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Europe Will Provide U.S. Consumers With Lower Cost Financial Services

Thursday, 10 March 2011 06:09

That is the implication of a NYT Dealbook post that reported JPMorgan's claim that parts of the Dodd-Frank bill will favor European banks. If JPMorgan's claim is correct, then it means that U.S. consumers need to worry less about any potential increase in the cost of financial services that could result from better prudential regulation. JPMorgan is claiming that European governments are willing to incur the cost of subsidizing risky practices of their banks (think Iceland).

Economists would argue that this is pure gain to U.S. consumers, just as they argue that being able to get low cost textiles and steel from China or India is a gain. If European subsidies make U.S. financial services uncompetitive, then the U.S. should simply focus on the areas in which it enjoys a comparative advantage.

Comments (3)Add Comment
written by izzatzo, March 10, 2011 7:06
Competition and comparative advantage are not the same thing.

An example of comparative advantage is when a teabagger pays for a medical check-up with chickens, which means the opportunity cost of producing chickens by the teabagger is lower than that for the doctor.

An example of competition is when a second doctor shows up and charges only half the number of chickens for the same check-up and is run out of town as a communist competitor for bringing total chicken production down that results in unemployed teabaggers.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.