computer components could lead to making computers. But mining could be a dead end.

The creators of the Atlas assumed that a country’s exports can be used to picture the level of that country’s knowhow. If you assemble an iPhone then you need one set of capabilities. But if you design it, you have different human and physical capital. And leaping to cotton exports, we would find a completely different network of capabilities.

Based on the trade patterns of 6,000 products, these are the top 10 in the Atlas’s complexity ranking. The U.S. is #12 while China has the #19 spot:

U.S. China Trade Talks

China has gotten an A+ in the Atlas’s algorithm. Evolving from textiles to electronics and machinery, China’s diversity facilitated its growth. Recently adding 54 new products, it has a platform for future growth that augments what its GDP says. While China’s GDP makes it the 55th richest nation in the world, its complexity index pushes it much higher.

A WSJ writer suggests that U.S. trade negotiators should have recognized China’s more complex exports. Instead of focusing on commodities, it’s the higher value of their goods that will shape (and threaten) our future trade relationship.

Our Bottom Line: Adam Smith

We could relate the complexity index back to Adam Smith’s description of a market system and his Wealth of Nations (1776). Whether looking back at 1776 or now, a factory’s division of labor is a crucial component of the market system because of what it procreates. Division of labor encourages expertise. When people concentrate on making one product they become better at it. They wind up with a springboard from which they invent new and better things. At the same time, the workers become increasingly affluent consumers with the incomes they receive. David Ricardo then added that the specialization we wind up with can lead to the benefits of comparative advantage. With comparative advantage, if nations make the items for which they have a lower opportunity cost, then everyone becomes more productive. And, it all began with division of labor.

For us it takes us to where we began. Even toothpaste can generate the knowhow that produces diversity and growth.

My sources and more: It’s wonderful how two seemingly separate stories can come together. Several days ago, I listened to an ABC Radio podcast on Australia’s export complexity. Then yesterday, WSJ connected the same complexity Atlas to U.S. China trade talks. Hoping to learn more about the Atlas, I went to the NY Times, and The Washington Post and the Harvard Gazette. But to have the most fun, do go to the Atlas and play with its interactive tools.

Our featured image is the Atlas’s graphic of U.S. exports in 2017. The largest square, ICT, refers to Information and Communication Technology.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - All You Need to Know About Doughnuts by Elaine Schwartz

Last Friday you could have gotten a free doughnut at Walmart, Krispy Kreme, and Dunkin’ Donuts. The reason? Since 1938, the first Friday in June has been National Doughnut Day.

At Dunkin’ Donuts you had to buy a beverage to get a “free” donut:



Krispy Kreme gave one per customer:



If only I had known.

But there is more to find out about the doughnut.

Donut Economics

We could call the 1920s the era of the consumer. For the first time, people could buy affordable nylon stockings, canned pineapple, and radios. They could also get a mass produced doughnut because of a Bulgarian immigrant.

Adolph Levitt’s story starts with the small batches of doughnuts he was making in his Manhattan bakery shop window on 125th Street. Although the doughnuts were popular, people complained about the fumes. So, with help from an engineer, he devised what he called the Wonderful Almost Human Automatic Doughnut Machine. Pictured below, it formed, plopped, and fried rings of dough that could become 1,000 identical doughnuts in one hour.

This is a 1922 advertisement for Levitt’s Display Doughnut Machine Corporation. (I’ve added the notes in pink.):



Some describe Levitt’s machine as the first while others say there were many when his was created. Whichever story is accurate, our key is that Levitt helped to speed doughnut mass production. Selling the machines and donut mix, he soon had a multi-million dollar business.

In 1934, doughnuts played a role in the Clark Gable/Claudette Colbert classic, “It Happened One Night.” Do take a look at this twenty-eight second clip. You can see why Gable is a legend:

Our Bottom Line: Mass Production

To end with doughnuts, we need to start with Adam Smith. In his Wealth of Nations (1776), Adam Smith described the benefits of mass production. Focusing on one pin factory, he showed how a division of labor saved time, elevated production, and diminished each item’s cost. Smith told us that one worker, alone, might not even produce a single pin. But when 10 workers divide 18 different tasks and each one specializes, output soars to a whopping 48,000 pins a day. Then, once you have all of those pins, trade and regional specialization develop. But we will save that story for another day.

For now, we can return to doughnuts. Krispy Kreme tells us that one of their larger stores can produce 12,000 doughnuts an hour–quite enough for National Doughnut Day.

This is how we mass produce doughnuts today:

My sources and more: Happily, there exists more doughnut research than I ever imagined, but sadly, it was not academically rigorous. Still, if you want some interesting doughnut reading, the best is on the shrinking size of the doughnut hole from Vox.



From there, you could continue with this Smithsonian history, this Marketplace podcast, and Adolph Levitt’s granddaughter’s NY Times article. Meanwhile, here is more about one of the first doughnut machines.

Please note that today’s featured image is from urbanmatter.com.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.